Lessons in understanding: Unfairness and Estoppel by Convention in the Upper Tribunal

"[I]f it was so, it might be; and if it were so, it would be; but as it isn't, it ain't. That's logic."
– Lewis Carroll, Through the Looking-Glass

Towards the end of last year, the Upper Tribunal (“UT”) handed down decisions in two cases involving estoppel by convention:

Admiralty Park Management Ltd v Ojo [2016] UKUT 0421 (LC) 8 September 2016 (“Ojo”); and

Bucklitsch and anor v Merchant Exchange Management Company Limited [2016] UKUT 0527 (LC) 13 December 2016 (“Bucklitsch”).
 

Background

Ojo

Mr Ojo was supposed to contribute a proportion of the expenses of maintaining his own building, together with a different proportion of the expenses of maintaining the communal areas of the estate as a whole. He was, however, charged a proportion of the costs of maintaining and administering all of the relevant buildings and communal areas on the estate.

When the application came before the First-tier Tribunal (“F-tT”) it immediately spotted the failure to comply with the terms of the lease. This, however, came as a surprise to the parties who, apparently, had not “actually considered the question of construction of the relevant lease.” The F-tT permitted the appellants only a brief adjournment to consider the point.

The F-tT determined that Mr Ojo was not liable to pay the relevant service charges because they had not been calculated in accordance with his lease.

The management company appealed.
 

Bucklitsch

Before the F-tT, Mr and Mrs Bucklitsch raised, for the first time, the argument that nothing was payable because of the management company’s failure to comply with a condition precedent viz. the audit and certifying of accounts and certifying the amounts of service charge.

The F-tT gave directions reminding the parties that there had been a previous case concerning the same parties regarding earlier service charges. Later it noted that the argument had not been raised in those proceedings, and queried whether, in the light of the rule in Henderson v Henderson as explained in Johnson v Gore Wood [2002] 2 A.C. 1, raising the issue in the current proceedings was an abuse of process.

In yet further directions, the F-tT drew the parties’ attention to the decision of the Upper Tribunal (Lands Chamber) in Clacy v Sanchez [2015] UKUT 0387 (LC) and asked for further submissions about whether an equitable estoppel precluded the appellants from seeking to rely upon the condition precedent argument or whether they had waived their right to insist upon it.

The F-tT determined that there was an estoppel by convention and/or waiver on the basis that:

1. Mr and Mrs Bucklitsch had been tenants for 11 years;
2. they had never previously complained about the ways the accounts have been put together;
3. they were shareholders in the management company;
4. Mr Bucklitsch was at the company AGM on 11 December 2014;
5. he had raised issues including the question of water rates;
6. the final accounts for 31 December 2013 were adopted unanimously; and
7. when he and his wife sought to question the service charges in an earlier case no issue about the accounts was raised.

Mr and Mrs Bucklitsch appealed.
 

Unfairness

Ojo

In Ojo there was a rather heroic appeal on the basis that the F-tT was not entitled to raise the point (relying on Birmingham City Council v Keddie [2012] UKUT 323 (LC)). This failed, with the UT preferring the more generous approach in Regent Management Limited v Jones [2012] UKUT 369 (LC). Indeed, it considered that the appellant’s departure from the scheme of accounting required by the lease was so fundamental, so obvious and potentially fatal an irregularity, that it was both proper and inevitable that the F-tT should raise the issue at the hearing.

The appeal succeeded, however, on the basis, as emphasised in both of the cases referred to above, that where a tribunal raises a new point which has not previously been referred to by either party, before reaching its decision it must as a matter of natural justice give both parties an opportunity of making submissions and, if appropriate, adducing further evidence in respect of the new issue.
 

Bucklitsch

The appellants asserted that there had been an “… impression of bias on the part of the Tribunal” by reason of the F-tT having raised issues, for the second time, that the respondent had not raised or otherwise sought to rely on. The UT did not agree; it should not be seen as a demonstration of bias for a F-tT to ask for assistance from the parties in circumstances where in its view a point of law potentially arises upon the facts before it, being a point of law of potential importance in the ultimate disposal of the case. The UT distinguished Keddie: that had been concerned with a matter of fact which had not been raised by either party, as opposed to a legal argument raised for the first time at a hearing.
 

