HIS HONOUR JUDGE RICHARD SEYMOUR Q.C.:
Introduction
1. Until 17 January 2003 the claimant, Leonora Investment Co. Ltd. (“Leonora”), was the freehold owner of the building known as and situate at
2. The Building is a structure constructed in the mid – 1960s as an office block. It comprises a ground floor and twelve upper floors.
3. Leonora was formerly known as Laing Investment Co. Ltd. (“Laing”).
4. By a lease (“the Ground Floor Lease”) dated 7 July 2000 and made between Laing and the defendant, Mott Macdonald Ltd. (“MM”) Laing demised to MM the greater part of the ground floor of the Building, retaining some part of the ground floor as common parts. By three other leases (“the MM Leases”) also dated 7 July 2000 and made between Laing and MM Laing demised to MM the greater part of each of the first, second and third floors of the Building. A separate lease was entered into in respect of each of the floors let. So far as is presently material each of the MM Leases was in the same terms as the Ground Floor Lease, and it is convenient to treat the relevant provisions of the Ground Floor Lease as representative also of the provisions of the MM Leases. In this judgment I shall refer to the Ground Floor Lease and the MM Leases collectively as “the Leases”. The term created by each of the Leases was 10 years from 24 June 2000.
5. In this action Leonora claims:-
“the sum of £250,043.02 in respect of service charges plus VAT of £43,757.52 due from the Defendant as tenant to the Claimant as landlord in respect of the Defendant’s occupation of the premises at Ground, First, Second and Third Floors, St Anne House, 20/26 Wellesley Road, Croydon, Surrey.”
together with interest on those sums.
6. The claims made by Leonora are resisted by MM on a number of grounds.
7. By an order dated 5 July 2007 Master Eyre directed that there be tried a preliminary issue in the following terms:-
“Whether
Having regard to the service-charge provisions in the four leases dated 4 [in fact 7] July 2000, made between the Claimant and the Defendant, relating to St Anne House, 20-26 Wellesley Road, Croydon, Surrey, the Defendant has any liability to the Claimant pursuant to the Claimant’s invoice SUN102979 dated 15 January 2003 (demanding the total sum of £263,117.22)”
8. The significance of the reference to the invoice numbered SUN102979 (“the Invoice”) is that, notwithstanding how the matter was put in paragraph 1 of the Particulars of Claim, from which I have quoted at paragraph 5 above, the first indication of a claim in respect of the matters alleged to justify the claims made in this action was in fact when Mr. Edward Wilson of P&O Properties Ltd. (“P&O”), a company associated with Leonora, wrote to Mr. Michael Selby of MM a letter dated 15 January 2003 in the following terms:-
“St Anne House,
Common parts redecoration etc
I refer to past discussions and our telephone conversation on Monday regarding the above. In particular Mott MacDonald’s contribution towards the cost of the works involved, and in accordance with the leases between our respective companies.
To this end I enclose our invoice number SUN102979 to which is attached a schedule detailing the work involved and, costs incurred by your Landlord. By way of information the schedule indicates the overall cost and that apportioned to Mott MacDonald. The apportionment of cost under items such as joinery I have indicated the repair cost only to Mott’s, not the full costs renewing the items. I have done so on the basis that it was not economically viable to repair these items.
The landlord looks forward to receipt of your payment.”
9. The Invoice enclosed with that letter was printed on the stationery of P&O Property Group. It included:-
“Re: LEONORA INVESTMENT COMPANY LIMITED
ST ANNE HOUSE, 20/
but did not otherwise identify on whose behalf it was rendered. It was addressed to MM at the Building, but identified as the tenant:-
“MOTT MACDONALD LIMITED
GROUND FLOOR, ST ANNE HOUSE,
In a section entitled “Details of Amount Due for Payment” appeared the words, “contribution for redecoration etc as att schedule”. The amount claimed was £223,929.55, together with Value Added Tax of £39,187.67.
