Morshead Mansions Ltd v Mactra Properties Ltd

This is a remarkable appeal concerning the obligation of a landlord to provide an account in relation to service charges payable in respect of a block of flats. It is remarkable because the landlord is asserting a more onerous obligation than the tenant in order to resist an order for specific performance of its, the landlord’s, obligation. It is an appeal from orders of HHJ Bailey, sitting in the Central London County Court, dated 29 September 2011 (“the 2011 Order”) and 17 February 2012 (“the 2012 Order”), the latter relating to the costs of the application which resulted in the former.

The claimant in the action and respondent to this appeal (“MPL”) is the leaseholder under long leases at ground rents of 19 of the 104 flats comprised in a block known as Morshead Mansions, Morshead Road, London W9 (“the Property”). The defendant and appellant (“MML”) is the lessor under each of those long leases and is the registered proprietor of the Property. The leases of each flat are, for present purposes, in materially identical form. I shall refer simply to “the Lease” without distinction. The claim seeks provision of an account of Expenses and Service Charge which MML is obliged to provide under the Lease and damages for breach of that obligation. The central issue concerns the true construction of the relevant provisions of the Lease.

One of MPL’s covenants under the Lease (see Clause 3.2) is “To pay the service charge calculated in accordance with the 4^th schedule on the dates stated there”. I note that “service charge” is all in lower case although “Service Charge” with capital leading letters is a defined term for the purposes of the 4^th Schedule. A question, which I will come to later, has arisen whether they have a different meaning.

One of MML’s covenants under the Lease (see Clause 4.4) is “To provide the services listed in the 5^th schedule” on payment of the service charge; a second covenant (see Clause 4.5) is “To maintain a reserve fund in accordance with the 6^th schedule”. A third covenant (see Clause 4.2) is to insure the building against specified risks. Paragraph (c) of that clause requires MML to lay out the sums paid under any such policy in rebuilding and reinstating the Property. If that should prove impossible, the policy proceeds are to be shared among MML and the lessees in proportion to the value of their respective interests in the Property.

The 4^th Schedule is headed “Service Charge”, the 5^th Schedule is headed “Services to be provided” and the 6^th Schedule is headed “Reserve fund”. The material provisions of the 4^th Schedule are as follows:

The 5^th Schedule lists in 22 paragraphs the services which MML is to provide. They include, at paragraph 1, “Repairing the roof, outside, main structure and foundations of the building”. Paragraphs 14 to 22 (other than paragraph 16) all commence with “the cost of….”. Although these costs are not services, it is clear that the intent of Clause 4.4 read with the 4^th and 5^th Schedules is that they are intended to fall within the recoverable Service Charge. Paragraph 19 refers to

“the cost of preparing and supplying the account of the Expenses and Service Charge including the charges and expenses of a qualified accountant employed to prepare audit and provide copies of the same”

The material provisions of the 6^th Schedule, which relates to the reserve fund, are as follows:

MML was incorporated in 1992 presumably, as the Judge said, for the purpose of acquiring the freehold of the Property. In the early years of its existence, audited service charge accounts were prepared which I, like the Judge, take to be accounts “in what may briefly be described as full audited form from the point of view of a chartered accountant” as he put it. I have found it useful to adopt the description “Full Accounts” put forward by Mr Seitler in his skeleton argument namely accounts, in the style of accounts drawn up by an accountant showing all relevant information, on an accruals not a cash basis and showing balances carried forward and matters such as contributions payable to, and held by, an account referred to in the accounts as the “Reserve Fund”.

There was dissention concerning the management of the Property which resulted in an order made on 13 January 2000 by the Leasehold Valuation Tribunal under Part 2 Landlord and Tenant Act 1987 appointing a manager, a Mr Maunder-Taylor (“the Manager”) to manage the Property.

Mr Seitler QC is highly critical of the way in which the Manager carried out, or rather failed to carry out, his role. The Manager is not here to defend himself from MML’s accusations, in which context it is perhaps worth noting that Mr Johnson QC, who appears for MPL, does not associate himself with Mr Seitler’s words. But this appeal is not about the Manager’s conduct. I do not need to say anything about that except in relation to the accounts and paperwork which he produced, or rather failed to produce.

It is fair to say, however, that there was justified dissatisfaction with the Manager’s custodianship resulting in the suspension of his appointment by the LVT on 3 February 2003. The LVT ordered the Manager to return all books, records, bank statements, ledgers, accounts, receipts and other documents relating to the service charge account, the maintenance account of the Property and any reserve fund he held. MML complained, as recorded by the Judge, that such documents as the Manager did provide were seriously deficient. MML’s position is that, in particular, the service charge accounts produced by the Manager were seriously deficient, a proposition not disputed by MPL. MML’s position before the Judge and before me is that the Manager was simply unable to produce, or for whatever reason did not in fact produce, reliable accounts year on year. For instance, the closing balance at 31 December 2001 differed from the opening balance at 1 January 2002 and no proper balance sheet was provided for 2002.

Upon the determination of the Manager’s appointment, MML resumed responsibility for the management of the Property. Some time after this, MML was prosecuted in the Magistrates Court for an alleged breach of section 21 Landlord and Tenant Act 1985 (imposing an obligation to produce a summary of relevant cost). This resulted in an acquittal.

It seems to be the case, and for the purposes of this appeal I proceed on the basis, that the Manager failed to return to MML proper books and documents which would have enabled it to prepare reliable accounts for the period during which the Manager held office.

MML’s position before the Judge and before me is that it faced significant difficulties in producing service charge accounts for the years 2003 to 2007. This, I understand to be alleged, is because of the knock-on consequence of the Manager’s failings: it was not possible to prepare full accounts for the later years until the accounts for 2000 to 2002 could be prepared and certified. MML says that life has therefore been made extremely difficult for its sole director, Mr David Wismayer. As to Mr Wismayer, as well as being the lessee of one of the flats at the Property, he is a chartered accountant and can be expected to be capable of producing proper accounts provided that he has the appropriate information.

MPL became dissatisfied with the absence of accounts or any proper information about the service charge. I do not need to go into the correspondence leading to the present proceedings for the purposes of the appeal from the 2011 Order although that correspondence will be highly relevant to the issue of costs. I will deal with it, so far as necessary, when dealing with MML’s costs appeal. It is enough to say that MPL did not receive the information to which it considered it was entitled and took steps to enforce its rights under the Lease.

A Claim Form with Particulars of Claim attached was issued in the Central London County Court on 27 February 2008. The Claim was based on breach of paragraph 4 of the 4^th Schedule to the Lease (“paragraph 4”). Particulars of that breach were as follows:

“[MML] has failed to provide [MPL] with a certified account of the Expenses and Service Charge for the years 2003, 2004, 2005, 2006 and 2007.”

The first relief (and the only relief relevant for present purposes) sought by MPL was an order “that [MML] perform its obligations as set out in paragraph 4 of the 4^th Schedule to the [Lease].”

A Defence was served on 28 April 2008. It was admitted that the accounts of the Expenses and Service Charge for the years 2003 to 2007 had not been provided, but it was denied that the failure to do so was a breach of MML’s obligations under the Lease. The Defence noted that MML’s obligation was to produce the account “as soon as is practicable” and went on to explain why it had not been practicable to do so. Reference was made to the Manager’s failures which I have mentioned already; in addition, it was alleged that he had published seriously deficient service charge accounts for 1999, 2000 and 2001. He had proved himself incapable of producing reliable accounts for the period of his tenure. Instances of his alleged incompetence and inability are then given.

The Defence later referred to the proceedings in the Magistrates Court which I have mentioned. It set out a number of findings made by the District Judge. This is not the place to set out everything which is relied on but I mention the following findings:

The Defence alleges that the particular difficulties faced by MML in producing service charge accounts for the years 2003 to 2007 all stem from the Manager’s failure to discharge his obligations competently. Again, I do not set out the list of alleged failures, but note (i) the failure to record the balances standing to the debit/credit in the Manager’s ledgers and (ii) the failure to distinguish properly or at all between reserve fund moneys and other moneys due to him as manager. The Defence went on to say that it would be MMLs case at trial that the manager’s incompetence had rendered the production of service charge accounts impossible without reconstruction of accounts for the period of the Manager’s appointment and that such reconstruction had been rendered prohibitively difficult by (a) the manner in which the Manager kept his records (b) his failure to return all relevant documents and (c) the resulting need to review several thousand individual transactions. The Defence took a particular point about production of the 2007 account on the footing that, on any view, a reasonable period of 6 months should be allowed from the year end to produce the account, a period which had not expired at the date of the Defence, let alone at the date of the Claim Form and Particulars of Claim. Interestingly, however, MML estimated that it would be able to publish fully audited service accounts for all years from 2000 to 2007 inclusive by the end of May 2008. Those accounts had not, in fact, been published by the time of the hearing before HH Judge Bailey on 29 September 2011.

I note that paragraph 19 of the Defence (which was subject to the usual statement of truth given by Mr Clive Wismayer, a solicitor and brother of Mr David Wismayer) refers to Mr David Wismayer as an accountant uniquely qualified to prepare MML’s service charge accounts.

On 14 April 2011, MPL issued an application for summary judgment under CPR 24.2(a)(ii) and (b) (“the Application”). It sought an order that MML perform its obligations as set out in paragraph 4 of the 4^th Schedule to the Lease. That was supported by a long witness statement, from Mr Jarret Brown a partner in Mishcon de Reya, MPL’s solicitors, running to 104 paragraphs. I do not need to refer to the detail of that witness statement for the purposes of the appeal against the 2011 Order (although, again, it will be relevant to costs). One important aspect of it, however, was an attempt to make the case, to use my own words, that MML’s defence was a smokescreen. Thus reliance was placed on certain things stated by each Mr Wismayer in correspondence to show that it was perfectly possible to produce accounts compliant with paragraph 4.

