United Kingdom Upper Tribunal (Lands Chamber)

 

UPPER TRIBUNAL (LANDS CHAMBER)

 

UT Neutral citation number: [2015] UKUT 124 (LC)

   UTLC Case Number: LRX/63/2014

 

                         TRIBUNALS, COURTS AND ENFORCEMENT ACT 2007

 

LANDLORD AND TENANT – service charge – Limitation Act, section 19 – whether claims made in respect of arrears of service charges and interest thereon are statute- barred – whether the landlord had appropriated payments to the oldest or most recent arrears – whether the landlord had communicated the fact that it had appropriated payments to the oldest arrears to the tenants.

 

IN THE MATTER OF AN APPEAL AGAINST A DECISION

OF THE FIRST TIER TRIBUNAL (PROPERTY CHAMBER) FOR THE LONDON REGION

 

BETWEEN:

 

                                           ONE HOUSING GROUP LIMITED               Appellant

                                                                   and

(1)   DAVID WRIGHT

(2)   ABDUL MONER and AFRUJA BEGUM             Respondents

                                                             

                                                 Re:  65 Bowprit Point,

Westferry Road,

London

E14 8NU

 

Before: Judge Edward Cousins

 

Sitting at: Royal Courts of Justice, Strand, London WC2B 2LL

on

5^th December 2014

 

Jon Holbrook, of Counsel, instructed by One Housing’s Legal Department for the for the Appellant

The first Respondent was in person, and he represented himself and the Second and Third Respondents

 

© CROWN COPYRIGHT 2015

 

The following cases are referred to in this decision:

 

Escalus Properties v Robinson [1996] QB 231

Simson v Ingham (1823) 2 B & C 65

 

 

Chitty on Contracts, 30^th edition, para 21-059/061

 

 

 

 

DECISION

THE BACKGROUND TO THE APPEAL

Introduction

1.            One Housing Group Limited (“One Housing”) is a Housing Association which owns blocks of flats on the Barkantine Estate on the Isle of Dogs (“the Estate”).  The first Respondent is the leaseholder of 65 Bowsprit Point, and the second Respondents are the leaseholders of 63 The Quarterdeck, both blocks being situated on the Estate. 

2.            Four claims had originally been brought in the Northampton County Court by One Housing in respect of arrears of service charges on the part of a number of leaseholders on the Estate. The claims were then transferred to the Tribunal pursuant to paragraph 3 of schedule 12 to the Commonhold and Leasehold Reform Act 2002.  Of the four original claims made, one was then stayed, and the other is not the subject matter of this appeal. By directions made on 8^th August 2013 the claims were specified as lead cases by virtue of Rules 23 and/or 6(3)(b) of the Tribunal Procedure (First-tier Tribunal) (Property Chamber) Rules 2013 (“the 2013 Rules”).  With the consent of the Respondents One Housing also applied under section 27A of the Landlord and Tenant Act 1985 for the Tribunal to determine the Respondents’ liability to pay service charges between the issue date of the respective county court claims and the date of the hearing.  This included the Respondent’s liability to pay the actual service charges for the year from 1^st April 2012 to 31^st March 2013 accounts for which had become available at the date of the hearing before the Tribunal, but were not available at the dates of the claims.

3.            In so far as the quantum of the claims is concerned the relevant claim made by One Housing against the first Respondent is for £5,881.92 by way of unpaid service charges plus interest and costs.  In so far as the second Respondents are concerned, the claim amounts to £3,032.58 by way of unpaid service charges plus ground rent, interest and costs. The main thrust of the Respondents’ submissions was whether One Housing had correctly calculated the amount of the disputed service charges.