10. It has fallen to me to try the preliminary issue directed by Master Eyre to be tried.
The material terms of the Ground Floor Lease
11. For the purposes of the trial of the preliminary issue the material provisions of the Ground Floor Lease were, first, clause 2:-
“DEMISE AND RENT RESERVATION
The Landlord HEREBY DEMISES unto the Tenant the Premises TOGETHER WITH the easements and rights specified in the SCHEDULE OF RIGHTS EXCEPT AND RESERVED unto the Landlord and others the easements and rights specified in the SCHEDULE OF RESERVATIONS TO HOLD the Premises unto the Tenant for the Contractual Term SUBJECT TO the provisions of the deeds and documents referred to in the SCHEDULE OF DEEDS YIELDING AND PAYING therefor to the Landlord during the Term yearly and proportionately for any fraction of a year the rents set out hereunder:
2.1 until the Review Date the Initial Rent
2.2 during the Review Period a rent equal to the Rent payable immediately before the Review Date or such revised Rent as shall be ascertained in accordance with THE RENT REVIEW SCHEDULE whichever shall be the greater
to be paid by equal quarterly payments in advance on the usual quarter days in every year the first payment (apportioned in respect of the period from the Rent Start Date up to and including the day immediately preceding the next following quarter day) to be paid on the Rent Start Date
2.3 the Additional Rents – to be payable from the Rent Start Date and to be paid to the Landlord within fourteen days of demand (except as otherwise provided)”
12. By clause 1.1 of the Ground Floor Lease the expression “Additional Rents” was defined, at clause 1.1.2, as including “the Service Charge (as hereinafter defined)”. The material definition was to be found in clause 1.16:-
“”Service Charge”
the sum payable by the Tenant in accordance with Part 2 of the SCHEDULE OF SERVICES hereto.”
13. The other elements included in the definition of the expression “Additional Rents” were:-
“1.1.1 the Insurance Rent (as hereinafter defined)
1.1.2 …
1.1.3 any interest chargeable under this lease
1.1.4 all expenses costs fees and other sums incurred under the provisions of the sub-clauses of this Lease headed Landlord’s costs Landlord may repair on Tenant’s default and Value added tax
1.1.5 any additional insurance premiums payable by the Tenant under the sub-clause headed Insurance”
14. For present purposes the relevant provisions of Part 2 of the Schedule of Services were:-
“1. The Service Charge to be paid by the Tenant shall be such fair proportion (which may if appropriate be the whole amount) of the actual or anticipated Service Costs for each Service Charge Year which shall be assessed by the Landlord or its Surveyor according to a reasonable and proper basis for apportionment applicable from time to time to the Premises.
2. The Landlord may make and send to the Tenant notice in writing of the Landlord’s estimate of the anticipated Service Costs and the Service Charge applicable to the Premises for the coming Service Charge Year and the Tenant shall pay such estimate of the Service Charge by equal quarterly instalments in advance on the usual quarter days.
3. The Landlord will (unless prevented by causes beyond its control) prepare and send to the Tenant a statement of the actual Service Costs and Service Charge for each Service Charge Year as soon as practicable after the end of such year and in the event of the Service Charge for the Premises exceeding the aggregate amount paid by the Tenant for such year the Tenant will pay the balance due to the Landlord within fourteen days of demand and in the event of the aggregate amount being greater the excess will be credited by the Landlord by way of set-off against the next instalment of Service Charge due from the Tenant but so that any credit held for the Tenant shall be refunded to the Tenant on the expiry of the Term.”
15. The expression “Service Costs” was defined in clause 1.15 of the Ground Floor Lease by reference to the contents of Part 1 of the Schedule of Services, but the detail is not presently material.
16. In clause 1.17 of the Ground Floor Lease the expression “Service Charge Year” was defined as:-
“the period of twelve months up to the 24th of December in each year or such other period as the Landlord shall from time to time choose.”
17. In fact the Service Charge Year adopted was that up to 24 December in each year.
18. While not particularly relevant to any issue which I have to decide, the “Rent Start Date” was defined in the Lease Particulars of the Ground Floor Lease as 24 June 2000.
19. By clause 3.1.1 of the Ground Floor Lease MM covenanted:-
“To pay the reserved rents at the times and in the manner aforesaid without any deduction or set off.”
