Kaushal Corporation v Maria Carmel O'Connor

A service-charge clause must be construed by its ordinary contractual meaning. There is no general rule requiring service-charge provisions to be construed restrictively or contra proferentem. A clause covering costs incurred in connection with an application or request for approval or consent does not, without sufficiently clear wording, extend to litigation costs arising from proceedings about the refusal of consent. Where payment is expressed to be on demand, a demand is a condition precedent to liability. A costs order is not itself such a demand.

Kaushal Corporation appealed against the dismissal of its claim against the respondent guarantor. The claim sought recovery of legal costs incurred in earlier proceedings brought by Red Rooster Restaurants Ltd concerning the refusal of consent to assign a lease.

The County Court held that the lease’s service-charge clause did not cover those litigation costs and that no demand for payment had been made. The appeal concerned the proper construction of the clause and, alternatively, whether a valid demand had been made and pleaded.

1. Appeal dismissed. The County Court had been entitled to dismiss the claim for the legal costs of the earlier proceedings.
2. The clause contained two relevant elements: the types of recoverable charges and the activity in respect of which they could be recovered. The first element clearly included legal fees. The second was limited to costs incurred in or in contemplation of an application or request for approval or consent. It did not refer to proceedings arising from such an application or request.
3. The ordinary meaning of the clause therefore excluded the costs of litigation concerning an allegedly unreasonable refusal to consent to an assignment. There was no commercial necessity to extend the clause to those costs, since the court could make an appropriate costs order in the litigation.
4. The principles in Arnold v Britton [2015] A.C. 1619 applied. There was no general contra-proferentem rule or special restrictive approach applicable to service-charge clauses. The clause had to be construed by the ordinary principles of contractual interpretation.
5. The words “on demand” made a demand a condition precedent to liability. The demand had to be made by or on behalf of the claimant to the tenant. A court order for costs did not constitute such a demand.
6. In any event, no demand had been made or pleaded. The relevant costs had not been assessed, so the sum allegedly due was unknown. The appeal grounds concerning construction, demand, pleadings and procedural irregularity therefore failed.

• High Court (King's Bench Division): On appeal from the Central London County Court, the appeal was dismissed on all grounds.
• Central London County Court: His Honour Judge Gerald dismissed the claim except for £2,836 and ordered the claimant to pay 90% of the respondent’s costs. The neutral citation of that decision was not stated in the judgment.