[2023] UKUT 108 (LC)

Company law defaults

The FTT did not focus on what one might call the corporate shortcomings of GPIMCL, in particular its removal of a director without telling him and without informing the registrar of companies. But it is unsurprising that it did not regard those matters as relevant to the reasonableness and payability of service charges.

Mr Verduyn sought to develop this argument in the appeal, by relying upon the principle that the decision-making process behind a service charge demand must be reasonable, as well as the charge itself. He referred at the hearing to 23 Dollis Avenue (1998) Limited v Vejdani and Echraghi [2016] UKUT 365, but the point is seen more clearly in London Borough of Hounslow v Waaler [2017] EWCA Civ 45, and was discussed by the Tribunal recently in Assethold Limited v Adam ad other leaseholders of Corben Mews [2022] UKUT 282 (LC). Mr Verduyn relied upon GPIMCL’s failure to record its directorships on the Companies Register after Mr Gubbay’s removal, and the fact that Epworth SW Limited had no director when proceedings were commenced; in effect corporate disorganisation and irregularity is said to indicate that proceedings could not have reasonably brought or conducted. He said that it was “a remarkable fact” that at the time Epworth SW Limited was involved in bringing the FTT proceedings no directors were on register and it had no employees, and that GPIMCL was “never properly directed” but “permitted itself to be a vehicle for Mr Gubbay’s agenda”.

These are to a large extent speculative points about the internal organisation of the two companies. It is not known whether GPIMCL was properly directed. There is little or no information available about the running of Epworth SW Limited. More importantly, the argument misapplies or misuses the two-stage test referred to in Waaler. The decision-making process there referred to was the decision to incur the service charge – or, in a case like this where the charges concerned were estimates, the decision to plan ahead, set a budget, make estimates and demand charges the basis of the estimates. It is not about corporate organisation. But insofar as corporate standing is relevant, it is worth noting GPIMCL had a director when it brought proceedings, it had shareholders who made decisions, and it had directors who confirmed Mr Gubbay’s authority to represent the company after he ceased to be a director when they decided to go ahead with the service charge proceedings.

As for Epworth SW Limited, I have not been told a great deal about the company and certainly nothing that could show that its not having a director in January 2021 – if indeed that was the case – had an impact upon the reasonableness of the bringing or conducting of the proceedings either by GPIMCL or by Mr Gubbay as GPIMCL’s representative later on in the proceedings. I would add that I fail to see that Epworth SW Limited brought or conducted proceedings at all. As managing agent for GPIMCL it sent out service charge demands and its address appears on GPIMCL’s original application to the FTT. There is nothing that could justify a conclusion that it actually brought or conducted the proceedings itself.