Landlord and tenant — Maintenance charges payable by long leaseholders in block of flats — Substantial remedial works required — Questions as to entitlement of ‘maintenance trustee’ to discharge various items of expenditure out of a maintenance fund to which lessees contributed annual amounts — Appeal by maintenance trustee from the decision of Mervyn Davies J — A large number of questions had been raised before the judge by originating summons, but most of them had been either disposed of by agreement in the course of the trial or for various reasons had not been pursued — The matters which remained concerned the discharge of engineers’ fees, legal fees and disbursements and scaffolding expenses and also costs — The judge allowed all the scaffolding expenses and some, but not all, the fees — He made no order as to the costs of the proceedings and he decided that the plaintiff maintenance trustee was not at liberty to recoup its costs out of the maintenance fund — These decisions gave rise to an appeal by the plaintiff trustee and a cross-appeal by the defendant lessees — The first defendants, the lessors, had withdrawn on the second day of the hearing, leaving the contest to be between the trustee and the lessees: the lessors took no part in the appeal
property was a 12-storey structure constructed of reinforced concrete with a
brickwork cladding — The present litigation arose from the discovery of defects
in the external walls of the block — Fan scaffolding followed by full
scaffolding was erected and advice sought from a variety of experts, including
civil engineers, consulting engineers and quantity surveyors — Widely different
estimates were given of the cost of the works, but eventually, during the
hearing, works were agreed at an approximate cost of £232,300 — The standard
leases on which the flats were let provided, inter alia, for the payment by the
lessees of their annual maintenance contributions, the duties of the
maintenance trustee and the purposes for which the maintenance fund was to be
applied, such as the repair of the building and the supply of services — The
maintenance trustee was a party to each lease in addition to the lessors and
the lessee
Appeal dismissed both the plaintiff maintenance trustee’s appeal and the
defendant lessees’ cross-appeal — The court’s conclusions were, very briefly,
as follows:
fees, legal fees and disbursements
held that an elaborate scheme which had been proposed, known as the ‘McHallam
Scheme A’, which involved the removal of the entire brickwork ‘skin’ of the
building, went beyond repair and was ultra vires the provisions of the lease —
He disallowed the engineers’ fees, legal fees and disbursements incurred for
the promotion of
trustee — The judge, however, allowed fees for the production of the McHallam
reports, the costs of a second opinion and fees for costing by quantity
surveyors — The Court of Appeal had no criticism of the judge’s conclusions
under this head; once the expense of the McHallam scheme A became known the
trustee was not acting within its powers in incurring further costs to promote
the scheme
charges
block had been encased in scaffolding for almost two years at a high cost — The
judge, however, rejected a submission by the lessees that this was a year
longer than was necessary and the Court of Appeal agreed with him that the
appellant trustee was entitled to recover the full scaffolding charges
own costs
refused the appellant trustee liberty to recoup its own costs of the
proceedings out of the maintenance fund — On appeal it was submitted on the
trustee’s behalf that this denial was contrary to the general rules of
trusteeship — The Court of Appeal, however, pointed out that the trustee had
adopted an adversarial course in relation to the lessees — It was also pointed
out that the analogy with an ordinary trust fund in which future beneficiaries
had an interest to be protected was inapplicable — The judge was fully
justified in taking the view that, bearing in mind that the main issue had been
compromised and that both parties had to some extent been successful on the
issues not compromised, he should make no order as to costs
cross-appeal dismissed
The following
cases are referred to in this report.
Brew Bros
Ltd v Snax (Ross) Ltd [1970] 1 QB 612;
[1969] 3 WLR 657; [1970] 1 All ER 587; (1969) 20 P&CR 829; [1969] EGD 1012;
212 EG 281, CA
Brockbank,
Re, Ward v Bates [1948] Ch 206; [1948] 1 All
ER 287
Finchbourne
Ltd v Rodrigues [1976] 3 All ER 581; (1976)
238 EG 717, [1976] 1 EGLR 51, CA
Post
Office v Aquarius Properties Ltd [1985] 2
EGLR 105; (1985) 276 EG 923
Turner v Hancock (1882) 20 ChD 303
This was an
appeal by Holding & Management Ltd, the plaintiff below, who was the
‘maintenance trustee’ responsible for looking after a block of flats (Block B)
at Kingston House South, Ennismore Gardens, London SW7, from the decision of
Mervyn Davies J on a number of questions in an originating summons relating to
maintenance charges. The decision of Mervyn Davies J was reported at [1988] 2
EGLR 99; [1988] 50 EG 45. The respondents to the present appeal were the
lessees of the flats, the lessors, Housing & Investment Trust plc, having
withdrawn during the trial. There was a cross-appeal by the respondents.
Maurice Price
QC and Vivian Chapman (instructed by Rowe & Maw) appeared on behalf of the
appellant; Derek Wood QC and Susan Prevezer (instructed by Masons) represented
the respondents.
Giving the
first judgment at the invitation of Lloyd LJ, NICHOLLS LJ said: This is
an appeal by the plaintiff and a cross-appeal by the defendants from an order
of Mervyn Davies J made on November 16 1987.
