Sara & Hossein Asset Holdings Ltd v Blacks Outdoor Retail Ltd

A landlord’s certificate under a service-charge provision may be conclusive as to the amount of costs incurred, subject to the stated exceptions, without being conclusive as to whether those costs fall within the tenant’s contractual liability. A clause giving one contracting party conclusive power to determine whether it has complied with its own obligations requires clear contractual language. A no-set-off clause prevents withholding sums that are properly due, but it does not determine whether the underlying liability to pay has arisen. A tenant may therefore raise substantive challenges to liability as a defence, although plainly unmeritorious defences may be dealt with summarily.

Sara & Hossein Asset Holdings Ltd v Blacks Outdoor Retail Ltd concerned an appeal from a judgment of Deputy Master Bartlett dated 9 December 2019. The landlord claimed unpaid service charges under commercial leases. The leases made the landlord’s certificate conclusive, absent manifest or mathematical error or fraud, and contained a no-set-off provision.

The Deputy Master held that the certificate was conclusive as to routine accounting matters but not as to whether particular works fell within the landlord’s repairing obligations. He declined to grant summary judgment because those defences had a realistic prospect of success. The appeal raised whether the certification provision excluded those defences and whether the no-set-off provision required them to be advanced only by counterclaim.

1. The appeal failed. The claim was to proceed to trial because the tenant was entitled to defend the service-charge claim by challenging whether particular works fell within the landlord’s repairing obligations.

2. The court distinguished between a clause referring disputed matters to an independent expert and a clause purporting to give one contracting party conclusive power to determine whether it has complied with its own obligations. The latter construction requires clear language. The landlord’s managing agent was not acting as an independent expert.

3. The certification provision made the landlord’s certificate conclusive as to the amount of the total cost of services comprised within the service charge, subject to manifest or mathematical error or fraud. It did not make the certificate conclusive as to whether a cost should properly have been incurred under the lease or fell within the scope of the service-charge obligations. Those questions remained for determination by the court.

4. The absence of an expert determination mechanism for the headline costs, contrasted with the express mechanism for determining the tenant’s proportion of total costs, supported that construction. The word conclusive was not redundant because the certificate remained conclusive on matters such as the amount of costs incurred.

5. The no-set-off provision applied in principle to service-charge payments, but only to sums that were due. It prevented withholding sums properly payable and did not resolve the anterior question whether the covenant to pay had been engaged. Certification could not alter that conclusion.

6. Potentially spurious objections could be addressed by strike out or summary judgment. On the evidence, however, the tenant’s objections were not shown to be spurious and could not be dismissed summarily.

• High Court (Chancery Division): appeal from Deputy Master Bartlett’s judgment dated 9 December 2019. The appeal was dismissed and the claim was directed to proceed to trial.