Before:
Lord Justice Ralph Gibson
Lord Justice Evans
Sir John May
 
 

B E T W E E N

JUDGMENT
 
DATED: 27 January, 1994

RALPH GIBSON LJ

This is an appeal by the defendants, Chelsea Cloisters Management Ltd ("Management") from the decision of His Honour Judge Carter QC sitting as a Deputy High Court Judge on 24 January 1992 after trial of the action. His order provided for judgment for the plaintiffs, IVS Enterprises Ltd., ("The Company") to recover £157,666 including interest, from the defendants. The money was found to be due to the Company under an agreement dated 20 March 1986 ("the first agreement") for the installation and operation of an SMATV system within Chelsea Cloisters in London SW3. The system includes the provision to individual flats of satellite and television signals. The main question raised in the appeal is as to the construction of provisions, contained in or incorporated in the first agreement, with reference to the amount of the Basic Charge payable by each tenant in respect of the basic service provided by the system, and with reference to the "review" of the amount of that charge.

The contractual structure was of some complication. The first agreement of 20 March 1986 was made between two companies in the Chelsea Cloisters Group, on the one hand, and IVS Enterprises Ltd, the Company, on the other. It is called "an agreement to install and operate SMATV within Chelsea Cloisters". The two companies were Chelsea Cloisters Development Ltd., the owners of the freehold reversion of the premises, and Chelsea Cloisters Management Ltd, the Manager of the premises. There were annexed to the first agreement two separate forms of agreement to the terms of which reference is made in the first agreement. The argument has been directed largely to the meaning and effect of clause 5(2) of the first agreement and to clauses 6(A) and (C) of App II. It is sufficient to note the following terms of this agreement:-

By clause 2:

"Purpose of Agreement

(A) This agreement records the arrangements agreed between the parties whereby:

(1) The company will commencing on 26 March 1986 carry out certain modifications to the existing system so as to enable the service provided for under App 1 to be brought into operation at the earliest practicable date;

(2) The operation and maintenance of the existing system as so modified will then be governed by the terms of App 1 while the owner progressively renovates the premises;

(3) In tandem with the owner's renovation of the premises, the Company will carry out the works to install the new system;

(4) On completion of the said renovation of the premises and the installation of the new system, the Company will continue to maintain and operate the new system;

(B) The arrangements which have been agreed between the parties with regard to the modification and operation of the existing system under sub-clause A(1) and (2) are set out in App 1 which will be signed and have effect immediately upon signature of this Agreement;

(C) The arrangements which have been agreed between the parties with regard to the installation of the new system under sub-clause (A)(3) are set out in this Agreement and are conditional upon the Company obtaining all of the statutory licences;

(D) The arrangements which have been agreed between the parties with regard to the operation and maintenance of the new system are set out in App II which will be executed and exchanged following completion of all the works in accordance with Clause 3(G)."

By clause 3 provisions were set out for the progressive installation of the new system as the owner proceeded with the works of renovation.

By clause 4:

"Completion

Within 7 days of the owner's architect certifying that the works are complete in their entirety, the parties shall execute an Agreement in the form of the agreed draft, attached hereto as Appendix II (subject only to such amendment as may be required to reflect factual changes prior to execution)".

By clause 5

"Transitional Provisions

Notwithstanding that the agreement in the form set out in Appendix II will not be executed until completion of all the works, the provisions thereof shall (where the context allows) apply as regards any part of the premises in which the works have been completed and in particular:

(1) The Manager will account to the company for the basic charge in accordance with Clause 5(2) of Appendix II in respect of all flats in which the installation of the new system has been completed;

(2) The Basic Charge and the Premium Charge may be reviewed in accordance with Clause 6 of Appendix II;

(3) So far as applicable to those parts of the premises which have ceased to be subject to the Agreement in Appendix 1 by virtue of Clause 8 (5) thereof, all the other provisions of Appendix II shall apply during the transitional period up to formal execution of Appendix II as if the same had been reproduced herein in extenso."

Appendix 1 to the agreement, also dated 20 March 1986, is called "an agreement to provide an SMATV service to those parts of Chelsea Cloisters which are from time to time occupied and used as a single premise residential service apartment complex". It is, in my judgment, unnecessary to refer to any of the provisions of that agreement.

Appendix II to the first agreement was in form an undated agreement described as "Licence to maintain and operate SMATV system within Chelsea Cloisters".

The parties are three companies in the Chelsea Cloisters Group and the Company IVS Enterprises Ltd. The Chelsea Cloisters Companies are the Owner and the Manager, which companies were parties to the First agreement, and Chelsea Cloisters Services Ltd ("Services").

Clause 1 contains definitions of a number of expressions including "the Basic service", "the Basic charge", "the Premium service" and "the Premium Charge". The "Basic charge" is defined as "the sum of £5.60 exclusive of VAT per flat per month) subject to review under use 6 hereof) payable by each tenant of the premises in respect of the Basic service." For the rest, I have not found these definitions to be of any significant assistance upon the questions of construction which are raised for decision.

By clause 5:

"Financial Responsibilities

This Agreement is entered into on the express understanding and it is hereby agreed that:

(1) The maintenance and operation of the system shall be carried out by the Company free of charge to the Owner and the Manager and the system shall at all times remain in the sole ownership of the Company and no property or rights therein shall vest in or be claimed by the owner or the Manager or any persons deriving title under either of them;

(2) The Manager will invoice each tenant of each flat in the premises quarterly in advance as part of the normal service charge for the basic charge and will hold such monies upon trust to account to the Company for the same within one month from the end of each quarter;

(3) The Company will invoice each tenant of each flat in the premises who receives the premium service for the appropriate premium charge and will within one month from the end of each quarter account to Services for 10% of sums received in respect thereof;"

By clause 6:

"Review of Charges

(A) The Basic Charge shall be reviewed with effect from 1 July 1987 and each subsequent 1 July during the continuance of this Agreement to such sum as shall be reasonable having regard to comparable charges for similar services in other places and all other relevant circumstances;

(B) The premium charge shall be such amount as the company shall from time to time think fit not exceeding such sum as may be reasonable having regard to comparable charges for similar services in other places and all other relevant circumstances;

(C) The Company shall give not less than one quarter's prior notice to the Manager of its intention to review the Basic Charge and shall if requested consult with the Manager with regard thereto;

(D) The Company shall give not less than one month's prior notice to the owner and to each tenant receiving the premium service of any change in the premium charge."