Nos 40 to 90
Kingston House South, Ennismore Gardens, London SW7, comprise a block of 47
residential flats, plus one staff flat. Each of the 47 flats is let on a
standard form lease for 75 years from March 1972. The first defendant is the
lessor. Defendants 2 to 47 are the tenants. The plaintiff, referred to in the
documents as ‘the maintenance trustee’, is charged with responsibility for the
repair, decoration and maintenance of the property out of money provided for
this purpose by the tenants through maintenance contributions. Periodically
each tenant has to pay to the plaintiff a stated percentage of the total annual
maintenance provision for the building. This appeal concerns certain costs and
expenses sought to be recovered by the plaintiff from the tenants under this
maintenance contribution scheme.
Outline of
the dispute
In barest
outline the matters now in issue arose as follows. The property is a 12-storey
structure constructed of reinforced concrete with a brickwork cladding. In
early 1985 some slip bricks over windows in the upper floors fell off. The
plaintiff obtained advice from two firms of consulting engineers, McHallam
& Partners and Bylander Waddell Partnership. In November 1985 McHallam
recommended a scheme of remedial works to which Bylander agreed in principle.
That scheme, with an extension advised in January 1986, was costed at sums in
excess of £1m. The tenants were told that for the year 1986-87 their
maintenance contributions would be of the order of £27,000 to £40,000,
depending on the size of the flats. Two-thirds or more of this sum was
attributable solely to the remedial work advised by McHallam. At the end of May
1986 demands for payment of this enlarged maintenance contribution were made.
Not all the
tenants were prepared to pay. Eventually, on May 8 1987, the plaintiff
commenced these proceedings, by way of originating summons. As finally amended,
the summons sought relief under 18 heads. The principal questions raised
concerned whether or not certain items of expenditure, already incurred or
proposed to be incurred, by the plaintiff, fell within the maintenance
provisions in the residents’ leases. In the event, several paragraphs of the
originating summons were stood over, and on the third day of the hearing the
parties reached agreement on the principal issue. But the agreement did not
dispose of all the points. The judge was concerned to decide two matters: (1)
under para 13, whether the plaintiff was entitled to discharge out of the
maintenance fund certain scaffolding fees, engineers’ fees, legal fees and
disbursements and (2) costs. On (1), he allowed all the scaffolding costs, and
some, but not all, of the engineers’ fees and the legal fees and disbursements.
On (2), he made no order as to the costs of the proceedings, and he directed
that the plaintiff was not at liberty to recoup its costs out of the
maintenance fund. It is from that decision that the plaintiff has appealed. The
tenants have cross-appealed.
The leases
The 47 flats
were let at a premium and subject to payment of a modest ground rental. The
parties to the standard form lease of each flat were the lessor, the tenant in
question and the plaintiff. Recital (c) was to the effect that the parties had
agreed that the lessor should grant and the tenant should accept a lease of one
of the flats and that ‘the maintenance trustee should accept the trusts
hereinafter set forth upon the terms hereinafter contained’. By clause 2 the
lessor demised the flat to the tenant. The demise included the internal
plastered coverings of the walls and ceilings bounding the flat and the doors
and windows but did not include any of the main timbers and joists of the
building. By clause 3 the tenant covenanted with the lessor and with the
plaintiff to perform certain common form tenant’s obligations, such as to pay
rent and rates. Clause 4 contained further covenants by the tenant with the
plaintiff and with the lessor. Under clause 4(A) the tenant was, in short,
obliged to pay to the plaintiff his due proportion (in most cases, 2% or 2.1%)
of the aggregate annual maintenance provision for the whole of the building for
each maintenance period of 12 months ending on March 31. Calculation of the
annual maintenance provision was to be made as provided in part III of the 4th
schedule. I need refer only to a part of para 2.
2. The Annual Maintenance Provision shall
consist of:
(a) A sum comprising:
(i) the expenditure estimated as likely to be
incurred in the Maintenance Year by the Maintenance Trustee for the purposes
mentioned in the Fifth Schedule, together with
(ii) an appropriate amount as a reserve for or
towards those of the matters mentioned in the Fifth Schedule as are likely to
give rise to expenditure after such Maintenance Year being matters which are
likely to arise either only once during the then unexpired term of this Lease
or at intervals of more than one year during such unexpired term or under Clause
4(B) including (without prejudice to the generality of the foregoing) such
matters as the painting of the common parts and the exterior of the Building
the repair of the structure thereof the repair of drains and the overhaul
renewal and modernisation of any plant or machinery (the said amount to be
computed in such manner as to ensure as far as is reasonably foreseeable that
the Maintenance Provision shall not unduly fluctuate from year to year) . . .
(b) The remuneration of the Maintenance Trustee
which shall be an amount equal to 2.35 per cent of the sum calculated in
accordance with paragraph (a) hereof . . .
Para 3
provided for the correction of overpayments or
year. These adjustments were then to be credited against or added to the next
instalment of maintenance contributions payable by the residents.
Clause 5(A) of
the lease provided for the trusts of the maintenance fund, in these terms:
The
Maintenance Trustee shall retain out of the sums received by it in respect of
the annual maintenance provision aforesaid and the maintenance adjustment its
remuneration . . . and shall pay the balance into a bank having the status of a
trust corporation in an account named ‘the 40-90 Kingston House South
Maintenance Fund’ and shall hold such balance (hereinafter called ‘the
Maintenance Fund’ which expression includes the assets in the hands of the
Maintenance Trustee for the time being representing such fund and the income
thereof) upon trust (subject to the provisions of sub-clause (B) hereof) to
apply the same until the Perpetuity Date for the purposes specified in the
Fifth Schedule and subject thereto upon the trust set forth in sub-clause (C)
hereof.
