Important rulings by Court of Appeal of interest to rent officers and rent assessment committees–Appeal from county court judge’s interlocutory order in favour of tenant for discovery of information relating to costs of services in action by landlords for rent–Action followed registration of rent–Tenancy agreement provided for a stated rent or such greater rent as should be registered–No reference to a ‘service charge,’ but covenant by landlords to provide certain services–Held by Court of Appeal that there was no service charge ‘payable as part of, or in addition to, the rent’ within meaning of section 90 of Housing Finance Act 1972–Held also that discovery should be refused as information required had no relevance to issue in court proceedings–Tenant cannot reopen financial calculations of rent officer or rent assessment committee in county court–Appeal allowed
This was an
appeal by the landlords, Legal & General Assurance Society Ltd, plaintiffs
in an action for rent against the defendant, Walter S Keane, from an
interlocutory order by Judge Llewellyn at Bloomsbury and Marylebone County
Court. The order was for the discovery of information relating to the costs
during three successive years of providing services at Northways, College
Crescent, London NW3, where the defendant was the tenant of flat 39.
P Millett QC
and P de la Piquerie (instructed by Lawrence Graham Middleton Lewis) appeared
on behalf of the appellants; L Price QC and J C Harper (instructed by Kingsley,
Napley & Co) represented the respondent.
Giving the
first judgment at the invitation of Stamp LJ, ROSKILL LJ said: Notwithstanding
my gratitude for Mr Price’s argument, I am clearly of the view that the order
made by the learned county court judge cannot be sustained and that this
interlocutory appeal must succeed. The matter arises in a curious and unusual
way. The appellants, the plaintiffs in the county court action, are the
well-known insurance company, Legal & General Assurance Society Ltd; they
at the material time were the landlords of a large and well-known block of
flats called Northways at Swiss Cottage, NW3. The respondent, the defendant in
the action, is a Mr Walter Keane who, at the material time, was tenant of flat
39. As unhappily is not uncommon in London today, problems have arisen between
these landlords and their tenant as to rent increases and service charges.
Wherever the rights and wrongs of this dispute may lie, it is apparent that Mr
Keane feels bitterly aggrieved because of certain rent increases to which he
has been subjected and which he objects to paying. He has, it seems, the
support of tenants of other flats in that block. The matter has become more
acute since this dispute arose because the appellants have sold their reversionary
interest in the block to others, who have since sought to impose a further
increase upon the tenants.
The dispute
arises because the learned county court judge made an interlocutory order that
the plaintiffs should give extensive and far-reaching discovery to the
defendant in support of an allegation by the defendant that certain rent
increases authorised by the rent officer and certain further increases
subsequent to the sale of the reversion had been improperly arrived at. I must
read some parts of the order made by the learned judge on January 5 1978. He
ordered that an application by the defendant dated December 13 1977–that was a
second application–be granted and that ‘there be specific discovery by the
plaintiffs of a summary in writing
in the accounting year ending (1) December 31 1976, (2) December 31 1975, (3)
December 31 1974.’ The learned judge
granted a stay pending appeal and gave leave to appeal.
The learned judge
gave his reasons for making this very remarkable order in these terms:
Although the
present action is framed as a claim for rent and does not contain a claim for
service charges, it appears that the rent in question was fixed as a fair rent
by the rent officer, and that–
and this, with
respect, is wrong–
the defendant
(tenant) appealed to the rent assessment committee who then fixed a different
fair rent. It is also clear, and indeed conceded by counsel for the plaintiff,
that figures relating to service charges were submitted by the plaintiff
(landlords) to the rent officer and to the rent assessment committee so that
the rent as fixed contained in its composition an element in respect of service
charges. The tenancy agreement between the parties refers to the rent,
including a reference to ‘registered rent.’