The Service Charge Year ending 24 December 2002
20. Before coming to the arguments canvassed before me, it is convenient to set out what had in fact happened in the Service Charge Year ending 24 December 2002.
21. Leonora elected to operate the mechanism contained in paragraph 2 of Part 2 to the Schedule of Services in respect of the Service Charge Year ending 24 December 2002. By an invoice dated 30 November 2001 service charges were claimed in advance on 25 December 2001 in respect of the following quarter under each of the Leases. A separate invoice was issued in respect of each of the Leases. Four more invoices, each dated 25 February 2002, were issued in respect of service charges in advance in relation to the quarter commencing on 25 March 2002, one under each of the Leases. For the quarter beginning on 24 June 2002 four invoices, each dated 28 May 2002, claiming service charges in advance were issued, again one under each of the Leases. The claims for service charges in advance under each of the Leases for the quarter commencing on 29 September 2002 were made by separate invoices each dated 23 August 2002.
22. After the end of the Service Charge Year expiring on 24 December 2002 Leonora prepared, for each of the Leases, a Schedule of Actual Expenditure for 25/12/2001 to 24/12/2002. A credit note, dated 31 January 2003, was issued on behalf of Leonora under each of the Leases showing that an overpayment had been made in respect of service charges for the Service Charge Year ending on 24 December 2002.
Submissions on behalf of MM
23. The submissions on behalf of MM which gave rise to the direction of Master Eyre that there should be a trial of the preliminary issue with which this judgment is concerned were conveniently summarised at paragraph 13 of the Amended Defence and Counterclaim in this way:-
“It is denied that the Defendant has any liability to the Claimant in the sum claimed or any sum, because:
(i) The Claimant has already provided the Defendant with a statement pursuant to paragraph 3 of Part 2 of the Schedule of Services, and credit notes, and is not entitled to serve any further statement.
(ii) In any event the invoice dated 15 January 2003:
(a) did not purport to be in compliance with paragraph 3 (and was not in compliance therewith)
(b) was a single invoice and was stated to relate only to the Ground Floor lease.
(iii) In order for a landlord to recover any sum by way of service charge pursuant to the leases (other than an estimated sum) ‘the landlord will … prepare and send to the tenant a statement of the actual Service Costs and Service Charge for each Service Charge Year …’. On its own admission (viz its solicitor’s letter of 24 April 2006) the Claimant has not complied with this obligation.”
24. Mr. Mark Warwick, who appeared on behalf of MM, submitted that, on proper construction, the nature of the obligation of MM to pay the Service Charge was to pay what was demanded in accordance with the procedure set out in Part 2 of the Schedule of Services in the Ground Floor Lease. Thus, as service charges had been claimed under paragraph 2 of that Part in respect of the Service Charge Year ending 24 December 2002, and had been paid, and a statement under paragraph 3 of Part 2 had been provided which showed overpayments by MM, it had discharged its obligation. Mr. Warwick contended that, on proper construction of Part 2 of the Schedule of Services, Leonora was only entitled to raise one claim under paragraph 2 in respect of service charges for each relevant quarter, and was only entitled to produce one statement under paragraph 3 to form the basis of a balancing at the end of the year.
25. In addition, Mr. Warwick submitted that in any event, on correct construction of Part 2 of the Schedule of Services, any statement under paragraph 3 had to be specific to the relevant lease, and so the Invoice, in seeking, it appeared, to claim a single sum in respect of liabilities said to arise under each of the Leases, was ineffective as a demand under any of them. Moreover, the Invoice did not purport to set out a statement of the actual Service Costs or the Service Charge for the Service Charge Year ending on 24 December 2002, and so was invalid also on that account.
26. In support of the construction for which he contended Mr. Warwick emphasised the definition of the expression “Service Charge” in clause 1.16 of the Ground Floor Lease, “the sum payable by the Tenant in accordance with Part 2 of the SCHEDULE OF SERVICES hereto”. He submitted that the effect of that provision was that MM was only bound to pay the Service Charge if and insofar as it was demanded in accordance with the mechanism set out in Part 2 of the Schedule of Services.
