MORSHEAD MANSIONS v LIMITED LRX/49/2002

UPPER TRIBUNAL
LANDS CHAMBER
LRX/49/2002Case No LRX/49/2002
Between
MORSHEAD MANSIONSApplicantLIMITEDRespondent
Before
His Honour Judge Michael Rich QCVenue 48/49 Chancery LaneDate 2 July 2003Hearing 19 June 2003 The following case is referred to in this decision: In re A Solicitor [1953Property: Freehold Block of 104 Flats, Morshead Mansions, Morshead Road, Madia Vale, London W9Catchwords: Landlord and Tenant Act, 1987 section 24(4) AND (9) - Power of LVT to give directions to Manager - Incurring costs in attending Landlord’s application to discharge Order - appointing Manager
[1]This is an appeal by the landlord of a block of flats against an order of the Leasehold Valuation Tribunal dated 25 June 2002 made after a preliminary hearing on 21 June 2002. It was preliminary to a decision on the application of the landlord and one of the tenants to remove the manager, who had been appointed under an order dated 13 January 2000, on grounds alleging negligence and corruption against the manager. That application has since been heard by the LVT which on 3 February 2003 dismissed the grounds, but has suspended the appointment of the manager. That order is itself under appeal.[2]The order with which the Tribunal is concerned provides as follows (I have renumbered an inadvertent error in numbering): “1. Mr Maunder Taylor (“the manager”) is entitled to be paid reasonable remuneration and to be reimbursed in respect of reasonable costs, disbursements and expenses (including, for the avoidance of doubt, the fees of counsel, solicitors and expert witnesses) of and incidental to the pending application to discharge the order appointing him and to all interlocutory applications connected thereto. In the event that the manager is determined to have acted fraudulently or to have been negligent in the performance of his duties, the reasonableness of his said remuneration will be reviewed by the tribunal at the conclusion of the hearing of the application to discharge his appointment.[3]The manager, having been directed to attend the hearing of the application to discharge the order appointing him, and being a necessary witness at that hearing, is acting in the course of his appointment as manager in preparing for and attending such hearing and interlocutory applications and in furtherance of his duties in relation to the management of Morshead Mansions.[4]Payment to the manager of all sums to which he is entitled under 1 above shall be made as follows:(i) in the first instance, insofar as any such payments may be lawfully charged to the leaseholders of Morshead Mansions by virtue of the provisions in their respective leases for the payment of service charges, they shall be made by such leaseholders as part of such service charges;(ii) by virtue of his inherent powers as a receiver, and further or alternatively by virtue of the provisions of section 24(5)(c) of the Landlord and Tenant Act 1987, from moneys payable by the tenants by way of the service charges, rents, interest on arrears of service charges and any other moneys which the manager may receive as manager and receiver of Morshead Mansions;(iii) if and insofar as the above moneys may be insufficient to pay the manager’s said remuneration and expenses as defined in 1 above, they shall be paid by Morshead Mansions Limited by virtue of the provisions of section 24(5)(c) of the Landlord and Tenant Act 1987.” 2[3]The LVT purported to make such order under the power contained in section 24(4) of the Landlord and Tenant Act 1987 to make directions on the application of the manager in respect of matters contained in an order made under that section appointing a manager. The subsection provides:
“(4) An order under this section may make provision with respect to - (a) such matters relating to the exercise by the manager of his functions under that order, and (b) such incidental or ancillary matters as the LVT thinks fit; and , on any subsequent application made for the purpose by the manager, the LVT may give him directions with respect to any such matters.”
