One thought on “Phillips & Goddard vs Francis & Francis Part 1 Judgement

  1. paul

    Sir Andrew Morritt, Chancellor of the High Court, in Phillips, Goddard v Francis, Francis [2012] EWHC 3650 undermines the judgement from Mole in Palley v LB Camden [2011 UKUT 469 (LC). There are four classes of clause to be considered in the matter of management cost:

    1. Specific Management clauses.
    Morritt identifies clause 6 dealing specifically with “professional fees”. There are various kinds of specific management clauses, such as this. In the LB Camden leases clause 8 deals with “certification and auditing costs”. Mole omitted to discuss this class of clause. Mole allowed the % Management clause to provide the function of a specific management clause (see below).

    2. The % Management clause- the general management clause?
    Morritt discusses the issue of double recovery in the circumstances of a small landlord. However, in the final paragraph of the relevant part of his judgement Morritt effectively states that the % clause is the general category that requires the Landlord to provide and allows the Landlord to re-charge for management costs. Samupfonda LON/OOAG/LSC/2006/0326 had explained that the % manage clause is a protective device for leaseholders.The generality of the Landlord’s management cost is thus claimed under and capped by the % management clause. This is normal practice- see expert evidence in Pottle v Westminster 2000. Morritt and Samupfonda are in essential agreement.
    Mole advances an alternative theory that the % management clause has a particular meaning in the circumstances of a large landlord. The clause enables the landlord to claim non-attributable central management costs. Mole took the term “general” to mean roughly the same as central or non-attributable. According to Mole, the % clause does not serve a general purpose for capturing all or the majority of the Landlord’s management costs. Nor does the % management clause give particular protection to the leaseholder by means of a cap, since significant management costs are permitted in non-management clauses, according to Mole. All the factual evidence contradicts and disproves Mole’s theory about bureaucratic cost, namely the subsequent actions of original leaseholders, the accounting and certification practice of the Landlord and the known facts about privatisation.

    3. Non-management clauses.
    Mole allowed quite a lot of management cost to be allocated to the non-management clauses e.g. overhead and in-direct cost. By contrast, Morritt did not. Bartlett in Hamilton v. Brent also allowed management cost to be allocated to the non-management clauses in circumstances where a lease contained no management clauses of any kind whatsoever. Bartlett presumably relied on the pupose/intent contained in the initial definition of the term “Service Charge”. Mole followed this precedent and extended the ruling to leases that contain explicit provisions/clauses for management- see in Palley v LB Camden [2011 UKUT 469. ShawLON/OOAG/LSC/2008/0253 stated that management cost that is an inherent and integral part of the actual service provided under a particular clause may be treated as a cost applicable to that clause; clearly such on-site supervisory costs will be very limited. Shaw’s position is more refined and plausible than the approach of Mole and Bartlett, which is contrary to Berrycroft, Embassy Court Residents Association Ltd v Lipman [1984] 2EGLRand LJ Mummery/ Encyclopedia of Forms and Precedents(5th ed. vol.23 p77, para 55). All these authorities require explicit provision before a Landlord may re-charge his management costs.The decisions of Judges Mole, Bartlett and Green in Pottle appear to have been made in deference to large government Landlords and ignored bed-rock authority.

    4. The Catch-all Clause.
    Samupfonda LON/OOAG/LSC/2006/0326 at LVT dealt with a lease that contains a catch-all for the generality of costs that are not mentioned in any other clauses. The later editions of the LB Camden leases contain a catch-all clause, which is lacking from the earlier edition. Her view is that the catch-all allows management costs to exceed the % cap in special circumstances only, such as a major works bill. In ordinary annual bills, the leaseholder enjoys protection under the cap in the % management clause. This is normal traditional practice- see expert evidence in Pottle v Westminster 2000.

    A futile dispute-Shaw LON/OOAG/LSC/2008/0253.
    No judgement has yet provided a comprehensive review of all four groups of clause dealing with management cost. Judges can dispute endlessly how these various kinds of clause interact with each other. No doubt several interpretations are reasonable.Shaw at LVT points out, as matter of contractual meaning not based on particular fact, that the matter is to be resolved contra proferentum in favour of the lessee whenever a % Management clause occurs in a lease contract- see Gilje.

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