Landlord and tenant — Receiver and manager appointed by the court to collect rents and manage a block of flats in poor repair on the Hart v Emelkirk basis — Main litigation proceeding between a tenant of one of the flats and the landlords — Whether the court had power, in an interlocutory application, before the rights of the parties had been determined at the trial, to order the landlords to meet a deficit in the moneys coming into the receiver’s hands for the payment of his expenditure or remuneration — The income received by him from the rents paid by long leaseholders and protected tenants was wholly inadequate to meet the expenses of management — Appeal from a decision of Vinelott J rejecting the application and holding that the court had no jurisdiction to indemnify a receiver save to the extent of the assets of which he was put in possession by the order of the court — Held by the Court of Appeal that Vinelott J had correctly applied the principle of Boehm v Goodall that a receiver and manager appointed by the court is not the agent of the parties nor a trustee for them and they have no control over his expenditure — It could be a hardship to the parties to an action if they were to be made personally liable for expenses incurred by receivers and managers over which they had no control — The court emphasised that the present matter was, however, interlocutory — They declined to express a view as to the trial judge’s power to make an order for costs covering the receiver’s remuneration or expenditure; that was a question which could only properly be decided when it arose — Appeal dismissed
The following
cases are referred to in this report.
Boehm v Goodall [1911] 1 Ch 155
Burt,
Boulton & Hayward v Bull [1895] 1 QB 276
Department
of Health and Social Security v Envoy Farmers
Ltd [1976] 1 WLR 1018; [1976] 2 All ER 173
Flowers
& Co, Re [1897] 1 QB 14
Gardner v London, Chatham & Dover Railway Co (1867) LR 2 Ch App
201
Hart v Emelkirk Ltd [1983] 1 WLR 1289; [1983] 3 All ER 15; (1982)
267 EG 946
R v Lambeth London Borough, ex parte Clayhope Properties Ltd
[1987] 3 WLR 854; [1987] 3 All ER 545; [1987] 2 EGLR 28; (1987) 283 EG 739, CA
This was an
appeal against the decision of Vinelott J refusing an interlocutory application
by Richard Denis Collins, the receiver and manager of Dover Mansions,
Canterbury Crescent, Brixton, London SW9, for an order under Ord 30 r 3 of the
RSC in regard to the payment of his remuneration and expenses. The receiver had
been appointed by the court to receive rents and profits under the leases of
flats in the block and to manage the properties. The main action was between
Rudolph Bayfield Evans, a tenant of a flat in the block, as plaintiff, against
the landlords, Clayhope Properties Ltd. The action concerned repairs to the
flats. The tenant appealed against Vinelott J’s interlocutory decision.
Patrick Ground
QC and Anthony Padman (instructed by Zelin Bale) appeared on behalf of the
appellant; Roger Cooke (instructed by Bernstein & Co) represented the
respondents.
Giving
judgment, NOURSE LJ said: This appeal raises a short point of principle as to
the court’s power, before the rights of the parties have been determined at
trial, to order one of them to meet a deficit in the sums coming into the hands
of a court appointed receiver and manager for payment of his expenditure or
remuneration. Vinelott J, relying on the decision of Warrington J in Boehm
v Goodall [1911] 1 Ch 155, has held* that there is no such power and the
question must now be determined by this court.
*Editor’s
note: [1987] 1 WLR 225; see also [1987] 1 EGLR 67.
In Hart
v Emelkirk Ltd [1983] 1 WLR 1289 Goulding J held that the court has
power to make an interlocutory order appointing a receiver and manager in a
case where (1) a block of flats is held on leases at low rents containing
covenants by the landlord to repair, with provisions for the tenants to bear
the cost of the repairs by way of service charge, and (2) the landlord, for
want of repair, allows the property to deteriorate. That decision, although
novel at the time, was an application of the court’s jurisdiction to appoint a manager
in order to preserve property which is affected by the action. The dispute does
not centre, as it usually does, on the ownership of the property but on the
liability to preserve it. In that respect the decision ought no doubt to be
regarded as an extension of those which had preceded it, although one which is
clearly beneficial in the conditions of many modern residential developments.
