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Morshead Mansions Ltd v Di Marco

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Morshead Mansions Ltd v Di Marco

Written by Calum Haswell

Tuesday, 06 January 2009

[2008] EWCA Civ 1371, [2008] All ER (D) 113 (Dec)

COMPANIES - ARTICLES OF ASSOCIATION – EFFECT – CONTRACT BETWEEN COMPANY AND MEMBER – COMPANY OWNING FREEHOLD OF BLOCK OF FLATS – DEFENDANT MEMBER OF COMPANY OWNING FLAT IN BLOCK – COMPANY PASSING SPECIAL RESOLUTION ESTABLISHING METHODS OF RAISING CAPITAL – COMPANY PASSING RESOLUTION PURSUANT TO PROVISION FOR FUNDS TO BE RECOVERED FROM MEMBERS – DEFENDANT NOT PAYING SUMS – WHETHER SUMS AMOUNTING TO SERVICE CHARGE UNDER STATUTORY PROVISION – LANDLORD AND TENANT ACT 1985, S 18

The defendant was a leaseholder of a flat (the flat) in block of 104 flats (the block) in Maida Vale. The freehold reversion of the flats was vested in the claimant, 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 might be necessary or desirable. Article 16 of the claimant's articles of association, which was passed by special resolution in April 1994, dealt with establishing and raising capital reserves from members of the company. Between 1997 and 2003, the claimant established a number of recovery funds under those provisions for expenses incurred in maintenaning the block and litigation. At an Annual General Meeting of the claimant in October 2006 two resolutions were passed pursuant to art 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. Notice of that meeting was given to the defendant by letter dated 6 October 2006. The defendant did not pay his two contributions. The claimant issued contract proceedings against him claiming the outstanding contributions together with interest. The Landlord and Tenant Act 1985 introduced limits, in circumstances set out in ss 18 to 30, on the amount of service charges payable to a landlord of residential premises. The general legislative scheme was that the relevant costs to be taken into account in determining the amount of a service charge payable for a period were limited to the extent that they were reasonably incurred. A tenant had statutory rights to be consulted and to be supplied with financial information by the landlord. The defendant contended that: (i) art 16 was invalid and of no effect on the grounds that it was inconsistent with the principle of limited liability, that s 16 of the Companies Act 1985 applied and there was no written agreement on his part to the liability sought to be enforced against him; and (ii) the recovery fund was in fact a service charge, as defined by s 18 of the 1985 Act; (iii) the claimant was not entitled summarily to collect the service charges which could be recovered under the terms of the lease by other means. The judge rejected the defendant's contentions in respect of art 16 and held that it was valid and enforceable. On the s 18 point the judge held that s 18 of the Act was applicable to the sums sought as they were 'service charges' within the meaning of the section and was an attempt to seek payment of an interim payment in relation to items which would normally fall within a service charge provision, and that in consequence he should dismiss the claimant's claim. The claimant appealed against that decision.
The claimant submitted that the judge had erred in law in his construction and application of s 18 of the Act to its claim under the articles of association on the basis that: (i) contributions by members to the 2007 recovery fund were not amounts 'payable by a tenant of a dwelling as part of or in addition to the rent' within s 18; and (ii) the contributions claimed by it were not payable 'as part or in addition to the rent' in his capacity as tenant in that the parties had a different relationship as a company and one of its members; (iii) the contributions were not 'payable directly or indirectly for services, repairs, maintenance' in that the recovery funds could be used for other purposes, such as litigation costs; and (iv) the contributions were not payments 'the whole or part of which varies and may vary according to the relevant costs' within s 18 in that the contributions varied according to the amount resolved by the members of the company in general meeting.
Held – The appeal would be allowed. In the circumstances of the case, although the judge had been right on the first point of principle in respect of art 16, he had been wrong to dismiss the claimant's contract claim pursuant to that Article. The judge had wrongly held that s 18 applied to the claimant's claim for payment, which had been expressly based on the art 16 provisions and resolutions. The claimant had been entitled, pursuant to the resolutions, to the money claimed from the defendant as a member of the claimant company.