Homepace Ltd v Sita South East Ltd

An expert’s certificate under a lease is effective only if the expert determines the question entrusted to him. The contract defines both the expert’s remit and whether his determination is binding. A court may therefore examine whether the expert addressed the correct contractual question. Construction of the lease and the meaning of a defined term remain for the court unless clearly delegated.

Where an expert voluntarily explains his reasoning, the court may consider the certificate, report and explanations to identify the basis of the decision. A certificate issued on a materially mistaken construction of the lease is ineffective, even if a valid certificate might have been issued on the correct basis.

Homepace, the landlord, granted a 999-year lease of quarry land to Hughes Waste Management, later assigned to SITA. The lease required a Surveyor’s Mineral Exhaustion Certificate before the tenant’s liability for the £100,000 annual Certain Rent could cease.

SITA served notice and obtained a certificate stating that the minerals were not economically recoverable. The surveyor had excluded limestone suitable for building stone from his assessment. The High Court declared the certificate invalid at [2007] EWHC 629 (Ch). SITA appealed. The central issues were the scope and binding effect of the expert’s remit, the proper meaning of the lease’s definitions of Minerals and Reserved Minerals, and the effect of the surveyor’s mistaken approach.

1. Appeal dismissed unanimously. Lord Justice Lloyd gave the leading judgment, with which Lady Justice Smith and Lord Justice Waller agreed.
2. The effect of an expert determination depends on the contract. The court must identify what the parties entrusted to the expert, determine whether the expert decided that question, and then consider whether any mistake vitiates the determination. A determination outside the expert’s authority has no effect. If it falls within the authority, the contract governs whether and on what grounds it may be challenged. This approach was supported by Jones v Sherwood Computer Services plc [1992] 1 WLR 277 and Mercury Communications Ltd v Director General of Telecommunications [1996] 1 W.L.R. 48.
3. The surveyor had exclusive power to determine the factual and economic questions whether the Minerals were exhausted or economically irrecoverable. The lease did not, however, delegate to him the construction of the lease or the meaning of the defined term Minerals. The certificate was binding only if those factual questions were addressed by reference to Minerals correctly understood.
4. On the proper construction of the lease, the landlord was entitled to extract no more than 12,000 tonnes of suitable building stone in any year. The tenant was not precluded from extracting other suitable building stone and could sell it as such. The rival construction advanced by the landlord was preferred because the tenant’s interpretation would have deferred its intended mineral and waste operations almost indefinitely. The principle against derogation from grant also supported resolving doubt in the tenant’s favour.
5. The court was entitled to consider the surveyor’s report and the subsequent correspondence because the surveyor had voluntarily explained the basis of his certificate. His explanations showed that he had excluded all Reserved Minerals, rather than disregarding only the landlord’s annual entitlement. That was a material error in the basis of the determination. The certificate could not be reconstructed on the correct basis and was therefore not binding or effective under clause 3.5.4.1.
6. The present case was analogous to National Grid Co plc v M25 Group Ltd [1999] 1 EGLR 65, rather than Norwich Union Life Insurance Society v P&O Property Holdings Ltd [1993] 1 EGLR 164, because the contractual allocation of decision-making powers differed.

1. Court of Appeal (Civil Division) — Dismissed SITA’s appeal and upheld the declaration that the certificate was invalid and ineffective under the lease.
2. High Court of Justice, Chancery Division — Mr Nicholas Strauss Q.C., sitting as a Deputy High Court Judge, held that the certificate was not valid and declared accordingly in the order dated 30 March 2007, reported at [2007] EWHC 629 (Ch).