It has appeared from the documents produced and disclosed that two
widely different figures for service charges were put in by the plaintiff, one
to the rent officer and the other to the rent assessment committee. It now
appears that a third figure, again significantly lower than either figure given
to the rent officer or to the rent assessment committee, has been disclosed by
the plaintiff as service charges for the same year, viz 1976. If that third set
of figures had been produced to the rent assessment committee it seems certain
that the figure for a fair rent would have been lower. What is the position in
this court? This court is not a court of
appeal from the rent assessment committee. Nevertheless this court is not going
to allow the use of the word ‘rent’ to act as a facade to prevent investigation
of the service charge element contained in such rent from being investigated in
the present action. Sufficient documents have been disclosed to raise a query
as to the correctness of the service charge element included in the term ‘rent’
to make it relevant for that matter to be investigated in the present action.
It is against
that background that I have to consider the issue the learned judge had before
him. The defendant had entered into a tenancy agreement with the plaintiffs
which bore the date May 1 1975. The relevant clauses are clauses 1 and 3:
1. THE
LANDLORD AGREES to let and the tenant agrees to take the premises (hereinafter
called ‘the flat’) described in the FIRST SCHEDULE hereto for a term of three
years commencing on May 31 1975 at the yearly rent of £830 or such greater rent
as shall for the time being be registered as the rent for the flat under the
Rent Act 1965 payable in advance in equal instalments on January 1, April 1,
July 1, October 1, the first payment to be made on July 1 1975 and to be the
proportion thereof computed from May 1 1975 to June 30 1975 and the last
payment to be apportioned as necessary.
3. THE
LANDLORD AGREES with the tenant so long as the tenant shall pay the said rent
and observe and perform the agreements on the part of the tenant herein
contained–
and then
follow certain obligations; I can pass over (i) and (ii) and go to (iii):
To use its
best endeavours throughout the tenancy to maintain at all reasonable times an
adequate supply of hot water for domestic purposes–
and there then
follows an obligation to keep the radiators sufficiently and adequately heated.
I need not read the rest except for the proviso:
that the
landlord shall not be liable in damages or otherwise in the event of any
interruption of such services
and (iv):
Unless
prevented by circumstances outside its control: (a) To appoint and employ
throughout the tenancy porters for attending in and about the entrance hall(s)
staircase(s) and passage(s) in the building. (b) Sufficiently to light and
clean the said entrance hall(s) staircase(s) and passage(s). (c) Regularly
throughout the tenancy to cause the refuse bins to be emptied and cleared.
Those are the
express–and the only express–contractual obligations assumed by the landlords
towards the tenant.
I go back to
clause 1. That clause, which is all-important to my mind, talks about, and only
about, rent; there is no reference there to service charges; still less is it
the type of clause one often finds, namely that there shall be a separate
charge for service charges, which shall be treated as and recoverable as rent;
the only liability of the tenant was to pay rent either at the sum stated or as
such greater sum as might from time to time be registered as the rent under the
relevant sections of the Rent Act.
That agreement
is dated May 1 1975. Towards the end of 1976 the plaintiffs wished to get an
increased rent registered, and applied to the rent officer. The application
form is dated September 22 1976. Attached to it is a calculation of the total
expenditure relevant for the purpose of establishing the plaintiffs’ claim for
an increase. Paragraph 15 of the application form shows that the applicants
were claiming that £840 per annum of the new rent sought of £2,000 per annum
was attributable to the provision of central heating; one finds in the bundle
of papers a calculation designed to justify that figure of £840. The case went
before the rent assessment committee, and in due course the new rent was
registered. One finds in the papers the entry in the rent register and the
plaintiffs’ notice dated February 16 1977 that the commencement date of the new
rent fixed by the rent officer (which was at the rate of £1,670 per annum)
would be January 19 1977.
