Sara & Hossein Asset Holdings Ltd v Blacks Outdoor Retail Ltd
| Jurisdiction | England & Wales |
| Judge | Lord Hamblen,Lord Hodge,Lord Kitchin,Lord Sales,Lord Briggs |
| Judgment Date | 18 January 2023 |
| Neutral Citation | [2023] UKSC 2 |
| Court | Supreme Court |
[2023] UKSC 2
Lord Hodge, Deputy President
Lord Briggs
Lord Kitchin
Lord Sales
Lord Hamblen
Appellant
Brie Stevens-Hoare KC
Morayo Fagborun Bennett
Usman Roohani
(Instructed by Gateley LLP (Manchester))
Respondent
Richard Fowler
(Instructed by Pinsent Masons LLP (London))
Heard on 8 November 2022
Lord Hamblen ( with whom Lord Hodge, Lord Kitchin and Lord Sales agree):
This appeal concerns the extent of the conclusive effect of a clause in a lease providing for the landlord's certification of the service charge sum payable by the tenant.
The relevant clause provided that the landlord should provide a certificate “as to the amount of the total cost and the sum payable by the tenant” and that this was to be “conclusive” in the absence of “manifest or mathematical error of fraud” (“the permitted defences”).
The landlord, the respondent Sara & Hossein Asset Holdings Ltd (“S&H”), contends that its certification of the sum payable is conclusive subject only to the permitted defences.
The tenant, the appellant Blacks Outdoor Retail Ltd (“Blacks”), contends that certification is conclusive as to the amount of costs incurred by the landlord but not as to the tenant's service charge liability.
Deputy Master Bartlett (“the master”) [2019] EWHC 3414 (Ch) upheld Blacks' case as to the proper interpretation of the certification clause and his decision was upheld on appeal by Kelyn Bacon QC (now Bacon J), sitting as a Deputy High Court judge (“the judge”) [2020] EWHC 1263 (Ch); [2020] L & TR 30. The Court of Appeal [2020] EWCA Civ 1521; [2021] 2 P & CR 18 allowed the appeal and held in favour of S&H's case. Blacks now appeals to the Supreme Court.
S&H is a property investment company. Blacks is a well-known retail chain selling outdoor and leisure clothing and goods.
The leases in question relate to retail commercial premises at Chicago buildings, Whitechapel and Stanley Street, Liverpool.
Blacks first came to occupy the premises following the entry into administration of the previous owner of Blacks' business (and previous tenant), The Outdoor Group Ltd. On 15 May 2013, IVG Institutional Funds GmbH (“IVG”) granted Blacks a lease of the premises (the”2013 lease”). S&H was the successor in title to IVG from December 2016. The 2013 lease was for a term of ten years with a break option after five years which Blacks exercised. Blacks then entered into a lease for a further one year term from May 2018 to May 2019 (the “2018 lease”). The lease was not renewed thereafter. The 2018 lease was on materially the same terms as the 2013 lease.
The dispute between the parties arose when Blacks paid the main rent and certain other charges due under the leases but did not pay the service charge for the years 2017–18 and 2018–19 (which years ran from 1 October to 30 September). For the 2016–17 year S&H had charged Blacks around £55,000. For the 2017–18 year S&H certified that over £400,000 was payable, in circumstances where S&H knew Blacks would be terminating the 2018 lease in May 2019. Blacks objected, claiming that this charge was excessive and included unnecessary items and expenses which fell outside the terms of the lease. For the seven months of the 2018–19 year, up until the expiry of the 2018 lease in May 2019, S&H certified that around £62,000 was payable.
On 11 April 2019 S&H issued proceedings claiming the outstanding service charge. On 14 May 2019 Blacks served a defence and counterclaim. Blacks averred that the sums certified and demanded were not properly due on the basis that certain works either did not, by their nature, fall within the scope of S&H's repair covenant or, if they did, were unnecessary at the time of their commission.
On 28 May 2019 S&H issued an application for summary judgment which was heard by the master on 20 August 2019. The master dismissed the application but ordered that Blacks should make a payment into court of £150,000. On 19 May 2020 the judge gave judgment dismissing the appeal. On 13 November 2020 the Court of Appeal (David Richards, Newey and Arnold LJJ) gave judgment allowing the appeal, granted summary judgment on the claim for the certificated service charges in the sum of £407,842.77 and remitted the case to the Chancery Division to determine what, if any, issues on Blacks' counterclaim remained to be determined.