By clause 8 it was provided that the agreement should continue in force until the expiry of a period of 10 years from the date of it and thereafter until terminated by not less than 12 calendar months prior written notice given by either party to the other. The work was completed in 1991 and App II became effective as a deed, according to the finding of the judge on 1 November 1991.

The dispute which arose between the parties was as to the proper amount of the Basic Charge. The Basic Charge was increased by agreement of the parties to £5.80 in August 1986. The dispute was whether "with effect from 1st July 1987" the sum claimed by the Company, namely £5.80, was in fact "such sum as shall be reasonable having regard to comparable charges for similar services in other places and all other relevant circumstances"; and, if it was in fact more than that reasonable sum, whether the Manager is entitled, upon the true construction of the contractual documents, to have the amount "reviewed" so as to reduce it to that reasonable amount; and if yes, from what date. The main assertion of the Company has been that the Company alone can seek a "review" of the amount of the basic charge. The Manager has refused to pay since July 1989 and has claimed to recover what the Manager has asserted to be overpayments made between end July 1987 and end July 1989. A claim that the Basic Charge should be reviewed was made by the Manager by letter of 14 May 1990. For reasons not known to this Court the proceedings have been complicated. There were 5 separate actions, which are consolidated, and, by agreement, a further claim in respect of the period from 1 July 1991 to 30 September 1991 is covered by these proceedings. The main issue of fact, however, was not before the judge. It was common ground between the parties that "if the Court were to hold that there is to be a review in relation to any part of the basic charge, that is to be dealt with as a separate matter". It may thus eventually turn out that the Company is entitled to all that it claims even if it fails on the issues of law raised in this appeal.

Contentions were made at the trial by the Manager that App II was executed as a deed which came into force in or about March 1986 when it was signed and sealed by directors on behalf of the Company and sent to the Manager with a signed copy of the first agreement. The Company has asserted that the signed and sealed copy of App II was never delivered as a deed, whether unconditionally or in escrow. The point of this contention for the purposes of the Manager was, as I understand it, to escape, if need be, from the Company's argument that the wording of clause 5(2) of the transitional provisions in the first agreement controlled or revealed the true construction of clause 6 in App II, namely that only the Company could initiate a review. Evidence was directed to the issue of delivery. The judge held that App II never amounted to an agreement between the parties. Appendix II was at all material times dependent upon the First Agreement, and had no independent existence, and was never at any material times delivered as a deed in such a way as to perfect it because the Company have not evinced an intention to be bound by App II.

We did not hear submissions upon this issue because it seemed clear to us, when we had heard the parties on the question of construction, that it was not necessary to decide the issue of delivery. For my part, it seems upon the evidence clear that the Company did deliver the document as a deed in escrow but with the intention and on the condition that it should not take effect save as and when agreed in the first agreement, namely that App II would be executed, and therefore take effect, only upon completion of the works: see clauses 4 and 5 of the Agreement. The issue was, as I think, irrelevant to the rights of the parties, but may, no doubt, be relevant to the question of costs.

The judge accepted the submissions put forward for the Company and in summary held as follows:

(1) Until the execution and delivery of App II as a deed in November 1991 the transitional provisions in the first agreement applied.

(2) Those transitional provisions enable but do not require a review of the basic charge to take place.

(3) According to the plain and ordinary meaning of Clause 6(A) and (C) in App II, which are incorporated by reference in the Transitional Provisions, the permissive right of review is given only to the Company. The Manager has no right to review the basic charge. The construction of the transitional provisions put forward on behalf of the Manager produces a result which is "commercially absurd".

(4) The Manager therefore had no claim to recover any payments made after 1 July 1987 even if the payments were more than was reasonable.

(5) If the Manager was entitled, on the terms of the first agreement, to make such a claim, and if the sums paid were excessive, the Manager was barred from making the claim because the Manager is "estopped by the conduct of the parties and/or by representations made by the Manager and/or there had been a plain waiver by conduct".

(6) Further, there had been no mistake of fact on behalf of the Manager. There was no evidence of any mistake of fact.

Mr Etherton, QC, who did not appear before the Judge, has submitted in this court:

(1) Since Clause 5 of the first agreement provides that, prior to execution of App II, the provisions thereof "shall (where the context allows) apply as regards any part of the premises in which the works have been completed"; the provisions of Clause 6 of App II cannot be construed so as to provide for a review solely at the discretion of the Company because:

(a) Clause 6(A) is mandatory in terms: the provision is one for "automatic review", a concept well understood in, for example, leasehold rent reviews. Reference was made to Bernstein and Reynolds Handbook of Rent Review: para 3-41;

(b) Clause 6(A) provides for the basic charge to "be reviewed" with effect from a certain day in each year to a stated level of charge, namely "such sum as shall be reasonable": ie. the effect of the review may be upwards or downwards and, in default of agreement, is to be fixed by the court. Reference was made to CH Bailey v. Memorial Enterprises Ltd [1974] 1 WLR 728.