The first
amount the respondent objects to paying is the proportionate part of that
increase attributable to the period January 19 to March 31 1977; the second is
the proportionate part attributable to the period April 1 to June 30 1977. The
figure in respect of the first period is £121 and the figure in respect of the
second period is £152. The ground on which it is sought to say that the
respondent is not liable to pay that increase is this: since that increase was
fixed figures have come to light and have been made available which (it is
alleged) show that the rent officer was proceeding on figures which were
erroneous (the defendant, in his own defence drafted by himself, uses harsher
language, but I ignore that). Different figures have been made available
relating to various matters; I do not propose to look at them–it is not
necessary to do so. The question is: there being that alleged information
showing different figures from those put before the rent officer and assumedly
taken into account by him in fixing the rent at £1,670 per annum, is it open to
the defendant, by way of defence to or set-off or counterclaim against the
plaintiffs’ claim for the proportionate part of the increased rent, to say ‘the
rent officer proceeded upon a basis of false or erroneous figures; I am going
to ask you, the county court judge, to reopen this matter by investigating my
set-off and counterclaim in the hope that I can satisfy you either that I ought
not to pay rent at that increased rate at all or, if I am liable to pay it,
that I ought to be able to set off, or counterclaim against, that liability a
figure representing the shortfall in the value of the services which I claim
those figures now reveal.’
Reliance is
placed on section 90 of the Housing Finance Act 1972, and the learned county
court judge appears to have founded a large part of his judgment and the relevant
part of the order upon that section. I have already pointed out that clause 1
of the agreement makes no reference to service charges as such; there is but a
single liability: to pay rent. The contractual obligation, I repeat, is to pay
the specific sum or any increased registered rent. What is said–and Mr Price
put this in the forefront of his argument–is that the tenant has an unqualified
right to the discovery to which the learned county court judge held him to be
entitled under section 90 of the Housing Finance Act 1972.
I ought to
read the relevant subsections:
(1) Where the service charges which are payable
by the tenant of a flat in any calendar year, or which are demanded from the
tenant as being so payable, exceed the amount specified in subsection (2) of
this section, the tenant shall, in accordance with this section, be entitled to
obtain a summary in writing of the relevant costs in the accounting year ending
in or with that year, certified by a qualified accountant as being in his opinion
(a) a fair summary of those costs, set out in a way which shows how they are or
will be reflected in demands for service charges, and (b) sufficiently
supported by accounts, receipts and other documents which have been produced to
the accountant, and the certificate shall identify the accounting year to which
the summary relates.
I shall not
read the next two subsections.
(4) The tenant shall exercise the rights
conferred by this section by serving on the landlord a request in writing which
states the calendar year to which the request relates, and which is so served
not later than 12 months after the end of that year.
Such a notice
purports to have been served.
I turn to the
all-important provision, and that is the definition of ‘service charge’ in
section 90(12):
‘Service
charge’ means any charge for services, repairs, maintenance or insurance, being
a charge which is payable as part of, or in addition to, the rent, and which
varies or may vary according to any costs (including charges for overheads)
incurred from time to time by or on behalf of the landlord or any superior
landlord.
I draw
attention to the opening words; Mr Price went straight to the third line, but
that is no way to construe this definition, one cannot start in the middle; one
must follow the definition through from the beginning, and ‘service charge’ is
defined as meaning ‘any charge for services, repairs, maintenance or insurance,
being a charge which is payable as part of, or in addition to, the rent.’ Pausing there, I am unable to construe clause
1 of the present tenancy agreement as creating a service charge which is
payable as part of, or in addition to, the rent. As my Lord pointed out,
everyone is familiar with the type of agreement which creates a separate
obligation on a tenant to pay a service charge; everyone is also familiar with
the type of agreement which not only imposes such an obligation upon a tenant
but makes it payable as if it were rent, which of course gives the landlord
additional rights of recovery; but this definition has no application to the
present case, where the tenancy agreement makes no provision for a service
charge. It is true that this rent includes provision of particular contractual
services by the landlord to the tenant but that does not mean that there is a
service charge payable within section 90. As my Lord pointed out, the mischief
against which section 90 is aimed is not one which can arise in a case such as
this. That mischief was an attempt by landlords to evade Rent Act control by
swinging increases on to service charges and then saying that those service
charges were free from any form of statutory control by rent assessment
committees, rent officers or courts. But an agreement such as clause 1 does not
permit such mischief because the relevant rent will, in cases such as the
present, be a rent which is controlled by the Rent Acts. As any increase has to
be a registered rent, that increase will have to go through the sieve of
examination by the rent officer before it can be approved. Therefore the
safeguard which section 90 was designed to secure is not something which is
necessary for the tenant’s protection in the present case. The Rent Acts
themselves give him all the protection which he needs or to which he is
entitled. Accordingly in so far as Mr Price’s submissions and the learned
county court judge’s order are based on section 90, neither can be sustained.