Under clause 2.3 of the leases the tenant was required to pay rent and “the Service Charge calculated and payable at the times and in accordance with Schedule 6”.
Clause 3(1)(a) is a no set-off provision under which the tenant covenanted: “To pay the yearly rent reserved by this lease at the times and in the manner required under clause 2.3 and not to exercise or seek to exercise any right or claim to withhold rent or any right or claim to legal or equitable set-off or counterclaim (save as required by law)”. It is accepted that this provision applies to all sums due under the lease, including the service charge.
Clause 5.4 is a repair covenant by which the landlord covenanted: “To maintain and keep in good and substantial repair and condition the structure and exterior of the demised premises and to provide those services referred to in Part ll of Schedule 6 in accordance with the principles of good estate management and in an efficient and economical manner.”
Part A of Part II of Schedule 6 set out the services to be provided by the landlord. It specified various services and included a sweep-up provision covering “all and any other services by the landlord acting reasonably in the interests of good estate management” (para 13).
Part B of Part II of Schedule 6 set out expenses to be borne by the landlord. In addition to specified expenses, it provided for inclusion of “the proper and reasonable fees costs and expenses incurred by the landlord in connection with general management of the building” (para 6) and “any other expenses properly incurred by the landlord attributable to the general supervision management security and proper maintenance of the building not otherwise specifically mentioned in this Schedule” (para 7).
Part I of Schedule 6 set out the regime for the calculation and payment of the service charge. Its full terms are set out in the Appendix to this judgment.
Under para 4 Blacks was required to make quarterly payments on account of the service charge in accordance with written estimates from S&H. Although para 1 provided for the service charge year to run from 1 January to 31 December, in practice, and by agreement, the service charge year was treated as running from 1 October to 30 September.
Under para 1, at the end of each service charge year, S&H was required to calculate “the total reasonable and proper cost” to it of providing “the services and expenses specified in Part II” (excluding costs and expenses met by insurers).
Under para 2, Blacks was required to pay “a fair and reasonable proportion” of such total cost. Para 6 provided that this proportion should be “the proportion which the net internal area of the demised premises bears to the net internal area of the aggregate of all areas of the building” let or intended to be let. It further provided that a dispute over such proportion should be determined by “expert determination”. The definitions in clause 1.1 provided that this was to be by an independent valuer and that both parties were to be given the opportunity to make representations.
Para 3 (“the certification provision”) is the critical provision in dispute. It provides:
“The landlord shall on each occasion furnish to the tenant as soon as practicable after such total cost and the sum payable by the tenant shall have been ascertained a certificate as to the amount of the total cost and the sum payable by the tenant and in the absence of manifest or mathematical error or fraud such certificate shall be conclusive.”
On the quarter day following service of the certificate, a balancing payment was to be made (either by Blacks or by S&H) reflecting “any difference between the sums paid on account and the sum payable by virtue of such certificate” (para 5).
Para 7 provided that S&H should place sums properly applicable to the total costs of services and expenses in a separate interest-bearing account until they were needed to meet those costs.
Paras 9 and 10 provided for certain costs and expenditure incurred by S&H to be excluded from “the contribution payable by the tenant” (“excluded costs”). The excluded costs included recoveries made by the landlord under insurance policies or from persons other than tenants (para 10.2), costs “caused or necessitated by the negligence of the landlord” (para 10.3) and the cost of “any improvement, modernisation or refurbishment” which is not a cost of repair or maintenance (para 10.7).
Paras 8 and 11 each made provision for Blacks to have access to material evidencing the sums claimed by way of service charge. Under para 8 S&H was required for 12 months after receipt by Blacks of the certificate to make available all receipts, invoices or other satisfactory evidence evidencing the total costs incurred by S&H and the contribution payable by Blacks. Under para 11 Blacks was entitled to inspect S&H's books, records, invoices and accounts relating to service costs for a period of three months from the date of “the relevant statement” at the offices of S&H or its surveyor. It was agreed that “the relevant statement” meant the certificate.
The master ( [2019] EWHC 3414 (Ch)) held that S&H's certificate was conclusive only as to the...
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