[2023] UKUT 197 (LC)

To start to understand the muddle it is necessary to begin in 2012.

The Respondent RTM company was incorporated on 19 March 2012 and in the same year, after following the procedure in Part 2 of the Commonhold and Leasehold Reform Act 2002, it acquired the right to manage property referred to in its memorandum and articles of association as 1 Benwell Road. That is the address shown on the register of title of land on which a purpose-built block of flats and other buildings were constructed in about 2006. Whether the RTM Company acquired the right to manage the self-contained townhouse described in Mr Davies’ lease as “Live/Work Unit 3, Benwell Road” was initially a point of contention between them, but that issue was eventually settled in the company’s favour.

Mr Davies’ lease was made between him as Lessee, the original landlord and a management company which was to be responsible for the provision of the usual services. He is required by paragraph 2 of the Twelfth Schedule to pay a service charge notified to him by the management company as being its estimate of his proportionate contribution for the year. Paragraph 5 provides for a final account to be taken once the costs have been incurred, leading to a final payment or credit as the case may be. Mr Davies’ obligation in respect of the estimated charge is specified in paragraph 3 of the Twelfth Schedule, as follows:

“On ten dates during each year nominated by the Management Company and with not less than one month between each date (or such other dates as shall from time to time be nominated by the Management Company at its sole discretion) the Lessee shall pay by Banker's Standing Order or such other payment method as may be stipulated by the Management Company”.

Although paragraph 3 does not say what it is that is to be paid, it can only be understood as referring to the estimated amount notified under paragraph 2, and it makes that sum payable by instalments on ten dates nominated by the management company.

On 26 February 2013 the RTM Company’s managing agents, Urang Property Management Ltd, issued a request for payment of an interim service charge of £616.60 for the period 1 October 2012 to 31 March 2013. The request showed no other sum as outstanding at that time and Mr Davies promptly paid the charge. He did so under protest, asserting that he was not liable to pay anything to the RTM Company because, he maintained, the premises described in its memorandum and articles over which it had acquired the right to manage did not include his property.

The next request was for payment of the estimated contribution for the full year ending 31 March 2014. Mr Davies refused to pay that charge and on 8 August 2013 the RTM Company commenced proceedings in the County Court. I was not shown a copy of the claim form, but it is common ground that the sum claimed was £3,847.27, of which £2,451.56 represented arrears of service charges. Part of those arrears was said to have been demanded by a previous managing agent (before the RTM Company acquired the right to manage) and part was the unpaid on-account charge for the year 2013-14.

In his defence Mr Davies questioned the RTM Company’s right to collect service charges from him, and alternatively disputed its right to claim an on-account contribution for the whole year in a single sum rather than by instalments as paragraph 3 of the Twelfth Schedule to the lease appeared to provide. He succeeded on both of those defences at a hearing before Deputy District Judge Byrne on 2 December 2013. It might more accurately be said that the claim was dismissed on the first ground for lack of proper evidence. The Judge decided that the RTM Company had failed to prove that the premises described as 1 Benwell Road in its memorandum and articles included Mr Davies’ property at 3 Benwell Road. She also held that there was no evidence that the contractual procedure for determining the date of payments on account had been followed, or that sums claimed by the previous managing agents had not been paid.

Mr Davies has always interpreted the dismissal of the RTM Company’s 2013 claim as if the Judge had decided that he was not liable to pay any service charges to the Company at all. A transcript of the Judge’s ex tempore judgment is available but not a copy of any order she may have made. There is nothing in the transcript to suggest that the Judge made a declaration of the parties’ rights or determined Mr Davies’ liability for any sum other than the payment on account for 2013-14 and the sum said to have been claimed by the previous managing agent. In particular, the Judge did not decide that Mr Davies had not been liable to pay the on-account charge of £616.60 for 2012-13 which he had paid under protest on 5 March 2013. That sum was simply not in issue in the proceedings.

Having failed to persuade the County Court, the RTM Company tried again in January 2014, but this time in the FTT. It issued an application under section 27A, Landlord and Tenant Act 1985 for a determination of Mr Davies’ liability to pay service charges for the years 2011-12 (before it had acquired the right to manage), 2012-13 and on account for 2013-14.

