(1) Redrow Regeneration (Barking) Ltd (2) Barking Central Management Company (No2) Ltd v (1) Ryan Edwards (2) Adewale Anibaba (3) Planimir Kostov Petkov (4) David Gill [2012] UKUT 373 (LC)
This appeal succeeded because of the LVT’s errors of law in connection with the application of:
a) The burden of proof, and
b) The principles on which contractual documents are to be construed.
It is another case where the LVT appears to have raised an issue of its own motion in the course of a hearing. The difficulties this engenders were the subject of appeals most recently in Keddie and Sachdev, but were not rehearsed in any detail here.
Background
The dispute related to service charges demanded from tenants of 87 Axe Street, Barking, a building forming part of a scheme for the regeneration of Barking town centre.
Each lease required the lessee to pay a specified percentage of the service charge for services rendered in respect of the “Development”. Service charge accounts had been rendered on the basis that the “Development” comprised three buildings: 87 Axe Street, the Lemonade Building and Bath House.
The application to the LVT
The tenants’ main complaint in their application to the LVT was that the service charges were unreasonable and disproportionate having regard to the services provided to them at 87 Axe Street. They prepared a Scott Schedule for the LVT, in which they itemised each cost which they considered unreasonable and gave reasons for their dissatisfaction.
The LVT considered that the tenants had raised a preliminary question as to whether the "Development" included the three buildings in respect of which service charge demands had been raised. The question was not one to which the answer was immediately obvious: the “Development” was defined in the lease as “the development of the flats within the land”, and was referred to about 40 times. Regrettably however there was no definition of “the land”.
The LVT decided that the landlord and the management company bore the burden of proving that they were entitled to raise demands for costs incurred across the three buildings, had failed to show on the balance of probabilities that the sums demanded for service charges had been calculated in accordance with the lease, and that accordingly, the tenants’ obligation to pay their service charge had not yet fallen due.
Grounds of appeal
The landlord and management company appealed on the grounds that:
a) There was no evidential burden of proof to be borne by either side where the question was one of law, rather than fact, and
b) In construing the lease, the LVT was entitled to and should have had regard to extrinsic evidence and the commercial purpose of the provisions.
The Lands Chamber decision
The burden of proof
Two useful points emerge from the President’s decision in connection with the burden of proof.
First, that the construction of a lease is a matter of law and imposes no evidential burden on either party. The LVT was therefore wrong to require the landlord and management company to show on the balance of probabilities that the Development included 87 Axe Street, the Lemonade Building and Bath House.
Second, even where a party does bear the burden of proof, the words of Sedley LJ in Daejan Investments Ltd v Benson [2011] EWCA Civ 38 at paragraph 86 are relevant:
“It is common for advocates to resort to [the burden of proof] when the factual case is finely balanced; but it is increasingly rare in modern litigation for the burden of proof to be critical. Much more commonly the task of the tribunal of fact begins and ends with its evaluation of as much of the evidence, whatever its source, as helps to answer the material questions of law… It is only rarely that the tribunal will need to resort to the adversarial notion of the burden of proof in order to decide whether an argument has been made out…: the burden of proof is a last, not a first, resort.”
Construction of the lease
Having allowed the first ground of appeal, the President then considered whether the lease was as uncertain as the LVT had determined it to be. On the law, he said:
“The principles on which contractual documents are to be construed were summarised by Lord Hoffmann in Investors Compensation Scheme v West Bromwich Building Society [1998] 1 WLR 896 at 912F-913G. The first two principles are of particular relevance in the present case (and the third needs quoting in part for completeness):
“(1) Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.
(2) The background was famously referred to by Lord Wilberforce as the ‘matrix of fact’, but this phrase is, if anything, an understated description of what the background may include. Subject to the requirement that it should have been reasonably available to the parties and to the exception mentioned next, it includes anything which would have affected the way in which the language of the document would have been understood by a reasonable man.
(3) The law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent. They are admissible only in an action for rectification…”
These principles will affect each case according to its facts. In this case, even though there appears to have been limited material before the LVT on the construction of the lease because the LVT had raised the issue of its own volition at the hearing, the President held that the facts were “effectively all one way, and [that] there was nothing that could reasonably have suggested to [the LVT] that “the Development” was or might be some entity that excluded the Lemonade Building and Bath House”.
He therefore allowed the second ground of appeal and remitted the application to the LVT for determination of the matters raised by the tenants in their Scott Schedule.
Observations
I suspect that the underlying problem here may well have been that the tenants of 87 Axe Street felt that they were not getting the same services as the tenants of the Lemonade Building and Bath House, and yet were having to pay for them. So in essence their complaint was not that the service charge costs on an item by item basis were too high – rather that the apportionment of the service charge was unfair.
Where however a lease provides for a tenant to pay a specific percentage of the service charge, the LVT has no power to alter that percentage on an application under s.27A of the Landlord and Tenant Act 1985 (see Schilling v Canary Riverside Development PTD Ltd LRX/26/2005, LRX/31/2005, LRX/47/2005).
The Supreme Court is due to hear the landlord’s appeal from the Court of Appeal in Daejan Investments Ltd v Benson [2011] EWCA Civ 38 on 04 December 2012. Details of the case can be found on the Supreme Court’s website at:
http://www.supremecourt.gov.uk/current-cases/CCCaseDetails/case_2011_0057.html.