4.              On 10^th March 2014 the Residential Property Division of the Property Chamber, First-tier Tribunal (“the Tribunal”), handed down its decision (“the Decision”). This followed a hearing before the Tribunal which lasted 5 days in December 2013 at which One Housing was represented by Counsel, and the tenants were represented by one of their number, namely the first Respondent, Mr Wright (“Mr Wright”). The Tribunal found against One Housing to the effect that part of its claim made against the Respondents was statute-barred by virtue of the provisions of section 19 of the Limitation Act 1980 (“the Limitation Point”). In short the Tribunal found that by reference to the date of issue of the respective sets of proceedings, One Housing could not recover arrears from the first Respondent which pre-dated 4^th March 2007, and in the case of the second Respondents there could be no recovery for those arrears which pre-dated 8^th May 2006.

5.            Following the Decision One Housing applied to the Tribunal under Rule 55 of the 2013 Rules on 2^nd April 2014 for a review of, alternatively permission to appeal, that part of the decision relating to the Limitation Point. On conducting a review the Tribunal in its decision dated 23^rd April 2014 came to the conclusion that One Housing had “…raised an arguable point of possibly wide application” [and] therefore on balance decided to grant permission to appeal to the Upper Tribunal on the single point raised by One Housing in its application for permission to appeal”. The hearing of the appeal took place in the Royal Courts of Justice on 5^th December 2014 during the course of which submissions were made by Counsel for One Housing and Mr Wright for the Respondents.  Since the hearing Mr Wright has sought to rely upon a “further statement of fact” dated 8^th January 2015 which I have read de bene esse as this submission was well out of time.  In any event I do not consider that the contents take the matters in issue any further, and I shall discount the points raised.  

6.            The history of the claims and the relevant provisions of the leases (which are in standard form) is set out in paragraphs 5 and 6 the Decision which I do not proposed to repeat other than to refer to the provisions of paragraph 3 of the particulars, clause 1(6), and the 5^th schedule, paragraphs (1) to (5) inclusive.

The Tribunal’s findings

7.            In the Decision the Tribunal made findings on the Limitation Point against One Housing relating to concepts which have been described in the appeal documentation as “appropriation” and “communication”.  First, the Tribunal found that One Housing had appropriated payments to the most recent debt, whilst One Housing contended that it had appropriated payments to the oldest debt (appropriation).  Secondly, the Tribunal found that One Housing had not communicated the fact that it had appropriated payments to the oldest debt (communication).  One Housing contends that there was no evidence to support either finding made by the Tribunal, and, indeed, the evidence available should have encouraged the Tribunal to reach the opposite conclusions on both concepts.  It is necessary to have detailed regard to the precise findings made by the Tribunal.

8.            After referring to the limitation point and the position advanced by One Housing, the Tribunal then made certain findings, as set out in paragraphs 34 and 35 in the Decision:-

            “32.     Mr Holbrook accepted, correctly, that the landlord’s claim for arrears of service charges were to be treated as claims for arrears of rent for the purpose of section 19 of the Limitation Act 1980 (see Escalus Properties v Robinson [1996] QB 231, Court of Appeal) and were thus subject to a limitation period of six years from the date when they were due for payment up to the dates of the respective county court claims. Mr Holbrook submitted that none of the present claims were [sic] time-barred. He said that all the service charges due from Mr Wright were fully paid as at 1 April 2008 because the landlord was entitled to apply and had applied all payments Mr Wright had made from time to time in satisfaction of the earliest arrears, and that the same applied to Mr Moner and Mrs Begum…

            33.       Mr Holbrooke submitted that the landlord is entitled to apply all payments to the earliest debt unless the indebted tenant specifies when making the payment, that the money was to be applied to a particular debt. For that proposition he relied on Chitty on Contracts, 30^th edition, para 21-059-061