(c) Clause 6(C) cannot properly be given the effect of transforming the plain meaning of 6(A) into a unilateral right at the discretion of the Company to review the basic charge. The requirement that the Company shall give one quarter's notice to the Manager of the Company's intention to review the basic charge is a procedural requirement only included with the apparent purpose of enabling the Manager to prepare in due time to invoice tenants under Clause 5(2).

(d) Part of the factual matrix in which the first agreement was made between the parties are the provisions contained in the Landlord and Tenant Act 1985 which limit service charges to reasonable sums.

(e) The Company's contention, as pleaded, that clause 6(A) is void for uncertainty, is unsustainable.

(f) There is no commercial absurdity in the consequence of the construction put forward on behalf of the Manager.

(2) The Manager on the evidence and admissions before the Judge is entitled to counterclaim in respect of excessive payments of the basic charge after 1 July 1987 on the ground that any payments in excess of the reasonable amounts are repayable in equity. The Manager holds on trust the money paid to the Manager by the tenants by way of service charge for payment to the Company: clause 5(2) of App II. Insofar as money so received is not properly payable to the Company, eg. because the basic charge claimed was excessive, it is held on a resulting trust for the tenants. If the Manager as trustee has overpaid the Company as beneficiary, the Manager is obliged in equity (for the benefit of the tenants as underpaid beneficiaries) to repay the excess to the tenants; and is entitled to recover such amount out of sums due to the Company whether or not those excessive sums have been paid as a result of a mistake of fact: reference was made to Lewin on Trusts, 16th edition, P261-262 and to the cases there cited.

(3) In the alternative, the only reasonable assumption upon the material before the Court, is that the excess payments were made under a mistake of fact, namely in the belief that the amount claimed was the reasonable amount.

(4) In the further alternative, the excessive payments are recoverable by the Manager as damages for breach of contract by the Company.

(5) On the evidence before the Judge it was not open to him to find that the Manager is estopped from asserting its counterclaim or set off against the Company. The Company had not pleaded, and there was no evidence, that the Company had relied upon any conduct of the Manager to the Company's detriment or that for any reason it would be inequitable on the part of the Manager to advance its counterclaim or to raise its set off. Mere delay in raising its claim could not bar it by estoppel or otherwise: reference was made to Amherst v. James Walker Goldsmith and Silversmith Ltd [1983] Ch 305, 316B-317H, and to United Scientific Holdings Ltd v. Burnley Borough Council [1978] AC 904, 931H-932B.

(6) There was no evidence of waiver or of any consideration to support a contractual waiver.

Mr Patchett-Joyce relied primarily upon the submissions made for the Company at the trial which were accepted in their entirety by the judge. Clause 6 of App II is subject to clause 5(2) of the first agreement. Clause 6 of App II gives the right to initiate a review to the Company only. If that is wrong, that effect is achieved because of the terms of clause 5(2) of the first agreement. The construction contended for by the Manager "flouts business common sense" and should therefore be rejected even if otherwise it is a possible construction according to the ordinary meaning of the words: reference was made to Schuler AG v. Wickman Machine Tools [1974] AC 235 at 251E, and to The Antaios [1985] AC 191 at 201D per Lord Diplock.

If the Company's argument on construction is rejected, then the Manager should be held to be estopped from seeking repayment of money paid prior to July 1989, by counterclaim or by set off, and to be estopped at all times from asserting, or to have waived, their right to call for a review. Reliance on the part of the Company and resulting detriment to the Company are necessarily to be inferred. The estoppel arose by a convention binding upon the Manager from the facts that the basic charge was demanded and paid without question in respect of the period to 1 July 1989: reference was made to The Vistajord [1988] 2 Ll. Law Reports 343: CA.

As to the Counterclaim based upon equitable principle, Mr Patchett-Joyce submitted that the principle is not applicable to the facts of this case. Management is a separate Company but it is controlled by the tenants and is to be regarded as the "creature of the tenants". Management is under a contractual obligation to invoice the tenants for the amount of the Basic Charge which at all material times has been set under the contract at £5.80. Management is under an obligation to account to the Company for sums received from the tenants. There should be no right to recover in equity if Management has invoiced and received and paid over sums for Basic Charge upon the assumption, common to both the Company and Management, that the amounts paid were due. There was, in short, at each payment, the voluntary settlement of a claim honestly made. A convention between the parties had regulated their dealings and it would be unjust to permit the payments to be re-opened.

As to waiver, reference was made to Chitty on Contracts, 26 Edition at para 1605.

As to the counterclaim in damages, Mr Patchett-Joyce submitted that the alleged breach had not been formulated by the Manager in the pleading.

The drafting of these agreements has produced problems which could have been avoided if certain matters had been dealt with in more clear terms, in particular whether both sides or one only are or is to be entitled to insist upon "review" of the basic charge. No reliance has been placed by either side upon the principle that a document may be construed against that party who is to be treated as having put the document forward for acceptance by the other side. I have found the case to be difficult and complicated but, for the reasons which follow, I have reached the conclusion that this appeal must be allowed. The effect of Clause 6 of App II is not, in my judgment, to give to the Company alone the right to require that the Basic Charge be reviewed.

The contention of voidness for uncertainty of clause 6(A) of App II was not abandoned by Mr Patchett-Joyce but it was not pursued. No authority was cited in support of it. In my judgment it is unarguable. That which is "with effect from 1st July 1987 and each subsequent 1st July...such sum as shall be reasonable having regard to comparable charges for similar services in other places and all other relevant circumstances" is something capable of being rendered certain by evidence called before the Court.

As to the construction of the first agreement, the transitional provisions apply the provisions of App II "as regards any part of the premises in which the works have been completed". Clause 5(2) does not, in my judgment, modify the effect or meaning of clause 5 or 6 of App II construed, as they must be, in the context of App II itself and of the first agreement as a whole. Clause 5(2) of the first agreement does not expressly describe any such modification and there is, in my judgment, nothing from which to derive any such contractual intention. I will return to this point when I have stated my opinion as to the proper construction of clauses 5 and 6 of App II.

