Irwell Valley Housing Association v O’Grady [2015] UKUT 310 (LC)

IN THE MATTER OF AN APPEAL AGAINST A DECISION OF THE FIRST TIER TRIBUNAL (PROPERTY CHAMBER)
UT Neutral citation number: [2015] UKUT 310 (LC)
Between
Irwell Valley Housing AssociationO’Grady
MR LEE O’GRADYBefore: Martin Rodger QC, Deputy PresidentMr Nicholas Grundy instructed by Devonshire’s solicitors for the AppellantThe Respondent did not appear and was not represented
[1]The respondent, Mr O’Grady, was granted an assured tenancy under the Housing Act 1988 by the appellant, Irwell Valley Housing Association, on 11 May 2011. The tenancy was of a flat on the second floor of 1 Ingleton Avenue in Crumpsall, Manchester and by 1 October 2012 the letting was at a rent of £77.90 per week plus a variable service charge. In August 2013 the Housing Association served a notice of increase of rent on Mr O’Grady under section 13 of the Housing Act 1988. The rent proposed in the notice was £80.31 per week plus a service charge of £6.77 and was to take effect from 30 September 2013. Mr O’Grady did not agree to the proposed increase and on 22 September 2013 he referred the notice of increase to the First-tier Tribunal (Property Chamber) (“the FTT”) in accordance with section 13(4)(a) of the 1988 Act. By a notice of decision dated 15 November 2013 the FTT’s determined that with effect from 30 September 2013 the new rent should be £74.23 per week (not including the variable service charge)(a reduction from the previous level, rather than the £6.88 which the Housing Association had sought).[2]With the permission of the Tribunal the Housing Association now appeals against that decision. The appeal is not against the FTT’s valuation of Mr O’Grady’s flat but concerns instead the procedure it adopted in arriving at its determination. To explain the problems which arise I first need to describe the circumstances in which the FTT came to issue it’s a decision as they appear from the documents before the Tribunal. The proceedings before the First-tier Tribunal[3]Mr O’Grady’s flat is a two bedroom flat on the second floor of a block of flats. On 15 November 2013 the FTT first inspected the flat and then held a hearing which was attended by Mr O’Grady himself and by a member of the Housing Association’s finance department. Both parties no doubt did their best to assist the FTT but no evidence of the rents being advertised for comparable properties was provided by either party. Nor did the FTT itself refer to any comparable property at the hearing.[4]At the conclusion of the hearing the FTT issued a decision notice recording its determination that the rent for the premises was £74.23 per week with effect from 30 September 2013 and noting that variable service charges were payable in addition to that figure. As the rent determined by the FTT was lower both than the rent previously payable and the rent proposed in the notice of increase, the appellant asked the FTT to provide reasons for its decision. These were provided under cover of a letter dated 30 December 2013 (“the Original Reasons”).[5]In its Original Reasons the FTT described the flat and noted a number of deficiencies or dilapidations which it had observed. Having referred to evidence which it had heard about difficulties over repairs, and having summarised the relevant law, the FTT then explained (in paragraph 24) that in arriving at the rent for the premises it would have regard to the evidence of market rent levels in the area of Crumpsall and North Manchester generally. It went on, as follows:
“25. The Tribunal had the benefit of a comparable property situated in Manchester Road, Middleton and offered to let at an asking rent of £425 per calendar month – equating to £98.00 per week. 26. However the comparable property had the benefit of some carpets and curtains, although it also had storage radiators, and the Tribunal must value the differences between the two properties, particularly the dilapidations so far as they affect rental value. Having done so, it determined that the market rent for the property is £81 per week, calculated as follows: Market Rent for similar property in good condition and without defects £98.00 Deductions Lack of furnishings and white goods Dilapidations as listed £6.00 £11.00 £17.00 £17.00 Market Rent for the Property £81.00 27. This rent will take effect from 30 September 2013 being the date specified by the Respondent in the notice of increase.”
