Criterion Buildings Ltd v McKinsey & Company, Inc. United Kingdom & Anor

services and expenses specified in the lease by way of service charge.

amount of the service charge. This led to McKinsey refusing to pay certain specified elements of the service charge with the result that, at the termination of the lease, Criterion considered that a sum of just over £2.2 million was still due to it. These arrears relate to the period from July 2013 to the termination of the lease in September 2019.

amount of any service charge should be less than the amount claimed:

First, the defendants allege that Criterion Capital has received a commission of 15% of

Second, the defendants say that part of works to the exterior of the building in 2017/2018

September 2020, I refused the re-amendment application both in respect of the commission

issue and the works issue. Unfortunately, due to time constraints, I was not able to deliver a full Judgment although briefly indicated my reasons for refusing the application. I promised to produce a written Judgment. This is that Judgment.

The claim was issued on 5 February 2019.

On 15 October 2019, the defendants were given permission (by consent) to amend their

There was a costs and case management conference on 17 October 2019 when directions

The parties were notified of the trial window (which starts on 12 October 2020 with a current

On 1 July 2020, the defendants applied for permission to re-amend their defence. This

On 13 August 2020, the defendants applied for an extension of time for serving their lift

Building experts’ reports were exchanged on 20 August 2020. The lift experts’ reports were

Also on 4 September 2020, the defendants made their application to re-amend their

The claimant has made two applications. The first, on 7 September 2020 is to disallow

to amend their statement of case is not in dispute. The Court of Appeal in Nesbit Law Group LLP v. Acasta European Insurance Co Limited [2018] EWCA Civ 268 referred [at 41] with approval to Mrs Justice Carr’s summary in Quah Su-Ling v. Goldman Sachs International [2015] EWHC 759 (Comm) at paragraphs [36-38]. Mr Jourdan, representing the defendants and Mr Trompeter, representing the claimant also referred to various comments made in CIP Properties (AIPT) Ltd v Galliford Try Infrastructure Ltd [2015] EWHC 1345 (TCC) and Rose v Creativityetc Ltd [2019] EWHC 1043 (Ch).

circumstances and weigh up the injustice to the party seeking to amend if permission is refused against the need for finality in litigation and the injustice to the other parties and other litigants if the amendments are permitted.

there is a risk that the trial date may be lost.

applicant to justify the amendment (Rose [at 40]).

amendment, the quality of the explanation for its timing and the consequences of the amendment in terms of work wasted and consequential work to be done (Hague Plant Limited v. Hague and others [2014] EWCA Civ 1609 [at 33] referred to in CIP at [18(b)]).

Whether the amendments have a real prospect of success and, more generally, the

The timing and lateness of the application and the reasons for any delay in making it.

Any prejudice to the parties and to litigants in general.

The clarity of the amendments which are sought.

of the application.

cleaning contractors have paid commissions to Criterion Capital. Mr Trompeter puts forward two reasons why, despite this, the commission issue does not provide a good defence to the service charge claim.

terms of the lease in detail but the basic point is that McKinsey's obligation is to pay its proportion of the "total cost" of the expenses incurred by Criterion which fall within the terms of the service charge. Mr Trompeter argues that the total cost to Criterion is the amount of the invoice submitted by the contractor. The fact that a commission may have been paid to Criterion Capital as the managing agent is, he says, irrelevant.

require the landlord to perform its obligations "in accordance with the principles of good

allow McKinsey to object to any expense which is not included at a "proper cost"; and

in certain circumstances, require Criterion to act in good faith.

services are not being provided cost effectively, the commission element is not a "proper cost" and Criterion is not acting in good faith.

respect of which any commission may have been received by Criterion Capital have already been paid by McKinsey and so does not provide a defence to the amounts which are now being claimed. Instead, McKinsey should be making a counterclaim on the basis that they have paid too much. The reason for this, he says, is that, in refusing to pay the whole of the service charge, McKinsey identified specific elements of the service charge which it objected to. These elements did not include for example the cleaning costs in respect of which it is accepted that commissions have been paid.

charge between the different tenants. Mr Trompeter accepts that some part of the amount now being claimed does therefore relate to all aspects of the service charge and will include some elements where a commission has been paid.

the lease which requires McKinsey to pay its due proportion of the cost of certain specified services and expenses. This, he says, permits payments to be made in respect of individual items, as the defendants have sought to do by refusing to pay parts of the service charge which relate to specifically identified expenses.

basis and therefore represents a single debt. Whilst it is possible to appropriate payments between different debts, he submits that there is no ability to appropriate payments between different parts of a single debt.

conclusion on these issues. Instead, what is needed is some assessment of the strengths of the defendants' case as it is relevant to the potential prejudice to the defendants if I do not allow their application to re-amend their defence.

accept that they have a strong case. In relation to the first point, Mr Trompeter's interpretation of the lease is certainly arguable but it would seem surprising if the lease permits the group of companies of which Criterion is a part to make a profit by engaging contractors on the basis that a commission is paid to a different group company.

have clearly withheld payments on the basis of specific objections which, for the most part, do not relate to the elements of service charge in respect of which commissions might have been paid. The lease does however provide for a single payment in respect of all elements of the service charge combined without any distinction.

to allow the application to re-amend their defence.