27. Mr. Warwick drew to my attention, in support of his submissions, the decisions of the Court of Appeal in Finchbourne Ltd. v. Rodrigues [1976] 3 All ER 581, CIN Properties Ltd. v. Barclays Bank Plc [1986] 1 EGLR 59 and Northways Flats Management Co (Camden) Ltd. v. Wimpey Pension Trustees Ltd. [1992] 2 EGLR 42. What one derived from each of these authorities was that, if, on proper construction, an obligation in a lease to pay service charges, or some part thereof, was subject to some condition precedent to be performed by the lessor, and that condition precedent was not performed, there was no obligation on the lessee to pay. That, perhaps rather unsurprising, proposition did not seem to me to be of much assistance in resolving the issues before me.
Submissions on behalf of Leonora
28. Mr. David Holland, who appeared on behalf of Leonora, emphasised in his submissions the covenant in clause 3.1.1 of the Ground Floor Lease. The primary obligation of MM under the Ground Floor Lease, so far as presently relevant, he contended, was to pay the Service Charge. Part 2 of the Schedule of Services, he said, was mere machinery as to how that should be done. However, paragraph 1 in Part 2 of the Schedule of Services again plainly imposed upon MM, submitted Mr. Holland, an obligation to pay service charges. The point, he contended, was that there was a positive obligation to pay, so that if the sum claimed in this action was in truth properly characterised as service charges, a matter with which I was not concerned on this trial of a preliminary issue, MM was bound to pay it notwithstanding that Leonora had operated the provisions of paragraph 2 of Part 2 of the Schedule of Services for the Service Charge Year ending 24 December 2002, notwithstanding that a statement of actual service charges for that year had been provided which showed a credit in favour of MM, and notwithstanding that the Invoice did not comply with the requirements of Part 2 of the Schedule of Services.
29. In support of his submissions Mr. Holland relied heavily on the decision of the Court of Appeal in Universities Superannuation Scheme Ltd. v. Marks & Spencer Plc [1999] L&TR 237. The facts of that case had some similarities to the facts of the present case. The claimant had demised a retail store forming part of a shopping centre to the defendant. By the terms of the lease the defendant covenanted to pay service charges calculated as the total sum expended by the claimant on providing services to the shopping centre divided by the aggregate of rateable values of the shopping centre, multiplied by the rateable value of the demised premises. The claimant had levied service charges in the service charge years ending 31 March 1992 and 31 March 1993, and the defendant had paid the sums so claimed. However, it was subsequently discovered that the sums actually claimed had been less than ought to have been claimed because the claimant’s agents had made an error as to the rateable value of the demised premises. In the action the claimant sought to recover the additional sums which ought to have been, but had not been, claimed in the first instance. The matter came before Blackburne J on a trial of a preliminary issue “as to whether the service charge years ending March 31, 1992 and 1993 can be reopened”. The learned judge held that the answer was in the negative. The Court of Appeal reversed that decision. The only substantive judgment in the Court of Appeal was that of Mummery LJ.
30. At page 239 of the report Mummery LJ noted that:-
“The dispute turns on the true construction of the lease. It is therefore necessary to refer in some detail to the relevant provisions.”
31. The learned Lord Justice then embarked on a detailed consideration of those provisions.
32. At page 242 Mummery LJ summarised the submissions of the lessee which Blackburne J had accepted and, so far as is presently relevant, the submissions on behalf of the lessor which he had rejected:-
“Mr. Justice Blackburne accepted the submissions of Marks & Spencer on the question of construction. They can be summarised as follows:
(1) The tenant’s contractual obligation is to pay the service charge payable and calculated in accordance with the Fifth Schedule.
(2) Under paragraph 2 of Schedule 5 the landlord informs the tenant of the service charge which is payable. That is done by the landlord stating the amount “payable by the tenant” in the certificate sent by the landlord to the tenant.
(3) The tenant is under an obligation to pay the amount of the service charge specified in the certificate.
(4) On payment of the amount so specified, the tenant satisfies his contractual obligations in respect of the service charge.
