England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
(SIR ANDREW MORRITT, CHANCELLOR)

		Royal Courts of Justice Strand, London, WC2A 2LL
		29th August 2007

Lord Justice Lawrence Collins:

1. This is an application for permission to appeal from the judgment of Sir Andrew Morritt, the Chancellor, dated 4 April 2007. The background is that the claimant, the applicant in this court, Wembley National Stadium Limited (WNSL), is a wholly-owned subsidiary of the Football Association Limited, and was formed for the purpose of acquiring the old Wembley Stadium and building a new stadium on the same site. The site of the old stadium and much of the surrounding land, comprising a conference centre, car parks etc, was owned by Wembley (London) Limited (WLL) who were one of the defendants, the first defendant, in the action respondent to this application. By a transfer and a lease, dated 15 March 1999, WLL sold the old stadium and the land on which it stood to WNSL, and leased certain parking access and other rights over its retained land to WNSL for a term of 125 years.
2. The price for the land was £93.7 million and the consideration for the lease was a capital sum of £2.5 million and payment of the service charge. The rights conferred by the lease are valuable, including the right to park large numbers of coaches and cars. The physical management of the car parks is outsourced but WLL provide, as they say, many services in relation to the car parks including maintenance, lighting, insurance and security (including meetings with the police etc over parking and security on respective match days) which has been part of the dispute between the parties.
3. On 13 July 2001, for stamp duty saving purposes it seems, WLL transferred the freehold of land, including the land (or the rights over which) it had leased to WNSL, to the second to fifth defendants, to which I shall refer as Gideon, or the Gideon Companies. Gideon declared that they held the land as nominee and trustee for WLL and the transfer to Gideon was registered on 7 June 2002. I should add that in October 2006 Gideon and WLL entered into a deed relating to the provision of services under the lease to WNSL, under which it was confirmed that the services continued to be provided by WLL on behalf of Gideon; WNSL was not a party to that deed.
4. The essence of the dispute is the liability, if any, of WNSL to WLL for sums allegedly due under the lease in respect of the service charge. The original claim for the period for 2006 was about £660,000, but this court was told that that has been reduced to about £200,000, although the case has great wider implications because, of course, the lease was for 125 years, and there are many years to go and the parties need to know where they stand.
5. The first issue relates to who is to be treated as lessor following the assignment to Gideon; WNSL say it is Gideon and WLL say that it is WLL. Now that might seem to be a somewhat sterile dispute since Gideon and WLL are within the same group but there has been some hint or suggestion in these proceedings that WNSL might say that if it is Gideon then Gideon has not provided any services and therefore it is not in effect liable to anyone.
6. Clause 1 of the lease contains a number of definitions to be used "where the context so admits or requires"; one of which is Lessor, which is defined as including "the reversioner for the time being expectant on the determination of the Term". The service charge is dealt with in clause 3.1.2, under which the Lessee covenanted "with the Lessor that the Lessee will…pay to the Lessor the Service Charge in accordance with Clause 7". The Lessor's covenants contained in clause 4 open with the words:

"THE Lessor during the period whilst it is the Lessor and without liability in respect of any subsequent period HEREBY COVENANTS with the Lessee as follows:-"

Among the covenants is the following, under the heading Lessor's Services in clause 4.3.1:

"Subject to the Lessee paying the Service Charge…to perform the Lessor's Services as set out in Schedule 2"

7. In the light of the assignment it is necessary to refer to some provisions of the Landlord and Tenant Covenants Act 1995 by section 3(1) and (3):

"(1) The benefit and burden of all landlord and tenant covenants of a tenancy—

(a) shall be annexed and incident to the whole, and to each and every part, of the premises demised by the tenancy and of the reversion in them, and

(b) shall in accordance with this section pass on an assignment of the whole or any part of those premises or of the reversion in them."