The order for
the appointment of the receiver and manager in the present case was modelled on
the order made in Hart v Emelkirk Ltd, but, as Vinelott J pointed
out, there is one very significant difference between the two cases. In Hart
v Emelkirk Ltd the service charge provisions enabled the landlord, and
thus the receiver and manager, to recover from the tenants estimated
contributions towards the cost of the repairs in advance of their being carried
out. In the present case the cost of the repairs and of the attendant expenses
is not recoverable from the tenants unless and until it has been incurred in
pursuance of the landlord’s obligations. Accordingly, the only sums which have
come into the hands of the receiver and manager are the rents, negligible in
amount, which are wholly insufficient to fund his remuneration and expenses to
date, let alone the cost of the necessary repairs. Unless this appeal succeeds,
so that the landlord can be ordered to pay what has to be paid, the appointment
of the receiver and manager will have been of no practical value.
The facts of
the present case are fully stated in the judgment of Vinelott J, which is
reported at [1987] 1 WLR 225†, and I do not propose to repeat them. I should
emphasise that in its defence the landlord denies that at the date of the issue
of the writ on July 12 1983 it was in breach of any express or implied covenant
to keep the structure and common parts of the block of flats in good repair,
and that its liability in that respect cannot be determined before trial. I
should also add, in order to bring matters up to date, that the landlord’s
appeal to this court in the proceedings for an order by way of judicial review
directing the local authority to make repair grants was dismissed on June 11
1987: see R v London Borough of Lambeth, exp Clayhope Properties Ltd
[1987] 3 WLR 854. Leave to appeal was refused, and a petition for leave has now
been dismissed by the Appeal Committee of the House of Lords.
†Editor’s
note: See also [1987] 1 EGLR 67; (1987) 282 EG 862.
Boehm v Goodall was a case of a partnership action in which the
court had made, by consent, a final order for dissolution, together with orders
for the usual inquiry and accounts, an order for sale of the business as a
going concern, and also an order for the appointment of an individual as
receiver and manager of the business until sale. Upon completion of the
receiver and manager’s duties there was a certified balance owing to him on his
account, but no assets of the partnership available for its payment. The
receiver and manager issued a summons in the action asking that the partners
(other than one who had become bankrupt) might be ordered to pay to him the
balance thus owing.
The principal
argument advanced in support of the claim was that, since the order for his
appointment had been made by consent, the receiver and manager must be taken to
have undertaken the management of the partnership business and to have made
expenditure and incurred liabilities at the request of the partners and under
an implied promise on their part to repay him. His position was said to be
analogous to that of a trustee, who was not confined to his indemnity out of
the trust estate, but was entitled to be indemnified by the beneficiaries
personally. In rejecting that argument, Warrington J referred to authority, in
particular to passages from the judgments of Cairns LJ in Gardner v London,
Chatham & Dover Railway Co (1867) LR 2 Ch App 201 at p 211 and Lord
Esher MR in Burt, Boulton & Hayward v Bull [1895] 1 QB 276 at
pp 279 and 280. (He might also have referred to the subsequent observations of
Lord Esher MR to the same effect in Re Flowers & Co [1897] 1 QB 14
at p 15.) What Cairns LJ said was this:
When the
court appoints a manager of a business or undertaking, it in effect assumes the
management into its own hands; for the manager is the servant or officer of the
court, and upon any question arising as to the character or details of the
management, it is the court that must direct and decide. The circumstance that
in this particular case the persons appointed were previously the managers
employed by the company is immaterial. When appointed by the court they are
responsible to the court, and no orders of the company, or of the directors,
can interfere with this responsibility.