The judge rejected the contentions of USS that the sending of the account under paragraph 2 was “mere machinery” and that it did not matter whether it contained an error or omission. He rejected the contention that the tenant’s obligation was to pay the “correct” amounts, as distinct from the amount demanded by the landlord in the certificate. He rejected the contention that the tenant’s obligation to make payment did not arise … unless and until a demand was made specifying the correct sum.”
33. Mr. Holland submitted that the submissions on the part of the lessee which Blackburne J had accepted were strikingly similar to those on behalf of MM before me. At the same time, the submissions on behalf of the lessor which he rejected, contended Mr. Holland, were similar to his submissions as to how the Ground Floor Lease should be construed.
34. Mummery LJ considered at page 243 the purpose of a service charge:-
“The purpose of the service charge provisions is relevant to their meaning and effect. So far as the scheme, context and language of those provisions allow, the service charge provisions should be given an effect which fulfils rather than defeats their evident purpose. The service charge provisions have a clear purpose: the landlord who reasonably incurs liability for expenditure in maintaining the Telford Shopping Centre for the benefit of all its tenants there should be entitled to recover the full cost of doing so from those tenants and each tenant should reimburse the landlord a proper proportion of those service charges.”
35. Mr. Holland urged me to have careful regard to the purpose of the service charge provisions in the Ground Floor Lease, which he said was essentially the same as the purpose identified by Mummery LJ in the passage which I have quoted.
36. Later on page 243 Mummery LJ set out his conclusion on the case before him, so far as presently material as follows:-
“Having regard to that purpose, I have reached the conclusion that the legal effect of the service charge provisions is as follows:
Marks & Spencer was under an obligation to pay the service charge “calculated in accordance with the Fifth Schedule”: that is common ground. See the terms of the reddendum in clause 2.3.3, which, it is to be noted, does not refer to the service charge “certified” in accordance with the Fifth Schedule.
The method of calculation of the service charge payable by the tenant is contained in paragraph 4 of the Fifth Schedule. That is the only paragraph in the schedule which refers to the process of calculation of the service charge payable by the tenant. The calculation of the service charge in accordance with that paragraph for the two relevant years produces a sum which substantially exceeds the calculation in fact made by the landlord’s agents for those years. The payment of the lesser sum incorrectly calculated is not a performance by the tenant of the contractual obligation to pay the higher sum as correctly calculated. Marks & Spencer is therefore under an obligation to pay the shortfall to USS, unless there is some other provision in Schedule 5 which has a contrary contractual effect.”
The learned Lord Justice then went on to consider the submissions on behalf of the lessee to the effect that there was a provision to contrary effect. He rejected those submissions.
37. Whilst recognising that the provisions of the Ground Floor Lease in respect of service charges were different from those considered in Universities Superannuation Scheme Ltd. v. Marks & Spencer Plc, Mr. Holland submitted that I should construe the provisions in the Ground Floor Lease in such a manner as to produce the same result as in that case.
Consideration
38. In my judgment the passage from the judgment of Mummery LJ in Universities Superannuation Scheme Ltd. v. Marks & Spencer Plc in which he considered the purpose of service charge provisions in a lease needs to be approached with caution. It is always necessary in construing a provision in a written agreement to have regard to its purpose. However, it would be wrong, as it seems to me, to view the passage in the judgment of Mummery LJ in which he was dealing with the purpose of service charge provisions as indicating that there was some sort of presumption that a lessee would pay service charges in all circumstances. Whilst service charge provisions are very common in commercial leases and in long leases of residential property in this country, they are not usually encountered in short leases of residential property. The significance of that is simply that there can be no universal assumption that a lessee under any lease will pay service charges. Whether the lessee is bound to pay service charges or not will depend upon the terms of the relevant lease.
39. In the passage which I have quoted Mummery LJ emphasised that effect could be given to the purpose which he identified “So far as the scheme, context and language of those provisions allow”. That, as it seems to me, is a significant qualification. The authorities upon which Mr. Warwick relied demonstrated that, if there was a condition precedent to be satisfied before a service charge, or a particular part of one, was payable by the lessee, it had to be complied with. Such condition precedent could not be avoided by an appeal to the purpose of having the service charge.