34.       Mr Wright did not have the opportunity to research the point at the hearing but in subsequent written submissions received after the hearing he cited the following observation in Chitty, para 210061: “an entry in the creditor’s books applying a payment to a particular debt does not constitute an election [by the creditor to appropriate a payment a particular debt] unless the entry has been communicated to the debtor [emphasis added]: Simson v Ingham (1823) 2 B & C 65.”  Mr Wright had at the hearing submitted, in effect, that the landlord had communicated to the debtors the entries in its running accounts which showed debts going back to the earliest year and that the landlord had produced no evidence that it had appropriated sums paid by the tenants to their earliest debts.  He referred to the statement of account which was attached to the particulars of the claim against him which shows a debt dating back to 5 December 2005, and to the similar schedule attached to the particulars of claim against Mr Moner and Mrs Begum, which also shows a debt dating back to 5 December 2005.  Both statements of account show that the landlord regarded Mr Wright and Mr Moner and Mrs Begum as having been in arrears with service charges since that date and there is no suggestion in any of the landlord’s books of account that we have seen such payments as Mr Wright and Mr Moner and Mrs Begum made towards service charges were applied by the landlord to discharge the earliest arrears.  Insofar as there are interest calculations they are made on the basis that the debts have existed from the earliest date.  Indeed, Mr Holbrook opened the case to us on the basis that the arrears owed by Mr Wright and Mr Moner and Mrs Begum dated from December 2005.

            35. On the basis of the evidence put before us it is clear to us that the landlord has in its accounts always applied payments made by Mr Wright and Mr Moner and Mrs Begum to the most recent service charges outstanding at the time payment was made and has not, prior to the hearing, appropriated payments to the earliest debts.  It is also clear to us that the position was communicated to the tenants concerned – certainly no evidence was put before us to suggest otherwise, either at the hearing or in the brief submissions provided by the landlord in response to Mr Wright’s submissions made after the hearing, which did not address Mr Wright’s submissions on the point. In those circumstances we are satisfied that the landlord cannot at this late stage elect to change its allocation by attributing payments to the earliest arrears owed at a date six months prior to the issue of the proceedings, namely at 8 May 2006 in the case of Mr Moner and Mrs Begum and at 4 March 2007 in the case of Mr Wright, are time-barred by virtue of section 19 of the Limitation Act 1980. As Mr Holbrook and Mr Wright invited us to do, we will nonetheless determine the reasonableness of the time-barred charges because these are lead cases and because we have the material on which we can do so and we did in fact consider them at the hearing.”

9.            Thus, the legal position as found by the Tribunal (at paragraph 34 of the Decision), and accepted by One Housing, is that (1) One Housing was entitled to appropriate a payment to a particular debt in the absence of any election by the debtor; and (2) One Housing needed to communicate any such appropriation to the debtor.  Once the election had been communicated it could not be changed.  One Housing does not disagree with the interpretation of the legal position made by the Tribunal but it takes issue with the conclusions drawn by the Tribunal on the Limitation Point on the facts.

Appropriation

10.        On an analysis of paragraph 34 of the Decision Counsel for One Housing submits that the points made by the first Respondent to which the Tribunal made reference, together with the points made by Counsel when opening the case, can be grouped under four headings when abstracted from the paragraph. For the purposes of this appeal I do not propose to reproduce the analysis in the Statement of Case dated 22^nd May 2014 prepared for the hearing of the appeal by One Housing.  In his oral submissions Counsel relied upon the Statement of Case. He also provided a detailed analysis of the rows of data by reference to the service charge accounts as they related to the Respondents, such accounts being contained in the bundle of documentation prepared for the hearing (“the Bundle”).  These headings are the following:-

(1) Running accounts

“The landlord had communicated to the debtors the entries in its running accounts which showed debts going back to the earliest year.”

“[Mr Wright] referred to the statement of account which was attached to the particulars of the claim against him which shows a debt dating back to 5 December 2005” - that related to him and the second Respondents.”

“Both statements of account show that the landlord regarded [the Respondents] as having been in arrears with service charges since that date.”

(2) Interest calculations

          “Insofar as there are interest calculations they are made on the basis that the debts have existed from the earliest date.”

 (3) Counsel’s opening

            “Mr Holbrook opened the case to us on the basis that the arrears owed by [the Respondents] dated from December 2005.”

 

 

       (4) Landlord’s evidence

“…there is no suggestion in any of the landlord’s books of account that we have seen that such payments as [the Respondents] made towards service charges were applied by the landlord to discharge the earliest arrears.”