As is clear from clause 5 of App II, the basic charge and the premium charge are differently treated. The Manager invoices each tenant quarterly in advance for the Basic Charge as part of the normal service charge and will hold such monies upon trust to account to the Company. The Company itself invoices directly each tenant who has decided to receive the premium service. (The fact that the company accounts for 10% of the sum so received to Services is of no relevance).

By clause 6(A), the basic charge "shall be reviewed with effect from 1st July in each year". No procedure is expressly provided, save in clause 6(C), for carrying out a review or for obtaining a decision as to the amount to which the charge shall be "reviewed" in the event that the parties do not agree. Further, with effect from 1 July in each year "the Basic Charge shall be reviewed...to such sum as shall be reasonable etc."

By contrast, the premium charge is not required to be reviewed in each year "to such sum as shall be reasonable" but "shall be such sum as the plaintiff shall from time to time think fit not exceeding etc ..."

I take the ordinary meaning of "review" in this context to be the act of looking over something, usually for a second or further time, with a view to correction if necessary. There can, of course, be a review without there being any resulting change of the thing reviewed.

The words of clause 6(A) place as I have said, no express obligation upon either side to do anything for the purpose of carrying out the review, nor is there express provision that anything must be done by either side as a necessary condition precedent for the carrying out of a review. Each side may upon reviewing the Basic Charge decide to do nothing. If they so decide, there is no express obligation to communicate that decision. The words of clause 6(A), however, are mandatory. The Basic Charge "shall be reviewed to such sum etc". These words are not, in my judgment, to be construed as a promise by both parties for breach of which either can claim damages but they are a provision which is to operate between the parties so as to provide for the amount of Basic Charge in each year with effect from 1 July.

It follows that if, in any year after 1 July 1987, either side should complain that the basic charge has not been reviewed to such sum as shall be reasonable, there is nothing in clause 6(A) alone which requires the Manager to invoice the tenants for, or to pay, more than the reasonable sum, or which requires the company to accept less. There is, in my view, nothing commercially absurd about such a provision or in its effect. There is obviously good reason for the Company to require that the Basic Charge be reviewed or be capable of a review to such sum as shall be reasonable: their costs may increase. It is not suggested that the language of clause 6(A) will cause the court to fix the Basic Charge at a sum which would be unfair or unreasonable from the point of view of the Company. There is also good reason for the Manager to require that the Basic Charge be reviewed or be capable of a review. There was at all material times a statutory duty upon the Manager to ensure that "relevant costs shall be taken into account in determining the amount of a service charge payable for a period (a) only to the extent that they are reasonable incurred and....the amount payable shall be limited accordingly": see s 19(1) of the Landlord & Tenant Act 1985. These provisions were formerly contained in the Housing Act 1980, Sch 19. It is not in issue that the statutory duty applied to the Manager in claiming the service charge from the tenants. The fact that the Basic Charge will be claimed as part of the service charge payable by the tenants is, of course, mentioned in clause 5(2).

Since the Basic Charge, as to which the Manager's express contractual obligations are to invoice the tenants and hold the monies on trust for the Company, "shall be reviewed...to such sum as shall be reasonable", the Company is, in my judgment, by this clause given no right to require the Manager to invoice the tenants for any larger sum.

If there were no express procedural requirements at all in App II as to the carrying out of or ascertaining the result of any "review to such sum as shall be reasonable" of the basic charge under clause 6(A) the parties would face administrative difficulty: the Manager needs to know what sum is to be claimed as part of the normal service charge under clause 5(2). Clause 6(C) does contain express procedural requirements: "The Company shall give not less than one quarter's prior notice to the Manager of its intention to review the Basic Charge ..." Clause 6(C) cannot, in my judgment, be treated as altering the clear effect of clause 6(A). Clause 6(A) is not stated to be subject to Clause 6(C). The effect of clause 6(C) is that, if a quarter's prior notice is not given, the Manager is not required to invoice the tenants in respect of an earlier period of time for any increased charge. Thus, for the Manager to be required to include an increased amount in the Basic Charge in its invoices to the tenants for a quarter commencing say, on 1 July, the Company must have given notice prior to the preceding 31 March. Nothing, however, limits the right of the Company to give effective notice for a following quarter if they are too late for the quarter from 1 July provided that the amount claimed is based upon a review with effect from 1 July.

The fact that no requirement of notice is imposed on the Manager does not, in my judgment, alter the effect of the words of 6(C) or the words of 6(A). It is not surprising that there should be the express procedural requirement imposed on the Company by Clause 6(C). The Company are the experts who know their own costs and who, in the ordinary course of events, are more likely to have reason to assert that a change must be made upon the review required by clause 6(A). The role of the Manager in asserting that a change must be made in the amount of the Basic Charge, upon the Review required by clause 6(A), is that of resisting the claim of the Company who, on the Review, will either assert that there should be no change or will assert that the Basic Charge should be reviewed to a higher figure.

If I am right thus far, there is no express procedural requirement with reference to the Manager's right to insist that the Basic Charge "be reviewed" and thus not to invoice the tenants for a Basic Charge greater than an amount "reviewed from 1st July ... to such sum as shall be reasonable", and therefore the Manager is entitled, at any time, to raise that objection in answer to the Company's claim unless some matter arising outside and additional to the terms of the Agreement has deprived the Manager of that right.