"(3) Where the assignment is by the landlord under the tenancy, then as from the assignment the assignee—

(a) becomes bound by the landlord covenants of the tenancy except to the extent that—

(i) immediately before the assignment they did not bind the assignor, or

(ii) they fall to be complied with in relation to any demised premises not comprised in the assignment; and

(b) becomes entitled to the benefit of the tenant covenants of the tenancy except to the extent that they fall to be complied within relation to any such premises."

By section 6(2):

"If the landlord assigns the reversion in the whole of the premises of which he is the landlord—

(a) he may apply to be released from the landlord covenants of the tenancy in accordance with section 8; and

(b) if he is so released from all of those covenants, he ceases to be entitled to the benefit of the tenant covenants of the tenancy as from the assignment."

By section 15(1):

"Where any tenant covenant of a tenancy, or any right of re-entry contained in a tenancy, is enforceable by the reversioner in respect of any premises demised by the tenancy, it shall also be so enforceable by—

(a) any person (other than the reversioner) who, as the holder of the immediate reversion in those premises, is for the time being entitled to the rents and profits under the tenancy in respect of those premises..."

By section 23:

"Where as a result of an assignment a person becomes, by virtue of this Act, bound by or entitled to the benefit of a covenant, he shall not by virtue of this Act have any liability or rights under the covenant in relation to any time falling before the assignment."

But that sub-section does not preclude any such rights being expressly assigned to the person in question; and by section 28, 'assignment' includes 'equitable assignment'.

