Criterion Buildings Ltd (A company incorporated under the laws of the Isle of Man) v McKinsey & Company, Inc. United Kingdom (A company incorporated under the laws of the State of Delaware)
| Jurisdiction | England & Wales |
| Judge | Mr Robin Vos,Robin Vos |
| Judgment Date | 28 September 2020 |
| Neutral Citation | [2020] EWHC 2552 (Ch) |
| Court | Chancery Division |
| Docket Number | Claim No: PT-2019-000099 |
| Date | 28 September 2020 |
[2020] EWHC 2552 (Ch)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND & WALES
PROPERTY TRUSTS AND PROBATE LIST (ChD)
The Rolls Building
7 Rolls Buildings
Fetter Lane
London EC4A 1NL
Robin Vos
(SITTING AS A JUDGE OF THE CHANCERY DIVISION)
Claim No: PT-2019-000099
Nicholas Trompeter (instructed by Simkins LLP) appeared for the Claimant
Stephen Jourdan QC and Philip Sissons (instructed by CMS Cameron McKenna Nabarro Olswang LLP) appeared for the Defendants
Hearing date: 16 September 2020
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
This judgment was handed down by the Judge remotely by circulation to the parties' representatives by email and release to BAILII. The date and time for hand-down is deemed to be 28 September 2020 at 10.30am.
DEPUTY JUDGE
This is a service charge dispute. The first defendant (“McKinsey”) was, until September 2019, the tenant of premises within the Criterion building in London. The second defendant is McKinsey's parent company and has guaranteed its obligations under the lease. The claimant (“Criterion”) is a member of a group of companies. It became the holder of the headlease for the Criterion building in 2015. The building has been managed by another company in the group, Criterion Capital Limited.
The lease required McKinsey to pay to the landlord a proportion of the total cost of certain services and expenses specified in the lease by way of service charge.
From 2014 onwards, disagreements arose between McKinsey and Criterion as to the amount of the service charge. This led to McKinsey refusing to pay certain specified elements of the service charge with the result that, at the termination of the lease, Criterion considered that a sum of just over £2.2 million was still due to it. These arrears relate to the period from July 2013 to the termination of the lease in September 2019.
The Re-amendment Application
The defendants now seek to re-amend their defence to add two new reasons why the amount of any service charge should be less than the amount claimed:
4.1 First, the defendants allege that Criterion Capital has received a commission of 15% of certain of the sums stated in the service charge accounts as having been paid to contractors supplying services to the building, so inflating the apparent cost of those services. I will refer to this as the commission issue.
4.2 Second, the defendants say that part of works to the exterior of the building in 2017/2018 included some cleaning work for which the tenant (rather than the landlord) was responsible and which should not therefore have been included in the service charge. I will refer to this as the works issue.
At the hearing of the application which took place as part of the pre-trial review on 16 September 2020, I refused the re-amendment application both in respect of the commission issue and the works issue. Unfortunately, due to time constraints, I was not able to deliver a full Judgment although briefly indicated my reasons for refusing the application. I promised to produce a written Judgment. This is that Judgment.
Procedural history
The following is a brief summary of the procedural history of this claim:
6.1 The claim was issued on 5 February 2019.
6.2 On 15 October 2019, the defendants were given permission (by consent) to amend their defence.
6.3 There was a costs and case management conference on 17 October 2019 when directions were given for a trial between July–November 2020.
6.4 The parties were notified of the trial window (which starts on 12 October 2020 with a current time estimate of 8 days) on 25 November 2019.
6.5 On 1 July 2020, the defendants applied for permission to re-amend their defence. This related principally to the way in which Criterion had reached certain decisions in relation to the service charge. This application was refused on 22 July 2020 by Chief Master Marsh.
6.6 On 13 August 2020, the defendants applied for an extension of time for serving their lift expert's report and for permission to produce a witness statement from Mr Keith Douglas, a consultant engaged by McKinsey to advise on service charge issues. The extension of time was granted but permission for the witness statement was refused on 19 August 2020.
