Property company – Sale of shares – Dilapidations – Defendant agreeing to indemnify associated third party cost of repairing obligations – Claimant undertaking to counter-indemnify defendant – Landlord issuing schedule of dilapidations – Defendant paying sum to third party for repairs – Defendant serving notice on claimant under indemnity – Claimant serving counter-notice – Defendant applying for summary judgment – Whether notices valid – Application dismissed
The claimant was a property holding company. One of its property portfolios comprised the freeholds of shops occupied by P Ltd, a company associated with the defendant company. The defendant agreed to indemnify P Ltd in part in respect of repairing obligations under certain leases of retail properties where the company had disposed of the freeholds. On the same date, the claimant agreed to counter-indemnify the defendant in respect of the defendant’s liability.
The landlord of one such property served a schedule of dilapidations on P Ltd, which instructed a surveyor, arranged for repairs to be carried out. It asked the defendant to indemnify it, under the indemnity, in respect of what it maintained was the relevant part of its costs, which amounted to approximately £102,000. The defendant paid the sum demanded and then gave purported notice in writing pursuant to the counter-indemnity demanding recovery of that sum from the claimant. The claimant gave a counter-notice pursuant to the counter-indemnity arguing, inter alia, that the amounts were too high.
The defendant applied for summary judgment on the claim and counterclaim contending that, on the true and proper construction of the counter-indemnity, the defendant’s notice was valid and effective according to its terms but that the claimant’s counter-notice was invalid, with the result that the amount claimed was due and payable.
Held: The application was dismissed.
On its proper construction the indemnity notice was valid. Under its terms, the notice had to contain “details of…reasonable evidence” that the amount in it was accurate. The word “reasonable” meant that the evidence ought to be itemised and detailed, not merely cursory, but it did not have to be conclusive. In the light of the time frame set by the indemnity, there was no requirement of reports from building or quantity surveyors. The defendant had produced a schedule of dilapidations to support the accuracy of the amount claimed, which was professionally prepared and scrutinised, and itemised and costed. There was no scope for a requirement that the defendant would subject the schedule to critical analysis to reduce it to a final figure at the indemnity stage. If the indemnified amount stated in the indemnity notice was too high, it was incumbent on the claimant to contest it under the express provisions of the counter-indemnity.
Without a detailed investigation of the facts at a hearing of the claim and counterclaim, it could not be said that the claimant’s counter-notice was invalid. The claimant had to provide proper grounds for its estimate, which had to be genuine and considered and for which it required further information. The defendant could not contend on the one hand that it did not have to subject P Ltd’s schedule to critical analysis because the company need only pay the amount for which the defendant was properly liable and, on the other, that the claimant was not entitled to the tools with which to conduct the analysis itself. The defendant was in a more favourable position in assessing the works than the claimant and could have negotiated what was to be done and/or carried out the works itself, as well as calling for the relevant supporting documents from P Ltd: Burman v Mount Cook Land Ltd [2001] EWCA Civ 1712; [2002] 1 EGLR 61; [2002] 06 EG 156 and ICI Chemicals v TTE Training Ltd [2007] EWCA Civ 725 considered; 9 Cornwall Crescent London Ltd v Kensington & Chelsea Royal London Borough Council [2005] EWCA Civ 324; [2005] 2 EGLR 131 distinguished.
Matthew Collings QC and Gabrielle Higgins (instructed by Olswang) appeared for the claimant; John McGhee QC and Alan Johns (instructed by Eversheds LLP, of Manchester) appeared for the defendant.
Eileen O’Grady, barrister
