Morshead Mansions v DI Marco

JurisdictionEngland & Wales
JudgeLady Justice Arden,Lord Justice Mummery,Lord Justice Wall,Lord Justice Toulson
Judgment Date10 December 2008
Neutral Citation[2008] EWCA Civ 832,[2008] EWCA Civ 1371
Date10 December 2008
CourtCourt of Appeal (Civil Division)
Docket NumberCase No: B5/2008/0357 (Y),Case No: B2/2008/0357

[2008] EWCA Civ 1371

IN THE SUPREME COURT OF JUDICATURE

COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE CENTRAL LONDON CIVIL JUSTICE CENTRE

MR RECORDER MITCHELL QC

Royal Courts of Justice

Strand, London, WC2A 2LL

Before:

Lord Justice Mummery

Lord Justice Wall

Lord Justice Toulson

Case No: B2/2008/0357

CHY07423

Between:
Morshead Mansions Limited
Appellant
and
Leon Di Marco
Respondent

MR GRANT CRAWFORD (instructed by Wismayers) for the Appellant

MR LEON DI MARCO the Respondent in person

Hearing date : 4 th November 2008

Lord Justice Mummery

Introductory

1

The Landlord and Tenant Act 1985 (the 1985 Act) introduced limits, in circumstances set out in sections 18 to 30, on the amount of service charges payable to a landlord of residential premises. The general legislative scheme is that the relevant costs to be taken into account in determining the amount of a service charge payable for a period are limited. They are limited to the extent that they are reasonably incurred. Where the relevant costs are incurred in providing services and in carrying out works, they can only be taken into account in determining the amount of a service charge, if the services or works are of a reasonable standard. A tenant has statutory rights to be consulted and to be supplied with financial information by the landlord.

2

The appeal poses this question under the 1985 Act: what is a service charge? Section 18, as amended, contains this definition of a “service charge” for the purposes of the 1985 Act—

“(1) In the following provisions of this Act “service charge” means an amount payable by a tenant of a dwelling as part of or in addition to the rent-

(a) which is payable directly or indirectly for services, repairs, maintenance, improvement or insurance or the landlord's costs of management and

(b) the whole or part of which varies or may vary according to the relevant costs.

(2) The relevant costs are the costs or estimated costs incurred or to be incurred by or on behalf of the landlord, or a superior landlord, in connection with the matters for which service charge is payable.

(3) For this purpose-

(a) “costs” includes overheads; and

(b) costs are relevant costs in relation to a service charge whether they are incurred, or to be incurred, in the period for which the service charge is payable or in an earlier or a later period.”

3

The main point of principle argued in the court below was whether the sum of £4,000 plus interest claimed from the respondent, Mr Leon Di Marco, by the appellant company, Morshead Mansions Limited (Morshead), under Article 16 of its Articles of Association is a “service charge” within the meaning of section 18.

4

Mr Recorder Mitchell QC decided two points of principle: the first, in favour of Morshead, was that Article 16 was valid and enforceable; the second, against Morshead was that section 18 applied to its claim against Mr Di Marco and that in consequence he should dismiss Morshead's claim. He gave permission to appeal against that ruling. In his order on 23 January 2008 he also gave liberty to Morshead to bring, and Mr Leon Di Marco to defend, new proceedings.

5

The recorder dismissed Mr Di Marco's counterclaim for breach of the landlord's repairing obligation. He has not cross appealed against that decision, which was founded on the facts found by the recorder. Nor has he appealed against the recorder's decision in favour of the validity of Article 16. Morshead was ordered to pay 50% of his costs

6

On a renewed application Arden LJ gave permission to appeal on other grounds advanced by Morshead in support of its contention that the recorder was wrong to dismiss its claim.

7

Morshead sought permission to raise a new ground of appeal that, even if the claim against Mr Di Marco, were for a “service charge” falling within section 18, he has advanced no reason for Morshead's claim to be dismissed. Mr Di Marco's defence was that Morshead was not entitled to collect the sums claimed from him by relying on Article 16. He has not, Morshead submits, alleged non-compliance with the statutory requirements, nor, has he contended that the sums claimed are unreasonable. He has shown no grounds for staying the proceedings in order to refer the issue of reasonableness to the Leasehold Valuation Tribunal.

Background

8

Mr Di Marco, who conducted his case in person below and in this court, is a leaseholder of Flat 2, Morshead Mansions, Maida Vale, W9 (the Flat). His lease dated 20 June 1993 is for a term of 999 years from 1 June 1993 at an annual rent of £100 for the first 100 years. The lease contains provisions for the payment of service charges to the landlord: clause 3.2 and the 4 th schedule. The 5 th schedule gave details of the services to be provided.