By the time that the Application came before the Judge, and in fact long before that, it was clear that there was a disagreement between the parties about what the Lease, on its true construction, required MML to provide. MML contended, and contends before me, that the Lease required it to provide Full Accounts as described at paragraph 9 above; MPL says that the Lease required provision of something less sophisticated, namely a list of the expenses falling within the definition of Expenses. I shall use the expression “Expenses List” to refer to the account which MPL says that the Lease obliges MML to provide.

I take as an example of Full Accounts the accounts prepared for the year ended 31 December 1998. It contains a certificate from Peter Edney & Co, Chartered Accountants, to the effect that the accounts give a true and fair view of the affairs of the Service Charge Funds as at 31 December 1998 and of the expenditure incurred for the year which have been “properly prepared in accordance with the provisions of the leases”. Note 1 (Accounting Policies) to the accounts states that the directors of MML are of the opinion that “the form of account and the information reported therein, adopted by the landlord company is in accordance with the relevant provisions of the leases”. Notes 2 and 3 (Service Charge Expenditure) explain that income from bank deposits, interest accruing on arrears on service charges and a prior year adjustment have been deducted in arriving at the service charge expenditure. Note 3 explains that, after deducting income from bank deposits, MML has incurred costs (£349,756) defrayable out of the Reserve Fund, reducing the balance accordingly.

The second page contains a Balance sheet as at 31 December 1998 showing the corresponding figures as at 31 December 1997. The 1998 figure reflects Note 3 in reducing the balance from the 1997 figure. The balance sheet shows a figure for current debtors, the vast amount of which (some £1,839,338) is described in Note 8 as “Amount due from leaseholders”, and cash at bank. It shows a figure for current liabilities including creditors, the main item of which is described in Note 9, uninformatively, as “Creditors and accrued charges”. This gives a total for net current assets of £1,637,213, financed by Reserve Fund. It is impossible to understand from the accounts why a sum as large as £1,839,338 was due, and uncollected, from leaseholders at 31 December 1998.

Nor is it clear from the accounts whether the Reserve Fund is a reflection solely of the reserve fund which MML is obliged to maintain in accordance with the 6^th Schedule to the Lease although it is a reasonable assumption that that is what it is. On that footing, the accounts do not contain a balance sheet in relation to the other amounts, if any, held by MML, for instance, the monies received by MML as reasonable provision for anticipated expenditure under paragraph 4 of the 4^th Schedule which does not fall with paragraph 1 of the 6^th Schedule.

The third page is described as an “Income and Expenditure Account for the yearended 31^st December 1998”. It shows expenditure and it shows some deductions for a prior year adjustment, an item of interest of arrears of service charge and bank interest received. The item of bank account interest does not, I imagine, relate to the Reserve Fund, and so is interest on a bank account which does not form part of the Reserve Fund. Apart from those deductions, the accounts do not show any income such as service charge contributions. From all of this, it can be seen that these accounts are as full accounts as can sometimes be found in relation to service charges.

I have not been shown completed and certified accounts for later years. However, the evidence filed on behalf of MML includes a witness statement from Mr David Wismayer which exhibits some draft accounts. These are “Accounts for the Service Charge Funds” for the years ending 31 December 2000, 2001, 2002 and 2003. The photocopy of the exhibits contained in my bundle does not contain all the pages of the draft accounts: pages (4) and (5) missing in each case. The pages which are present follow the format of the account for the year ending 31 December 1998 which I have already described. Each year shows, in the expenditure part of the accounts a “Reserve Fund precept”. Note 10 explains this as an increase in the Reserve Fund demanded in the year (not paid, as the item for current assets shows); the precept less the expenditure (after deduction of bank interest) results in a change in the Reserve Fund as shown on the balance sheet.

For the year ending 31 December 2003, the accounts show an item under deductions for “subsidence insurance claims” of £22,844. That is an appropriate entry for accounts in the character of the Full Accounts referred to by Mr Seitler.

An example of an Expenses List can be found in a schedule of expenses (“the 2009 Schedule”) relating to the calendar year 2009. This was dated 14 October 2010 and was produced by MML at about that time, and thus long before the Application was commenced. The 2009 Schedule is described as being “Pursuant to paragraphs 1(c) and 4 of the 4^th Schedule to the leases”. MPL considers that the 2009 Schedule was, indeed, compliant with paragraph 4 consistently with its title. MML now contends that the 2009 Schedule is not what is required by paragraph 4 and is not enough to satisfy the requirements of that paragraph.

The Judge preferred MPL’s construction of the Lease and its conclusion about the extent of the obligation under paragraph 4 of the 4^th Schedule. He decided that, on the basis of that construction, MML had no case for saying that it was not in breach of its obligation, rejecting its argument that the time identified by “As soon as practicable” (see the opening words of paragraph 4) had not arrived. Mr Seitler did not contend before me that, if the Judge was right as a matter of construction, he was nonetheless wrong on his conclusion about what was practicable. Indeed, given that MML has now provided an account for each year based on the construction favoured by the Judge, it would be difficult for it to maintain that it was not practicable to do at the date of the Application especially in the light of the provision of the 2009 Schedule before that date.

In contrast, if the Judge was wrong and MML’s construction is to be preferred, there may be more in MML’s defence. I say “may be” because MPL is far from satisfied that MML was in fact hampered in its production of full accounts to the extent asserted. It has sought disclosure to ascertain what MML was in fact doing to produce accounts and to ascertain whether MML was in fact hampered in the way alleged. MML did not give such disclosure with the result that MPL made an application for disclosure. That application has been overtaken by the successful summary judgment application.

Following the 2011 Order, further figures were produced and certified for the years 2003 to 2007. They all bear the “Account of Expenses paid or incurred pursuant to paragraph 4 of the 4^th Schedule to the leases for the year ended 31^st December [200X]”. Each account contains an accountants’ report by reference to an annexed Account of Expenses. The basis of the report is explained in this way. The accountants work was carried out having regard to the ICAEW Technical Release 03/11 Residential Service Charge Accounts. Their procedures in summary were these:

Their report of factual findings in relation to (i) was that they found the figures in the Account of the Expenses to have been extracted correctly from the accounting records; and in relation to (ii) was that those entries in the accounting records which they checked were supported by the receipts etc inspected and the explanations provided.

The annexed account is described as “Account of the Expenses paid or incurred pursuant to the provisions of paragraph 4 of the 4^th Schedule to the leases for the year ended 31^st December [200X]”. I think it is common ground that the list has been prepared on the basis of the construction of the Lease which found favour with the Judge. MML was able to provide this account reasonably promptly after the Judge had given his decision. For its part MPL accepts that the document is in compliance with the terms of the Lease according to the construction which it contended for, namely the construction adopted by the Judge. The account, I note, does not contain any information (whether a balance sheet or an income and expenditure account) relating only to the Reserve Fund, although the accounts for the years 2003 and 2007 do contain an item of expenditure, namely “Transfer to Reserve Fund” in the sum of £1,100,000 and £250,000 respectively.

Finally, by way of factual background, it is to be noted that MML had been serving all tenants, including MPL with what Mr Seitler describes as Expenses Lists for each year 2003-2007 in accordance with sections 20B(2) and 21(5) Landlord and Tenant Act 1985.

MPL’s position is that the present appeal is a complete waste of everyone’s time and money. It has now received an account for each relevant year which satisfies its requirement for information and, as it happens, says that what it has received is compliant with MML’s obligations under the Lease. MML’s position is that the appeal needs to be pursued since it, MML, wishes to know the extent of its obligations under the Lease and, in any case, seeks to recover its costs of the Application which requires it to establish its preferred construction of the Lease.

The general principles of construction of documents are well known and I do not need to rehearse them. They can realistically be taken from the decisions (and in particular the speeches of Lord Hoffmann) in Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 770 at [17] and Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 at 912F-913G and, most recently, the decision (and in particular the speech of Lord Clarke) in Rainy Sky SA v Kookmin Bank [2011] UKSC 50 at [14]), It is right to construe the Lease as a whole and not clause by clause or Schedule by Schedule. Thus the 4^th Schedule and the 6^th Schedule must be read consistently, if that is possible, and the meaning of one informs the meaning of the other. It is also right to construe the service charge provisions and the reserve fund provisions against the purpose of those provisions insofar as they can be ascertained from the four corners of the Lease and the admissible factual matrix.

As to evidence, the Judge considered that there was nothing to suggest that any further factual evidence was necessary to resolve the issue of construction. He added that there was no room for the court admitting expert evidence as to interpretation (something which in any event he considered would be highly unusual). And so he decided that he would decide the issue of construction.

I do not disagree with the Judge’s decision to proceed to determine the point of construction. Nor do I disagree with his conclusion that expert evidence was not necessary. That is not to say that the Court should not take notice of well-known features of what a particular account involves. The general concepts of a profit and loss account, an income and expenditure account and a balance sheet are well known concepts, as is the accruals concept, about which expert evidence should not be necessary. In any case, if a contract or other agreement directs how a particular account is to be drawn, the account will have to be drawn in that way regardless of accountancy practice (unless, perhaps, there is some strong public policy against the resulting account).