I, therefore, return to consideration of clause 5(2) of the First Agreement in order to decide whether, if I am right on the construction of Clause 6 of App II, the rights of the parties are, with reference to their dealings at any time before App II became effective as an independent agreement, altered by the terms of clause 5(2) in the transitional provision in the First Agreement. In my view, no such alteration is made. Clause 5, the transitional provisions, as I have said, applies the provisions of App II, where the context allows, as regards any part of the premises in which the works have been completed and, in particular, the Manager is required to account to the Company for the Basic Charge in accordance with clause 5(2) of App II. The effect of clause 5(2) of the transitional provisions of the first agreement is, in my judgment, no more than a statement for the avoidance of doubt that during the transitional period the review provisions in clause 6 of App II are permitted to operate, with reference to Basic Charge and Premium Charge, as there set out. If it had been intended to change, for the transitional period, what is otherwise the effect of clause 6, express words to that effect would, as I think, have been used.

It follows that the judgment against the Manager cannot stand in the full amount awarded. The Manager is at least entitled to contest the Company's claims on the ground that, since 1 July 1989, the amount of the Basic Charge, when reviewed with effect from 1 July 1989 and from each subsequent 1 July, "to such sum as shall be reasonable etc ...", is less than the sums claimed by the Company. The Company, however, relies upon waiver and/or estoppel not only with reference to the counterclaim for recovery of sums overpaid but also with reference to the raising of the claim to review and the asserted right to set off overpayments against future payments; and, thus, asserts that the Manager has in law no basis for any relief in respect of any overpayments made.

As to the basis in law for the Manager's counterclaim, I do not, as I have said, accept that there is a valid claim in damages. The parties, if I am right, agreed that the amount of the Basic Charge shall be reviewed to such sum etc, and each side can insist upon that provision being operated, unless the right has been lost by estoppel etc, but a claim to damages for breach is not available to the Manager or to the Company on the ground only that the other failed to cause a Basic Charge to be reviewed so as to cause it to be reduced or increased.

As to the counterclaim for recovery of money paid on a mistake of fact, as to any part which is shown to have been overpaid, the Manager's pleaded case was that the alleged overpayments were made under a mistake of fact, namely that the amounts which the Company was claiming under the Company's invoices represented the Basic Charge under the First Agreement whereas in truth and in fact the same did not represent the Basic Charge as being such sum as should be reasonable having regard to comparative charges for similar services, etc. The Manager called no witness to say that he or she had been so mistaken. The submission for the Manager, as I understand it, before the Judge, was that the Manager was obviously so mistaken because no other reason for invoicing the tenants and paying to the Company can be imagined or was suggested. Mr Funk, a Director of the Company, in effect in cross examination, said that invoices in respect of the Basic Charge were as a matter of routine sent to Management and, up to the change of ownership, were settled in accordance with the Agreement. The date of the change of ownership is not in evidence. The refusal to pay was from June 1989.

This question, of course, proceeds upon the assumption that the payments made between July 1987 and July 1989 were in fact more than that reasonable amount to which by the terms of the agreement the Basic Charge was required to be reviewed. It is not in issue that the plaintiffs claimed the amounts paid by invoices and that they were paid.

Upon the material before the Court it is clear to me that, in all probability, the reason why Management, through its agents, paid the amount of the invoices was because the sums were believed to be due under the terms of the agreement. No other reason has been suggested. There are two possible grounds for Management to hold that belief, (1) a belief that only the Company had the right to review the amount; and (2) a belief that, although Management had the right to insist upon the amount being reviewed, the amount claimed was no more than the reasonable amount. More fanciful grounds for belief can be imagined, such as some error of general law, but they can, in my judgment, be excluded as improbable.

A mistaken belief that the amount claimed by the company in the invoices was no more than the reasonable amount would, I think, be a mistake of fact. A mistaken belief that only the company had the right to review the amount of the basic charge would be, in my judgment, a mistake of law, arising from misconstruction of the written agreement and money paid for such a reason is not recoverable. In Woolwich Building Society v. IRC [1993] AC 70 at page 164 D, Lord Goff of Chievely said:

"Whereas money paid under a mistake of fact is generally recoverable, as a general rule money is not recoverable on the ground that it was paid under a mistake of law. This principle was established in Bilbie v. Lumley (1802) 2 East 469. It has however been the subject of much criticism which has grown substantially during the second half of the present century."

Later at page 165 D Lord Goff said:

"Where a sum has been paid which is not due, but it has not been paid under a mistake of fact or under compulsion ... it is generally not recoverable. Such payment has often been called a voluntary payment. In particular, a payment is regarded as a voluntary payment and so is irrecoverable (where the money has been paid under a mistake of law)."

In his written outline of argument Mr Etherton advanced no detailed submissions with reference to mistake. In argument he referred to Solle v. Butcher [1950] 1 KB 671 in support of the contention, as I understood it, that a mistake as to private right arising as a consequence of a private document should be held to be a mistake of fact. Solle v. Butcher, however, was a case concerned with a claim to set aside a contract in equity on the grounds of a common mistake or misapprehension which was fundamental to the contract made. Cooper v. Phibbs (1867) LR 2 HL 149 was also a case of common mistake leading to the making of a contract. In Solle v. Butcher, Denning LJ summarised the case of Cooper v. Phibbs as follows:

"An uncle had told his nephew, not intending to misrepresent anything, but being in fact in error, that he (the uncle) was entitled to a fishery; and the nephew, after the uncle's death, acting in the belief of the truth of what the uncle had told him, entered into an agreement to rent the fishery from the uncle's daughter, whereas it actually belonged to the nephew himself".

The House of Lords held that such a mistake rendered a contract voidable on such terms as the Court thought fit to impose.

