Clarity for contract drafters on Interpretation

Jurisdiction: England and Wales

Judgment: Blacks Outdoor Retail v Sara & Hossein Asset Holdings

English legal professionals often highlight the reliability and predictability that English law brings to contractual agreements, offering commercial entities a sense of security in their transactions. This confidence is generally well-founded, but recent developments raise questions about the predictability of dispute outcomes related to contract interpretation. This is underscored by the UK Supreme Court’s ruling in the case of Blacks v Sara & Hossein, which has introduced a degree of unpredictability.

The central issue in this case was a lease agreement’s certification clause, designed to finalize the cost and payment obligations between the landlord and tenant swiftly and conclusively, barring any clear errors or fraud. The dispute arose when the landlord, S&H, presented a service charge certificate significantly higher than previous charges. Blacks, the tenant, contested the charge, arguing it was inflated and included costs not covered by the lease terms. Given the lease stated the certificate was final except in cases of overt error or fraud, S&H sought a straightforward judgment, insisting the lease’s wording made the certificate binding.

S&H contended that the clause’s clear language, its primary function to ensure payment of a specified sum, and the inclusion of specific defences all supported their position. Conversely, Blacks pointed to other lease provisions that suggested a wider scope for challenging the certificate, highlighting the detailed dispute resolution process and their right to inspect related evidence—rights that would be moot if the certificate were truly final.

Initially, both the master and the High Court sided with Blacks, but the Court of Appeal unanimously backed S&H’s literal interpretation. In a surprising twist, the Supreme Court, led by Lord Hamblen, found a novel middle ground. Hamblen determined that while the certificate did obligate Blacks to pay, thus securing the landlord’s cash flow, it did not bar Blacks from disputing the charge later, aligning with the lease’s dispute resolution and inspection clauses. Thus, S&H won the immediate judgment, but Blacks retained the right to counterclaim.

Lord Briggs dissented, arguing that the majority’s “pay now, argue later” approach, though practical, lacked explicit support in the lease’s text.

This case illustrates the challenges of ensuring certainty and predictability in English law. Despite the meticulous analysis by numerous legal professionals and the clear interpretations by lower courts, the Supreme Court’s unexpected interpretation reveals that even well-drafted contracts can lead to unforeseen outcomes.