I should perhaps say a little more about expert evidence. If it were right that it is implicit in paragraph 4 of the 4^th Schedule that the “account” there referred to must comply with some accountancy practice (so that in the absence of compliance with such a practice, an auditor could not properly certify what he is asked to certify), then the Court might need evidence to know what that practice is and, if there is any doubt about it, whether a particular form of account complies with that practice. This, however, is not an issue in the present case. If Full Accounts are required, as Mr Seitler submits, the auditor will, in principle, be able to provide the certificate required by paragraph 4; it will be a question of fact, once they have been prepared, whether he will actually be willing to certify. In contrast, if the sort of account for which Mr Johnson contends is what is required, certification, again, causes no problem for me since, following the 2011 Order, some accounts have been prepared which (a) comply with paragraph 4 on the Judge’s interpretation and (b) are certified on the basis of that interpretation. In neither case can I see the need for expert evidence.

I propose now to set out my own analysis of the relevant provisions of the Lease and my views about what MML is required to provide by way of the “account” under paragraph 4 of the 4^th Schedule. In carrying out that analysis, I have borne in mind the rival submissions without addressing them in detail. I will deal with those rival submissions in the context of my analysis. I will then consider whether, on the facts, MML had any defence to the actual provision of the account required for each Accounting Year sufficient to fend off an application for summary judgment.

I start my analysis with the 6^th Schedule, attempting to derive its meaning from its context in the Lease as a whole and with a view to its evident purpose. I start with the 6^th Schedule, rather than the 4^th Schedule, because it presents less difficulties of construction.

As to the evident purpose of the 6^th Schedule, it is not really necessary to look beyond the opening words of paragraph 1. It is to accumulate in advance the expected costs of the three items listed and in relation to the matters mentioned in paragraph 1 of the 5^th Schedule. The three items mentioned are items of major expenditure. The maintenance of a reserve fund, or sinking fund to use a different phrase, to meet the costs of such items is an obviously prudent course for both a landlord and for a lessee. It eliminates, or at least reduces, the risk to the landlord that the lessee will find himself without the necessary liquid funds when the landlord needs them to meet the cost of the anticipated outgoing when it becomes a present liability; and it protects the lessees from imprudence in failing to save, or at least to save in a way which enables them to produce liquid funds when that present liability arises.

I note that the expressions “service cost” and “service charge statement” in paragraph 3 are not defined anywhere in the Lease. But their meanings are, I think, clear. The result is that the contribution required under paragraph 3 is treated in the same way as a cost (ie the “service cost”) of providing the services under the 5^th Schedule. Those services are recovered by way of the Service Charge; the cost of their provision forms part of the Expenses so that each lessee’s share (“the Service Charge” relevant to that lessee) reflects that cost. Similarly, the amount of the contribution to the reserve fund under paragraph 3 of the 6^th Schedule is an amount which features in the calculation of the Service Charge (“the service charge” referred to in paragraph 3) and it features by being brought into the calculation in the same way as any other item falling within the definition of the Expenses. It is paragraph 3, indeed, which introduces the mechanism for recovery of the contribution to the reserve fund. Paragraph 3 does not purport to impose a free-standing covenant on the part of MML; instead, the contribution to the reserve fund features as an element of the Service Charge payable; so that, if there is default in payment, the right to recover payment is found in Clause 3.2. I consider further the inter-relationship between the Expenses and the contribution to the reserve fund later in this judgment.

At one stage of his argument, Mr Seitler QC, who appears for MML, suggested that a distinction was to be drawn between “service charge” and “Service Charge” within the 4^th Schedule and paragraph 3 of the 6^th Schedule. I do not think he pressed that following an interchange between him and me. But if he does, I reject it.

The obligation placed on MML by Clause 4.5 of the Lease is to maintain a reserve fund in accordance with the 6^th Schedule. The reserve fund itself is to be deposited at interest pursuant to paragraph 6 of the 6^th Schedule. If a flat in the Property is empty, the payments which would otherwise be made to the reserve fund by the lessee of that flat are contributed, instead, by MML pursuant to paragraph 4 of the 6^th Schedule. The reserve fund then represents monies actually paid by lessees and monies actually paid by MML together with any income of those funds. If contributions remain outstanding, the contributions when eventually recovered from the lessee will form part of the assets of the reserve fund as will any interest paid on such contributions. Whether the benefit of the lessees’ obligations prior to recovery through the Service Charge mechanism is a chose in action comprised in the reserve fund is not entirely clear. Nothing turns on that for present purposes and I do not decide it.

Paragraph 5 of the 6^th Schedule provides that the cost of any reserve fund works (that is to say the works specified in paragraph 1) must be paid from the reserve fund. This, in my view, is directed at the actual payment (for instance to a builder) of such works. That follows from the purpose of the reserve fund – a fund of deposits at interest – which is to provide a reasonably liquid fund (I say reasonably liquid, because the deposit may be a call deposit with a shorter or longer period of call) to be used to make actual payment when payment has to be made. I will say more about paragraph 5 after considering the provisions of the 4^th Schedule.

In my judgment, the 6^th Schedule is concerned principally with actual assets – the deposits representing monies actually paid together with any interest earned on and actually received in respect of the deposits – and with actual payments (for instance payments to contractors carrying out relevant works) although there is, as indicated above, some uncertainty about the status of unpaid contributions. I describe the actual assets as deposits at interest because that is how the 6^th Schedule requires the reserve fund to be deposited. I do not doubt, however, that if assets are wrongly invested, for instance in gilts or bonds which are not deposits at interest or even stock exchange investments, the reserve fund would include such assets as representing the payments received into the reserve fund.

In summary, the 6^th Schedule operates in the following way. The reserve fund which MML is obliged to maintain is an actual fund of money which ought to be invested in deposits at interest. Where a lessee is obliged to make a contribution by way of service charge which, when paid, becomes part of the reserve fund, but has not yet made actual payment, it may be that the right to recover that contribution is also an asset of the reserve fund. But it cannot, of course, be deposited at interest; it is only the monies once paid which can be so invested. Paragraph 5 of the 6^th Schedule is concerned with the actual payment of costs, not with the allocation from an accountancy perspective of costs (whether actually paid or only incurred) across different accounting periods. The reserve fund is not an accountancy construct: it is a fund of actual assets accumulated in advance to meet the expected costs of identified types of work.

I have not, thus far in the discussion of the 6^th Schedule, mentioned paragraph 7 which provides that every “service charge statement is to include a statement of the balance of the reserve fund and of the income and expenditure since the previous statement”. The meaning and effect of paragraph 7 seems to me to be perfectly straightforward.

First of all, it is unsurprising to find some provision being made for the furnishing of information to lessees about the reserve fund. It is eminently sensible for the Lease to provide that such information should be given at the same time as the account of Expenses and the Service Charge is given.

Secondly, two items must be included (i) a statement of the balance of the reserve fund and (ii) a statement of the income and expenditure since the previous statement. As to (i), although the date on which the balance must be stated is not specified, it would clearly be compliant with the obligation if the balance were stated as at the end of the period for which the account under paragraph 4 of the 4^th Schedule is drawn. The balance of the reserve fund is, in my judgment, clearly a reference to the balance at the stated date being the balance at the previous date plus the income since the last date and less the expenditure since the last date. Just as it is not entirely clear whether the value of outstanding contributions is to be included as an asset of the reserve fund, so too it is not entirely clear whether it should be included in the statement of the balance of the reserve fund. No doubt, from an accountancy perspective, it should be included but that is not determinative of the issue of whether it should be included in the statement.

As to (ii), this, in my judgment, is clearly a reference to the income (including precepts actually paid by the lessees and interest on the deposits) and expenditure of the reserve fund. It is not a reference to income and expenditure generally in relation to the obligations referred to in the 5^th Schedule and does not, therefore, include any other income received by MML by way of the Service Charge or expenditure included in the Expenses. The 6^th Schedule is concerned with, and only with, the reserve fund.

Further, paragraph 7, in my view, like the other paragraphs of the 6^th Schedule which I have mentioned, is concerned with actual receipts (income) and actual payments (expenditure) so that the balance stated under (i) precisely reflects the previous balance (actual assets) plus actual receipts less actual payments in the period between the two balance sheet dates. There may, I accept, be questions about whether particular actual receipts by MML are, or fall to be, treated as receipts of the reserve fund but that is beside the point. For instance, an insurance claim in relation to an item within paragraph 1 of the 6^th Schedule might, on the one hand, be seen as a receipt of the reserve fund, with payment for the works covered by the insurance being seen as expenditure out of the reserve fund. But on the other hand, the insurance monies might be seen as sitting outside the reserve fund; in which case, the actual payment for those works would not be a cost falling on the reserve fund since Clause 4.2(c) requires the insurance monies to be expended on rebuilding and reinstatement.

It is said by Mr Seitler that this construction of the 6^th Schedule fails to take proper account of the provisions of the 4^th Schedule and that, reading the two Schedules together, Full Accounts are to be prepared in relation to everything relevant to service charges. Further, it is said that the income and expenditure referred to in paragraph 7 of the 6^th Schedule must be stated in a manner which reflects accountancy practice and in particular recognises the accruals concept (and by parity of reasoning, I might add, the way in which pre-payments should be reflected). In support of those propositions, Mr Seitler questions whether the sort of cash basis which I have been considering would provide a lessee with the information which he really needs, that is to say including information concerning what lessees have paid and what remains owing in relation to precepts already raised and what liabilities MML has incurred but not yet paid in respect of major works.

I disagree with those propositions. Even if Mr Seitler is right in his construction of the 4^th Schedule, that does not detract from that which I consider is the clear meaning of the 6^th Schedule. No doubt Full Accounts give fuller information in some respects, although it is not entirely straightforward to establish from the Full Accounts what the value of the actual assets (deposits at interest) on the balance sheet date actually are if indeed it can be done at all.