9

Like the other leaseholders of flats in the block Mr Di Marco owns 1 share in Morshead, a private company incorporated on 2 September 1992 and limited by ordinary shares. The lessee's share must be assigned to an assignee of the lease. The freehold reversion of the flats is vested in Morshead, which was established to undertake the management and administration of the block and to carry out such reconstruction, renewal, repairs, maintenance or renovations to it as may be necessary or desirable. There are 104 flats in the block in all. Initially 4 of the tenants were not members of the company, but now there is a complete identity of the members of the company and the tenants in the block. The Chairman of the company is Mr David Wismayer. The company needs money in order to carry out its objects and to perform the obligations under the leases, but it has no other assets apart from the freehold reversion, on which it is not easy to raise money, and such sums as it can raise for its purposes from its members. It does not trade.

10

Article 16 of the Articles of Association, which was passed by special resolution on 6 April 1994 to replace a previous provision, deals with establishing and raising capital reserves from members of the company-

“The Directors may establish and maintain capital reserves, management funds and any form of sinking fund in order to pay or contribute towards all fees, costs and other expenses incurred in the implementation of the Company's objects, and may require the Members to contribute towards such reserves or funds at such time, in such amounts and in such manner as the Members shall approve by ordinary resolution passed in general meeting and may invest and deal in and with such monies not immediately required in such manner as they shall from time to time determine.”

11

Over the years, between 1997 and 2003, Morshead established a number of Recovery Funds under these provisions. The Funds were applied in defraying expenditure which had been incurred by Morshead in litigation and also in maintaining and repairing the block. There were disputes and litigation in the County Court and in the Leasehold Valuation Tribunal. For a period there was in post a manager appointed by the Leasehold Valuation Tribunal.

12

At the AGM of Morshead on 31 October 2006 two resolutions (Nos 5 and 6) were passed pursuant to Article 16: the first authorised the directors to establish a fund of £400,000 to be designated “The 2007 Recovery Fund” such sum to be payable by the members pro rata to their shareholdings in two equal instalments on 1 January and 1 April 2007; the second authorised the Directors to recover interest upon the late payment of contributions at a rate of 4% above the base rate from time to time of Barclays Bank plc compounded with quarterly rests. (That was the rate of interest specified in the lease on rent and service charges paid more than 7 days after falling due.)

13

Notice of that meeting was given to Mr Di Marco by letter dated 6 October 2006. The letter stated that

“Resolutions 5 and 6 are intended to secure the company's ability to ensure payment of the sums required to finance anticipated expenditure in the service charge funds in 2007. We intend to re-decorate the exterior of the building next year (it will then be four years since this substantial and costly task was last undertaken) and we have allowed the sum of £250,000 to pay for this work.

The company needs another £150,000 to finance the provision of normal services such as the buildings insurance premium, cleaning etc. Together, these sums amount to £400,000, i.e. the amount of the proposed Recovery Fund. The interim service charge for 2007 will also be £400,000.

Whilst each leaseholder will receive a demand for their respective share of the interim service charge, payment of the Recovery Fund demand…will entitle the payer to an equivalent credit against their respective service charge liability thereby eliminating it.

…There is almost no defence to a claim in proceedings for debts owed under the Company's Articles of Association …. Conversely, by comparison, the opportunities to avoid or delay payment of a service charge available to a member qua leaseholder are almost limitless.

In the light of the past deliberate obstruction of the Company's repair programme …it would be remiss of the Directors to fail..to take every possible step available that would mitigate the consequences were the Company to face yet further opposition to the achievement of its objectives, the most important of which is to restore and then maintain the building in a state of repair…”

14

Mr Di Marco did not pay his two contributions of £2,000 each on the due dates. Morshead issued proceedings against him on 29 January 2007 and 26 April 2007 claiming payment of each said sum of £2,000 together with the interest approved in resolution 6. The total sum of £4,000...

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5 cases
  • Morshead Mansions Ltd v Mr DI Marco
    • United Kingdom
    • Court of Appeal (Civil Division)
    • February 12, 2014
    ...of shareholder rather than in his capacity of tenant were not "service charges" as defined by the Landlord and Tenant Act 1985: Morshead Mansions Ltd v Di Marco [2008] EWCA Civ 1371; [2009] 1 P & CR 23. 9 In 2003 and between 2007 and 2009 the company operated a dual system. It would send o......
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    ...competing commercial considerations in the context of a public policy decision." ( T-Mobile (UK) Limited v Office of Communications [2008] EWCA Civ 1371 [31] per Jacob LJ) The Commission's Determination 40 EE's crucial task is to establish that the Commission did regard the evidence as insu......
  • Leon Di Marco v Morshead Mansions Ltd
    • United Kingdom
    • Chancery Division
    • April 30, 2013
    ...("the 1985 Act"). He succeeded at first instance but his case was rejected by the Court of Appeal on 10 th of December 2008 ( Morshead Mansions Ltd v Di Marco [2008] EWCA Civ 1371). The court distinguished between two co-existing relationships — that of landlord and tenant and that of comp......
  • Houldsworth Village Management Company Ltd v Keith Barton
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    ...to remove the managing agents was improper. It was submitted that this distinction was justified because, as cases such as Morshead Mansions Ltd v Di Marco [2008] EWCA Civ 1371; [2009] H.L.R. 33 showed, there was a fundamental distinction between the rights of a member as member of a comp......
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