If, therefore, the defendant is to get the discovery he seeks he must show that
he is entitled to that discovery under the ordinary rules which govern the
disclosure and production of documents in litigation.
Mr Millett,
very fairly, did not take the point which would have been unanswerable, that
many of the documents sought in the application do not exist; of course it is a
condition precedent to an order for discovery of specific documents that the
applicant must show that those documents exist and are in the possession or
power of the person against whom the order is sought. Mr Millett, rightly as I
think, sought to resist this application on wider grounds; he said that even if
these documents existed it would be utterly wrong to order their discovery and
production because they went to no issue in these proceedings. It must be said
at once that when one looks at the defence and counterclaim put in by the
respondent it is very difficult to see how these documents go to any issue
purporting to be thus raised. Where a litigant in person drafts his own
documents the court extends to him the utmost indulgence, and I have read and
reread that document in the hope of extracting from it some defence or some
possible counterclaim which justify upholding the order of the learned judge;
but I am unable to do so, and I think Mr Price at an early stage realised that
that must be so. Ultimately counsel evolved a draft amended defence, set-off
and counterclaim; one cannot but admire the speed and clarity with which it was
produced. The fairest thing for the respondent is to treat this document as
properly before the court and then consider whether, if it had been before the
court, these documents, discovery of which is sought, would have become
relevant under the ordinary discovery rules.
I say at once
that in so far as any part of the new defence and counterclaim turns upon
section 90 of the 1972 Act, that must fail for the reasons already given. The
real question is whether the defendant can get anything from paragraphs 7 and 8
of the draft amended pleading. As I have already said, what he is seeking to
say is that he is entitled, by way of set-off or counterclaim, to invite the
court to conduct an inquiry into the suggested relationship between the costing
figures supplied by the landlords to the rent officer and the contractual
obligations of the landlords towards him under the tenancy agreement. To my mind
it is at this point that the whole argument breaks down. The draft amended
pleading reads thus:
7. Thereafter
the plaintiffs could not, consistently with the tenancy agreement and the
relevant statutes and the professed basis upon which they had applied for and
had obtained an increase in the registered rent, provide services which (a) did
not cost what they had professed to the rent officer (and he had accepted) or
alternatively (b) did not constitute services equivalent to those which they
had so professed. 8. In the periods in question (namely January 19 1977 to
March 31 1977 and April 1 1977 to June 20 1977) the plaintiffs have neither
spent such sums as would amount to the sums claimed in paragraph 6 of the
particulars of claim whether the said premises be considered separately or as a
just proportion (by rateable value) of the whole block of flats known as
Northways aforesaid nor provided such equivalent services.
