Terracorp Ltd v Mistry & Ors

Service-charge covenants must be construed as a whole. Where the obligation is expressed as payment for specified services, or as a proportion of costs incurred in providing them, liability ordinarily depends on those services being provided or genuinely anticipated within the relevant period. Words stating that sums are payable in advance, or calculated from the contract date, may govern calculation without creating an unconditional payment obligation.

Commercial common sense cannot replace the contractual language, but it may confirm an interpretation which avoids requiring indefinite payments for services that do not exist, are not expected, and need never be provided. An appellate court will interfere with a first-instance costs discretion only for an error of principle or a decision outside the generous ambit of discretion.

The Claimant appealed from the judgment and order of HHJ Johns QC following a six-day trial. The proceedings concerned covenants in contracts for the sale of freehold plots of undeveloped green-field land. The covenants required purchasers to pay specified sums or proportions of costs connected with roads, paths, verges and related access works on retained land.

No relevant roads or services existed, and there was no foreseeable prospect of development. The trial judge declared that no liability to pay the covenant charges had arisen, although he rejected the Defendants’ other defences and ordered the Claimant to pay 50% of their costs.

The central issues were whether the covenants imposed an unconditional payment obligation and whether the costs order was flawed.

1. Construction of the covenants. The appeal against the declaration was dismissed. Reading the various covenant categories in their contractual and factual context, the words “to pay the costs incurred in” specified works, or “to pay for” those works, tied payment to the provision of services by the seller. The first sentence of each covenant had a substantive contractual function and could not be treated as merely descriptive.
2. The second sentences, including references to sums being payable or calculated yearly in advance and, in some categories, commencing from the date of the agreement, principally fixed or calculated the amount once the payment obligation arose. They did not create an unconditional obligation detached from the services. A genuine expectation that the seller would provide the relevant services during the following year could justify a demand in advance, but no liability arose where the roads did not exist and their construction and maintenance were not anticipated.
3. Category 4 was stronger still because its specified sum was expressly “capped”. That wording required the actual costs of the services to be capable of calculation and prevented the fixed amount from operating as an unconditional charge.
4. The commercial consequences supported the same construction. At the contract dates, the land was undeveloped and development was unlikely for many years. It was commercially improbable that purchasers intended to pay indefinitely for roads which might never exist, where the sellers had no obligation to obtain planning permission, construct or maintain them, or retain the relevant land.
5. Costs. The costs appeal was dismissed. The first-instance judge was entitled to treat the Defendants as the overall winners while reducing their recoverable costs because they had failed on substantial additional issues. The exercise was global and discretionary. It was not necessary to adopt a mechanical issues-based calculation, and evidence relevant to the factual matrix and common issues could properly be included.
6. The judge’s reasons could have been fuller, but his order was rationally open to him and was not outside the generous ambit of discretion. No error of principle, failure to take relevant matters into account, or plainly wrong conclusion was established. The appeal was dismissed.

• High Court (Chancery Division): appeal from the judgment and costs order of HHJ Johns QC dated 9 September 2019 and 3 December 2019. The appeal was dismissed.