40. In the end, although it must be right to have regard to the purpose of having service charge provisions in a lease, that consideration may be of little assistance in construing provisions which are said to have the effect of amounting to conditions precedent to the liability to pay or as specifying the circumstances in which there is a liability to pay.
41. In Universities Superannuation Scheme Ltd. v. Marks & Spencer Plc Mummery LJ placed great emphasis on the terms of the reddendum in that case. So far as material those terms, set out at page 240 of the judgment, were:-
“… to hold the same unto the Tenant for the Term Paying therefor unto the Landlord throughout the Term the following sums:
A sum payable without deduction or abatement whatsoever in respect of the Service Charge described payable and calculated in accordance with the Fifth Schedule hereto.”
42. What one could see from those provisions was, first, that there was an express obligation to pay the Service Charge, and, second, that the payment and calculation of the Service Charge were to be undertaken in accordance with the provisions of the Fifth Schedule. As I have explained, the calculation of the Service Charge was capable of being undertaken objectively once one knew the actual expenditure of the lessor on the shopping centre in the relevant year.
43. The reddendum in the Ground Floor Lease did not, as it seems to me, contain a definite obligation to pay service charges. Rather, there was an obligation to pay “the Additional Rents”. The list of “Additional Rents” in clause 1.1 of the Ground Floor Lease certainly included some, for instance those stated in clause 1.1.3 and 1.1.5, which might never be payable at all. If those items ever were to be payable, liability to pay depended upon events having happened which, on proper construction of the Ground Floor Lease, made them payable. Thus it could not be said of the obligation to pay “the Additional Rents” in the Ground Floor Lease, that every item included in the definition of such had to be paid, whereas it does seem that it was a feature of the lease in Universities Superannuation Scheme Ltd. v. Marks & Spencer Plc that there was a definite obligation to pay the Service Charge.
44. The terms of the reddendum in the Ground Floor Lease rather emphasised that not all of the items in the list of “Additional Rents” might be payable by providing that the “Additional Rents” were to be “paid to the Landlord within fourteen days of demand (except as otherwise provided)”. There was thus no fixed date or fixed dates for payment of the “Additional Rents” collectively. In the case of “the Service Charge” time for payment was in fact dealt with in Part 2 of the Schedule of Services, so those provisions superseded the obligation to pay within fourteen days of demand.
45. The reference to “the Service Charge” in clause 1.1.2 of the Ground Floor Lease was qualified by the words “(as hereinafter defined)”. The definition of the words “Service Charge” in clause 1.16 was “the sum payable by the Tenant in accordance with Part 2 of the SCHEDULE OF SERVICES hereto”. That definition was, as a matter of language, ambiguous. It could mean “the sum which is payable” or “the sum which may be payable”. Little more certainty as to whether a service charge was inevitably going to have to be paid in each year was provided by paragraph 1 of Part 2 of the Schedule of Services. The provision that “The Service Charge to be paid by the Tenant shall be such fair proportion (which may if appropriate be the whole amount) of the actual or anticipated Service Costs for each Service Charge Year” set an indefinite standard as the basis of making an apportionment, “fair”, but plainly contemplated that the application of that standard could result in MM paying the whole cost. It could only be fair for MM to pay the whole cost if all of the services were provided for its benefit as tenant of the particular floor to which the relevant lease related. The possibility that such might be the case seems to raise the possibility that all services might be provided for the benefit of some other tenant of the Building. If that was a live possibility, it would seem to follow that it might not be fair, at some point, to require MM as tenant of one of the floors which it occupied, to contribute to service charges.
46. I have already noted the indefinite standard by reference to which paragraph 1 of Part 2 of the Schedule of Services envisaged that an apportionment of service costs was to be made. However, it was clear, in my judgment, that the actual method of making an apportionment was not fixed, for the “fair proportion” was to be “assessed by the Landlord or its Surveyor according to a reasonable and proper basis for apportionment applicable from time to time”. That meant that MM could not know, in respect of any claim for service charges, on what basis an apportionment had been made until it received a notification of the Service Charge for the relevant year. The provisions that the proportion was to be “fair” and that the apportionment was to be made on “a reasonable and proper basis” were, in my judgment, obviously included for the protection of MM with a view to it being able to challenge an alleged liability which it considered was not “fair” or had not been apportioned on “a reasonable and proper basis”.