Lord Westbury in Cooper v. Phibbs at page 170 said:

"The result, therefore, is, that at the time of the agreement for the lease which it is the object of this petition to set aside, the parties dealt with one another under a mutual mistake as to their respective rights. The petitioner did not suppose that he was, what in truth he was, tenant for life of the fishery...in such a state of things there can be no doubt of the rule of a Court of Equity with regard to dealing with that agreement. It is said 'ignorantia juris haud excusat'; but in that maxim the word 'jus' is used in the sense of denoting general law, the ordinary law of the country. But when the word 'jus' is used in the sense of denoting a private right, that maxim has no application. Private right of ownership is a matter of fact; it may be the result also of matter of law; but if parties contract under a mutual mistake and misapprehension as to their relative and respective rights, the result is that their agreement is liable to be set aside as having proceeded upon a common mistake."

We are not in this case concerned, however, with a common misapprehension of fact or as to the relative and respective rights of the parties, which is fundamental to the making of an agreement but with the voluntary payment of money under an existing agreement. The question as to the proper construction of a contract in writing is a question of law. I know of no reason why a mistake as to the proper construction in law of a contract in writing is not to be treated as a mistake of law for the purposes of a claim to recover money paid under a mistake. In The Law of Restitution by Lord Goff of Chieveley and Gareth Jones, 3rd edition 1986 at p 123 it is said:

"English Courts have consistently refused restitution to those who have sought to recover payments which were made in consequence of a mistaken construction of a particular deed. Covenantors who are led by a mistake of law to misconstrue their covenants have been denied recovery of any consequential overpayments". [See the cases there cited including Re Hatch [1919] 1 Ch.351."]

The onus is upon management to prove the nature of the mistake which was the reason for the overpayments. In Avon CC. v. Howlett [1983] 1 WLR 605, (to which we were not referred in argument), overpayments of sick pay were made to the defendant, a teacher, and a witness was called to explain how the mistake was made by reference to data put into and taken from a computer. The mistake might have arisen from misconstruction of the Conditions of Service of the defendant or from a mistake as to how long the defendant had in fact been away from work. The approach of Slade L.J. was, as I understand his judgment, that if the mistake was as to the construction of the conditions it would be a mistake of law. At page 619B he said:-

"On the substantial issues, I have come to the conclusion that there was sufficient evidence before the judge to support the inference that, on the balance of probabilities, the mistakes which led to the relevant overpayments were mistakes of fact and not mistakes of law. Though there is no precise evidence to this effect, I think it a reasonable inference from the evidence as a whole that any pay clerk employed by the plaintiffs would have been likely to know the simple fact that an employee of the plaintiffs, such as the defendant, while absent from work following an accident, was under his conditions of service entitled to be paid at full rates of pay for the first six months of his absence, at half rates for the next six months of absence and to no pay thereafter. Accordingly, on the evidence, I think it a fair inference on the balance of probabilities that the reason why the plaintiffs continued to pay ... was that the pay clerks concerned were unaware or had forgotten that more than sic months had elapsed since the defendants accident and for this reason failed to give the appropriate instructions to the computer ... this was, in my view, plainly a mistake of fact rather than one of law."

For my part, I can see no escape from the conclusion that, if the reason why the overpayments were made by management was because Management by its responsible agents mistakenly believed that only the company could insist upon the basic charge being reviewed, the effective reason for the overpayments was a mistake of law. Since there was no evidence to show which of the two possible mistakes was the effective cause, the judge was right, in my view, to hold that management had failed to prove a right to recover overpayment on the ground of payment under mistake of fact.

It is therefore necessary to consider the validity and extent of the claim of management as trustee to recover or to set off in equity any sums overpaid.

The pleading by Management of its case to recover in equity was as follows. Reference was made to Clause 5(2) of the Agreement under which Management holds money upon trust to account to the company. By para 16 of the amended defence and counterclaim it was alleged that, insofar as Management received money from tenants in excess of the proper amount of the basic charge, Management hold such sums as trustee for the tenants and not for the company. Management then, in the alternative, claimed the amount of overpayments as trustee for the tenants to whom they are bound to account for such sums as they may recover. The submission in this Court for Management was as set out above. The passage in Lewin on Trusts 16th edition, at page 261, asserts that a trustee, who has made an overpayment or wrong payment to a beneficiary, may recoup the overpayment out of any trust capital or income remaining in or coming into his hands to which the overpaid beneficiary would be entitled. There is no discussion of the right of a trustee to recover sums overpaid as a result of a mistake of law as contrasted with exercising a right of adjustment by set off. We were referred to no case in which such a direct claim to recover has been allowed.

It seems clear to me that, in the absence of any evidence to show that it would be inequitable so to order, Management is entitled to set off, against further sums due to the company in respect of basic charge, the amount of any overpayments. The terms of the agreement constitute Management a trustee of sums received for Basic Charge from the tenants. In re Musgrave, [1916] 2 Ch 417, Neville J at p. 425 said:-

"... In accordance with the practice which I understand has always existed, the Court in a proper case - of course there may be cases in which it would be most inequitable to do it - will adjust the rights between the cestui que trust and the trustee who has overpaid through an honest and, so to speak, permissible mistake of construction, or of fact. I think, therefore, that the trustees in the present case are entitled to deduct from future payments the income tax which they have overpaid."

The fact that Management is a company controlled by the tenants, and thus, as Mr Patchett-Joyce put it, "the creature of the tenants", does not prevent, in my judgment, this claim by Management. The provision making Management a trustee of the sums received as basic charge payments is part of the agreement which would have effective consequences for the benefit of the company, for example in the event of the insolvency of Management, and I see no reason why Management should not be entitled to assert this right in equity against the company on behalf of the tenants.