[4]The order dated 13 January 2000 appointing Mr Maunder Taylor as manager had not made provision for his remuneration, even although section 24(5) of the Act provides:
“Without prejudice to the generality of subsection (4), an order under this section may provide … (c) for remuneration to be paid to the manager by the landlord, or by the tenants of the premises in respect of which the order was made or by all or any of those persons …”
Accordingly, it was varied by order made under section 24(9) dated 5 May 2001. This provided that:
“In respect of all work done or to be done by him or on his behalf pursuant to his appointment as manager and receiver of Morshead Mansions by order herein dated 13 January 2000, Mr B R Maunder Taylor is hereby declared to be entitled to be paid reasonable remuneration and to be reimbursed in respect of reasonable costs and expenses …”
Provisions as to the way which payment was to be made then followed at paragraph A2 of that order in the form now repeated in paragraph 4 of the order now under appeal.[5]Thus the effect of the order under appeal was in paragraph 1 to repeat the provisions of the order dated 5 March 2001 as it would take effect if his attendance and representation at the hearing of the application to discharge him was indeed, as declared by paragraph 3 of the order under appeal, in the course of his appointment as manager and in furtherance of his duties in relation to the management of Morshead Mansions. Paragraph 2 of the order under appeal however reserves for later consideration the question of whether such remuneration and disbursements were reasonable, if it was held that he had acted negligibly or fraudulently.[6]Mr Maunder Taylor has not appeared in response to this appeal, and Mr Munro has argued the appellant’s case most helpfully and fairly in accordance with his duty to the Tribunal. He makes the point, which appears clearly from the LVT’s decision, that the LVT 3 did not have before it an application by the manager to vary the order appointing him further than it had already been varied. The order purported to be made therefore under section 24(4) and unless it gives the manager “directions with respect to such matters” as are set out in the order, it is not within the powers of the sub-section. Those matters are:
“to carry out the management functions of [the landlord] in relation to the premises …”
Mr Munro contends firstly that appearing before the LVT on the application to discharge the order appointing him is not part of the management functions of the landlord in relation to the premises, and secondly, in any event the order made is not a direction with respect to such matters. He thirdly complained that the provisions contained in paragraph A2 of the order dated 5 March 2001 were beyond the power of the LVT and although not appealed at that date can form the basis of an appeal against the present order when those provisions are repeated in it.[7]It is, I think, convenient to deal with the last matter first, and to do so on the merits rather than on the basis that the question as to from whom money which is due to the manager, whether by way of remuneration or disbursements, should be recovered, has already been determined by the order of 5 March 2001.[8]In the absence of a manager appointed by the LVT a landlord must bear the cost of management, saving so far as he is entitled to recover such costs from leaseholders. In appointing a manager to carry out the duties of the landlord, the LVT have specific power under section 24(5)(c) to provide for remuneration to be paid either by the landlord or by the tenants or to be shared. This would enable the LVT to require a landlord to bear costs which would otherwise fall on the tenants. There can therefore, in my judgment, be no possible objection by a landlord to an order which makes him liable for such remuneration only in so far as it is not recoverable from the tenants under their leases. Nor, as I understood Mr Munro, does he raise any.[9]Mr Munro’s objection to the order under appeal is in respect of disbursements, which, I accept, are distinct from remuneration and are not within section 25(5). But disbursements properly made are necessarily expenses incurred in the exercise by the manager of his functions under the order and provision for the recovery of such expenses must be an “incidental or ancillary matter”, to the appointment of the manager. The order as made on 13 January 2000 gave the manager power under Clause 1(F) “to enter into any contract or arrangement and/or to make any payment which is necessary, convenient or incidental to the performance of his functions”. It is the manager’s duty under clause 1(A)(1) of the Order to receive service charges. In so far as expenditure is not so recoverable it is necessarily the liability of the landlord, as having been incurred on his behalf. Certain funds of the landlord collected as rents will be in the hands of the manager. In so far as they are insufficient to meet any liability due from the landlord to the manager, the manager necessarily is entitled to be paid out of any other funds of the landlord. Mr Munro points out that such funds may include funds held in a sinking fund levied from the shareholders/tenants. He has not however suggested that those funds are not beneficially owned by the landlord company. I see no basis for treating those funds as any different from any other funds of the landlord. I can therefore see no possible reason for complaining of the provision made in the order either of 5 March 2001 or that of 25 June 4 2002 as to payment of disbursements which are not otherwise collected by the manager, although such provision was, in my view, almost certainly unnecessary except for the sake of clarity because such rights would arise in any event.