For instance, looking at the accounts for the year ending 31 December 1998, it is possible to see an amount of cash at bank (which may or may not be an asset of the reserve fund within the scope of the 6^th Schedule) and it is possible to see (by reference to Note 8) that the large sum for debtors includes a substantial amount due from lessees (which, for reasons already given, is not the focus of that reserve fund). There is an item within debtors for amounts due from Morshead Ltd and from Morshead Mansions Ltd Recovery Fund but the accounts do not explain to the reader what those items are. In later draft accounts, the figures for those debtors are quite large. Further, Note 9 (relating to creditors) contains an item “Creditors and accrued charges”. The balance sheet for the Reserve Fund thus takes account of liabilities on an accruals basis: this may be a perfectly proper method of preparing accounts from an accountancy perspective, but it is not what the 6^th Schedule contemplates. What paragraph 7 of the 6^th Schedule requires is not a statement of the balance of an accountancy construct called the Reserve Fund; what it does require is a statement of the balance of the reserve fund contemplated by the 6^th Schedule which, for reasons given, is looking at the actual monies paid into the reserve fund and the assets (which ought to be deposits at interest) representing those payments together with, on one view, the value of outstanding contributions.

The estimate by MML of the contribution required under paragraph 3 of the 6^th Schedule no doubt has a great deal in common with good accountancy practice. If MML considers that, in 15 years’ time, a large sum will be needed to renew the roof, it is entitled to estimate an appropriate annual contribution under paragraph 3 which will be recovered from the lessees via the service charge provisions of the 4^th Schedule. It may be – I simply do not know – that good accountancy practice would be to prepare accounts showing a similar accrual even if the Lease did not entitle MML to make such an estimate and obtain payment into the reserve fund. But that consideration does not, in my view, have any impact on the true construction of the 6^th Schedule which is focused on the actual assets of the reserve fund contemplated and on the actual income and expenditure to and from that reserve fund.

There is one other point which I need to make in relation to the 6^th Schedule. The reserve fund clearly does not include any moneys held by MML other than contributions relating to the reserve fund works. Thus, if MML holds any monies representing Service Charge payments which do not relate to reserve fund works, those monies do not form part of the reserve fund. In this context, it is not at all clear to me at least that the Reserve Fund shown in Full Accounts which have been prepared in the past relates only to the reserve fund which is the subject of the 6^th Schedule.

I have spent some time considering the 6^th Schedule because an understanding of its relationship with the 4^th Schedule is necessary in order to understand the 4^th Schedule itself.

I turn now to the 4^th Schedule. The 4^th Schedule is introduced by Clause 3.2 which requires the lessee to pay the service charge under Clause 3.2 of the Lease. The purpose of the service charge is, obviously if I may say so, to provide for the payment of the services which MML is obliged to provide as set out the 5^th Schedule. And the purpose of the 4^th Schedule is to set out the way in which the amount of the service charge is to be ascertained and the time for its payment. The structure of the 4^th Schedule is such as to ensure that MML need not be out of pocket for any serious length of time. This is reflected in (i) the making of provision, as part of the Expenses, for anticipated expenditure (whether or not as part of the reserve fund) (ii) the making of interim payments under paragraph 3 and (iii) the option for MML to hold on to excess interim payments by way, in effect, of pre-payment of the next year’s Service Charge. It is right, in my view, to construe the 4^th Schedule, provided that this can be done without undue strain to the wording, so as to ensure that MML does not have to carry large amounts of expenditure which it has actually paid (rather than simply incurred) without a corresponding right to prompt (or even advance) recovery from the lessees. And it is right also to construe the Lease so as to ensure that MPL (and other lessees at the Property) do not have to pay out by way of service charge amounts which have not been paid, or become due for payment, by MML unless they are reasonable pre-payments in respect of future expenditure.

Turning to paragraph 1(b) (the definition of “the Expenses”), it has to be accepted that it is not a model of clarity. The fundamental point, however, is that the Expenses are the measure of the cost to MML of providing the services. The question which arises is how that cost is to be allocated to different Accounting Years.

The answer to that depends to some extent on what is meant, in the context of paragraph 4, by “actually paid or incurred….during the year in question”. Mr Seitler submits that the use of the word “incurred” in the phrase “paid or incurred” is a powerful indicator that an accruals basis is required. In my view, however, that phrase, in the context of this Lease, is insufficient to bring about the result for which he contends. I will give my reasons for that later in this judgment.

There are then two possible views about the meaning of “incurred” (there may be more). A cost may be incurred when a contract is made under which a sum of money may become due in the future; or it may be incurred when the obligation to pay actually arises. I consider that the second approach gives better effect to the purpose of the provision than the first approach. The result of this approach is that MML is able to recover from the lessees, by way of Service Charge for a year, an amount equal to that which it has had to expend in that year. Prima facie, therefore, an amount which has actually been paid or has become due for payment in an Accounting Year is an Expense of the year in question.

Thus, if a contractor is entitled to payment of £X in Year 1, then in principle, MML ought to be able to recover £X from the lessees in respect of Year 1: it should not need to wait until the end of Year 2 for that which it has had to pay in respect of a contractual obligation falling due for payment in Year 1, and that is so even if MML were to delay payment beyond the end of Year 1. Conversely, if MML has incurred a contractual liability in Year 1 to pay for the contracted works in stages as the work is completed, so that actual payment obligations arise in both Year 1 and Year 2, MML should be entitled, in principle, to recover by way of Service Charge in respect of Year 1 only that which it has to pay in Year 1. After all, the Service Charge obligation is to make an actual payment; it is not simply to accept an obligation to pay at some time in the future albeit that accounts drawn in accordance with proper accountancy practice might record matters in that way.

That conclusion is reinforced by reference to the factors mentioned under (ii) and (iii) of paragraph 62 above, demonstrating that MML is able to ensure that it receives actual money and not the benefit of a future obligation reflected in a set of accounts. It comes back to the same point: the purpose of the 4^th Schedule is to establish the amount of the actual payment which the lessee must make to MML. Neither the Service Charge nor Interim payments are accounting entries: they are actual obligations.

That, however, is not the beginning and the end of the definition of the Expenses. As well as expenses and outgoings of the sort just identified, the Expenses also include the items within the words starting with “but also such reasonable proportion….” to the end of paragraph 1(b). As a result, MML is entitled to receive money on account of expenses and outgoings which have neither been paid nor incurred but which are of a periodically recurring nature; in particular the Expenses may include “a sum or sums by way of reasonable provision for anticipated expenditure”.

Dealing first with “reasonable provision for anticipated expenditure”, there is a measure of overlap here with the 6^th Schedule. All of the items listed in paragraph 1 of the 6^th Schedule fall, so far as I can see, within the 5^th Schedule. Accordingly, actual expenditure on those items can in principle fall within the meaning of “the Expenses”; and anticipated expenditure on those items also falls within that meaning provided that the work is of a periodically recurring nature (whether recurring regularly or irregularly).

Further, as a general rule, it might be expected that the contribution required to be made to the reserve fund is of its very nature within the definition of Expenses: each of the reserve fund works falls within the 5^th Schedule in any case and a contribution “needed by the reserve fund” would often, if not always, also be a sum “by way of reasonable provision for anticipated expenditure” within the definition of “the Expenses”. Accordingly, as I see matters, the definition of “the Expenses” in the 4^th Schedule and the provisions of paragraph 3 of the 6^th Schedule complement each other.

I have just said “often if not always” because the definition of the Expenses appears to view “a sum or sums by way of reasonable provision for anticipated expenditure” as a sub-set of “expenses and outgoings of a periodically recurring nature…”: that is the natural reading of “including a sum or sums…..”. If that is right, then it may be possible to conceive of an item of expenditure within the meaning of “the reserve fund works” in paragraph 1 of the 6^th Schedule which is not also of “a periodically recurring nature (whether recurring regularly or irregularly)” in the definition of the Expenses. There could, on that basis, be an item of (non-recurring) future expenditure which gives rise to a contribution to the reserve fund but which is not “anticipated expenditure” within the definition of the Expenses because it is not periodically recurring. However, on another view, the word “including” is not to be read literally so that reasonable provision for any item of anticipated expenditure falls within that definition whether or not periodically recurring.

It does not make any practical difference to the amount of which a lessee has to pay which of those views is correct. Either the cost does fall within the definition of the Expenses, in which case each lessee pays his share as the Service Charge; or it does not do so, in which case the contribution to the reserve fund is, as already explained, due and recoverable as a service cost and the lessee’s share is reflected in his Service Charge as a result of paragraph 3 of Schedule 6.

Returning to the definition of “the Expenses” in the 4^th Schedule, I would not expect to find inconsistency either in approach or in result between the application of the 4^th Schedule and the 6^th Schedule to provision for anticipated expenditure. In fact, I detect no such inconsistency. Each of them envisages the actual payment by the lessees of an amount as a sinking fund to meet the cost of future works which have not, at the time in question, been commissioned so as to give rise to a contractual obligation (either present or future) on the part of MML to pay of those works. In each case, the result is that an actual payment must be made on account of the future cost.

What then is the position when anticipated works are eventually commissioned and paid for? Suppose for the sake of simplicity that the works are commissioned and paid for in the course of single year of account, at a cost of £X. Assuming that the reasonable provision made in the past in accordance with the definition of the Expenses (or in the case of reserve fund works, the value of the reserve fund) is sufficient to meet the cost of the works, it is necessarily implicit in the operation of the 4^th Schedule and the 6^th Schedule that no further amount will be payable by the lessees in respect of those works by way of Service Charge.

In the case of reserve fund works of a periodically recurring nature, that conclusion is clear from the provisions of the 6^th Schedule since the cost of the works is to be paid from the reserve fund (which, it might be noted, will include the interest derived from the deposits comprising that fund) and is not therefore a cost to MML in the year of payment. If the reserve fund (including interest received) is insufficient, the balance of the cost forms part of the service cost as a result of paragraph 5 of the 6^th Schedule. It is therefore brought into account under the definition of the Expenses in precisely the same way as a cost of providing the services under the 5^th Schedule.