The ultimate
trust of the maintenance fund, as set out in clause 5(C) was, in short, that
upon the perpetuity date (viz March 24 2047) the maintenance fund was to stand
charged with payment to the lessor of the amount required to put the building,
other than the flats, in good repair and subject to that upon trust for the
then tenants of the building. By clause 5(D) the lessor was empowered to remove
and replace the maintenance trustee, but it could not appoint itself or any of
its subsidiary companies as maintenance trustee.
I turn next to
the fifth schedule, which sets out the purposes for which the maintenance fund
was to be applied. The schedule contained 24 paragraphs. They cover the usual
matters, such as employing a chartered surveyor to manage the building, keeping
the lifts in good repair and working order, providing hot water and central
heating, employing staff, and insuring the building. The paragraphs of direct
importance are paras 2 and 23. Para 2 was concerned with decoration and repair
of the structure. I can extract the material words:
. . . to keep
the interior and exterior walls and ceilings and floors of the Building and the
whole of the structure roof balconies foundations and main drains and boundary
walls and fences of the Building (but excluding such parts thereof as are
included in the Flat by virtue of the definition contained in Part I of the
First Schedule and also the corresponding parts of all other flats in the
Building) in good repair and condition.
Para 23 reads
as follows:
To carry out
all repairs to any other part of the Building for which the Maintenance Trustee
may be liable and to provide and supply such other services for the benefit of
the Tenant and the other tenants of flats in the Building and to carry out such
other repairs and such improvements works and additions and to defray such
other costs (including the modernisation or replacement of plant and machinery)
as the Maintenance Trustee shall consider necessary to maintain the Building as
a block of first class residential flats or otherwise desirable in the general
interests of the tenants.
The
appointment agreement
On March 23
1973 the lessor and the plaintiff entered into a written agreement. Subject to
termination as provided therein, the agreement was to endure until the
perpetuity date stated in the leases. By clause 2 the plaintiff agreed, in
short, to apply all money received by it as part of the maintenance fund in
accordance with the provisions of the leases. The plaintiff further agreed to
arrange for the collection of all rents from the residents, to pay these to the
lessor, and to consider on behalf of the lessor applications by the residents
for licences for carrying out alterations. Clause 4(A) provided that in the
event of a tenant being in breach of any covenant in his lease, the plaintiff
should take proceedings to enforce the covenant and it was authorised to do so
in the name of the lessor. Under clause 5 the agreement was terminable in
certain circumstances by the plaintiff on giving six months’ notice, in which
event it would be removed from its office as maintenance trustee under the
leases. Likewise, after March 1978, the lessor could give six months’ notice
terminating the agreement.
McHallam
scheme A
McHallam
produced several reports setting out their findings and recommendations.
Initially, their views were set out in an interim report dated November 6 1985
and an addendum report dated January 23 1986. These reports recommended the
removal of all the brickwork down to the second floor and then recladding with
the insertion of stainless steel angles to support the brickwork, together with
expansion joints, compression joints and weepholes.
McHallam
summarised why they recommended such extensive remedial work:
The problems
inherent in the building are so numerous and varied that it is our opinion that
partial repair, such as refixing of the slipbricks, is only delaying the date
when major repairs are necessary. Furthermore, since faulty workmanship in the
construction of supporting nibs and bearing of the bricks must remain suspect,
there is no guarantee against failure of a brickpanel occurring at any time.
Problems are further compounded by the lack of expansion joints in the
brickwork, such that any repair to the vertical cracks would manifest
themselves probably immediately after repair. The mortar quality and the
cracking would also allow the ingress of water into sealed cavities, which in
the event of a hard frost could cause further cracking, spalling and possible
failure of the brickwork.
This scheme
has been referred to throughout the proceedings as ‘McHallam Scheme A’. It was
costed, inclusive of VAT, at £1m or more.
In their
initial report McHallam also advised that an alternative scheme, which did not
require the removal of all the brickwork cladding, should be priced. When
priced this alternative was found to be more expensive. This alternative was
dropped, and I need not mention it again.
The Tietz
scheme
In 1986 the
residents sought advice for themselves from another firm of consulting
engineers, S B Tietz & Partners. In their report dated October 1986 Tietz
recommended a much more limited scheme. At the risk of oversimplification, the
thrust of their report can be summarised for present purposes as follows. In
general, removal of the brickwork cladding was not necessary. Projecting
concrete nibs ran round the building at window-head level of each storey and
these nibs supported the brickwork up to the next nib. Most nibs were intact,
but some had severed on two of the upper floors. The slip bricks covering the
ends of these nibs should be removed, metal bearers inserted, and the slip
bricks replaced or renewed. As most of the substantial expansion tends to occur
early in the life of a building, it was debatable whether any steps should be
taken to remedy the absence of expansion joints. The cracked brickwork should
be repaired, and the brick skin should be tied back to the concrete structure.
The cover to the reinforcement of the concrete nibs should be restored where
necessary. Weepholes should be provided.
This scheme,
the Tietz scheme, was costed at about £1/4m inclusive of VAT.
In an addendum
report of January 1987, Tietz summed up the difference in the approach of
themselves and McHallam:
There is still
a totally fundamental difference, largely based on a different philosophy
between McHallams and us regarding the conclusions one should draw from the
defects which are evident.