[10]This takes me back to the fundamental issue of principle: whether the manager’s attendance and representation at the hearing can be said to be a function of management because an exercise of the powers of the office of manager and receiver, and in furtherance of those duties. The answer seems to me to be clearly yes. The manager is appointed by the LVT, and on application such as had been made by the landlord on 2 July 2001 is removable by the LVT. Upon such application the LVT needs to decide what is just and equitable to do. It decided, and in my judgement decided reasonably, that it could not answer that question without investigating the charges made against the manager. In order to provide for the continued satisfactory management of the premises under the order of the LVT, the manager had therefore to be available to answer those charges and everything that is reasonable for that purpose is undertaken as part of the function of management. That, in my judgment disposes of the substance of this appeal.[11]The appellant however makes the point that the LVT was entitled under section 24(4) only to give directions. This, I entirely accept is a distinct power from that under section 24(9) to vary or discharge an order made under section 24(1) appointing a manger. I pay tribute to Mr Munro’s careful elucidation of this point by reference to the Leasehold Valuation Tribunal Regulations of 1993 and 1997, but this does no more than confirm that the draftsmen of those Regulations took the same view of the Act as I do from reading the two sub-sections.[12]Subsection 24(9) gives the Court power to vary or discharge “on the application of any person interested”, whereas subsection (4) gives power to give directions to the manager, only on an “application made for the purpose by the manager”. It does not follow however that the manager may not also be within the category of “persons interested” for the purposes of subsection (9) as well as being entitled to make a different application under subsection (4). In my judgement the natural meaning of words would include the manager as amongst the persons who may be interested in the variation or discharge of an order for his appointment. The variation to provide for his remuneration in the present case is an obvious example. An application to allow him to resign is another example. Although the matter does not arise in this case because the manager, although given an opportunity to do so, did not apply under section 24(9), I agree with the LVT that had he done so, it is an application which they would have had to consider unless they dismissed it as vexatious.[13]Mr Munro contends that what was done by the order under appeal could be done only by an order under section 24(9) varying the order of 13 January 2000, (as varied on 5 March 2001). But the order under appeal does not vary the order as so varied. It declares that the manager is entitled to remuneration and costs in performing the functions of manager, which the order of 5 March 2001 had already provided for. All that it adds is the declaration that attending and being represented at the hearing of the application to discharge the order of 13 January 2000 is in performance of such functions. I accept that such declaration is not a direction. The order as made is not therefore in my judgment strictly within the powers 5 contained in section 24(4), although it was, no doubt, a useful matter to resolve and to resolve at this stage of the proceeding arising out of the landlord’s application of 2 July 2001.[14]I think that the manager’s purpose and the LVT’s intention could have been served by a different form of order. For myself if I had been intent upon giving the manager a direction with respect to the exercise of his functions, in circumstances where in the course of case management I had already given directions for his attendance, as is recited in paragraph 3 of the order, I would have repeated that direction, but specifically as the exercise of the power under section 24(4). So far as I know, the LVT has no power to enforce such case management directions, and the direction under section 24(4) does not compel compliance. It would however justify the manager’s action as being within his powers and non-compliance might justify discharge of his appointment upon the application of any person interested.[15]In my judgment a preferred form of order would therefore have been: “1. The LVT having directed the attendance of the manager at the hearing of the application to discharge the order appointing him, he is now directed in furtherance of his duties in relation to the management of Morshead Mansions to attend at that hearing and the hearing of any interlocutory applications together with such representation as is reasonable, in order to assist the LVT in determining whether it is just and equitable that such order be discharged or varied.[2]The manager is further directed to pay himself reasonable remuneration and to reimburse himself in respect of reasonable costs disbursements and expenses in respect of such pending application to discharge the order appointing him and all interlocutory applications connected thereto, but without prejudice to the right of the LVT to determine whether any such remuneration or reimbursement is reasonable if it is challenged by any person interested, in the event that it is determined in the said proceedings, that the manager has acted fraudulently or to have been negligent in the performance of his duties.”[16]Since however the substitution of such alternative form of order will in the event be of no effect and will not affect the position of the parties, it appears to me that the proper order on this appeal is for me to make no order on the appeal, unless a formal application is made on further notice to the manager for the substitution of an order as so or similarly phrased. Dated: 2 July 2003 Signed: His Honour Judge Michael Rich QC 6