[6]The Original Reasons made no reference to the rent of £74.23 per week which the FTT had included in its decision notice of 15 November 2013. The original reasons explained why the FTT considered that a rent of £81 per week was appropriate.[7]On 10 January 2014 a case officer of the FTT wrote to the parties explaining that upon close inspection of the file it appeared that the Original Reasons contained an accidental error. The letter enclosed two documents, a correction certificate which was said to set out the error which had been discovered, and an amended version of the statement of reasons (“the Amended Reasons”). The correction certificate was dated 9 January 2014 and stated that it was a certificate under the powers conferred on the Chairman of the FTT by rule 50 of the Tribunal Procedure (First-tier Tribunal) (Property Chamber) Rules 2013 to correct clerical or accidental errors in decision documents. The certificate then identified two corrections.[8]The first of the corrections to be made was to paragraph 25. In substitution for the reference to the comparable property having been “offered to let at an asking rent of £425 per calendar month equating to £98 per week” the FTT said that paragraph 25 should read:
“… and offered to let at an asking rent of £395.64 per calendar month – equating to £91.23.”
[9]The second correction was to paragraph 26. In substitution for the second sentence set out above (Having done so …”), the FTT said that this should read: “… Having done so it determined that the market rent for the Property is £74.23 per week calculated as follows:- Market Rent for similar property in good condition and without defects £91.23 Deductions Lack of furnishings and white goods Dilapidations as listed £6.00 £11.00 Market Rent for the Property £74.23[10]The correction certificate concluded by stating that the Amended Reasons were attached.[11]The Amended Reasons do not state that they are an amended version of the Original Reasons and do not bear any date other than the date of the original hearing, features which led to a certain amount of confusion over which was the original and which the amended document. Nonetheless a comparison of the two documents enables changes to be identified. Surprisingly, however, those changes are not the changes foreshadowed in the correction certificate. Paragraphs 25 and 26 of the Amended Reasons are identical to the same paragraphs in the Original Reasons and do not incorporate the changes included in the certificate. The single variation which I have been able to identify is the addition in the Amended Reasons of a new paragraph, numbered 27, which is in the following terms:
“However the comparable property’s rent will include any service charge which will remain the responsibility of the person letting the property. Although the service charge of £6.77 per week will be payable separately from the rent (as it is variable) it must be deducted from the above market rent, making a net market rent of £74.23 per week.”
[12]By two different routes, therefore, the FTT sought to explain how it had arrived at the rent of £74.23 which had been the rent recorded in the decision notice. The two approaches are inconsistent in that the starting point for the assessment undertaken in the correction certificate is a comparable property apparently offered to let as an asking rent of £395.64 per month or £91.23 per week. No adjustment is made to that starting figure to reflect the assumption that no service charge is payable in addition to the rent for the comparable property, whereas the rent payable by the respondent is coupled with a service charge of £6.77. The Amended Reasons take as their starting point a comparable offered at a weekly rent of £98 or £425 per month which is then adjusted to reflect differences in the quality of the premises before making a further adjustment in the new paragraph 27 to reflect the fact that the comparable letting did not include a service charge whereas the subject letting did, so “making a net market rent of £74.23 per week.”.[13]When it was asked for permission to appeal the FTT refused to grant it and dismissed the suggestion that there was anything unclear or confusing in the correction certificate and the Amended Reasons. It said:
“The market rent is clearly set out in both and the only difference between them is that in one the variable service charges deducted at the commencement of the calculation and in the other at the end.”