We were, however, referred to no case where a trustee has been held entitled to recover directly from the recipient money paid under a mistake of law as contrasted with a right to deduct sums overpaid from future instalments: see the Law of Restitution, 3rd edition, at page 128. For my part, I can see no reason why this distinction should be made in our law. No claim on this ground should be allowed unless it is equitable to allow it and on terms which the court will approve. If the court can order adjustment of overpayments by set off against future payments, where it is equitable so to order, then, if the overpaid recipient can without hardship repay the overpayment at once and in full, there seems to me to be no reason why such an order should not be made. I am, however, not persuaded on the facts of this case that it is right to order that Management should recover in equity by counterclaim as contrasted with the right to set off the amount of any overpayments against further sums due to the company for basic charge. I am not confident that the distinction between adjustment by set off and recovery by counterclaim was clearly addressed at the trial, in particular with reference to facts relevant to the issue as to whether it would be inequitable to make an order based upon the contention that the company be required to repay at once and in full at the time at which Management raised the claim. The point was, moreover, not clearly argued in this court. This distinction appears to be unlikely to be of great importance in this case although it will, no doubt, affect the calculation of interest.

Next, is Management prevented by any requirement of equity, and in particular, any representation or estoppel or waiver from exercising the right of set-off?. On this issue the Pleading was as follows:

(1) By para 6 of the re-re-amended reply and defence to counterclaim, it was said that, by not seeking a review of the Basic Charge and/or by making payments to the Company without qualification, Management had waived or was estopped by that conduct from relying upon any alleged breach of contract on the part of the Company; and (2) by para 13 of that pleading it was alleged that Management was estopped from claiming any repayment of money paid under the mistake of fact by its conduct in not seeking a review of the Basic Charge at any time before making the payments and/or by its conduct in paying without qualification.

Upon these issues, the judge gave no reasons and made no specific findings of fact. Since he accepted the Company's submissions on the construction of the agreements, he regarded arguments as to waiver and estoppel as academic; and, if they were not academic, he accepted the Company's submission that on the facts there had been an estoppel by the conduct of the parties or by reason of representations made by Management or that there had been a plain waiver.

I would set aside this finding of the Judge. The evidence shows no more than that between July 1987 and July 1989 the Company claimed what the Company believed to be due - the Basic Charge at £5.80 - and Management paid the amounts invoiced without query. No dispute of any sort had arisen. It is not suggested that Management made any representation to the Company other than by paying what was claimed. There is, in my judgment, no basis in the evidence for a finding of waiver, or of the making of any relevant representation. There was no suggestion in the evidence of any relevant reliance or change of position. At a very late stage in the evidence, there was an attempt by the company to introduce the topic. There was an objection to the effect that it was not pleaded (see transcript p 50). It was, apparently, not pursued further.

In this Court it was argued that, on the evidence before the Court, the Company had established against Management an estoppel by convention and, for that purpose, reliance was placed upon the decision of this Court in Vistafjord. There was no reference to estoppel by convention in the judgment and no finding of facts relevant to this contention. It is, in my judgment, impossible to hold that estoppel by convention has been made out. There was no convention or common assumption of the parties following upon or additional to the first agreement. There was no more than the carrying out of the agreement according to the separate understandings of the parties. No issue was raised before the payments were made. To hold that a claim to recover overpayments as made under mistake of fact, or a claim to set off overpayments in equity against future payments due, is barred by estoppel by convention, in the circumstances of this case, would be to bar any claim where the party who has received payments has believed or asserted the sums claimed to be due and the party making payment mistakenly believed the sums claimed to be due.

For the same reasons, the claim to set off is not, in my judgment, barred on the basis that any overpayments constituted a voluntary settlement of an honest claim. The honesty of the Company's claim, of course, is not in doubt. In Kelly v. Solari (1841) 9 M & W 54, Parke B said:

"If, indeed, the money is intentionally paid, without reference to the truth or falsehood of the fact, the plaintiff meaning to waive all enquiry into it, and that the person receiving shall have the money at all events, whether the fact be true or false, the latter is certainly entitled to retain it".

A clear example of such a payment is when a question is raised as to the validity or amount of a claim and, in response to a threat to sue, the claimant pays the full amount or agrees to pay a compromise sum. On the facts of this case, as I have said, there was nothing more than the submission of the invoices and payment of them.

For the reasons set out above, there is, as I think, nothing inequitable in permitting Management to set off against the following claims by the company in respect of basic charge any sums which Management can prove were overpaid between July 1987 and July 1989.

I would allow the appeal by Management. I would wish to hear Counsel as to the form of the Order. Matter to be restored for argument as to the Order and costs before or on 11 February. Skeleton arguments to be lodged two days before the hearing is to be listed.

I agree.

The plaintiffs, who are the respondents to this appeal, installed a system of television aerials linked to each of the flats in the block known as Chelsea Cloisters, Sloane Avenue, London S.W.3, which is managed by the defendants who are the appellants. The installation was carried out under an agreement in writing dated 20 March 1986. Appendix II to that agreement was a form of agreement which it was intended would be executed as a separate contract when the whole of the installation was complete. Because the work was to be done progressively, individual flats would be completed before the separate agreement was executed, and so, understandably in these circumstances, clause 5 of the agreement dated 20 March 1986 provided that, prior to execution of the Appendix II Agreement, "the provisions thereof shall (where the context allows) apply as regards any part of the Premises in which the works have been completed".

For some reason, which I do not understand, much of the hearing before the learned Deputy Judge was taken up with an issue as to whether Appendix II ever took effect as a separate contract at any material time. Before us, Mr Etherton Q.C. submitted, rightly in my view, that that issue is simply irrelevant to the disputes which have arisen. This is because clause 5 of the original agreement expressly incorporates the relevant parts of Appendix II.