Summarising
this philosophical difference, we believe that a building which has stood for
23 years and which is subjected to relatively repetitive conditions of loading,
is unlikely suddenly to develop brand new patterns of failure other than those
inevitably due to ageing. The damage found is not of a type likely to progress
to such new types of failure. We therefore base recommendations on the evidence
of defects that exist.
McHallams have
based their assumptions on theoretical calculations which indicate that certain
items might be overstressed. The fact that these items do not show defects or
any sign of overstress in their view still makes them unacceptable.
They believe
that the indications of defects, though not any of them large by themselves,
aggregate to their distrusting the building in total. They therefore believe
that one must anticipate further defects, presumably of a new kind, as cracking
alone would not result in failure. They presumably believe that some brick
crushing will in due course begin as without this the remedial works which we
too have suggested would keep the building wholly stable, even by McHallam’s
reckoning.
Our
philosophical difference is particularly illustrated by the concrete nibs. The
brick panels are in part supported by these concrete nibs and in part by slip
bricks, which are applied to the face of the concrete nibs by mortar of varying
thickness. None of these slips show any indication of crushing failure. Under
the circumstances we believe that they should be left alone, more so as brick
panels tend to behave as one so that in general individual slip bricks would
not crush. McHallams believe they all should be replaced. This single
difference is the most fundamental between us and the cause of the largest cost
difference between our schemes.
McHallam
scheme B
Revised
proposals by McHallam were set out in a further report at the end of February
1987. In it they summarised their approach:
Our
philosophy is that design faults exist, construction faults exist and the
combination has resulted in the failure of elements. If the remedial work we
recommend is not carried out cracking in the brickwork is likely to continue
and the extreme condition could be reached where the collapse of a panel
occurs.
Of their eight
recommendations, five were also found in the Tietz scheme. The other three
were: the installation of stainless steel angles above the concrete nibs at all
locations where the brickwork overhung the concrete by more than 40mm (item 3);
the provision of compression joints beneath the slip bricks (item 6); and the
provision of steel dowels to fix the sides of the window frames to the
structure.
This scheme,
McHallam scheme B, was costed at about £1/2m inclusive of VAT. Thus the gap
between the two engineers had narrowed considerably, but they were still a long
way apart. We were told that item 3 accounted for most of the difference.
McHallam attached importance to item 3. They regarded the Tietz scheme as
wholly unacceptable, in so far as that scheme would leave the brickwork
supported, not by concrete nibs or directly by steel angles, but by the thin
slip bricks which were themselves anchored to the concrete. Bylander agreed
with McHallam’s criticism of the Tietz scheme.
The agreed
scheme
This was how
matters stood when the proceedings came before the judge in October 1987. On
the advice of their experts, the plaintiff placed before the court the McHallam
scheme B. The residents, on the advice of their experts, propounded the much
cheaper Tietz scheme.
By the third
day the two firms of engineers had reached agreement on a scheme. The agreed
scheme, in substance, comprised the items which were common ground between the
McHallam scheme B and the Tietz scheme. Items 3 and 6 in the McHallam scheme B
were omitted. In place of item 3, the agreed scheme provided for some 800
load-bearing corbels to be inserted through the brickwork and into the concrete
immediately above the nibs in selected positions; for example, where inspection
had shown that substantial lengths of the concrete nibs were defective or where
the brickwork overhung the concrete nibs by more than 50mm. The installation of
these corbels was estimated to cost about £12,000. The total estimated cost of
the agreed scheme was of the order of £1/4m.
The costs
of the abortive McHallam scheme A
The judge held
that McHallam scheme A did not fall within either para 2 or para 23 of the
fifth schedule to the leases. Accordingly the plaintiff had no power to carry
out that scheme or require the residents to pay for it. On that footing he
disallowed engineers’ fees and legal fees and disbursements incurred by the
plaintiff after April 14 1986 solely for the purpose of promoting McHallam
scheme A. That was the date by which the plaintiff had received McHallam’s
interim and addendum reports, a confirmatory report of Bylander and the
appropriate estimate by Cook & Butler, quantity surveyors, of the cost of
this proposed work.
Mr Price QC,
for the appellants, told us that, in fact, no engineers’ fees or legal fees and
disbursements were incurred by the plaintiff after April 14 1986 solely for the
purpose of promoting McHallam scheme A. Nevertheless, he pursued his appeal
prompted, presumably, by an abundance of caution at what might be the outcome
of the inquiry directed on this point by the judge. Mr Price sought to have the
cut-off date removed from the judge’s order. Mr Wood QC, for the respondents,
for his part sought to have the cut-off date moved earlier, to November 6 1985.
Mr Wood also sought to have all the scaffolding costs incurred during the
period January 1986 to February 1987 disallowed.
Did
McHallam scheme A constitute ‘repair’?
The first
question to be answered is whether McHallam scheme A constituted repair within
para 2 of the fifth schedule to the leases. It was common ground that in para 2
‘repair’ bears the meaning which it normally bears in leases. In such cases,
the question is whether, having regard to all the relevant circumstances, the
proposed works can fairly be regarded as ‘repair’ in the context of the
particular lease. As Hoffmann J said in Post Office v Aquarius
Properties Ltd [1985] 2 EGLR 105 at p 107C:
In the end .