47. Paragraph 2 of Part 2 of the Schedule of Services gave Leonora an option to claim service charges in advance on a quarterly basis, but did not require it to exercise that option. MM could not know in respect of any Service Charge Year whether the option would be exercised until it was notified to that effect. In contrast the provisions of paragraph 3 were expressed in mandatory terms – Leonora was to send an annual statement as soon as practicable after the end of each Service Charge Year.
48. Any sum payable pursuant to the exercise of the option in paragraph 2 was payable on one of the usual quarter days, whilst any sum payable by MM pursuant to the provision of a statement under paragraph 3 was payable within fourteen days of demand. Part 2 of the Schedule of Services did not require any other payments to be made by MM.
49. Ultimately, in my view, the question which I have to decide is whether, as was contended on behalf of Leonora, MM was liable to pay any sum which was in fact a proportion of actual Service Costs, regardless of when or in what form Leonora demanded payment, or whether, as was submitted on behalf of MM, its liability to pay the Service Charge depended upon the procedure in paragraph 2 or paragraph 3 of Part 2 of the Schedule of Services being followed. It seems to me to be plain that the obligation to pay sums in advance on a quarterly basis depended upon Leonora exercising the option in paragraph 2 and that, if there was no exercise of the option, there was no obligation to pay in advance. Bearing in mind the facts that it appeared to have been contemplated that at some point it might not be fair to require payment of any service charge at all, that in any event the assessment of a fair proportion of Service Costs was to be undertaken by Leonora or its surveyor on a basis which might change from time to time, and that, without information as to the total actual Service Costs and the proportion thereof being demanded from it MM could not evaluate whether the proportion which it was invited to pay was “fair” and had been assessed on “a reasonable and proper basis”, it seems to me that on proper construction of the Ground Floor Lease MM was only liable to pay service charges if the procedure in paragraph 2 or paragraph 3 of the Schedule of Services was followed.
50. The delivery of the Invoice was not in accordance with that procedure.
51. Mr. Holland submitted that in effect what had happened in this case was that an error had been made in the delivery of the statement under paragraph 3 of Part 2 of the Schedule of Services in respect of the Service Charge Year ending on 24 December 2002 sent in relation to each of the Leases. Certainly it seems to me that what ought to have happened if the sums claimed in the Invoice were to be pursued from MM was that the costs upon which those sums were based were included in the statements under paragraph 3 delivered at the end of January 2003 and the resultant sums under each of the Leases then claimed. That, of course, did not happen. In my view the effect of the delivery of the Invoice was not that one should proceed as if it had happened.
52. I accept the submission of Mr. Warwick that where Leonora chose to exercise its option in paragraph 2 of Part 2 of the Schedule of Services it could do so only once. The option could only sensibly be exercised prior to the commencement of a Service Charge Year, because payment had to be made by equal quarterly instalments. For the same reason, and also for reasons of commercial common sense, in my judgment it was not open to Leonora, having made an estimate of anticipated Service Costs, thereafter to revise it so as to increase the amount of quarterly instalments. As it seems to me, having made an estimate of anticipated Service Costs Leonora was then stuck with it until the end of the year, when any necessary adjustment could be made in the statement of actual costs delivered under paragraph 3. It follows that MM discharged its obligations under paragraph 2 of Part 2 of the Schedule of Services in respect of the Service Charge Year ending 24 December 2002 by making the quarterly payments it did.
53. However, I see no justification for construing paragraph 3 of Part 2 of the Schedule of Services as limiting the entitlement of Leonora to service of one statement. It is true that a statement was required to be produced under that paragraph, but it would be strange and harsh if a revised statement could not be issued if the first one contained some error. It does not seem to me that the obligation on Leonora to provide a statement under paragraph 3 should be construed as an inhibition on producing more than one.
54. Nonetheless, no revised statement under paragraph 3 has in fact been produced under any of the Leases.
Conclusion
55. In the result I find that the answer to the preliminary issue is that the Defendant is not liable to the Claimant pursuant to the Invoice.