8. WNSL's position was that it was not liable because WLL, having transferred the reversionary interest expectant on the interest created by the lease, had had no entitlement since July 2001, the date of the assignment, to claim any sums due under the lease. WLL's position was that: (a) WLL was described in the lease as the lessor, and was and remains the absolute beneficial owner of the property; (b) Gideon had appointed WLL as agent to provide services under the lease; and (c) WNSL was estopped by convention from alleging otherwise by virtue of various documents and dealings since 7 June 2001.
9. The Chancellor decided that WLL continued to be contractually bound to the perform the lessor's services, as provided by clause 4.3.1, notwithstanding the assignment. WLL's entitlement to the service charge was not discharged by the 1995 Act. As beneficial owner WLL had always been entitled to sue for the service charge, either in its own name, if necessary joining Gideon as a defendant, or in the name of Gideon. The declarations of trust entitled WLL, as beneficial owner, to enforce the covenants.
10. A deed of October 2006, under which the Gideon companies appointed WLL as its agent to provide the services, did not affect the legal relationship. The Chancellor went on to say that, if he were wrong in those conclusions, then WNSL was estopped from denying that WLL was the lessor because WNSL dealt with WLL as if it were a lessor under the lease. WLL incurred expenses performing the services; that must have been obvious to all parties, and the fact that no accounts or invoices were actually rendered between July 2001 and November 2006 did not affect that conclusion.
11. The principal points taken on this renewed application for permission to appeal are these: (a) WLL could not be treated as "the lessor for all the purposes of the lease", as in the terms of the declaration granted, once it ceased to be the legal registered proprietor. It is said that a lessee must be able to treat the person who is the registered proprietor as the person to whom service charges or rents should be paid. Once WLL had assigned the reversionary interest and ceased to be the registered legal proprietor, it was estopped from claiming an entitlement to rents or service charges; (b) the obligation to provide the lessor's services, expressly in clause  4.3.1, was an obligation which was imposed on the lessor only during the period whilst it was the lessor; and, (c) the right of a beneficiary where the trustee holds subject to a trust is not to the rent, or in this case service charges, but to an account of profits, and the effect of the agreement of October 2006, to which I have referred, was that WLL had acknowledged that it was not the lessor.
12. As regards estoppel by convention, it is said that the Chancellor was in error in deciding that WNSL was estopped. It is said there was no sufficient evidence of any unambiguous shared assumption. There hadn't been any claim for service charges during the period of the alleged recognition by WNSL that WLL was the lessor. There was nothing in the terms of an agreement relating to the car parks in September 2002 which amounted to an unequivocal assumption sufficient to give rise to an estoppel, and no sufficient evidence of express or prior communication of the alleged agreement, and no evidence of unfairness. On the contrary, the agreement of October 2006 between WLL and the Gideon Companies show that they did not regard WLL as the lessor.
13. My conclusion on this aspect is that, whether or not there are arguable points on the questions of law and construction, in any event there is no arguable basis for this application in relation to the Chancellor's conclusion on estoppel by convention. WNSL plainly knew of the assignment, and the evidence was that it continued to treat WLL as lessor and that WLL continued to provide the services.
14. Mr Maslin, the finance director of WNSL, accepted in evidence that he knew of the assignment to Gideon, at least by September 2002, when WLL, WNSL, Gideon and others entered into the supplementary agreement dealing with car parking and other matters arising under the lease. He found that in that agreement the consent and agreement of WLL was required in respect of all relevant matters, as though it continued to be the Lessor in conjunction with Gideon. The Chancellor's conclusion that at all material times WNSL dealt with WLL as it if were the Lessor under the Lease, and not with any of the Gideon Companies, was arrived at after hearing oral evidence from witnesses, and I do not consider that there is any arguable basis for an appeal, nor that this conclusion could be affected by the fact that no accounts or invoices were rendered between July 2001 and November 2006.
15. The second main area of dispute was about the recoverability of in-house costs under the service charge provisions. The dispute was about what heads of expenditure incurred by WLL were recoverable by means of the service charge. The relevant definition in clause 7.1.1 was as follows: "Expenditure means the aggregate of all costs, fees, expenses and outgoings whatsoever properly incurred by the lessor in complying with its obligations in respect of the lessor's services". The principal issue was the extent to which a cost was within that definition if the goods and services were supplied not by a third party contractor, but "in-house" by WLL's own employees. The Chancellor decided that it was plain that the cost of providing the services through WLL's own staff had to be included as a cost, expense or outgoing, and that was confirmed by clause 7.6, which granted an entitlement to provide services through agents and contractors. There was no reason in principle to exclude indirect costs of management and corresponding "overhead" expenses.
16. On this application, WNSL maintains that expenditure did not include internal charges and that there is an arguable ground for appeal. They say that, relying on Shapiro's 'Service Charges -- Law and Practice', paragraph 1.71, and a number of cases to which this court has been referred, in-house overheads are not normally covered by a general wording. They say that the declarations in respect of "expenditure", which could be claimed in respect of the use of WLL's own employees, should not have been granted because it afforded an entitlement to claim that was, in essence, an internal management fee, where there was no express provision for the recovery of such charges under the terms of the lease. The principal decisions to which we were referred in this respect were: Cleve House Properties v Schildof [1980] CLY 1641; Earl Cadogan v 27/29 Sloane Gardens Ltd [2006] 24 EG 178; and Gilje v Charlgrove Securities Ltd [2002] 1 EGLR 41. Although some general principles can be derived from them and are set out in particular by HHJ Rich QC, in my judgment they do not assist in this case. The question is purely one of construction and I am satisfied that not only was the Chancellor right in deciding that as a matter of principle that expenditure included those overhead items specified in the order, but that there is no arguable ground for appeal from his conclusion.