11.        One Housing submits that none of the above points abstracted from the Decision support the conclusion that it had appropriated payments to the most recent as opposed to the earliest debt.  I shall deal with these points in turn.

12.        As to the so-called Running Account, Counsel states that it is convenient to describe it as such because it shows what the debt is at each time a debit or credit is entered on the account. In other words it is a running statement[1] of the balance on the day indicated by the date specified in each row. It provides the current state of the account at any one time. The submission made is that the One Housing accounts demonstrate, for example, that Mr Wright was in arrears with his payments on 5^th December 2005 in that had a debit balance of £83.37, and that on 1^st January 2006 he had a debit balance of £179.10.  What the running account does not show, and does not purport to show, so it is submitted, is how any payments were appropriated.  It merely shows, for example, that when Mr Wright paid £100 on 22^nd May 2006 that reduced his indebtedness to £459.76, this being noted as the remaining or working balance of indebtedness at that point in time.  As Counsel submits, putting it another way, when the payment of £100 was made on 22^nd May 2006 the statement of account did not adjust the earlier entries by showing that debts below £100 had been extinguished, and that subsequent debts had been reduced by £16.83 (£100 - £83.37 = £16.63).  Had it done so every entry on an account would change each time a payment was received.  As Counsel submits, the key point is that One Housing’s accounts show what the balance was on the date given in each row.  They do not purport to show how each payment is appropriated.  A similar position arises in relation to the second Respondents when regard is had to their statement of account.  Thus a payment made on 21^st December 2006 of £150 reduced the running balance of indebtedness on their account from £673.05 to £523.05.

13.        Thus, it is submitted that in so far as the Tribunal found otherwise i.e. it is contended that it erred in law.

14.        As to the Interest Calculations, it is submitted that the interest owed is the same whether payments are allocated to the earlier or later debt.  An example of such a calculation is provided in One Housing’s Statement of Case and the schedules contained in the Bundle. It is submitted that appropriation is irrelevant to such a calculation for the reasons submitted and the examples given in paragraph 17 of the Statement of Case. Interest accrues on a daily basis on the total amount owed, and once accrued it cannot be reduced by a payment.  The payment made merely reduces the amount of subsequent interest, but the amount of subsequent interest is unaffected by how the payment is appropriated. 

15.        Again it is said that by finding that the interest calculations were made on the basis that the debts have existed from the earliest date the Tribunal erred in law.

16.        There is a degree of conflation between Counsel’s Opening and Landlord’s Evidence. As to Counsel’s Opening Counsel accepts that he may have opened the case to the Tribunal on the basis that the arrears owed “dated from December 2005”.  However, he submits that there is no inconsistency between referring to the ancestry of arrears and explaining that certain arrears were subsequently extinguished.  Furthermore, although it is accepted that Mr Wright referred to what appeared to be an uncontentious fact as to the Limitation Act and case law in paragraph 6 of his Statement of Case dated 7^th October 2013,[2] no mention was made as to the relevance of limitation to the facts of the case. In particular it is submitted that Mr Wright did not at that stage contend that One Housing was seeking to recover arrears that were statute-barred. In particular, there was no specific reliance on the concepts of appropriation and communication at that stage. Indeed no reference was made to limitation in the Reply dated 4^th November 2013. Nor do the Directions made by the Tribunal on 29^th November 2013 make any reference to what Counsel describes as this “key issue”. Mr Wright is not recorded as having sought to rely on it at the Case Management Conference, and no schedules were produced by him in support. Thus, it is said that it was not apparent to Counsel, nor the Tribunal, at the opening of the case that a specific Limitation Act point was being taken by Mr Wright. It was only as the case proceeded that the relevance of the Limitation Point became apparent.