With respect to the FTT the adoption of two different methods of explaining its thought processes, without any warning that the methods were intended to be different, while at the same time giving the impression that the Amended Reasons incorporated the corrections in the certificate, was guaranteed to cause confusion. Although it is now clear enough how the FTT intended the documents to be read and understood as how it had arrived at its original figure of £74.23 the first question in the appeal is whether it was entitled to correct the original reasons in the way it did.[14]Some further light was shed on these events following enquiries made by the Housing Association’s solicitors during the hearing of the appeal and subsequently. In a letter dated 3 June 2015 an administrator within the FTT explained that the FTT had originally made a decision to set the rent at £81 and a decision notice to that effect was uploaded on to the tribunal’s case management system in readiness to be sent out to the parties. No such decision notice was ever printed or sent out because, when the calculations were checked the sum of £81 was found to be incorrect and a revised rent of £74.23 was uploaded and the decision notice printed and despatched. Unfortunately when the Housing Association’s request for reasons was received the Original Reasons mistakenly included the original figure of £81 which was subsequently corrected by the Amended Reasons. Issues[15]Permission to appeal was granted by the Tribunal on two issues:(1) First, whether the FTT had exceeded its jurisdiction when it issued the correction certificate; and(2) Secondly, whether the FTT was in error in relying on its own researches to identify a comparable transaction which it then used as the basis of its decision without allowing the parties the opportunity to comment on the weight which should be given to that comparable. The First-tier Tribunal’s powers to correct errors in its own decisions[16]Before considering the first issue it is helpful to have in mind the various powers of the FTT to correct its own decisions. The Tribunal Procedure (First-tier Tribunal) (Property Chamber) Rules 2013 include in Part 6 a series of provisions for correcting, setting aside, reviewing and appealing FTT decisions. Rule 50 is a slip rule in conventional terms: “The Tribunal may at any time correct any clerical mistake or other accidental slip or omission in a decision, direction or any document produced by it, by –(a) sending notification of the amended decision or direction, or a copy of the amended document, to each party, and(b) making any necessary amendment to any information published in relation to the decision, direction or document. The correction certificate in this appeal was issued by the FTT expressly under the authority conferred by this rule. It should be noted, however, that the rule does not make provision for a correction certificate. All that is required is that the document in which the clerical mistake or other accidental slip appears should be re-issued in an amended form. It is likely to avoid confusion if the amendments made to the original document are highlighted or underlined in the amended document, and that the amended document includes the date on which the correction is being made.[17]Rule 51 allows the FTT to set aside a decision which disposes of proceedings, in whole or in part, and to re-make the decision or the relevant part of it. The circumstances in which this power may be exercised are limited by rule 51(1): the FTT must first be satisfied that it is in the interest of justice to set aside the decision in whole or in part, and one or more of the conditions in rule 51(2) must also be satisfied. Those conditions where either the FTT itself or a party has not received a document relating to the proceedings, or a party or its representative was not present at a hearing relating to the proceedings or, by rule 51(2)(b) where “there has been some other procedural irregularity in the proceedings.” Rule 51 does not state in terms that the power it confers may be exercised by the FTT on its own initiative, but that seems likely to be the case. Any party affected by a decision may apply to set a decision aside. Rule 51(3) requires that any application for a decision to be set aside under rule 51(1) must be received within 28 days after the date in which the FTT sent notice of the decision or its reasons for the decision to the party. Before exercising the power to set aside, whether on its own initiative or on the application of a party, the FTT should of course give any other party the opportunity to make submissions.[18]The third in the FTT’s trilogy of powers, short of granting permission to appeal, contained in Part 6 of the 2013 Rules is the power to review its decision. By rule 55(1) the FTT may only undertake a review of a decision on receiving an application for permission to appeal and if it is satisfied that a ground of appeal is likely to be successful. The Tribunal is required by rule 55(2) to notify the parties in writing of the outcome of a review, and of any right of appeal in relation to the outcome. The purpose of a review is to avoid the need for an appeal in a case where the appeal is likely to succeed.[19]The power of review is subject to an important procedural safeguard in rule 55(3) which provides that:
“If the Tribunal takes any action in relation to a decision following a review without first giving every party an opportunity to make representations, the notice under paragraph (2) must state that any party that did not have an opportunity to make representations may apply for such action to be set aside and for the decision to be reviewed again.”