Warrington J
in Boehm v Goodall said that he could not come to the conclusion
that the principles of the cases with reference to trustees applied to the case
of a receiver and manager appointed by the court without running counter to the
decisions in all the cases relating to those acting in the latter capacity. At
[1911] 1 Ch 161 he continued:
Such a
receiver and manager is not the agent of the parties, he is not a trustee for
them, and they cannot control him. He may, as far as they are concerned, incur
expenses or liabilities without their having a say in the matter. I think it is
of the utmost importance that receivers and managers in this position should
know that they must look for their indemnity to the assets which are under the
control of the court. The court itself cannot indemnify receivers but it can,
and will, do so out of the assets, so far as they extend, for expenses properly
incurred; but it cannot go further. It would be an extreme hardship in most
cases to parties to an action if they were to be held personally liable for
expenses incurred by receivers and managers over which they have no control.
He then went on
to say that it made no difference that the order there was made by consent and
also to reject an alternative argument based on subrogation.
Boehm v Goodall was a decision based on statements of principle of
high authority. In my judgment it was correctly decided and it applies to this
case. Moreover, the decision is one of jurisdiction and, unless any part of the
receiver and manager’s remuneration and expenditure can be treated as ‘costs’
(see below), no question of discretion arises. Mr Ground, for the plaintiff,
has sought to explain or distinguish it in various ways, but I agree with
Vinelott J that none of his arguments can avail him, at any rate at this stage
of the proceedings.
The most
formidable of Mr Ground’s arguments was to this effect. Relying on sections 37
and 51 of the Supreme Court Act 1981 and Ord 30 rr 3 and 8 and Ord 62 r 1 of
the Rules of the Supreme Court, he submitted that the court has power in an
appropriate case to order a party to pay the costs of a receiver and manager.
He relied in particular on the power in section 51(1) to award costs ‘of and
incidental to all proceedings’ and the definition of ‘costs’ in Ord 62 r 1(4)
as including ‘fees, charges, disbursements, expenses and remuneration’. He said
that that definition must, at the least, cover the remuneration of a receiver
and manager appointed by the court. He argued that his remuneration is
incidental to the proceedings in the sense that his duties are performed in
‘subordinate conjunction with’ the proceedings, and he referred us to the
observations of Jupp J in Department of Health and Social Security v Envoy
Farmers Ltd [1976] 1 WLR 1018 at p 1021. Finally, Mr Ground pointed to the
fact that this avenue of approach was not traversed in Boehm v Goodall
and, indeed, that it is not at all clear that any of the outstanding balance of
the account in that case consisted of unpaid remuneration.
When this
argument was put before Vinelott J on that occasion by counsel for the receiver
and manager, he said at [1987] 1 WLR 225, 230D:
. . . even if
that proposition is well founded, I can see no justification for making an
interim order for costs. Whether when the action is heard the court will have
power to order the landlord to pay the remuneration of the receiver, either as
part of the cost of complying with its repairing obligation or as part of the
costs of the action, is a question on which I express no opinion. The use of
the court’s power to appoint a receiver to enforce a landlord’s obligation to
repair property, is a new development which poses many novel questions. They
will have to be answered in time. I think that it is undesirable that I should
attempt to do more than answer the precise question raised by the application
now before me.
As to that, I
agree that there is no justification for making an interim order for costs of
this nature before the issues in the action have been determined. Even if there
were power to do so, the judge’s decision was well within his discretion and
could not be interfered with by this court. I have, however, given careful
consideration to the question whether this court ought now to express a view as
to the trial judge’s power to make an order for costs covering the remuneration
or expenditure. Having reflected on the matter, I have come to the conclusion
that the judge’s approach is as correct for us as it was for him. I think that
this question can only properly be decided if and when it arises.
For these
reasons, which are in all material respects those of Vinelott J, I am of the
opinion that he came to a correct decision in this case and I would dismiss the
appeal accordingly.
PURCHAS LJ
agreed and did not add anything.
The appeal
was dismissed with costs, not to be enforced without leave of the court. Legal
aid taxation was ordered.