Estoppel by Convention

Law considered

In both cases, the UT considered the Republic of India v India Steam Ship Company Limited (“the Indian Endurance and The Indian Grace”) [1998] AC 878 at 913–914, in which Lord Steyn described the legal principle as follows:

[A]n estoppel by convention may arise where parties to a transaction act on an assumed state of facts or law, the assumption being either shared by both of them or made by one and acquiesced in by the other. The effect of the estoppel by convention is to preclude a party from denying the assumed facts or law if it would be unjust to allow him to go back on an assumption…. it is not enough that each of the two parties acts on an assumption not communicated to the other. But … a concluded agreement is not required for an estoppel by convention.

In Bucklitsch, however, HHJ Huskinson also considered the principles applicable to the assertion of an estoppel by convention arising out of non-contractual dealings set out in Mitchell v Watkinson [2014] EWCA Civ 1472 (“Mitchell”) at paragraph 48:

1. It is not enough that the common assumption upon which the estoppel is based is merely understood by the parties in the same way. It must be expressly shared between them [the crossing of the line between the parties may consist either of words, or conduct from which the necessary sharing can properly be inferred].
    
2. The expression of the common assumption by the party alleged to be estopped must be such that he may properly be said to have assumed some element of responsibility for it, in the sense of conveying to the other party an understanding that he expected the other party to rely upon it.
    
3. The person alleging the estoppel must in fact have relied upon the common assumption, to a sufficient extent, rather than merely upon his own independent view of the matter.
    
4. That reliance must have occurred in connection with some subsequent mutual dealing between the parties.
    
5. Some detriment must thereby have been suffered by the person alleging the estoppel, or benefit thereby have been conferred upon the person alleged to be estopped, sufficient to make it unjust or unconscionable for the latter to assert the true legal (or factual) position.

Ojo

The Deputy President Martin Roger QC was prepared to find that an estoppel by convention prevented Mr Ojo from relying on the argument that the service charges had not been calculated in accordance with his lease because:

1. it would have been clear to anyone who considered the Maintenance Charge statements that the expenditure on buildings maintenance was not being properly apportioned;
    
2. Mr Ojo acquiesced for a prolonged period in that manner of calculating the Maintenance Charge; he may not have fully appreciated the requirements of the lease (as indeed the appellant and its managing agent appear not to have done) but he had the opportunity to read his lease and understand how service charges were supposed to be accounted for;
    
3. no objection was taken by Mr Ojo or by any other lessee to this method of accounting;
    
4. on a previous occasion when service charges were disputed before the LVT, Mr Ojo did not dispute liability in principle for charges computed in the same way; and
    
5. it would be unfair for Mr Ojo now to be allowed to dispute his liability in those circumstances on grounds which he had chosen not to raise for many years, as if other leaseholders in the estate had been undercharged, it would be difficult for the appellant to recoup the shortfall after so prolonged a lapse of time.
    

Bucklitsch

The UT did not consider that the findings of fact by the F-tT, without more, could give rise to an estoppel (whether by convention or otherwise) and/or waiver such as to disentitle the appellants from relying upon the condition precedent point. In particular, they did not address the various matters needing to be established, as recognised in the citation from Mitchell.

HHJ Huskinson contrasted the case with that of Clacy v Sanchez [2015] UKUT 0387 (LC), where the F-tT had made findings of fact in relation to a significant meeting which had been held regarding how that property was to be managed. Significantly, it was also unclear to the judge what documents in what form were received when by the appellants in relation to any allegedly relevant service charge (the appeal being one by way of review upon written representations).
 

Comment

It does seem difficult to reconcile the different approaches taken in Ojo and Bucklitsch.

In Ojo the Deputy President emphasised the fact that the error was patent on the face of the service charge statements: so much so that the F-tT spotted the problem and raised it of its own initiative. This, when coupled with the payment of the service charges on this basis for a prolonged time, was enough to establish a course of conduct, which may have been strengthened by the fact there had been a previous challenge to the charges, but on a different basis entirely. There was also the element of detriment as regards the recoverability of undercharges.  

In Bucklitsch, there was no such patent error which was evidenced before the UT. Indeed, being a review there was no evidence: only the findings of the F-tT, which the UT considered were not sufficient. It is possible to see how they could have been e.g., if the relevant paperwork accompanying the accounts disclosed the relevant failures so that they were known to Mr and Mrs Bucklitsch, or that the service charge demands were noted to lack the relevant certification. If that were the case, then Bucklitsch would have been closer to Ojo, albeit of course the former was not cited in the latter and the latter included a more comprehensive treatment of the law, albeit a more cursory analysis.

Experience shows that estoppels of various sorts are becoming a more common feature of cases in the F-tT (see Of Palm Trees and a Chancellor’s Foot: Issue Estoppel in the First-tier Tribunal.) It will be interesting to see how this practice area develops.