Does a clause declaring a landlord’s certificate to be “conclusive” preclude a tenant from challenging the sum payable? In Sara & Hossein Asset Holdings Ltd v Blacks Outdoor Retail Ltd [2023] UKSC 2, the Supreme Court answered “no”, but only by advancing a novel construction not advocated by either party. The decision marks a further, and perhaps troubling, extension of the “unitary” approach to contractual interpretation.
The facts were conventional. Blacks leased retail premises from Sara & Hossein (“S&H”) under a standard commercial lease which stipulated that the landlord’s annual service charge certificate was “conclusive” evidence of the amount owed, absent fraud or manifest error. When the landlord issued a certificate for over £400,000 - a drastic increase from the previous year’s £55,000 - Blacks refused to pay, arguing the sum included costs for which they were not liable. The issue was whether the certificate was “conclusive” as to the substantive liability of the tenant (the “pay now, argue never” construction) or merely evidentiary as proof of the landlord’s expense (the “argue now, pay later” construction).
Lord Hamblen, delivering the judgment of the majority, rejected the landlord’s “conclusive” interpretation as inconsistent with the tenant’s inspection rights. Instead, he formulated a “middle ground” or “pay now, argue later” construction: the certificate was conclusive for the purpose of triggering the immediate payment obligation, but did not preclude the tenant from subsequently disputing liability and counterclaiming for repayment.
It is suggested that Lord Hamblen’s approach is doctrinally problematic. It is emblematic of the looseness that has crept into the law of interpretation following the shift from the rigorous textualism of Arnold v Britton [2015] UKSC 36 to the flexible “unitary” analysis of Wood v Capita Insurance Services Ltd [2017] UKSC 24.
The retreat from textual primacy
The doctrinal tension is familiar. Arnold established that the clearer the natural meaning of the words, the more difficult it is to justify departing from them. Context and “commercial common sense” were not to be invoked to undervalue the language of the provision. In Wood, however, Lord Hodge softened this hierarchy, positing that textualism and contextualism are not conflicting paradigms but tools to be used in a unitary exercise. This shift provided the majority in Blacks with the necessary interpretative latitude.
In Blacks, both Richards L.J. in the Court of Appeal ([2020] EWCA Civ 1521) and Lord Briggs in his dissent accepted that the landlord’s interpretation reflected the natural and ordinary meaning of “conclusive”. Although Wood affirmed that the court should privilege the textual analysis in detailed agreements between sophisticated parties, the Supreme Court permitted ‘commercial common sense’ - specifically, the aversion to making one party a judge in their own cause - to displace that presumption. The decision represents a departure from the rigour of Arnold (‘rescue from a bad bargain’) and, it is suggested, a misapplication of the sophisticated-party textualism guidance in Wood.
The illusion of inconsistency
Lord Hamblen justified this departure by identifying a purported inconsistency between the conclusiveness of the certificate and the existence of inspection rights and dispute resolution mechanisms for apportionment (at [48]). This reasoning is unpersuasive. As Lord Briggs noted in dissent, it is a non-sequitur to assume that a mechanism for resolving disputes about apportionment (a distinct exercise) necessarily entails a commensurate right to dispute the quantum of costs. Nor is it “surprising” that a landlord would bargain for certainty and finality to avoid “disproportionate litigation” over service charges (at [69]).
Commercial common sense or judicial fairness?
The majority’s rejection of the landlord’s construction relied heavily on the assertion that it was “uncommercial” to deprive a tenant of recourse. This engages Lord Sumption’s trenchant warning that “judges’ notions of common sense tend to be moulded by their idea of fairness” (Harris Society Annual Lecture, 2017). This admonition is apposite. Commercial parties are frequently unfair; they bargain for advantage, not equity. By labeling the landlord’s strict contractual right as “uncommercial”, the Court arguably substituted its own view of a reasonable lease for the bargain actually struck.
The danger of the “middle ground”
Perhaps the most significant concern is the Court’s willingness to adopt a “pay now, argue later” construction that neither party had advanced. As Lord Briggs rightly observed, this gives the court “carte blanche simply to make up a solution of its own” (at [61]). Respect for party autonomy requires the court to interpret the contract the parties wrote, not the one a reasonable judge thinks they should have written.
The result in Blacks undermines certainty. If a word as definitive as “conclusive” can be read down to mean “conclusive for the purpose of cash flow but not liability”, the drafting of commercial leases becomes an exercise in prediction rather than precision. It is suggested that the dissent of Lord Briggs is to be preferred. The Supreme Court in Blacks purported to apply the unitary test of Wood; in reality, it reverted to a pre-Arnold interventionism.