. . the question is whether the ordinary speaker of English would consider that
the word ‘repair’ as used in the covenant was appropriate to describe the work
which has to be done.
Likewise, in
the oft-quoted words of Sachs LJ in Brew Brothers Ltd v Snax (Ross)
Ltd [1970] 1 QB 612 at p 640:
It seems to me
that the correct approach is to look at the particular building, to look at the
state which it is in at the date of the lease, to look at the precise
terms of the lease, and then come to a conclusion as to whether, on a fair
interpretation of those terms in relation to that state, the requisite work can
fairly be termed repair. However large the covenant it must not be looked at in
vacuo.
Quite clearly
this approach involves in every instance a question of degree . . .
Thus the
exercise involves considering the context in which the word ‘repair’ appears in
a particular lease and also the defect and remedial works proposed.
Accordingly, the circumstances to be taken into account in a particular case
under one or other of these heads will include some or all of the following:
the nature of the building, the terms of the lease, the state of the building
at the date of the lease, the nature and extent of the defect sought to be
remedied, the nature, extent, and cost of the proposed remedial works, at whose
expense the proposed remedial works are to be done, the value of the building
and its expected lifespan, the effect of the works on such value and lifespan,
current building practice, the likelihood of a recurrence if one remedy rather
than another is adopted, the comparative cost of alternative remedial works and
their impact on the use and enjoyment of the building by the occupants. The
weight to be attached to these circumstances will vary from case to case.
This is not a
comprehensive list. In some cases there will be other matters properly to be
taken into account. For example, as in the present case, where a design or
construction fault has led to part of the building falling into a state of
disrepair, and the proposed remedial works extend to other parts of the
building, an important consideration will be the likelihood of similar
disrepair arising in the other parts of the building if remedial work is not
undertaken there also, and how soon such further disrepair is likely to arise.
There is no
difficulty in identifying the context in which the word ‘repair’ appears in
para 2 of the fifth schedule to the leases. The leases were long leases, for 75
years, of residential flats of high quality in a prestigious part of London.
The building was less than 10 years old at the time. Presumably its expected
lifespan was at least 75 years. The leases are valuable. We were told that two
or three years ago they were changing hands for £1/4m each.
I turn to
consider the remedial works themselves and the necessity for remedial works as
extensive and expensive as McHallam scheme A. Here the position is more
difficult. The difficulty arises from the course taken by the proceedings
before the judge. In effect, there was a compromise on all the issues before
him save for costs and some questions concerning the plaintiff’s disbursements.
Sensibly, once that compromise was reached, the intended cross-examination of
the parties’ respective engineers on their reports did not take place. But such
a partial compromise of the proceedings faced the court with the not unfamiliar
difficulty of having to determine issues of costs and the like without having
before it all the material normally available when disputed questions of fact
fall to be decided. There was such a dispute in this case. McHallam’s view, set
out in their November 1985 report, was that partial repair would only delay the
date when major repairs were necessary. Tietz’s view was that McHallam’s
solution was unnecessary and in some respects undesirable. Faced with this
unresolved conflict, the judge had to do the best he could, reaching such
conclusions and drawing such inferences as seemed proper from the documentary
material before him.
We have to do
the same. Doing so, I agree with the judge’s view that McHallam scheme A did
not constitute repair. Two factors weigh with me. First, the substantial
difference between the works envisaged by McHallam scheme A and the agreed
scheme. Of course it does not necessarily follow from the plaintiff’s
acceptance of the agreed scheme that scheme A could not also fairly be regarded
as repair. But when scheme A was so very much more extensive and costly than
the agreed scheme, it must be for the plaintiff to satisfy the court that the
more extensive works did not go beyond repair. Under scheme A the entire
brickwork skin of the building, from the second floor up to the top of all 12
floors, was proposed to be removed, and then replaced. The agreed scheme, on
the other hand, involved removal of only very limited areas of brickwork. Under
the agreed scheme support was to be provided for the brickwork in those places
where the nibs were defective or where there was excessive overhang of the
brickwork, but it was to be provided by a means which, in general, did not
require the taking down of the brickwork.
From the
plaintiff’s acceptance of the agreed scheme I think it is proper to infer that,
although still having reservations about the long-term efficacy of the agreed
scheme, the plaintiff accepted that the more limited scheme represented a
reasonable and sensible way to proceed. That being so, I think that the judge
was justified in
scheme A could not fairly be described as repair. What was proposed went beyond
what was sensibly needed to cure the physical defects which had arisen: falling
slip bricks, cracked brickwork, sheared concrete nibs, and so forth. Doubtless
McHallam scheme A would have resulted in a much better building. The building
would have had a new brickwork cladding incorporating the features which
experience since the early and mid-1960s has shown are needed in buildings with
a reinforced concrete frame. A prudent building owner bearing the costs himself
might well have decided to adopt such a scheme, despite its expense. But what
is in question is whether owners of 75-year leases in the building could fairly
be expected to pay for such a scheme under an obligation to ‘repair’.
Mr Price
submitted that the inference to be drawn from the documents was that until
September 1987 the use of stainless steel corbels in the manner envisaged by
the agreed scheme was not generally known in the trade. He relied on a letter
written to McHallam in August 1986, in which the suppliers advised against the
use of large diameter ties for loadbearing purposes. I do not feel justified in
drawing the suggested inference from the material before us. When raising the
possibility of drilling stainless steel corbels through the brickwork and into
the reinforced concrete structural wall in September 1987, Bylander did not
express themselves in a way which conveys that they were putting forward some
new and revolutionary method of dealing with the problem.