17.        As to Landlord’s Evidence, when the limitation point was raised during the hearing, on the first or second day – Counsel for One Housing was unsure -  Counsel was apparently accorded time to take instructions and to consider the situation overnight.  This resulted in the production of schedules which set out how the sums had been allocated, and copies of these are attached to the Statement of Case in this appeal, to which reference has already been made. Counsel apparently explained to the Tribunal during the hearing, and in closing, what the schedules demonstrated, namely how each payment had been appropriated to the earliest debt.  Reference was also made to a letter dated 16^th January 2014, in response to post-hearing submissions made by Mr Wright in which One Housing reminded the Tribunal how it had “provided the Tribunal with documents showing how the Landlord has treated payments made by Leaseholders.” It is submitted that these schedules demonstrate that the effect of the appropriation process was that at no time had One Housing sought to recover an amount that was more than 6 years old.  The Tribunal referred to this evidence (at paragraph 32 of the Decision) and gave no reason for not accepting it. 

18.        Again it is contended by One Housing that by not properly considering this material put before it both in relation to Counsel’s Opening and Landlord’s Evidence the Tribunal once again erred in law.

 

Communication

19.        As to Communication the  Tribunal stated:

“…it is also clear to us that position [that payments were appropriated to the earliest debts] was communicated to the tenants concerned – certainly no evidence was put before us to suggest otherwise, either at the hearing or in the brief submissions provided by the landlord in response to Mr Wright's submissions on the point.  In those circumstances we are satisfied that the landlord cannot at this late stage elect to change its allocation by attributing payments to the earliest arrears” (at paragraph 35)

20.        It is submitted that the Tribunal's error as to Communication flows from its erroneous conclusion that One Housing's Running Account, Interest Calculations and Counsel's Opening amounted to a statement that payments were appropriated to the latest debt.  It is submitted that for the reasons set out above that was not the case.

21.        It is further submitted by Counsel that One Housing's evidence on appropriation, indeed the only evidence before the Tribunal on appropriation, was set out in the schedules as presented during the hearing after the issue had been raised.  The presentation of those schedules amounted to One Housing communicating how the payments had been appropriated.  There was no evidential basis for the Tribunal to conclude that the One Housing had failed to communicate this appropriation to the Respondents.

22.        Accordingly for all these reasons it is submitted by Counsel for One Housing that the Tribunal erred in law on the four issues

23.        As to Mr Wright’s submissions, he made a number of points in response to the issues raised by One Housing.  Essentially he asserted that there was never any doubt that a Limitation Act point was being taken prior to the hearing both as to the amounts payable by the Respondents and the interest thereon.  He relied upon the passage in Chitty to which reference was made by the Tribunal in paragraph 34 of the Decision.  Mr Wright stated that there could have been another column inserted in the service charge accounts which would demonstrate whether there had been an appropriation, which in his interpretation meant a “taking”.  He stated that he never told One Housing that he as the debtor was going to appropriate the sums paid.

24.        As an alternative argument Mr Wright also asserted that One Housing had manifested dishonesty in that they always knew that a Limitation Act point was being taken by him.  One Housing “concocted” the appropriation argument.  Mr Wright also asserted that interest was not claimable for the reason, as he put it, that statutory interest could not be claimed in the Tribunal.

25.        In short, Mr Wright stated that the claims made by One Housing were statute barred by reason of section 19 of the Limitation Act 1980. 

The Decision

26.        In my judgment, the Tribunal was incorrect in its analysis of the Limitation Point as to appropriation and communication for all the reasons set out by Counsel for One Housing to which I have made reference above and which I adopt.  In my judgment, Mr Wright has singularly failed to respond effectively to the various points raised by Counsel for One Housing.  Indeed I find that the submissions made by Mr Wright were not in point and that he was, in effect, unable to provide answers to the case presented by One Housing.

27.        In such circumstances for all the reasons set out by Counsel for One Housing as set out above under the headings of Appropriation and Communication I find that the Tribunal erred in its analysis on the Limitation Point, and that this appeal must succeed.  The Appeal is therefore allowed.

 

 

                                                    Dated 19 March 2015

 

 

                                                   Judge Edward Cousins