The FTT first considered the application at a case management hearing on 13 May 2014. It determined that payability of £3,847.27 which had been included in the 2013 County Court claim could not be considered in the new proceedings because the earlier claim had been dismissed and there had been no appeal. The FTT directed that the RTM Company was entitled to pursue its application only in so far as it related to “any other service charges (not claimed in the County Court proceedings referred to above) and said to be due from [Mr Davies]”. It was also entitled to ask the FTT to determine whether it could demand and receive future service charges from Mr Davies, because the County Court had made no decision regarding the validity of the RTM Company’s formation or acquisition of the right to manage and had dismissed its claim simply because it had failed to prove its case.

The FTT’s substantive decision on the 2014 application was dated 17 October 2014. It explained that the parties had agreed that the estimated service charges of £1,279.02 for the year 2014-15 should be added to the periods covered by the original application. That sum had first been demanded on 15 May 2014, immediately after the case management hearing.

The estimated charges for 2014-15 were described in the FTT’s final decision as the only charges in issue before it. I infer that the RTM Company had not identified any other charges for the years 2012-14 which had not been claimed in the County Court proceedings and in respect of which it sought a determination of payability. It could have sought a determination about the payability of the interim charge of £616.60 which Mr Davies had paid under protest on 5 March 2013, as could Mr Davies, but neither of them did.

The FTT’s 2014 decision was all about the extent of the right to manage acquired by the RTM Company in 2012. In paragraph 14 it recorded that Mr Davies had not questioned the validity of the 2014-15 demand for interim service charges other than on the basis that the RTM Company was not properly constituted. In paragraph 42 it said that he had accepted in principle that the sums claimed were reasonable and recoverable under the lease. The FTT refused to allow Mr Davies to call evidence to substantiate complaints about the managing agents because it “was not relevant to the fundamental issue of whether the applicant company had assumed the management responsibility”. Having heard the evidence the FTT was satisfied that the RTM company had acquired the right to manage 3 Benwell Road. It therefore determined that the sum of £1,279.02 was “currently due” and should be paid by 19 November 2014. Mr Davies was refused permission to appeal.

Mr Davies did not pay the sum which the FTT had found to be due. On 25 March 2015 a new demand was made for the on-account service charge for 2015-16 which left a balance on Mr Davies’ account of £2,725.35. Responding to that demand by email on 7 May 2015 Mr Davies maintained that he was entitled to credit for “the £616.60 that you already have on account”. That was a reference to the sum he had paid on 5 March 2013 for 2012-13 for which he claimed credit on the basis of the dismissal of the 2013 County Court proceedings. On 31 May 2015 he paid £2,208.75, being the balance on the account less the £616.60.

After further email exchanges a member of Urang’s staff, Paige McIntosh, wrote to Mr Davies on 23 June 2015: “As agreed, we refunded you the initial £616.80, we only have to reimburse you once and this has been done.” It is not clear what agreement, or what refund, Ms McIntosh had in mind, and it is common ground that no reimbursement of that sum has ever been made. Mr Davies therefore replied, on 23 June 2015: “You are right it was agreed, but I have no record that you ever actually refunded the money.”

The agreement which Mr Davies referred to in his email of 23 June 2015 is not documented and its basis is unclear. When he sought permission to appeal the FTT’s decision on 18 November 2014 one of the reasons he gave for disputing his liability for the full amount for 2014-15 was that the RTM Company had “admitted and agreed in the directions hearing that they were holding £616.60 of mine on account, on the basis that (following the County Court decision) it had been wrongly paid to them for a year for which the Court had determined the Claimant could not claim against me.” The FTT had not mentioned any such agreement in the introductory narrative to its directions of 13 May 2014 and, as will be seen, Mr Davies later gave a different account of how the suggested agreement had come about.

The position reached by 31 May 2015 was therefore that Mr Davies was withholding £616.60, claiming to be entitled to credit for it, based on the decision of the County Court in 2013, and also suggesting that agreement had been reached on that entitlement at the hearing in May 2014. The same sum remained outstanding for several years, but it is not necessary to follow the detail of correspondence about it.