University of the Arts London v Legal & General Pensions Ltd
| Jurisdiction | England & Wales |
| Judge | Master Pester |
| Judgment Date | 28 April 2023 |
| Neutral Citation | [2023] EWHC 994 (Ch) |
| Docket Number | Case No: PT-2022-000576 |
| Court | Chancery Division |
[2023] EWHC 994 (Ch)
Master Pester
Case No: PT-2022-000576
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
Property, Trusts and Probate List (ChD)
Rolls Building
Fetter Lane, London, EC4N 1NL
Daniel Shapiro KC and James Sharpe (instructed by Simmons & Simmons LLP) for the Claimant
John McGhee KC and Joseph Steadman (instructed by Macfarlanes LLP) for the Defendants
Hearing dates: 30 to 31 January 2023
APPROVED JUDGMENT
This judgment was handed down by the Master remotely by circulation to the parties or their representatives by email and by release to the National Archives. The date and time for hand-down is deemed to be 4pm on 28 April 2023.
This is my judgment on the Defendants' application, dated 11 August 2022, to strike out parts of the Particulars of Claim (under CPR Part 3, r. 3.4) alternatively for reverse summary judgment on parts of the Claimant's claim (under CPR Part 24, r. 24.2).
Background
The Claimant, University of the Arts London (“UAL”), is a higher education corporation specialising in the arts with a number of campuses around London. The Defendants, which I will refer to collectively as “L&G”, save where there is a need to distinguish between them, are each private companies which are part of a multi-national financial services and asset management group. As part of this group, L&G act as institutional investors, including in relation to property.
During 2010 to 2015, UAL and L&G were involved in a transaction under which two residential student accommodation buildings were to be purpose built for UAL. The first of these is known as “Sketch House” in Finsbury Park, and the second as the “Highline Building” in Elephant and Castle. I will refer to them collectively as “the Properties”. The Properties were to be built by a developer, with the freehold to be held by L&G and leased to UAL, which would in turn lease the individual study-bedrooms to students.
The landlord in respect of Sketch House is the First Defendant, and the landlord in respect of the Highline Building is the Second Defendant. Two leases for the Properties, which are, for present purposes, in materially identical terms, were entered into on 3 September 2015 for 25 years (“the Leases”). Pursuant to the Leases, UAL is obliged to pay Rent, a Sinking Fund Contribution and the Service Charge (all as defined in the Leases); and L&G was obliged “to provide or procure the provision of” certain services to UAL. In very broad terms, these services relate to maintenance, cleaning and security. The Leases relate to residential property, and (as I understand it) L&G treated the supplies it made to UAL under the Leases, and therefore the ongoing payment of Rent and Service Charge, as exempt from VAT.
L&G delegated its obligation to provide the services to a third party management company, Fresh Student Living Limited (“FSL”). Accordingly, on the same date as the Leases were entered into, the parties also entered into two management agreements with FSL, by which FSL was appointed to provide a wide range of services at the student accommodation (“the Management Agreements”). Under the Management Agreements, sums payable are exclusive of VAT; but that where under the Management Agreements a supply is made that is subject to VAT, the person receiving the service (that is, L&G) was to pay VAT to the person making the supply (that is, FSL).
For the first two years after grant of the Leases, from September 2015 to September 2017, L&G issued invoices to UAL which charged the sums due for Rent, Sinking Fund and Service Charge pursuant to the Leases exempt from VAT. Apparently, L&G did not seek reimbursement from UAL in relation to any VAT paid by L&G on the sums due to FSL including VAT on the management fees.
However, from sometime in November 2017, L&G began charging VAT on the Service Charge contributions. It did this, apparently, without making it clear on the invoices that sums charged included an element in respect of VAT. In fact, the invoices I have seen from this period state that the Service Charge was “Exempt from VAT”, and the amount of VAT is stated to be “0.00”. UAL paid the amounts stated on the invoice, not having had the change in practice drawn to its attention.
As I understand it, UAL only became aware of what had been happening when, by letter dated 17 December 2018, L&G's agent wrote to UAL asserting that an amount of £157,878.33 in respect of VAT paid by L&G relating to the Highline Building had been omitted for the period September 2015 to September 2017, and seeking payment of this amount. A similar letter, of the same date, was sent in relation to Sketch House, asserting that £352,248.63 was due in respect of VAT. Credit notes were issued reversing in full the charges raised for the period to September 2017, but invoices were issued which charged the amount in respect of VAT which L&G now claimed from UAL.