A consistent approach should, I consider, be taken to an amount included in the Expenses as reasonable provision for anticipated expenditure which does not fall within the 6^th Schedule. It is not entirely easy to see when this would arise since nearly all expenditure requiring funding by way of the creation of a sinking fund is likely to fall within paragraph 1 of the 6^th Schedule. But in case there is a difference, the reasonable provision for anticipated expenditure must fall to be treated as a discharge of the works for which provision was made in the same way that the cost of “reserve fund works” is to be met out of the reserve fund. It should be noted, in this context, that the Service Charge payments are held on trust by MML pursuant to section 42 Landlord and Tenant Act 1987 and can only be applied in discharge of the service costs under the 5^th Schedule.

I must confess, however, to finding more difficulty with the part of the definition of the expenses preceding the reference to provision for anticipated expenditure starting with the words “but also such reasonable proportion…” . Apart from anticipated expenditure, it is not easy to see what other expenditure could fall within "expenses and outgoings of a periodically recurring nature".  If payment has already been made or has become a present liability in an Accounting Year, the cost is within the earlier words of paragraph 1(b) as "expenses and outgoings which have already been paid or incurred" and will therefore already feature in the Expenses for that Accounting Year.  Accordingly, at first sight, it would seem that it is only future expenditure which is included in the phrase “but also such reasonable proportion etc” but that would fall within provision for anticipated expenditure with the result that no meaning can really be given to that phrase.

The answer, I think, is to be found in the words “whenever paid or incurred (whether prior to the commencement of the lease period or otherwise)”. The effect of this is to enable MML or its accountants or managing agents to shift an item of expenditure from one year to another year. Mr Seitler gives as an example the annual occupiers’ liability insurance falling within paragraph 10 of the 5^th Schedule. MML might receive in December 2012 a renewal notice and invoice for insurance with cover commencing in December 2012 for a period of 12 months.

It might even meet that invoice in December 2012. If that were so, then prima facie the payment having been made in 2012, it should feature as an Expenses for 2012 as an item “actually paid or incurred” during 2012. Mr Seitler submits that the wording of the definition would then allow MML or its accountants or managing agent to allocate all or some of the premium to the accounts for the following year, 2013, because that is the year that the insurance relates to. I agree. It is not entirely obvious to me why MML or its accountant would take that course. As I have said, the purpose of the 4^th Schedule is to arrive at a figure for the Service Charge which lessees actually have to pay in respect of an Accounting Year, with the timing of the payment being ascertained under paragraph 5. If MML has actually had to pay out money (the insurance premium in this example), it might be thought that it would wish to recover the amount from the lessees reasonably promptly, that is to say as soon as the 2012 account is finalised and not until a year later. From an accountancy perspective, to allocate the premium to the 2013 account may be appropriate but it does not follow from that that it is compulsory to determine the Expenses on an accruals basis so as to allow accountancy practice to dictate the result. The definition of the Expenses does not, after all, dictate an accruals basis: but what it does do is give to MML and its accountants and managing agents a discretion to effect an allocation of a reasonable proportion of expenses of a periodically recurring nature to a particular accounting year. The result may, depending on how the discretion is exercised, look very much like an accruals basis: but that result is not compelled by the wording of the definition.

In any case, the discretion to allocate to different years only applies to an expense of a periodically recurring nature. Although the recurrence can be regular or irregular, the expense still needs to be periodically recurring in its nature. If the expense is not of a periodically recurring nature, the discretion of MML to allocate the expense does not apply. Such expense therefore falls to be taken into account in the Accounting Year in which it is “actually paid or incurred” save to the extent that it has already been the subject of a contribution to the reserve fund under the 6^th Schedule.

Turning to paragraphs 4 and 5 of the 4^th Schedule, paragraph 4 provides that MML is to furnish “an account” of the Expenses and Service Charge “payable”. Paragraph 5 provides for the amount of the actual payment which has to be made and the timing of that payment. The amount is the Service Charge as shown in the account less the Interim payments made (with a refund due if the Service Charge is less than the Interim payments or, alternatively, with a credit against the next Interim payment). Thus “payable” in paragraph 4 means “for which the lessee is liable” rather than payable in the sense of actually due for payment since what is due for payment is the amount “payable” less the Interim payments.

The important point to note is that the “account” is concerned with establishing the basis on which the lessee is liable to make actual payment. And, for reasons already given, the purpose of the payment is two-fold: first to put MML in funds to meet the outgoings which it, itself, has actually paid or incurred (incurred in the sense of becoming due for actual payment in the year in question) albeit, as I accept, that MML or its accountants have the power to allocate a reasonable proportion of an expense of a periodically recurring nature to an Accounting Year or Years other than the one in which it is “actually paid or incurred”; and secondly, to create funds (the reserve fund under the 6^th Schedule and a fund in advance payment of any other periodically recurring expenses and outgoings held on trust according to statute) as a reserve out of which actual payment can be made to meet expenditure and outgoings which have fallen due for payment.

Once MML or its accountants have decided how to exercise the discretion to allocate expenses and outgoings given by the definition of the Expenses, an account of the Expenses and the Service Charge payable is to be prepared. Subject to the impact of paragraph 7 of the 6^th Schedule, there is nothing in paragraphs 4 and 5 which leads me to think that anything more is required. In particular, the account is not the Full Accounts for which Mr Seitler contends.

This is not to say that the provision of Full Accounts is not a sensible course for MML to adopt. In the past, the lessees were content to accept those accounts as compliant with MML’s obligations under paragraph 4: or, at least, no objection was taken to Full Accounts as being non-compliant. Mr Seitler says that the intention of the parties to the Lease must have been to create a mechanism that would do the job well. He says that the Full Accounts achieve that whereas anything less (whether the provision of an Expenses List or the provision of an account such as I have been discussing above if that is materially different) does not do so; it would be to do a “job shoddily”. That judgmental view of anything less than Full Accounts misses, I think, precisely what the “job” in hand is. The job which has to be done is to provide an account in accordance with paragraph 4. It is no answer to a failure to provide such an account that it would be preferable to provide something better unless, of course, something better is actually provided in satisfaction of the lesser obligation.

Further, to allow the form of the account (a requirement to provide Full Accounts on MML’s case) to dictate the determination of the Expenses and the calculation of the Service Charge would put matters the wrong way round. It is paragraph 1 of the 4^th Schedule which determines the amount of the Expenses and the Service Charge; the function of paragraphs 3, 4 and 5 is to deal with the demonstration of the Expenses and the Service Charge to the lessee, with the timing of actual payments and with the making of any necessary adjustments following the end of the Accounting Year.

Having said that, if MML or its accountant can properly exercise their discretion under the definition of the Expenses to allocate expenses and outgoings in precisely the same way as would result from a strict accruals basis of accounting for such expenses and outgoings, then Full Accounts would be capable of fulfilling the function of the account required by paragraph 4. But it would be necessary for the Full Accounts to provide the detail set out in the closing words of paragraph 4 so as to make transparent from the Full Accounts the expenses and outgoings concerned and how the accruals basis is being applied to them. Further, the Full Accounts would need to reflect as expenses and outgoings for the year in question any item “actually paid or incurred” in that year which was not of a periodically recurring nature: an accruals basis could not apply to such an item.

I return now, as I said I would, to paragraph 7 of the 6^th Schedule. This requires the “service charge statement” to include the two statements mentioned (balance of reserve fund and statement of income and expenditure ie of the reserve fund). If it is the case that MML is unable to provide either or both of the statements required by paragraph 7, then clearly the “service charge statement” cannot include the paragraph 7 statements. The inability of MML to include in that document the statement required by paragraph 7 does not detract from its obligation to provide the account itself; and that is so, in my judgement, even assuming (which I think it right to do) that the “service charge statement” is the document which furnishes to the lessee the account required by paragraph 4 of the 4^th Schedule. In essence, MML has two obligations: the first is to furnish the account and the second is to provide the paragraph 7 statement. As a matter of form, the paragraph 7 statement is to be included in the same document as the account, but provision of the account is not dependent on the ability to include the paragraph 7 statement. I do not consider that, reading paragraph 4 of the 4^th Schedule and paragraph 7 of the 6^th Schedule together, a single set of accounts have to be prepared which show both the Expenses and the statement of the balance of the reserve fund and its income and expenditure.

Even if I am wrong in that approach, so that there is to be a set of accounts which includes an account of the Expenses and the information required by paragraph 7 of the 6^th Schedule, I do not consider that the inability to provide those accounts in their final form because of problems relating to accounting in respect of the reserve fund absolves MML from providing an account of the Expenses. Even if Mr Seitler is right in saying that Full Accounts have to be provided, that does not detract from the obligation to provide an account of the Expenses, albeit on an accruals basis. The Full Accounts would comply with the obligation under paragraph 4 not because it is the account referred to in paragraph 4 but because it contains that account (ie an account of the Expenses). The fact that Full Accounts cannot be provided does not necessarily mean that the part of Full Accounts which comprises the account of the Expenses cannot be provided. If, as a matter of fact in any particular circumstances, the account of the Expenses can be given notwithstanding an inability to produce Full Accounts, the account of the Expenses must nonetheless be provided.

I now turn to the parties’ submissions insofar as my analysis is inconsistent with those submissions.