6.7 Building experts' reports were exchanged on 20 August 2020. The lift experts' reports were exchanged on 4 September 2020.
6.8 Also on 4 September 2020, the defendants made their application to re-amend their defence.
6.9 The claimant has made two applications. The first, on 7 September 2020 is to disallow sections of the building expert's report and the second on 9 September 2020 is to disallow sections of the lift expert's report. Both applications are made on the basis that the relevant sections do not relate to any matters which have been pleaded although the relevant sections in the building expert's report do relate to the works issue which is part of the re-amendment application.
It was agreed that all three applications would be heard at the pre-trial review.
Relevant principles
The approach which the court should adopt in deciding whether to give a party permission to amend their statement of case is not in dispute. The Court of Appeal in Nesbit Law Group LLP v. Acasta European Insurance Co Limited [2018] EWCA Civ 268 referred [at 41] with approval to Mrs Justice Carr's summary in Quah Su-Ling v. Goldman Sachs International [2015] EWHC 759 (Comm) at paragraphs [36–38]. Mr Jourdan, representing the defendants and Mr Trompeter, representing the claimant also referred to various comments made in CIP Properties (AIPT) Ltd v Galliford Try Infrastructure Ltd [2015] EWHC 1345 (TCC) and Rose v Creativityetc Ltd [2019] EWHC 1043 (Ch).
Taking into account the overriding objective, the court must look at all of the relevant circumstances and weigh up the injustice to the party seeking to amend if permission is refused against the need for finality in litigation and the injustice to the other parties and other litigants if the amendments are permitted.
There is a heavier burden on the applicant if the amendment is very late in the sense that there is a risk that the trial date may be lost.
More generally, the later an amendment is sought, the heavier the burden will be on the applicant to justify the amendment ( Rose [at 40]).
However, lateness is a relative concept which depends on the nature of the proposed amendment, the quality of the explanation for its timing and the consequences of the amendment in terms of work wasted and consequential work to be done ( Hague Plant Limited v. Hague and others [2014] EWCA Civ 1609 [at 33] referred to in CIP at [18(b)]).
The key factors to consider include the following:
13.1 Whether the amendments have a real prospect of success and, more generally, the strengths or weaknesses of the case made by them.
13.2 The timing and lateness of the application and the reasons for any delay in making it.
13.3 Any prejudice to the parties and to litigants in general.
13.4 The clarity of the amendments which are sought.
The relative weight to be given to the factors will vary depending on the degree of lateness of the application.
The commission issue
Looking first at the strength of the defendants' case, the claimant accepts that certain cleaning contractors have paid commissions to Criterion Capital. Mr Trompeter puts forward two reasons why, despite this, the commission issue does not provide a good defence to the service charge claim.
The first relates to McKinsey's obligations under the terms of the lease. I will not go into the terms of the lease in detail but the basic point is that McKinsey's obligation is to pay its proportion of the “total cost” of the expenses incurred by Criterion which fall within the terms of the service charge. Mr Trompeter argues that the total cost to Criterion is the amount of the invoice submitted by the contractor. The fact that a commission may have been paid to Criterion Capital as the managing agent is, he says, irrelevant.
Mr Jourdan however refers to other provisions of the lease which:
17.1 require the landlord to perform its obligations “in accordance with the principles of good estate management, cost effectively and reasonably efficiently”;
17.2 allow McKinsey to object to any expense which is not included at a “proper cost”; and
17.3 in certain circumstances, require Criterion to act in good faith.
He submits that, self-evidently, if a commission is being paid to another group company, the services are not being provided cost effectively, the commission element is not a “proper cost” and Criterion is not acting in good faith.
The second point raised by Mr Trompeter is that the relevant parts of the service charge in respect of which any commission may have been received by Criterion Capital have already been paid by McKinsey and so does not provide a defence to the amounts which are now being claimed. Instead, McKinsey should be making a counterclaim on the basis that they have paid too much. The reason for this, he says, is that, in refusing to pay the whole of the service charge, McKinsey identified specific elements of the service charge which it objected to. These elements did not include for example the cleaning costs in respect of which it is accepted that commissions have been paid.
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