The second
feature which weighs with me is that McHallam scheme A was dropped by the
plaintiff in favour of the more limited McHallam scheme B before proceedings
started. It was on scheme B that the plaintiff sought a ruling from the court.
This tends to confirm that scheme A went beyond what was necessary for repair
and that the plaintiff itself accepted this.
Paragraph
23
Mr Price had
another string to his bow. He submitted that McHallam scheme A fell within para
23 as ‘. . . such . . . works . . . as the Maintenance Trustee shall consider
necessary to maintain the Building as a block of first class residential
flats’.
I agree with
Mr Price that this paragraph may embrace works which are not strictly repair.
Where I have to part company with him is that I cannot read this paragraph as
giving the plaintiff a free hand to require the residents to pay for all works,
whatever they might be, which the plaintiff might consider necessary to
maintain the building as a block of first-class residential flats. In my view,
it is necessarily implicit in this paragraph that the plaintiff will act
reasonably. The works must be works which the maintenance trustee reasonably
considers necessary for the stated purpose. Further, the words relied on in
para 23 seem to me to be directed at works which are necessary to maintain the
amenities and facilities which from time to time are appropriate for the
building as a block of first-class residential flats. As living standards rise,
so this or that feature can be expected to be changed or added to the building.
Examples might be high-speed lifts or improved air-conditioning. But these
words are not directed at maintaining the structure or the exterior walls of
the building. That is a subject directly addressed in para 2.
Could the
plaintiff have reasonably considered that McHallam scheme A was necessary for
the prescribed purpose? I think not.
This scheme had no effect on the amenities or facilities of the building. Nor
was it directed at improving the appearance of the building. Either the works
proposed to be done to the exterior walls fell within the ambit of the tenants’
repairing obligation to keep such walls in good repair and condition or they
did not. If they did not, the residents could not be required to pay for these
works by recourse to para 23.
Reasonableness
Having reached
the conclusion that McHallam scheme A was not within para 2 or para 23, it
follows that this scheme was outside the purposes for which the maintenance
fund could properly be applied under the fifth schedule. It is not necessary,
therefore, to go on to consider whether the scheme satisfied the test of
reasonableness prescribed by section 19(2) of the Landlord and Tenant Act 1985
(now replaced by the 1987 Act) or arising under any term properly to be implied
in this case along the lines considered in Finchbourne Ltd v Rodrigues
[1976] 3 All ER 581.
Engineers’
fees and legal fees and disbursements
In the light
of these conclusions I can detect no error in the judge’s decision regarding
engineers’ fees and legal fees and disbursements. The plaintiff was acting
within its powers in instructing McHallam. The costs incurred in production of
the McHallam reports of November 1985 and January 1986 were properly incurred. Likewise,
the costs incurred by the plaintiff in seeking a second opinion from Bylander
and in having the McHallam scheme A costed by Cook & Butler. But once the
scheme and its expense had become known, the plaintiff was not acting within
its powers as maintenance trustee if and in so far as it incurred further costs
solely in promoting that scheme.
Scaffolding
fees
The whole
block, from top to bottom, was encased in scaffolding from September 1985 until
after the hearing before the judge in October 1987. The cost of the hire of
this scaffolding was £1,500 or more per week. Mr Wood did not submit that the
scaffolding should have been removed and re-erected when the remedial work was,
in the event, about to be done. But he submitted that the scaffolding was in
place for a year longer than was necessary or reasonable. The tenants should
not have to pay for scaffolding fees incurred through the plaintiff’s
dilatoriness.
Undoubtedly,
matters did not proceed as quickly as they could or should. The plaintiff must
bear a share of the responsibility for this. But the responsibility for the
delay cannot fairly be laid only at the plaintiff’s door. At the end of January
1986 the newly formed residents’ association, through Masons, their solicitors,
denied liability to pay for the work proposed in McHallam’s interim report of
November 1985. The plaintiff obtained counsel’s opinion, and this was sent to
Masons in March 1986. In April, Masons instructed Tietz. It was not until
November that Tietz’s report was produced and disclosed to the plaintiff. Given
that the tenants’ own engineers were making investigations, it would not have
been sensible for the plaintiff to take matters further before the report of
those engineers was available and the areas of agreement and disagreement
identified. Meetings between the engineers took place in December 1986 and
January 1987. McHallam came forward with McHallam scheme B, and this was then
costed by the quantity surveyors. Proceedings were started in May. But it was
not until October 1987 that Tietz agreed a scheme which included provision for
some direct vertical support for the panels of brickwork other than from the
slip bricks.
I can
sympathise with the residents’ exasperation at the unpleasantness of having to
live inside scaffolding for two years and at having to cope with the additional
security problems. To be asked to pay for the scaffolding must indeed seem to
them to be a case of adding injury to insult. The judge decided that looking at
the matter in the round the plaintiff ought not to be barred from recovering
the scaffolding fees. Given the history outlined in the preceding paragraph
above, I agree with him.