The Expenses List approach espoused by Mr Johnson is not consistent with my analysis in that, as I understand it, the Expenses List approach requires each Accounting Year to be looked at in isolation; at least, that is the effect of his submissions and was the approach adopted by the Judge which Mr Johnson seeks to uphold. The Judge correctly focused on the Expenses as the target of the account required by paragraph 4 of the 4^th Schedule and thus rejected a full accruals basis of accounting. Having done that, he saw the task as simple namely to list the expenses involved – defrayed, incurred and outgoings of a periodically recurring nature, allocated to an Accounting Year as appropriate: see [39] and the end of [58] of his judgment. As he put it in [59] each of the three categories of expense “can readily form the basis of an account of expenses involving no more or no less than an itemised list”. That is true as far as it goes. But the real question is what is to be shown on that list.

In answering that question, it must be remembered that the purpose of the account (and thus of the list) is to inform the lessees of the Expenses and thus of the Service Charge which they actually have to pay. It is not simply a list of items which relate to the relevant year. The list must avoid duplicating an item under one description (payment) which has featured in an earlier account under a different description (expense incurred or provision for anticipated expenditure). To take a simple example, suppose that a contract is made in Year 1 for works to be carried out in Year 1, with completion late December Year 1 and with payment 14 days after completion in January Year 2. A simple list of expenses could include the expenditure in Year 1 as incurred and in Year 2 as paid: that would provide the lessees with information relevant to the contract and might be seen as useful. But quite clearly, the expense does not fall within the Expenses for both Year 1 and Year 2. So the list of expenses must be prepared in such a way that it features only in one of those Years. It is not at all clear to me how the Judge would have dealt with this problem. Having rejected the accruals basis of accounting he perceived the preparation of a list as presenting no difficulty but he does not explain how any particular item of expense is to be identified as appropriate to the Accounting Year in question and does not adequately address the effect of the discretion conferred on MML and its accountant or managing agent.

For his part, Mr Johnson does not, as I understand him, make a submission the effect of which would be, in this example, that the expense should be listed for the account for both Year 1 and Year 2; and, as I understand his position, he adopts the first part of my analysis that an expense actually paid or falling due for payment in Year 1 should, prima facie, be shown in Year 1. In the example, the expense did not fall due for payment until Year 2 and, assuming it was paid promptly, it would feature in the Expenses for Year 2 and not Year 1.

Mr Johnson also acknowledges that a payment in a given year would not form part of the Expenses if it is paid out of the reserve fund. That is obviously right, although he and I have slightly different routes to that result in the light of different approaches to the inter-relationship of the 4^th and 6^th Schedules. But on either approach, an actual payment in respect of reserve fund works will fall outside the Expenses only if the reserve fund is sufficient to meet the payment. If it is not, the shortfall is recovered as part of the service charge (for which read Service Charge) under paragraph 5 of the 6^th Schedule. If there is any doubt that the reserve fund is in fact sufficient, an accurate assessment of the Expenses cannot be carried out until that doubt is resolved and the figures ascertained. And, without a figure for the Expenses, a complete account for the purposes of paragraph 4 of the 4^th Schedule cannot be prepared.

But Mr Johnson’s submissions does not, any more than the judgment of the Judge, adequately deal with the discretion afforded to MML and its accountant or managing agent to allocate expenses of a periodically recurring nature to different accounting years.

In relation to the interaction of paragraph 4 of the 4^th Schedule and paragraph 7 of the 6^th Schedule, I am unable to accept Mr Johnson’s submissions. He submits that the account of the Expenses and the Service Charge does not have to include the statement required by paragraph 7 of the 6^th Schedule.

If by that he means that the figures revealed in the paragraph 7 statement do not have to be included as part of the figures for Expenses and Service charge in the sense of constituting a single set of accounts, then I agree. But that is not to say that the state of the reserve fund and its income and expenditure in a given accounting period will have no impact on the level of the Expenses: see for example paragraph 91 above.

But if Mr Johnson is saying that it is not a requirement of paragraph 7 that the statement is to be contained in the same document as that which furnishes the account, then I disagree. There may also be a slight difference between my analysis and his submission concerning the relationship between the 4^th Schedule and the 6^th Schedule in relation to the actual payment of expenditure and outgoings for which provision has been made in the reserve fund. I believe, however, that we are at one in agreeing these propositions:

My analysis is, however, seriously at odds with Mr Seitler’s submissions. He has a number of arguments in favour of the Full Accounts approach with which I must deal.

First argument: Mr Seitler’s first argument is that “the accounts which MML are obliged to provide as landlord cannot be construed by reference to Schedule 4 alone, but are also informed by Schedule 6”. I do not disagree with that as a general proposition. The Lease must, as I have said, be construed as a whole and the two Schedules must, in so far as is reasonably possible, be read to produce a consistent approach. My analysis does read the two Schedules together and achieves what is, in my judgment, not only consistency but a sensible result.

As part of the detail of that submission, Mr Seitler relies on paragraph 7 of the 6^th Schedule. He submits that, although “service charge statement” is not explicitly defined by reference to paragraph 4 of Schedule 4, “it is plain that the same obligation of furnishing service charge accounts to the tenants is there being referred to (there is only one such obligation, and no separate provisions for a service charge “statement”)” and that it is difficult to see what other sensible meaning could be given to it, and none was suggested”. From that premise, he goes on to say that, once it is seen that the service charge accounts must contain a statement of the balance of the reserve fund then it also follows that MML’s approach to construction would be correct, namely that Full Accounts are required under the Lease.

I do not consider that Mr Seitler’s conclusions follow from the proposition that the 4^th and 6^th Schedules must be read together. I have explained how I see the two Schedules as operating. But even reading them together, it is not the 4^th Schedule which imposes an obligation on MML to prepare the statement referred to in paragraph 7 of the 6^th Schedule. Rather it is paragraph 7 itself which does so by requiring that statement to be included in the document which contains the account required by paragraph 4 of the 4^th Schedule. Mr Seitler’s argument conflates the “service charge statement” with the account, whereas the service charge statement is the document which contains the account; paragraph 7 simply requires the statement referred to in that paragraph to be contained in the same document.

Mr Seitler relies on other provisions to demonstrate that the two 4^th Schedules should be read together. I should mention what he says about them since I do not agree with all of his propositions. He refers to the following:

Next, Mr Seitler submits that, if the account required by paragraph 4 of the 4^th Schedule does not include the reserve fund considerations then it cannot inform the recipient of what is “payable” nor of the “service charge for which there is liability”.Again, I disagree. The amount which is payable and the amount of the Service Charge comprises the Expenses. The Expenses for a Year of Account will not include what would otherwise be an item within the Expense for that year if that expense falls to be met out of the reserve fund and the reserve fund is adequate to meet it. The amount which is payable as part of the Service Charge does not include any amount for which provision has been made by way of contribution to the reserve fund. Rather, that contribution will have been shown as an Expense for an earlier year when it was paid (or ought to have been paid). What the lessee would want to know is what expenditure has been incurred and which has been paid out of the reserve fund. He is entitled to that information as a result of paragraph 7 of the 6^th Schedule. He should be furnished with that information in the same document as the account. But, as I have said, an inability to provide the statement in relation to the reserve fund is no excuse for failing to provide an account of the Expenses. Of course, if there is a balance to pay under paragraph 5 of the 6^th Schedule, the precise amount of the Service Charge cannot be calculated until the amount of that balance is known; and in such a case, MML might have a defence to a claim for provision of the account required by paragraph 4. But in a case where the reserve fund is, on any view, sufficient to meet any actual payments which have been made or are due for payment, the precise state of the reserve fund is of no relevance to the calculation of the Expenses. And this is so whether or not there are outstanding lessee contributions to the reserve fund and whether or not it is correct to include those contributions in the statement of the balance of the fund.

Next, it is said that MML’s construction, by demonstrating the role of the reserve fund in the service charge calculation, gives meaning to paragraph 4 of the 4^th Schedule which provides that the service charge accounts should contain “the relevant details and figures forming the basis of the Service Charge”. It is submitted that, on MPL’s construction, these words are meaningless, as the Expenses multiplied by 0.96154% is – according to MPL - the full extent of it and the further words add nothing. I do not really understand this submission. Whether or not the account must include the details relating to the reserve fund, the quoted words apply to all Expenditure which is not reserve fund expenditure. It cannot be said that the words are meaningless. In any case, the obligation to provide details relates only to items which fall within the Expenses. On my analysis, reserve fund works are outside the Service Charge provisions save to the extent that the reserve fund is not adequate to meet the cost. If there is a balance to be met under paragraph 5 of the 6^th Schedule, then that balance will feature in the Service Charge and details would, I agree, need to be given.

Second argument: Mr Seitler’s second main argument is that the 4^th Schedule requires more of the landlord than the Expenses List (multiplied by 0.96154% and certified) for which MPL contends. Instead, the Lease requires Full Accounts. He relies on these points:

First the use of the word “account”, which is not apt to describe the mere Expenses List contended by MPL. This is compounded by the fact that the account is one required to be certified by accountants and that an allowance is made to charge for the work of such accountants. The construction of “account” advanced by MML does, but MPL’s does not, comply with the RICS Service Charge Residential Management Code (and in the document which has since superseded the code: “ICAEW Tech 03/11”) by which such accountants and auditors are bound to be guided in the task they are approaching whether preparing the accounts or certifying them.

In my judgment, the result of my analysis is to produce an “account” within the meaning of paragraph 4. Mr Seitler refers to the definition of “account” found in the Oxford English Dictionary namely “a statement of moneys, goods, or services received and expended, or other receipts and outgoings, with calculation of the balance”. That is a description appropriate to accounts prepared on a cash basis as much as on the basis of the Full Accounts and does not get him anywhere. His approach, however, ignores the fact that the account required relates only to the Expenses. The Expenses would feature in the expenditure side of an income and expenditure account; but paragraph 4 does not require the furnishing of an income and expenditure account (in contrast with paragraph 7 of the 6^th Schedule).