17. The third dispute relates to advance payments under the lease, and in particular, whether WNSL was liable to pay to WLL £120,000 by way of these advance payments. Under the lease, the lessor was required to prepare an account of its expenditure in any given financial year as soon as reasonably practicable after the end of the year and, save for a manifest error, that account was to be conclusive evidence of all matters of fact stated therein. By clause 7.3.1, Advance Payments were to be made on account of the Service Charge for the current financial year by equal quarterly payments in advance. The amount was to be that "calculated by the Lessor", but if no such calculation had been notified to the Lessee before the beginning of any Financial Year, the payment on account until such notification was to be at the same quarterly rate as the Advance Payment made on the last quarter day of the immediately preceding Financial Year. There is then a mechanism for what happens if the advance payments exceed the amount of the actual service charge, and the overpayment is to be credited against the next payment of the service charge. Five quarterly payments of £5,000 were made by WNSL to WLL in 2000 and 2001, which were said to be in respect of "service charges". WLL said that since 24 quarters had elapsed without further payment it was entitled to a further £120,000, namely 24 times £5,000.
18. WNSL claimed that there was no liability to make any Advance Payments. First, it is said that none of the sums of £5,000 were claimed or paid as Advance Payments, nor were they claimed or made by reference to the usual quarter days. Second, as a matter of construction no Advance Payments were due under the Lease for any quarter after the closure of the old stadium and before practical completion. Third, any right to receive an Advance Payment was waived by the claim for actual expenditure made in November 2006. Fourth, any obligation to make an Advance Payment was discharged by the failure of WLL to produce the accounts required by clause 7.2 as soon as reasonably practicable after the end of the relevant financial year, or at all. Fifth, Advance Payments were only payable on demand, and no demand was made. Six, since the claim for service charge for the period prior to 2006 had been abandoned, no advance payments were due in respect of that period.
19. The Chancellor decided that the Expenditure, as defined, related to the performance of the Lessor's obligations in respect of the Lessor's Services; that those services were to be rendered at all times, and not only before closure of the Old Stadium and after Practical Completion of the New Stadium. He decided that WLL had not abandoned ultimate recovery of the Service Charge. It had not released the liability of WNSL to pay it as and when properly determined. A contingent liability for Service Charge still existed. No such charge had been paid for any year since the Lease and there was nothing to exclude liability for Advance Payments as payments properly on account of the liability for the Service Charge. The obligation of WNSL to make Advance Payments necessarily preceded that of WLL to produce the account of Expenditure, and the former was in no sense dependent on the latter. The £5,000 payments were to be treated as advance payments even if that label was not placed on them.
20. On this application, it is said in particular that the Chancellor was wrong to grant judgment for the advance payments because: (1) it was no longer open to claim advance payments once the lessor had sought to claim sums in respect of actual expenditure; (2) WLL had abandoned recovery of the actual service charge for the financial years in question; and (3) the recovery of advance payments in circumstances where there was a breach of the obligation to prepare an account would be to construe the lease so as to permit the lessor to take advantage of his own breach.
21. I can see no arguable flaw in the Chancellor's reasoning on any of these points but I deal in particular with the arguments which were put: that the obligation to pay the service charge and the right to receive it had been abandoned in the course of these proceedings. The point seems to have arisen mainly because of exchanges in which the solicitors for WLL said that they were more interested in the matters going to the future conduct of the service charge than in the past, and in their application for amendment of the defence and counterclaim, in which they deleted the claim for payment under the invoices and did two other things.
22. Firstly, they said in the defence that the defendants, that is WLL and the Gideon Companies, would not seek to recover any payment from WNSL in reliance on the 2006 invoices, and in the new paragraph 15, claimed that, in breach of clause 7.3.1 of the lease, WNSL had failed to make any advance payments in respect of the financial years 2001 to 2006. Prior to the trial, WNSL took the position that WLL had abandoned its claim for service charges allegedly incurred in that period. They quoted the WLL's application notice, in which it was stated that the defendants considered that the proper course was to remove time-consuming and potentially irrelevant questions about historical charges from the proceedings, and to focus instead on the future.
23. They then referred to the amendments, and to their explanation before Blackburne J, and to skeleton arguments on the application to amend. In its skeleton argument prior to the hearing before the Chancellor, WLL said that it was not the case that the defendants had abandoned any claim to service charges in respect of the earlier period, and that there was no intention to prepare an account showing actual expenditure. On the contrary, they said that WNSL had objected to the account provided, and one of the declarations sought by the defendants was as to sufficiency of that account. In its closing submissions, WLL said that what the defendants had not done was to abandon any claim to service charge for the period of 2001 to 2006. That, they said, was made quite clear from the amendment itself, and, they also said, from an open offer to settle, for £135,000, all claims for service charge and interest for the period 2001 to 2007 made by the defendants. WNSL said on this application that it was not open to WLL to allege that they had not abandoned any claim to service charge, because that would be an abuse of process within the principles in Henderson v Henderson, as applied in Johnson v Gore Wood & Co [2002] AC 1.
24. I do not consider that there is anything in this point. It is not suggested that there was any contract to abandon the claim; even if WLL had previously indicated that they would not pursue the claim, it would have been open to them to resile from it, and then whether they were entitled to do so would have been a matter for a case management and the decision of the trial judge. It seems to me that it was clear prior to trial that they were still maintaining the claim.
25. Finally, it is said that the declarations should not have been granted in the form they were granted, because they were hypothetical or contingent and/or re-wrote the contract. It is true that the form of declaration does contain a very detailed list of what might be included in overheads, but it is qualified by the words:

"…if and insofar as they are and have been properly incurred by the Lessor in complying with its obligations in respect of the Lessor's Services (as defined in the Lease)."

26. The Chancellor accepted that the declarations as sought would not finally resolve all disputes, because the application of the definition in the circumstances of specific items might still give rise to further issues as to whether they were properly incurred; but that was no reason not to grant the declaration sought because they were framed as subject to compliance with that condition. I agree with his observation that the objections of counsel for WNSL boiled down to the contention that because the declarations could not resolve all the disputes, none should be granted. It is accepted that whether or not to grant declarations is a matter of discretion, and I see no grounds for interfering with the exercise of discretion by the Chancellor.
27. Finally, a complaint was made that the Chancellor should have granted a declaration in relation to WNSL's non-liability for the November invoices; but the judgment speaks for itself and is res judicata, and this could not be an arguable ground for appeal in itself. I would therefore dismiss the application.

Lord Justice Hughes:

28. I agree. I add only three short points. (1) If it had stood alone then, speaking for myself, I might have been persuaded that ground one raised an arguable point owing to the opening words of clause 4 of the lease. I am, however, absolutely clear that there is no escape from the decision that WNSL is estopped from denying that WLL is the lessor to whom service payments are due. That conclusion of the Chancellor was founded upon seeing and hearing the witness representatives of each of those companies. It matters not that their treating each other as landlord and tenant was not borne out by other documents if in fact they did so treat each other and his clear conclusion, fully justified, was that they did. (2) As to advance payments, it is unarguable that WLL had abandoned any claim to any recovery of service payments up until 2006 -- quite the contrary. What they had done by amending their counterclaim was to withdraw invoices in which they no longer had confidence, and to leave extant the claim for advance payments. If the Chancellor's decision had been that WLL was entitled to fail to produce quantified service payment claims, and by that means to perpetuate the liability of WNSL under clause 7.3.1, 2nd proviso, to make advance payments -- and then these are the important words -- in excess of what could be due, then likewise I, for my part, would have been disposed to see arguable grounds of appeal. The Chancellor's conclusion, plainly justified, is, however, that that is not this case; and it should be made clear that the obligation of WLL under clause 7.2 of the lease -- to provide quantification for claims -- remains extant. (3) The real dispute in this case was about the quantum of service payments. It broadened in the course of litigation into a dispute about whether anybody could claim such payments or, at best, into who could. That was a commercially arid dispute since, for all practical commercial though not legal purposes, WLL and Gideon were the same. The real dispute was plainly suitable for arbitration and looks still to be so now. The observations of the Chancellor in paragraph 84 of his judgment would, as it seems to me, repay study. I too would refuse permission.

Order: Permission refused.