The material provisions of Appendix II are clauses 5 and 6, which have already been quoted by my Lord. I would summarise them as follows. There is no obligation upon the Managers to make any payment to the Company in consideration of the T.V. services provided to individual flats. The basic charge is "payable by each tenant". The Manager's obligations are set out in clause 5(2). These involve :-

(1)invoicing each tenant quarterly in advance

(2)for the Basic Charge as part of the normal service charge, and

(3)holding the moneys received from the tenants "in trust to account to the Company" within one month thereafter.

What amount is to be invoiced? The Basic Charge is defined as "(£5.80) per flat per month (subject to review under clause 6)". "Review under clause 6" means that on 1 July each year the figure of £5.80 is "reviewed to such sum as shall be reasonable." Clause 6A, standing alone, means that the Company is not entitled to recover more than a reasonable sum, in respect of any year after 1 July 1987. This is consistent with the Manager's statutory obligation, as landlord, not to charge the tenant more than a reasonable amount: Landlord and Tenant Act 1985, section 19.

The question which arises is whether clause 6(C) has the effect of limiting clause 6(A) to "upwards only" changes and of fixing £5.80 as a base figure for the whole period of the Agreement, regardless of whether it is or becomes more than a reasonable sum. That is the consequence, if the Company's submissions as to the meaning of the agreement are correct, because they contend that a review shall only take place on the initiative of the Company, and they assume that the Company would only take the initiative when it was to its advantage to do so; in other words, when the Company considered that a reasonable sum would be greater than the amount of the existing charge.

The question of construction is whether clause 6(C), which requires the Company to give prior notice of its intention to review the Basic Charge, has the effect of qualifying clause 6(A), which provides that each year the charge shall be "reviewed ... to" such sum as shall be reasonable. In my judgment, for the reasons given by Ralph Gibson L.J., it does not. The overriding obligation is to charge no more than a reasonable sum. Clause 6(C) requires the Company to give prior notice whenever a change is thought to be necessary, having regard to factors which are primarily, though not exclusively, within the knowledge of the Company rather than of the Manager. The contractual assumption, in my view, is that the Company will have regard throughout to its primary obligation that the charge shall be reasonable, not that it is entitled to maintain an existing charge which is unreasonably high by the simple device of failing to give notice in accordance with clause 6(C).

Mr Patchett-Joyce, for the Company, submitted that the "commercial reality" of the situation when the agreement was made supported his contention that clause 6(C) should have this "upwards only" effect; otherwise, the Company would be at risk as regards recovering the costs of installing and maintaining the system as it undertook to do. The Company, he submitted, had commercial interests to safeguard, whereas the Manager had an essentially administrative role. For my part, I consider that the "commercial realities" point in the opposite direction. There is nothing in the agreement which detracts from the Company's right to recover a reasonable sum. The issue raised by the Company is whether it is entitled to maintain a charge which is or becomes unreasonably high. There is nothing in the agreement to suggest that this was the parties' intention, and it would involve, if correct, that the Manager as well as the Company intended to disregard the Manager's statutory obligations toward its tenants.

At this point, I should comment upon what appears to me as an extraordinary feature of these proceedings. There has been no inquiry, yet, as to whether the sums claimed by the Company and charged to individual tenants were unreasonably high. If they were not, then the issue of law is presently academic, and it will only arise in future if the amount becomes unreasonably high and nevertheless the Company then seeks to maintain an existing level. If the charges have been unreasonably high, then the Manager has to consider its own position in relation to individual tenants, having regard to its statutory obligations, as well as the settlement of accounts between itself and the Company. I cannot see that there has been any saving of costs by postponing the issue of reasonableness until after the question of construction has been resolved.

I agree with Ralph Gibson L.J. that no difficulty arises as to the Manager's entitlement to set off the amount of any past overpayment against the liability to account for subsequent charges. Much more difficult is the question, which may also be academic except possibly as regards the recovery of interest in the present proceedings, whether the Manager is entitled to succeed in its Counterclaim for immediate repayment of the amounts by which the charges already recovered from tenants and accounted for to the Company were unreasonably high, if it is established hereafter that they were.

The only facts which the Manager can suggest are proved by the evidence or are common ground between the parties are that a fixed amount of £5.80 was included in the service charge for each flat, was recovered by it from the tenants and then paid over to the Company. In order to recover any part of these payments on the grounds that £5.80 exceeded a reasonable sum (if that was the case), the Manager must prove either that the excess was paid under a mistake of fact or, on the assumption as to equitable principles made by Ralph Gibson L.J. with which I respectfully agree, that fairness and good conscience require the excess to be repaid. For the reasons given by my Lord, sufficient facts in my judgment simply are not proved. Not even in argument before us was the distinction clearly made between the right of set-off, which is directly supported by the authorities, and a right to demand repayment, which is not. I have been troubled by the question whether the parties should be given a further opportunity to argue this particular issue before us and perhaps also to allege and prove such further facts as may be relevant to it. My conclusion, however, is that they should not. In at least two other respects, to which I have already referred - the amount of attention paid to the irrelevant question whether Appendix II took effect as a separate contact, and the fact that the Court was not asked to decide the central issue of fact, as to the reasonableness or otherwise of £5.80 as the Basic Charge -the proceedings have been conducted on a basis which I find it difficult to justify and even to understand. The authorities as to a right of set-off clearly do not extend to a right of recovery, or restitution, yet neither party identified this distinction as a relevant issue in the present case. It may be academic, in any event. I consider, therefore, that the appeal should be decided on the evidence which is before us. This means that the Counterclaim for repayment of sums overpaid (if any), as distinct from the Manager's rights of set-off, is not made out. Otherwise, for the reasons given by Ralph Gibson L.J., I agree that the appeal should be allowed.

I agree with both judgments which have been delivered and, although we are differing from the Learned Judge below I do not think it necessary to add anything further on my own account. I agree with the Orders proposed by my Lords.