So far as the Code is concerned, I have not been provided with a copy, but I do have the more recent version ICAEW Tech 03/11. Again, I do not understand the point which is being made. The code makes clear that where a lease sets out the way in which service charges are to be accounted for and who shall certify or approve the accounts, then the requirements of the lease must be followed. Further, if the lease does not specify that an audit is to be undertaken (which the Lease does not) the form of engagement of the certifying accountant resulted, in the present case, in an “examination resulting in a report of factual findings on the service charge accounts”. Interestingly, the code makes this statement:

“Although a report of factual findings does not express the assurance that would follow from an audit or a review made in accordance with applicable International Standards, the statement gives comfort that the items listed in the report have been checked by a qualified accountant independent of the landlord/managing agent.”

Appendix I to the code contains example reports on service charge accounts for an audit report and for a report of factual findings. In the present case, the accountants’ certificate for each year (given in relation to accounts prepared following the judgment) follows very much the form of the example in the code for a report of factual findings. I do not doubt that each certificate satisfied the requirements of paragraph 4. Clearly the certifying accountant considered that he was able to give the certificate consistently with his professional obligations.

Mr Seitler’s second point under this heading relies on the requirement that the “account” under paragraph 4 of the 4^th Schedule “is to contain a summary of the expenses incurred during the Accounting Year to which it relates and the relevant details and figures forming the basis of the Service Charge.”. I have already dealt sufficiently with this in paragraph 104above.

His third point is that the accruals basis of accounting is necessarily invoked by the wording of paragraph 1(b) of the 4^th Schedule by the use of the word “incurred” in the phrase “paid or incurred”. Mr Seitler says that reference to the expenses being “incurred” is at the very heart of the distinction between the cash basis and accruals basis of accounting. “Incurred” can only mean the latter. Determining what expenses have been incurred in any calendar year requires knowledge of previous years - save in the event (highly improbable, and not to be safely assumed) that all expenses are both incurred and paid entirely within the same single calendar year. It is MML’s case that an accountant required to certify the accounts, and paying proper attention to the provision in question, would have no doubt that the accruals basis of accounting is required.

If the choice in relation to the Expenses was between a pure cash basis (which is not my analysis or indeed the case which MPL has ever presented), and an accruals basis, there might be something in Mr Seitler’s point. But since paragraph 4 does not, as I have explained, require an income and expenditure account, but only an account of the Expenses, ordinary accountancy practice cannot be seen as providing an answer. Further, the accruals basis is concerned with allocating to appropriate years of account an expense which has been “actually paid or incurred”. The legal concepts of payment of an expense or of its being incurred do not depend on when an accountant would show the expense as accruing. There may be a question about when a liability under a contract is “incurred”: it might be when the contract is made or it might be when a liability to make actual payment arises. But the question is not when an accountant would treat it as accruing.

Further, I have already explained how I see the definition of the Expenses operating in relation to the inclusion of a reasonable proportion of the expenses and outgoings of a periodically recurring nature. The exercise of the discretion under that provision may result in an accruals basis (or something very like it) but it does not mean that an accruals basis is the basis on which it is to be ascertained whether an expense has been “actually paid or incurred”.

In any event, I do not understand how, as a matter of construction of the definition of the Expenses, it could be said, on any view, that an expense or outgoing which has actually been paid is not an expense which has been “actually paid or incurred”. Accordingly, even if accountancy practice would require an actual payment (a pre-payment) to be treated as accruing in the year of payment and one or more subsequent years, or even be retrospectively included in an earlier year, that requirement would have to be rejected in the ascertainment of the Expenses unless the same result were to be achieved as the result of an exercise of the discretion conferred by the definition of the Expenses.

The third argument: The Lease should be construed purposively, so as to favour the construction which results in the provision of meaningful (rather than misleading) service charge information to tenants. As an abstract proposition, it is difficult to quarrel with that. The result of my analysis is, however, hardly to be categorised as giving rise to the provision of misleading information. The purpose, I repeat, of the 4^th Schedule, is to identify the amount of money which a lessee actually has to pay in respect of an Accounting Year and to enable MML to recover what it has paid, or become liable to pay, in that year together with the provision for future liability identified in the definition of the Expenses. In that context, the account is entirely and appropriately meaningful. That Full Accounts might give different and in some respects fuller information is not to the point.

Mr Seitler’s next submission relates to the phrase “and the Service Charge payable” in paragraph 4. Criticisms are made of the Judge in what he had to say about this. I do not propose to go into those criticisms because this phrase presents no difficulties of construction at all. It is perfectly clear to my mind that, reading paragraphs 4 and 5 together, the process is to ascertain the amount of the Expenses and the amount of the Service Charge (which is no more and no less than the stated percentage of the Expenses) for the year in question. The Expenses are not, of course, in any sense payable by the lessee: his only liability relates to his share of the Expenses, that is to say the Service Charge. It is in that sense that the Service Charge is payable, although in making an actual payment, the lessee is able to take credit for the Interim payments in accordance with paragraph 5. I reject Mr Seitler’s submission to the effect that “payable” has any greater relevance than that.

Mr Seitler submits that MPL’s construction, in contrast with Full Accounts, would see the lessees under a liability to pay a fixed percentage of all expenses, paid and incurred, without credit or adjustment and without allowance for the defraying of expenses out of the reserve fund. This would see tenants being habitually obliged to pay a sum greater than they needed to. I do not think that would be the effect of MPL’s construction at all. But that is beside the point because it is certainly not a result of my analysis which reflects precisely what it is that MML has paid or become liable to pay in any Year of Assessment, taking account of any pre-payments and contributions to the reserve fund by the lessees and taking account of the exercise of the discretion – that is to say a deliberate decision made by MML or its agents – conferred by the definition of the Expenses.

Mr Seitler submits that, even accepting my analysis (which, of course, he says is wrong), MML has an arguable defence which should be allowed to go to trial.

His first line of argument relates to the difficulty in ascertaining the reserve fund balance. I do not know whether he has in mind, although nothing turns on the distinction in this context, the balance of the reserve fund within the 6^th Schedule or the balance of the Reserve Fund shown in the earlier Full Accounts. Nothing turns on it because, in either case, if it were necessary to know that balance for the purpose of preparing the account of the Expenses, the matter is not one in respect of which summary judgment would be appropriate. There is a triable issue – however weak it may now seem – as to whether MML had breached an obligation to supply an account “as soon as practicable”.

However, as I see it, it is entirely unnecessary to know the balance of the reserve fund (or of the Reserve Fund, referred to in the Full Accounts for 1998 and subsequent draft accounts, if different) in order to prepare an account of the Expenses. There is no suggestion that the reserve fund has ever been insufficient to meet the expenditure which falls to be met out of the reserve fund in respect of any reserve fund works. Accordingly, whatever the correct balance of the fund, there has always been an irreducible minimum sufficient to meet expenditure. There has therefore been no suggestion that the mechanism of paragraph 5 of the 6^th Schedule needed to be operated to obtain funds by way of Service Charge to meet any shortfall. That the fund has been sufficient is not surprising since substantial contributions have been raised which feature in the accounts which have been prepared since the hearing on the basis of the construction favoured by the Judge: see paragraph 35 above. It is relevant to note, in this context, that even if contributions remain unpaid and even if MML has had to meet reserve fund expenditure out of its own assets in one Accounting Year, there would be no impact on the Service Charge in later Accounting Years unless perhaps it became clear that MML was unable to recover those unpaid contributions. That last point gives rise to an issue which I do not need to decide about whether the lessees as a whole can be made to make good, by way of the service charge mechanism or at all, a shortfall resulting from a default by another tenant.

In my judgement, therefore, the difficulties in producing a balance sheet and an income and expenditure account for the reserve fund do not provide a defence to the provision of an account of the Expenses.

Mr Seitler’s second line of argument relates to the 4^th Schedule alone. It is said that the lack of records kept by the Manager has resulted in it being impossible to provide an accurate account of the Expenses. This is so, even on what Mr Seitler refers to as the cash basis which the Judge’s order required. Still more is it the case on an accruals basis.

The difficulty said to be facing MML even on the cash basis is that it must provide an account of actual payments and amounts incurred (ie within the approach under my analysis to “actually paid or incurred”). In that context, to avoid double counting, an expense incurred in one year (in the sense that it had become due for payment) and shown within the Expenses for that year could not, of course, feature again in a later year when the expense is actually paid.

Mr Seitler submits that although MML will know, since taking over from the Manager part of the way into the accounting period for the year 2003, what it has paid out in cash, it will not know the state of account with the contractors in question because of the shambolic nature of the Manager’s accounts. MML will not know whether or not the contractor was retained in a previous year or what sum or sums were paid in a previous year. Nor will it know what sum or sums fell due for payment in a previous year (and were thus “incurred” on my analysis in that year) and therefore what should be included in the earlier year and what should be included in the later year in order to avoid double counting.

It is said that the likelihood of this is particularly great in a large block such as the Property with various recurring obligations of maintenance and cleaning and the like for which the landlord may use the same contractor on a retainer carrying over from year to year and may use the same contractor over a period of years.

To emphasise the difficulties, it is suggested that the contractor itself will have a view on the state of the dealing between itself and MML and invoice accordingly. It is said that that cannot form the basis of a proper account in accordance with the Lease. MML cannot simply assume the accuracy of what it is told by a contractor. It must be able to assert an accurate position and thus it must be able to know whether to accept or reject the contractor’s view.

