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Interpretation: if you ask 100 lawyers...

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English lawyers often take pride in the certainty afforded to commercial parties who chose English law to govern their contracts. In many respects, this faith is well placed. But is it becoming increasingly hard to predict the outcome of a dispute about interpretation? The UK Supreme Court’s decision in Blacks v Sara & Hossein suggests it might be.

The question was the effect of the following certification clause in a lease agreement:

The landlord shall on each occasion furnish to the tenant as soon as practicable after such total cost and the sum payable by the tenant shall have been ascertained a certificate as to the amount of the total cost and the sum payable by the tenant and in the absence of manifest or mathematical error or fraud such certificate shall be conclusive.

A landlord, S&H, issued a certificate seeking payment of a service charge far in excess of previous charges. Blacks, the tenant, refused to pay on the basis that the charge was excessive and include unnecessary items and expenses which fell outside the terms of the lease. S&H applied for summary judgment on the basis that, as there was no question of “manifest or mathematical error or fraud” (the only permitted defences), the certificate was “conclusive” as to the amount that Blacks had to pay.

In support of this claim, S&H argued

  1. that this was the obvious and natural meaning of the words used;
  2. it was the substantive function and purpose of the certification clause to impose an obligation on the tenant to pay a particular sum; and
  3. it would render the permitted defences wording redundant if Blacks could raise other defences.

Blacks argued that the other provisions in the lease pointed towards a broader ability to challenge the certificate. In particular, the detailed mechanism for raising disputes, and the extensive rights for Blacks to inspect evidence related to the service charge, did not make sense if in reality the certificate was conclusive. Indeed, on S&H’s case, Blacks had to make payment before any of these rights could be invoked.

Both the master, who initially heard the matter, and the High Court found in favour of Blacks. By contrast, the Court of Appeal unanimously preferred S&H’s more literal interpretation.

The Supreme Court rather remarkably found that neither party was correct. Instead Lord Hamblen, rather like Tony Blair and Bill Clinton, found a third way. He decided that the certificate was conclusive as to the obligation on Blacks to make payment (in part to preserve the landlord’s cash flow), but that this did not prevent Blacks from raising disputes at a later date (consistent with the dispute resolution mechanism and the inspection rights). S&H got summary judgment but Blacks can pursue a counterclaim.

Lord Briggs gave a strong dissenting judgment, arguing that while the “pay now, argue later” solution preferred by the majority was an “imaginative creation which the parties could sensibly have agreed”, he could not find any support for it in the lease itself.

Numerous talented lawyers must have pored over this clause on both sides, from in-house counsel, to solicitors, to barristers, not to mention the five esteemed judges in the lower courts. It doesn’t really add to the claim of certainty and predictability of English law that the Supreme Court appears to have read the clause in an entirely different way from everyone else involved in the case. If you ask 100 lawyers what your contract means, you may get more answers than you expected.

Judgment: Blacks Outdoor Retail v Sara & Hossein Asset Holdings


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