Mr Price found
himself constrained to say that once there was an increased rent registered,
the plaintiffs became under a contractual obligation to provide services
equivalent to those costed in the figures supplied to the rent officer. As my
Lord put it, this argument involved that once the rent officer had accepted
those figures there arose a new implied unilateral covenant by the landlords to
provide services equal in value to those to which those figures referred. That
involves, as Cumming-Bruce LJ pointed out, that there arises at that moment a
new contractual obligation to provide services to the tenant which ex-hypothesi,
was not part of the original contractual obligation when the tenancy agreement
was entered into. That argument is incapable of being sustained. The
contractual obligations are those for which the contract provides; they
included a contractual obligation to pay rent at the increased rate as
registered. But the structure of the relevant statute for the protection of
tenants while giving
through the machinery of the rent officer; once they have been through his
sieve, and once the figures have been accepted by him or by the relevant rent
assessment committee, it would be driving a coach and horses through the Act if
we were to entertain an argument that any tenant sued for the balance of the
increased registered rent can seek to reopen in the county court the financial
calculations upon which the rent officer or rent assessment committee arrived
at their conclusions. They may be right or they may be wrong, the figures they
were supplied with may be right or they may be wrong; the place to challenge
them is before the rent officer or before the rent assessment committee; it
cannot be allowed in the county court. Apart from the error which I think the
learned county court judge made with reference to section 90 of the 1972 Act,
he appeared to think it was open to him to allow a tenant, by way of set-off or
counterclaim or in answer to a claim for the balance of increased rent, to
reopen the matter by challenging figures which had been accepted by the rent
officer or rent assessment committee. In my judgment that is quite wrong, and
this order for further discovery ought not to have been made.
Agreeing,
CUMMING-BRUCE LJ said: Under this contract between landlord and tenant there
was an obligation upon the tenant to pay such rent as was therein referred to,
which was the yearly rent of £830 or such greater rent as shall for the time
being be registered as the rent for the flat under the Rent Act 1965. On the
facts of this case the landlords applied to the rent officer for an increase of
rent; an increase was registered, and the rent officer noted that a specified
sum in respect of services provided by the landlords was included in the rent
which he had found. Under this contract the rent registered becomes the rent
the tenant is liable to pay, and the finding of the rent officer as to the
amount of that rent is conclusive. The learned county court judge, while
declaring accurately (if I may say so with respect) that his court was not a
court of appeal from the rent assessment committee, proceeded to take a course
which, if pursued, could only involve first an inquiry into the basis and
accuracy of the rent officer’s or rent assessment committee’s determination and
then, if the learned county court judge decided that those calculations were
inaccurate and the service charge element included by the rent officer was too
much, the only effect he could give to such a finding would be to hold that the
rent payable by the tenant was something less than the rent registered by the
rent officer. That cannot be an appropriate exercise of the jurisdiction of the
county court, because the result has then to be to review the rent which has
been conclusively determined by the rent officer.
For the
reasons stated by Roskill LJ, I agree the appeal must be allowed. For myself I
agree that section 90 of the Housing Finance Act 1972 has no relevance where a
rent has been determined by a rent officer. But I decide nothing on the question
whether, having regard to the clear wording of section 90, it is possible to
invoke that section in aid of proceedings before a rent assessment committee;
my view is that the service charge payable contemplated by section 90 is
something wholly different from anything contemplated in proceedings before a
rent assessment committee, but it is not necessary to determine that for the
purposes of this case.
I would agree
that the appeal should be allowed.
Also agreeing,
STAMP LJ said: I would add only two words of my own because we are differing
from the view of the learned county court judge.
It appears
that the learned judge came to the conclusion he did because he thought the
landlords were somehow seeking to avoid section 90 of the Housing Finance Act
1972; I deduce that from the fact that he remarked ‘Nevertheless this court is
not going to allow the use of the word ‘rent’ to act as a facade to prevent
investigation of the service charge element contained in such rent.’ Whatever defect, if any–I underline those
words–there may have been in relation to the fixing of the new fair rent, there
is in my judgment no question of any such avoidance as the learned judge
thought there was. He apparently did not appreciate that the purpose of section
90 was to prevent the exploitation of tenants by excessive demands in reliance
on a covenant by a tenant to pay a share of the service charges incurred by the
landlord. There is no such covenant in the instant case, there being simply a
fixed rent. There is no need and no room for that particular form of protection
where the rent is of a fixed sum and nothing more can be payable until after a
new rent has been fixed by machinery designed to secure an increase to a figure
which is a fair rent.
I would
accordingly also allow the appeal
The appeal
was allowed with costs in the Court of Appeal and below.