The
plaintiff’s costs of the proceedings
Mr Price
placed much emphasis on the position of the plaintiff as a trustee. He
submitted that here the tenants had the advantage of an independent
professional responsible for the maintenance and running of the building. The
plaintiff was not the agent of the lessor. Nor did the tenants have to cope
with the maintenance problems in the way they would if there were a management
company owned by themselves. Mr Price also submitted that the proceedings were,
in form and in substance, an application by a trustee for directions on which
course the trustee should take in the execution of the trust. The plaintiff had
no interest, apart from its remuneration and the preservation of its reputation
as a specialist in the management of blocks of luxury flats. The plaintiff did
not misconduct itself. It ought to be paid its costs of the proceedings out of
the trust fund in accordance with the well-established principles applicable
when a trustee seeks the assistance of the court.
This
submission necessitates some consideration of the nature of this maintenance
scheme and how matters stood when the proceedings were begun. Plainly the
plaintiff is the trustee of the maintenance fund. The plaintiff holds the money
for the time being in that fund upon trust, under clause 5(A), to apply it in
discharge of the fifth schedule purposes. Thus the trust fund is to be used in
a way which will enure for the benefit of the persons interested in the
building. They are primarily the tenants, but the lessor is also such a person.
The trust fund itself consists only of money provided by the tenants as and
when required, year after year. They are obliged to make contributions at
six-monthly intervals, pursuant to their
choice of a more extensive scheme of remedial works or a less extensive scheme
was one which affected only the tenants and, in respect of its reversionary
interest, the lessor.
As to the
position when proceedings were begun, it is to be noted that this is not a case
where beneficiaries were at odds between themselves on the course which their
trustee should take on the relevant points. (The summons also raised questions
concerning the renewal of a boiler, which affects an adjoining block. That
question was stood over, and the tenants of that other block, who were also
defendants in the proceedings, took no part in the hearing before Mervyn Davies
J.) The tenants of 40 to 90 Kingston
House South were represented by the same counsel and solicitors and they all
adopted a common stance. As to the lessor, on the second day counsel told the
judge that since the tenants favoured the Tietz scheme, the lessor did not
oppose the adoption of that scheme. Counsel and his solicitors then withdrew. I
do not understand that previously the lessor had been insisting that the
McHallam scheme should be adopted even if the tenants were united in their
opposition.
Thus this is a
case in which the plaintiff came to the court and sought against the tenants a
ruling on whether or not to spend money to be provided by them in carrying out
works not being contended for by any of the tenants or by the lessor. In the
sense that the plaintiff had no financial interest in the outcome, the
proceedings may perhaps be said not to have been hostile. But, in a very real
sense, they were adversarial in that in the proceedings the plaintiff alone was
supporting McHallam scheme B and the plaintiff alone would not accept the Tietz
scheme. The plaintiff was asking the court to hold that McHallam scheme B was
within para 2 or para 23 of the fifth schedule. The plaintiff also sought
against the tenants consequential orders for payment.
The plaintiff
was advised that McHallam scheme B was within the fifth schedule, that those
remedial works ought to be carried out and that the tenants could be required
to pay for such a scheme, under their clause 4(A) covenants. Whether that view
was correct was, of course, a justifiable issue, since it went to the extent of
the tenants’ liability to the plaintiff under clause 4(A). From there the
plaintiff seems to have been proceeding on the footing that it was entitled to
have that issue adjudicated upon by the court at the expense, whatever the
outcome, of those who denied that their clause 4(A) obligations extended so
far.
I cannot
accept that the plaintiff was justified in approaching proceedings in this way.
In the circumstances outlined above, the present proceedings, whatever their
precise form, in substance were not a conventional application by a trustee for
directions.
Mr Price
submitted that, having received the advice of McHallam and Bylander, the
plaintiff was obliged to seek directions on McHallam scheme B, despite
opposition by all the tenants, because the plaintiff as trustee also owed
fiduciary duties to future tenants and a future lessor. I do not agree with
this analysis of the trust created by the leases. This is not a case of a fund
in which future tenants or a future lessor presently have a beneficial
interest. The fund is provided and used on a year-by-year basis, subject only
to a modest reserve to even out payment for expenditure required less
frequently than once a year. The ultimate trust in clause 5(C) is a sensible
sweeping-up provision in respect of any residual cash in hand in 2047, but I
cannot read this as conferring on the then tenants a right to insist on the maintenance
arrangements in the leases being strictly observed for the whole term of 75
years whatever the lessor and tenants for the time being of the building in,
say, 1989 might decide. The trust is not a trust of the building, and the
plaintiff is not a trustee of the building. The building belongs to the present
lessor and the present tenants (and persons deriving title under them, such as
mortgagees and subtenants). The maintenance arrangements set up in the leases
are no more than elaborate machinery for seeing to the repair and management of
the building in the best interests of the present owners, and the plaintiff is
entrusted with the running of these arrangements. Contrary to Mr Price’s
submissions, in my view it would be open at any time to all the tenants, acting
in unison with the lessor and the plaintiff together with any mortgagees and
subtenants there may be, to vary the existing maintenance arrangements or to
terminate them altogether and replace them with a new scheme. I do not accept
that in these proceedings the plaintiff was under any obligation to future
tenants and lessors as suggested.
Mr Price also
submitted that the property of which the plaintiff was trustee included the
benefit of the tenants’ contribution covenants in clause 4(A) of the leases and
that the plaintiff was under a fiduciary duty to enforce those covenants.
