Sara & Hossein Asset Holdings Ltd (a company incorporated in the British Virgin Islands) (Respondent) v Blacks Outdoor Retail Ltd (Appellant)

This appeal concerns the interpretation of a clause in a lease that provides for the landlord's certification of the service charge sum payable by the tenant. Sara & Hossein Asset Holdings Ltd (S&H), the landlord, issued a certificate to Blacks Outdoor Retail Ltd (Blacks), the tenant, stating that a certain sum was payable. Blacks objected, claiming that the charge was excessive and included unnecessary items and expenses which fell outside the terms of the lease. The Supreme Court had to decide whether the landlord's certification of the sum payable was conclusive subject only to the permitted defences of manifest or mathematical error or fraud or whether the certification was conclusive as to the amount of costs incurred by the landlord but not as to the tenant’s service charge liability.

The Court held that the landlord's certificate was indeed conclusive as to what is required to be paid under the Schedule 6 regime, subject only to the permitted defences. Under para 5 of Part I of Schedule 6 the balancing payment relates to the certified sum – “the sum payable by virtue of such certificate”. No set off is allowed against the sum so certified, save in relation to the permitted defences. The landlord is thereby assured of payment of the service charge without protracted delay or dispute. Payment of the certified sum does not, however, preclude the tenant from thereafter disputing liability for that payment. This gives full effect to the tenant’s inspection rights under paras 8 and 11 of Part 1 of Schedule 6 and any arguable disputes identified thereby. It entitles the tenant to raise and pursue arguable claims as to out-of-scope costs or excluded costs, including claims only discoverable at a later date, consistently with the tenant’s right to bring a later claim in relation to the proportion adjustment. The burden will, however, be on the tenant to pursue and establish any such claims. The landlord’s cashflow position is therefore protected, whilst the tenant is not deprived of the possibility of pursuing arguable claims.

The Court of Appeal was right to enter summary judgment for S&H. That does not, however, preclude Blacks from pursuing its counterclaim.