It is implicit in this rule that the power of review may be exercised without the other party being given the opportunity to make representations. If the FTT is considering whether to review a decision and forms the preliminary view that it is minded to do so, and to take action adverse to the interests of another party, I would suggest that it should generally be regarded as good practice for the other party to be given the opportunity to comment before the decision is taken.[20]The 2013 Rules do not themselves explain what steps may be taken by the FTT after deciding to review one of its decisions. The scope of its power is the subject of section 9(4) of the Tribunals, Courts and Enforcement Act 2007 which provides:
“(4) Where the First-Tier Tribunal has under sub-section (1) reviewed a decision the First-tier Tribunal may in the light of the review do any of the following – (a) correct accidental errors in the decision or in a record of the decision; (b) amend reasons given for the decisions; (c) set the decision aside.”
Where the FTT decides to set a decision aside section 9(5) of the 2007 Act requires that it must either remake the decision, or refer the matter to the Upper Tribunal. Issue 1: The correction certificate issue[21]Mr Grundy, who appeared for the Housing Association at the hearing of the appeal, submitted that the effect of the FTT’s additional reasons was to alter the substance of its decision. In its Original Reasons the FTT had explained why it considered that the rent for the premises should be £81 per week, whereas in its revised decisions it explained, or purported to explain, why the rent should be £74.23 per week. It was not a permissible use of a slip rule, intended to correct typographical errors or other accidental slips or omissions, for it to be relied on to alter the substance of a decision. Mr Grundy referred to CPR rule 40.12(1), which confers a power similar to rule 50 to correct accidental slips or omissions in a judgment or order, and to the notes in the 2014 White Book at paragraph 40.12.1 which explain the limits of that rule as follows:
“The rule applies only to “an accidental slip or omission in a judgment or order.”
Essentially it is there to do no more than correct typographical errors (e.g. where the order says claimant when it means defendant) … The slip rule cannot be used to enable the court to have second thoughts or to add to its original order.” That commentary seems to me to be equally applicable to rule 50 of the FTT’s 2013 Rules.[22]I do not think that Mr Grundy was correct when he suggested that the correction certificate and the Revised Reasons changed the substance of the FTT’s decision. The decision contained in the decision notice of 15 November 2013 was that the rent for the premises was £74.23. The correction certificate and the Revised Reasons explained, by two different routes, how the FTT had arrived at that figure and made good the omission from the Original Reasons of any explanation of how the figure in paragraph 26 for the market rent of the premises of £81 per week related to the figure of £74.23 which appeared in the decision notice.[23]In truth, this aspect of the appeal was based on a misconception, namely, that the FTT’s original decision had been that the market rent for the property should be £81 per week. It should be remembered that there was only one decision notice in this case, and that it recorded the decision as being that the rent should be £74.23. It was not until the day of the hearing of the appeal that a copy of the decision notice was provided to Mr Grundy and to the Tribunal from which it was clear that the purpose of the completion certificate and the Revised Reasons was to render the reasons consistent with the decision notice (which the Original Reasons had not been) rather than to change the decision.[24]It is now known, from the letter from the FTT administrator referred to in paragraph 14 above, that the FTT had originally been minded to determine the rent at £81 but that before a decision notice to that effect was issued to the parties it was appreciated that this figure was incorrect. That sequence of events, culminating in the FTT issuing the decision notice of 15 November 2013, did not engage any of the FTT’s powers in Part 6 of the 2013 Rules. Until a decision notice is issued the FTT is free to change its mind, and it is not until the decision notice itself is finalised and issued to the parties that the decision is made.[25]The difficulty with the procedure adopted by the FTT was that, by providing a correction certificate and Revised Reasons which were inconsistent with each other, it caused confusion and doubt over what it intended. With Mr Grundy’s assistance, and the benefit of the copy of the decision notice, it is now clear what the FTT intended. With the benefit of the letter from the FTT administrator it is also clear that the Revised Reasons fell within properly the scope of Rule 50. The FTT’s decision recorded in the decision notice was that the rent should be £74.23 per week, but it issued the Original Reasons which spoke to a higher figure and omitted to adjust the open market rent by deducting the weekly service charge payable by the respondent, in the manner explained in the additional paragraph 27 of its Revised Reasons. In my judgment that correction was within the spirit of rule 50.