Having regard to the view I have expressed above concerning the identity of the
beneficiaries of the fund of which the plaintiff is trustee, it is not
necessary to pursue this point. Nor, for the same reason, need I pursue further
questions concerning the existence and nature of the plaintiff’s obligations to
carry out the fifth schedule purposes and to obtain the necessary money to this
end from the tenants. Under the appointment agreement entered into with the
lessor, the plaintiff was obliged to enforce the tenants’ covenants in the
leases. This was an obligation owed by the plaintiff to the lessor. But under
the leases themselves the plaintiff undertook no express obligation to the
tenants to see to the repair and running of the building. Whether an implied
obligation to the tenants none the less exists, either by way of implied
covenant in the leases or by way of fiduciary duty owed by the plaintiff to the
tenants so long as it holds office as maintenance trustee, is not a point which
arises for determination on this appeal.
The judge
decided that, bearing in mind the main issue had been compromised and that both
parties had to some extent been successful on the issues not compromised, he
should make no order as to costs. In my view, that was an order which, in the
exercise of his discretion, he was fully entitled to make. The agreed scheme
did incorporate the feature, of support for the brickwork, to which McHallam
attached much importance. But, in terms of expense, the agreed scheme was in
line with the Tietz scheme and materially less expensive than McHallam scheme
B. So by the compromise both parties achieved something worthwhile.
Order 62,
rule 6(2)
Mr Price also
relied on Ord 62, r 6(2) of the Rules of the Supreme Court:
Where a
person is or has been a party to any proceedings in the capacity of trustee,
personal representative or mortgagee, he shall be entitled to the costs of
those proceedings, in so far as they are not recovered from or paid by any
other person, out of the fund held by him in that capacity or out of the
mortgaged property, as the case may be, and the Court may order otherwise only
on the ground that he has acted unreasonably or, in the case of a trustee or
personal representative, has in substance acted for his own benefit rather than
for the benefit of the fund.
For two
reasons, I am unable to accept that this rule assists him. First, by the
summons, so far as it related to McHallam scheme B, the plaintiff in substance
sought to enforce the clause 4(A) lease covenants against the tenant
defendants. Such a claim was not one brought by the plaintiff in its capacity
as a trustee of the maintenance fund. The plaintiff was seeking to enforce covenants
entered into with it by the tenants. Second, and more broadly, it seems to me
that in this case in pressing for a court decision on McHallam scheme B against
the wishes of all the tenants the plaintiff acted unreasonably.
An
indemnity from the trust fund
The
plaintiff’s fall-back position was that, even if it were outside Ord 62, r 6(2)
because strictly it was a party to the proceedings not in the capacity of
trustee but in the capacity of covenantee of the tenants’ clause 4(A)
covenants, it was still entitled to be reimbursed out of the maintenance fund
in respect of its costs. In general, a trustee is entitled to reimburse himself
out of the trust fund all expenses incurred in or about the execution of the
trusts: see section 30(2) of the Trustee Act 1925.
The effect of
the plaintiff’s claim to reimbursement is this. The plaintiff brought
proceedings against the tenants. At the conclusion the judge decided that, as
between the plaintiff and the tenants, there should be no order as to costs;
each party should bear its own costs of the proceedings. On the plaintiff’s
argument that still leaves the plaintiff entitled to require the self-same
tenants to pay its costs, by including those costs in the following year’s
maintenance provision which the tenants are contractually bound to pay. This is
indeed a case of seeking to get through the back door what has been refused at
the front. The contention has, I think, only to be spelled out for its
unattractiveness and unreasonableness to become apparent.
I do not accept
this contention. To be entitled to an indemnity the costs and expenses in
question must have been properly incurred by the trustee. This is axiomatic,
but if authority is needed it can be found in Turner v Hancock
(1882) 20 ChD 303 at p 305, where Sir George Jessel MR refers to the trustees’
right to receive out of the trust fund ‘all their proper costs incident to the
execution of the trust’. In the present case the plaintiff did not bring
proceedings to protect the maintenance fund for the benefit of the
beneficiaries. The
the lessor. The proceedings were brought against the tenants to establish
whether they were obliged to enlarge the fund to be applied for their benefit beyond
what they and the lessor wished. I do not think that costs so incurred were
properly incurred. So long as a trust continues, beneficiaries may not control
the trustee in the exercise of his powers: Re Brockbank Ward v Bates
[1948] ChD 206. But that is a far cry from saying that if a trustee incurs
costs without regard to the wishes of his beneficiaries, he will always be
entitled to an indemnity out of the trust fund.
Mr Price also
sought to rely on para 9 in the fifth schedule to the leases. Under this
paragraph one of the purposes for which the maintenance fund is to be applied
is ‘to make provision for the payment of all legal costs incurred by the
maintenance trustee . . . (a) . . . in the enforcement of the covenants . . .
contained in the leases granted of the flats in the building’. I can deal with
this very shortly. Read fairly, this paragraph embraces legal costs reasonably
or properly incurred by the plaintiff in the enforcement of the covenants. I
have already indicated my view that the costs were not reasonably or properly
incurred in this case.
I would
dismiss the appeal and the cross-appeal.
LLOYD and FARQUHARSON LJJ agreed and did not add anything.
The appeal
and cross-appeal were dismissed. The respondents were awarded half their costs
of the appeal. Leave to appeal to the House of Lords was refused.