Mr Seitler is also concerned about the state of the evidence. That evidence was addressed to the case presented by MPL and therefore not specifically to the analysis which I adopt. It is true that the parties would not have had my analysis in mind. However, the summary judgment application was not restricted to reliance on the construction for which MPL contended before the Judge. The evidence needed to address the difficulties facing MML in its preparation of an account of the Expenses even if an accruals basis approach to those expenses were correct. Any factor which made it impracticable to prepare an account on the basis of my approach would also be a factor making it impracticable to prepare an account on an accruals approach to the Expenses. Accordingly, I do not see that there can be a deficiency in MML’s evidence relevant to my approach which was not already a deficiency in its evidence relevant to an accruals approach. I am afraid that MML must rest with the evidence which it has decided to adduce on the application as made.

Finally, Mr Seitler relies on the following factors, entirely independent of impracticability, to show that it was not practicable to prepare the required account:

Mr Johnson submits that MML has no arguable defence to the claim on the facts sufficient to resist the summary judgment application. He submits that the reality is that expenses and outgoings of a periodically recurring nature in the present case are ones that are paid annually. He finds support from that in the service charge accounts produced by MML for 2003 to 2007, the summary of expense for 2008 prepared for the purposes of the Landlord and Tenant Act 1985and the 2009 Schedule. I agree with Mr Johnson when he says that the items of expenditure which one sees in these documents (buildings insurance, cleaning, electricity etc.) are the sort of annually occurring expenditure which one would expect to see for a building such as the Property. I note in relation to the 2009 Schedule that this was prepared well before the matter came before the Judge and must have been based on an understanding of what the Lease required.

Mr Johnson also relies on the stance taken by Mr David Wismayer during the course of correspondence. Thus, it is said that MPL were told that it already had the accounts, as appears from email correspondence in August 2010. It was also told that it had the summaries for 2006 and 2007 (prepared for the purposes of the Landlord and Tenant Act 1985) which, subject only to a slight or immaterial difference in the wording of the certificate, would satisfy the requirements of paragraph 4 of the 4^th Schedule.

There are some points to emphasise at the outset of my discussion.

Each and every item of expenditure shown in the accounts is typical recurring expenditure in a block of flats such as the Property. Let me list them (a few items do not appear in all accounts but only in some): building insurance, cleaning, electricity, general repairs, garden maintenance, security, rubbish, management charge, entryphone maintenance, television system maintenance, accounting, compliance with statutory provision, enforcement, transfer to reserve fund. With the exception of the last three items, these are clearly items of a recurring nature. And whilst the expense incurred on each of them might, on an accruals basis or under the terms of the definition of the Expenses, be allocated to two years, it is inconceivable that any of them would give rise to an expense “actually paid or incurred” in one year which would be allocated to more than two years. The example given by Mr Seitler of the insurance premium illustrates the point; the premium might be allocated to 2013 even though paid in 2012, but there is no way in which it could be allocated to 2014. There is no suggestion that there is any sort of expenditure within the listed recurring items which would give rise to an accrual over more than one year.

Mr Seitler might say, he probably would, that these accounts may be misallocating expenses. For instance, the building insurance item in the 2003 account might, I suppose, have been paid late in 2003 in respect of cover for 2004 and should therefore be shown in the 2004 account. However, looking through the set of accounts, it is obvious that there has been no double counting of the insurance premiums. The most that could be said is that a proper application of the definition of the Expenses would have result in a different allocation of each premium and thus result in a different Service Charge figure. Similar points can be made in relation to the other recurring items.

Of the three last items which I have listed, the first appears for the first time in the account for 2006 and appears again in the account for 2007. In each case, it is of a modest amount. Given that it does not feature in earlier years from 2003 onwards, it is impossible to think that the cost was incurred, in any sense, for a year prior to 2006.

As to the second of those three items, this does feature in the earliest year, 2003. It is in an amount of £17,743, which is larger than several items but smaller than several others. It is certainly material to the account.

As to the third, no question of accrual or pre-payment arises. The only question is whether a contribution has been raised in a particular year. If it has been, and only if it has been, would it be shown in that year whatever construction of the Lease is adopted.

It follows from these considerations, in my view, that there is sufficient doubt about the position in relation to 2003 to provide MML, on the evidence as its stands, with a sufficiently arguable defence to summary judgment in relation to that year. I am bound to say, however, that the defence looks weak. I would find it surprising if MML had not been able, by the time these proceedings were commenced, to have ascertained, in relation to each of the items listed in the accounts actually prepared, how those items should be dealt with whether one adopts (i) the approach contended for by MPL (ii) Full Accounts or (iii) my analysis.

However, I can see no similar defence in relation to 2004 - 2007 (although there is separate point in relation to 2007 to which I will come). By mid-2003, MML was back in control of the management of the Property. Each item of expenditure in the 2004 and subsequent accounts is an expense which was either actually paid or incurred in 2004 since that is the basis on which these particular accounts were prepared. If, as a result of my analysis, some part of those expenses ought to be allocated to a different year (eg a building insurance premium covering a period straddling 31 December 2004), it would have been no more difficult for MML to produce an account on that basis than it was to produce the actual 2004 account which it did produce following the 2011 Order.

There is perhaps a slight glitch in relation to 2004 itself. An actual payment in 2003 may be required to be allocated in part to the 2004 account. So far as expenses paid or incurred after the time in 2003 when MML recommenced its management of the Property, MML will be able to decide whether any part of that expense should be allocated to 2004. I see no reason why it should not be able to do the same in relation to expenses actually paid during the earlier part of 2003. Consider, then, an item of expense shown on the account already supplied for 2003 (and dating from that part of 2003 when the Manager was still in control). If there is a concern whether that item should be allocated to 2002 or 2003 (in whole or in part) then it is clear that it could not be allocated even in part to 2004: it is not sensible to think that there was in fact any item of expense which would properly be allocated across more than 2 years. If, in contrast, the only doubt is whether the expense should be allocated to 2003 or 2004 (or part to each year), then it is open to MML to allocate it as it considers reasonable. To effect this allocation should not produce any more difficulty for MML in furnishing the 2004 account on the basis of my analysis than was experienced in producing the accounts actually provided following the 2011 Order.

It follows that, on the actual facts of the present case, MML should experience no more difficulty in furnishing an account for each of the years 2004 to 2007 than it experienced in producing the accounts actually furnished following the 2011 Order. It was able to produce those accounts; it should be able to produce the accounts in accordance with my analysis of the Lease.

In relation to the additional factors mentioned at paragraph 128 above, I do not consider they provide, even taking them cumulatively, the basis of an argument that it was not practicable to produce the accounts. Whether it is practicable, for the purposes of paragraph 4 of the 4^th Schedule, to produce an account must, in my judgment, be assessed objectively by reference to the factors which make the account impracticable to provide, not by reference to the factors which make it difficult for the provider to achieve what would otherwise be practicable. But even if account is properly to be taken of the problems identified, it is mere assertion that they had an impact on the preparation of the accounts so serious as to result in a very long delay in their preparation. I do not understand, in any case, why the first three factors (time-consuming serial litigation with MPL, litigation with other tenants and MPL’s allegedly obstructive behaviour even assuming that it were to be established) provide an excuse for not providing the accounts. As to the illness of Mr David Wismayer, I do not think that it is suggested that his illness prevented him for the whole of the period of delay in producing the accounts. Indeed, he says that he has spent hundreds of hours on the figures. That may be true, but his work on the figures has been very much in producing Full Accounts, a laudable objective perhaps but not one which excuses the non-production of the account of the Expenses.

There is a discrete issue in relation to the accounts for 2007. The Claim Form was issued on 27 February 2008. Mr Seitler says that a reasonable time must be allowed to pass after the end of an Accounting Year before MML can be in breach of its obligation to furnish an account. I do not agree with the submission put quite that way, because there is no scope for the implication of a “reasonable time” term in the light of the express term to produce the account as soon as practicable. This distinction does not, in reality, matter. If a reasonable time has not passed then, absent evidence that in fact an account could have been provided, I consider that it is to be presumed that it is not practicable to furnish the account. Conversely, if a reasonable time has passed, it requires evidence to show that it was nonetheless not practicable to furnish the account. In this context, I do not regard the period from 31 December 2007 to 27 February 2008 as a reasonable time in which to expect the account for 2007 to be prepared. In the absence of evidence – and there is none on this application – to show that it was practicable to do so, MML has a strong case for saying that it was not in breach of the requirements of paragraph 4 so that summary judgment should not have been ordered in relation to that year. This is a somewhat arid point since the time has long since passed during which MML could contend that it was not practicable to furnish the 2007 account.

MPL is entitled to an order for the furnishing of accounts for the years 2004 to 2006 inclusive on the basis of my analysis. That may produce a different account for each year from the one furnished following the 2011 Order. MPL is not entitled to an order in relation to 2003 as a matter of summary judgment. So far as 2007 is concerned, the technical position would be that there was no cause of action in relation to 2007 when the Claim Form was issued, if a reasonable time had not passed for the preparation of the account. The decision in relation to 2004 to 2006 demonstrates, however, what the answer for 2007 would be if MML were to decline to furnish an account for 2007.

If the parties cannot agree it, I will settle a form of order reflecting this judgment. Although the 2011 Order can probably stand as regards 2004 to 2006, it might be said that the accounts which I am ordering to be provided are different from those which the Judge contemplated because the accounts might be prepared on a different basis. That feature may go to the form of order, but it does not go to who has been successful when it comes to determining costs, which I will deal with on a later occasion.

MML’s substantive appeal on the Judge’s costs order was not dealt with at the hearing before me as there was not time to do so and it seemed to all concerned, in any case, that it might best be dealt with after my decision on the present appeal was known. The parties should fix a further hearing to deal with all aspects of costs and the form of the order following this judgment if it cannot be agreed. So far as permission to appeal is concerned, any further appeal would be a second appeal in respect of which I have no power to deal with any application for permission.