[26]Even if the correction does not fall within rule 50, it would fall within the FTT’s power in rule 55(1) to review its decision and, having done so, to amend the reasons for the decision by including an explanation of the route by which it had adjusted the figure of £81 to arrive at its determination of £74.23.[27]I am asked by Mr Grundy to set aside the decision of the FTT and remit it for further consideration. I do not think that would be an appropriate response to the circumstances of this case. It is clear enough what the FTT was doing. If the correction certificate had stood alone I would have been inclined to set it aside on the grounds that it provided no relevant explanation of the FTT’s thought processes but rather manipulated the primary evidence (in the form of the asking rent for the comparable property) to adjust for the absence of a service charge without explaining that that is what it was doing. The Revised Reasons themselves are not objectionable and they explained the FTT’s thought processes clearly. Had the Revised Reasons been issued without the confusing correction certificate (which was not a requirement of the Rules) this appeal is unlikely to have been necessary. Issue 2: Reliance on evidence not made available to the parties for their comment[28]It is common ground that during the hearing on 15 November 2013 the FTT did not inform the parties that it was aware of a comparable property at Middleton Road. The first the parties were aware of the existence of a comparable was when they received the Original Reasons, in paragraph 25 of which the FTT refers to the asking rent of £98 per week for a comparable property at “Manchester Road, Middleton” (which it is common ground was itself a slip) which it then used as the starting point for its own valuation of Mr O’Grady’s flat.[29]Mr Grundy referred to a number of well-known decisions of the Tribunal, including in particular Arrowdell Limited v Coniston (North) Hove Limited LRA/72/2005 (a decision of the Lands Tribunal) in support of the proposition that the FTT must not make decisions based on evidence which has not been exposed to the parties for comment. The jurisprudence on this subject is, of course, not confined to this Tribunal. In Fox vPG Wellfair Limited [1982] 2 EGLR 11 the Court of Appeal set aside the decision of an expert arbitrator for breach of the rules of natural justice, where the arbitrator had rejected a large part of the expert evidence put forward by the only witness called to give evidence, without giving any indication during the hearing that he was minded to do so. The Court of Appeal held that the arbitrator was not entitled to reject expert evidence on the basis of his own knowledge without giving the party relying on that evidence an opportunity to deal with his criticisms.[30]The decision of Bingham J in Zermalt Holdings SA v Nu-Life Upholstery Repairs Limited [1985] 2 EGLR 14 provides further assistance on the extent to which an arbitrator (who in this respect is no different from an expert tribunal such as the FTT) may make use of his own expertise. In a rent review arbitration the parties agreed that there should be no oral hearing and instead presented only written evidence which was not subject to cross examination. The arbitrator having made his decision, the landlord appealed under the Arbitration Act 1950 on the grounds that the decision had been based on matters which had not been referred to by the parties’ surveyors in their evidence nor had the arbitrator put it to them for comment. Bingham J set the award aside and said:
“I fully accept and understand the difficulties in which an expert finds himself acting as a arbitrator. There is an unavoidable inclination to rely on one’s own expertise, and in respect of general matters that is not objectionable but is desirable and a very large part of the reason why an arbitrator with expert qualifications is chosen. Nevertheless, the rules of natural justice do require, even in an arbitration conducted by an expert, that matters which are likely to form the subject of decision, in so far as they are specific matters, should be exposed for comments and submissions of the parties. If an arbitrator is impressed by a point that has never been raised by either side then it is his duty to put it to them so that they have an opportunity to comment. If he feels that the proper approach is one that has not been explored or advanced in evidence or submission then again it is his duty to give the parties a chance to comment. If he is to any extent relying on his own personal experience in a specific way then that again is something that he should mentioned so that it can be explored. It is not right that a decision should be based on specific matters that the parties have never had a chance to deal with, nor it is right that a party should first learn of adverse points in the decision against him. That is contrary both to the substance of justice and to its appearance.”
