Mixed news for retailers arising from monies paid or claimed by mistake

Mistake - an opportunity for tenants?

Elizabeth Robinson comments on the mixed news for retailers arising from monies paid or claimed by mistake

Retailers will, no doubt, remember the High Court decision in July 1997 in the case of University Superannuation Scheme Limited and Marks & Spencer plc. In that case the High Court refused to allow a landlord to reopen service charges for previous years where the tenant had been charged an incorrect sum because of an error on the part of the landlord in calculating the service charge. At the time, it was a welcome decision for tenants.

Unfortunately for tenants, the landlord's appeal against the High Court decision has been successful. The Court of Appeal followed a different approach to the High Court.

It ruled that the correct approach was to look at the lease in order to identify the nature and extent of the contractual obligation of the tenant to pay service charge (and not at the mistake itself). The clear intent of the service charge provisions was that the landlord should be entitled to recover all expenditure incurred in maintaining the shopping centre. Marks & Spencer had not fulfilled their contractual obligation in full and were, therefore, obliged to pay the additional sums claimed regardless of the landlords mistake in using the wrong rateable values to calculate the service charge payable.

Although the tenant was ultimately unsuccessful in the Marks & Spencer case, this is not the end of the story. There have been two recent court decisions which have taken a different line by focusing on the possibility of reclaiming monies paid under a mistake of law or fact.

In Kleinwort Benson Limited v Lincoln City Council, Kleinwort Benson achieved a ruling from the House of Lords that various payments made under interest rate swap arrangements with Lincoln City Council were made under a mistake of law and that Kleinwort Benson were entitled therefore to recover these monies from Lincoln City Council. This decision could be of crucial importance in the future. In the past the courts have not been prepared to allow that monies paid under a mistake of law be recovered retrospectively.

The Kleinwort Benson principle has been expanded in a recent decision Nurdin & Peacock plc v D. B. Ramsden and Co Ltd. This case involved overpayments of additional rent due from the tenant under a lease only in certain years of the term. Nurdin & Peacock continued, in error, to pay the additional rent after the expiry of the relevant year of the term. In total they overpaid 5 times without realising that they had done so and then another 5 times after stating that they had overpaid and raising the matter with the landlord.

The High Court held that Nurdin & Peacock's first 5 overpayments were paid under a mistake of fact and were recoverable. The last 5 overpayments were also recoverable but this time under a mistake of law. In respect of the sixth overpayment the mistake of law was that they believed that they could recover any overpayment once it had been made to the landlord and in respect of the final 4 overpayments on the belief that issuing proceedings and exchanging correspondence with the landlords would entitle Nurdin & Peacock to recover those overpayments.

The overall effect of these cases is that tenants should seriously consider whether they can successfully recover monies paid by mistake of fact or law. It has to be remembered that the Marks & Spencer decision relates to a landlord seeking reimbursement from a tenant of additional monies and is based on the court's interpretation of the particular lease. There is still scope for tenants to seek recovery of monies (including service charge) which have been paid to a landlord in error, or where it is possible to show that a tenant believed that a payment could be recovered if it was later held not to be due.