UAL responded in early 2019, stating that L&G had no right to charge VAT on the Service Charge, nor did UAL have any obligation to pay such VAT. UAL and L&G therefore disagreed as to whether, under the Leases, in particular, clause 13, L&G was entitled to recover from UAL the VAT element of its payments to FSL. UAL, as a higher education institution, could not recover VAT on the provision of student accommodation.
The Leases contain a provision headed “Settlement of Disputes”, which is clause 28 in the Highline Building Lease. This provides for the resolution of disputes between the parties arising out of or in connection with the Leases. Pursuant to clause 28 of the Leases, the parties agreed that a Dispute had arisen and appointed Sam Grodzinski KC as the Expert. However, the parties disagreed as to the precise nature and scope of the question for him to determine.
On 1 October 2020, the Expert, having received submissions from the parties, wrote a letter identifying a “primary dispute”, concerning the proper interpretation of the Leases and accompanying management agreements and a “secondary dispute”, concerning the rectification of the contractual documents. However, the Expert agreed with the parties that it was not necessary for him to resolve “… any such secondary dispute at this stage”. Given the likely additional time and costs in resolving the secondary dispute, that is, the need for detailed factual evidence, the Expert explained that it would not be appropriate to resolve such secondary dispute at the same time as the primary dispute.
On 19 January 2021, the Expert circulated to the parties his determination of the primary dispute (“the Determination”) by email, writing “… I attach my determination of the dispute.” At para. 44 of the Determination, he characterised the primary dispute (meaning the dispute relating to contractual interpretation, rather than rectification) as being
“… on a proper interpretation of clause 13.2 of the Lease, is the Management Fee, payable by L&G to FSL under the Management Agreement, a “cost or expense” which UAL is required by the terms of the Lease to “reimburse or indemnify” to L&G? if the answer is yes, then UAL is obliged to reimburse or indemnify L&G for the full amount of the Management Fee, including any part of it which represents VAT.”
The Expert's conclusion on the primary dispute was that:
“… the Management Fee, payable by L&G to FSL under the Management Agreement, is a cost or expense which UAL is required by the terms of the Lease to reimburse to L&G, so that UAL is obliged to reimburse L&G for the full amount of the Management Fee, including any part of it which represents VAT.” (at para. 92)
The Expert also indicated that, insofar as UAL decided that the Expert should go on to determine any dispute regarding rectification of the contracts, it should notify L&G and the Expert within 28 days from the date of his decision, or 16 February 2021. UAL sought an extension to this period to 16 March 2021 from L&G, an extension which L&G agreed.
What happened instead was that UAL purported to provide notice of its dissatisfaction with the Determination on 15 March 2021, that is 39 days after UAL received the Determination (“the Notice”). By the Notice, UAL indicated that it intended to refer the entirety of the dispute between the parties to court proceedings. Regarding timing, the Notice states that:
“While we recognise that it has now been in excess of 20 Working Days since the parties received the Determination, time is not of the essence in relation to the clauses of the leases referred to above. Further or alternatively, Mr Grodzinski QC has not determined the whole dispute as yet and UAL will require that whole dispute be referred to court proceedings because it is dissatisfied with the Determination as to contractual construction.”
The Statements of Case
UAL duly commenced these proceedings, by claim form dated 6 July 2022. Under the heading “Brief details of claim”, UAL sought
“… declarations as to the proper meaning and effect of provisions in Leases (“the Leases”) dated 3 September 2015 of premises at Sketch House … and the Highline Building in connection with VAT or in the alternative rectification of the Leases to correct the parties' common mistake as to the position in respect of VAT; or alternatively rectification of the Leases to correct the Claimant's unilateral mistake as to the position in respect of VAT …”
UAL's Particulars of Claim make it plain that the two issues in the proceedings are (a) the proper meaning and effect of the Leases (“the Construction Issue”) and (b) in the alternative, a claim for rectification, either on the basis of common mistake on the part of the parties, or...
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