[31]In Arrowdell the Lands Tribunal provided guidance on the same issue, at paragraph 23:
“It is entirely appropriate that, as an expert tribunal, an LVT should use its knowledge and experience to test, and if necessary to reject, evidence that is before it. But there are three inescapable requirements. Firstly, as a tribunal deciding issues between the parties, it must reach its decision on the basis of evidence that is before it. Secondly, it must not reach a conclusion on the basis of evidence that has not been exposed to the parties for comment. Thirdly, it must give reasons for its decision. In the present case the tribunal rejected the evidence of both the experts on relativity and it was entitled to do this providing its reasons for doing so were explained. But in basing its decision on “its own knowledge and experience, particularly in relation to relativities which had been agreed between the parties or their valuers in other similar cases” it was in error because those agreements on relativity had not been identified nor had the parties had the opportunity to comment on them.”
[32]I have no doubt that the FTT transgressed against these principles in making use of a specific piece of evidence (the Middleton Road comparable) without affording the parties the opportunity to comment on it. I do not underestimate the practical difficulty which this fundamental requirement of natural justice creates in the context of a busy tribunal which may hear a number of cases of this type in its list in a single day. Where neither party has made representations or asked for a hearing they may be taken to have consented to the FTT giving its decision without their input. But where there is a hearing, or submissions have been made, the position is different. The FTT will often be aware of relevant evidence before the hearing commences, and if so it should tell the parties and give them the opportunity to comment. What does not seem to me to be permissible in those circumstances (i.e. where the parties have engaged with the process by attending a hearing or making submissions in writing) is for the FTT to undertake further research of its own in order to make good deficiencies in the evidence after the hearing. If it wishes to do that it is necessary that it provide the parties with notice of the fruits of its investigations if they are to form any significant part in its reasoning. The parties must be given the opportunity to comment on the evidence used by the FTT in arriving at its conclusion. In practice, therefore, the burden of supplementing inadequate evidence adduced by the parties with further material which may be readily available to the FTT should be undertaken before the hearing is concluded.[33]In this case Mr Grundy made some specific observations about the Middleton Road comparable on which the FTT appears to have relied. He suggested that there were other properties available to let at the relevant time which provided evidence of higher asking rents than the FTT’s single comparable and submitted that it was always undesirable that a valuation be undertaken on a single piece of evidence. Finally he submitted that the comparable, which was available to let on an assured shorthold tenancy providing significantly less security of tenure than the assured tenancy of the respondent, would require to be adjusted to reflect that lesser security of tenure. These points may all have been available to the appellant to make had it been aware of the significance that the FTT intended to attach to the single comparable referred to in its reasons for its decision. The procedure adopted by the FTT deprived the appellant (and the respondent for that matter) of the opportunity to make any submissions on that evidence and, for that reason, I agree with the Housing Association that the decision must be set aside in its entirety and the case remitted to the FTT for reconsideration. Disposal[34]For these reasons I therefore allow the appeal on the second issue and remit the matter to the FTT for fresh consideration.[35]The constitution of the tribunal which reconsiders the reference is a matter for the FTT but in a case such as this it would be undesirable, I would suggest, for the same tribunal to be asked to undertake that task. To do so would be to put the members of the original tribunal in an invidious position and might result in a perception of unfairness to either party. The better course would be for a freshly constituted tribunal to look at the matter from scratch. Martin Rodger QC Deputy President 25 June 2015

Cited in 1 later judgment