application is "very late" in the sense that there is a significant risk that the trial date would be lost. Alternatively, he says that the application is at the very end of the spectrum of lateness given that the additional work involved (which he says will include revisiting all aspects of the proceedings including pleadings, disclosure and witness evidence and the bulk of which would fall on the claimant) would put the claimant under significant undue pressure in the remaining four weeks before trial.

significant. The defendants have prepared a draft request for information under CPR Part 18 which simply requests the names of the contractors who have paid commissions and the amount of such commissions. The defendants are willing to accept this information on the basis of a statement of truth without any disclosure.

pressure and that it is unlikely that any disclosure or witness evidence would be required. The claimant will however need to amend its pleadings to develop its arguments in relation to the interpretation of the lease and the ability to allocate payments to specific items which make up the overall service charge. This may in turn elicit further amended pleadings from the defendants.

beginning of the trial window. Whilst I do not think it is likely to jeopardise the trial date, it does in my view put improper pressure on the claimant at a time when it should be focusing all its energies on preparing for an eight day trial. The fact that a large part of the day at the pre-trial review was spent debating the prospects of the proposed new points succeeding only demonstrates that the issues involved are not straightforward.

made on 4 September 2020.

an exchange of emails in April 2015 between McKinsey's service charge consultant, Mr Keith Douglas and Criterion's building manager, Orbit. This attaches a spreadsheet relating to cleaning costs which contains an entry which reads "Criterion 15% £32,294.45" (being 15% of the amount of the annual cleaning costs). Mr Douglas asked Orbit for confirmation that Criterion was receiving a 15% commission but no response was ever given.

defendants) in support of the re-amendment application explains that in June 2020 he received some invoices relating to another building owned within the Criterion Group which made it clear that a 15% commission was being charged on certain services. Mr Barclay does not explain the circumstances in which he came to receive these invoices.

told him that the practice of requiring contractors to pay a commission was one generally adopted within the Criterion Group. The individual in question was not however willing for his identity to be revealed.

He explains that the connection was only made when he read a draft statement

produced by Mr Douglas which refers to the commission issue and to the April 2015 email exchange. The draft statement is dated 6 July 2020. Mr Barclays says he did not receive it until 18 July 2020 and, although he arranged for colleagues to liaise with Mr Douglas, he did not himself focus on the report until 24/25 August, partly as a result of holiday and partly as a result of other work commitments. Mr Barclay says he was also waiting for the result of the defendants' application for Mr Douglas to provide a witness statement/experts report which was refused on 19 August 2020.

that the schedule attached to the April 2015 exchange of emails demonstrated the payment of commission. As a result of this, Mr Barclay wrote to the claimant's solicitors on 27 August raising the commission issue. On 3 September, they responded to say that this was not part of the proceedings, hence the re-amendment application on 4 September.

the evidence relied on by the defendants in support of the commission issue. On this basis, Mr Trompeter submits that there is no reason why the commission issue could not have been pleaded in the original defence given that the defendants had the 2015 exchange of emails which is what they rely on.

the defendants would want to be sure of their ground before making pleadings in relation to the commission issue, there is no evidence of any attempt to follow up on this issue either directly with the claimant or by attempting to obtain further evidence prior to June 2020. Given that Mr Jourdan accepts that the April 2015 exchange of emails would at the very least have raised a suspicion that commissions were being charged, this seems surprising. The only explanations appear to be that either the defendants did not consider the point to be important or had simply overlooked it.

commission issue when Mr Barclay received the invoices and the information from the informant in June 2020, there is no doubt, that by the end of June 2020, the defendants were in a position to raise the issue. The fact that they may not have appreciated the link between the new information and the April 2015 exchange of emails until they received Mr Douglas' report is not a good reason for the late application. Even if it were, the report was apparently received on 18 July 2020 and was reviewed by the defendants' solicitors even if not by Mr Barclay himself. Had the significance of the report coupled with the additional information been identified early on, the application to amend could have been made six weeks earlier than it was. In a situation where there are now only four weeks until trial, that is a significant difference and would certainly have reduced the weight of any prejudice to the claimant.

not very late) and that there is no good reason for it being as late as it was.

which it will be put under if the amendment is allowed. Mr Trompeter however also raised the question of prejudice to the defendants. This of course principally relates to the fact that, if permission is refused, they will not be able to defend the claim on the basis of the commission issue and may therefore ultimately have to pay more if their other defences are unsuccessful.

the amount at stake is about £70,000. Mr Jourdan however makes the point that the proposed defence is based on the possibility that commissions may also have been paid in relation to other services. Until the defendants have the information which is requested in their draft Part 18 request, it is impossible to quantify the full amount involved. Mr Jourdan for example referred to the fact that the invoices received in June 2020 relating to another building were invoices relating to mechanical and engineering maintenance.

commissions other than in relation to the cleaning services. In the context of a claim for over £2.2m, a figure of £70,000 is relatively insignificant.

small in the context of the overall proceedings.

amended defence. His main complaint is that the re-amended defence speculates that there may be contractors other than cleaning contractors who have paid commissions without any evidence for this. He also objects to the allegation that contractors are required to pay commissions and that the services could have been provided at a lower cost had it not been for the commissions. Again, he says that there is no evidence to support these statements.

acceptance from the claimant) that commissions have been paid in respect of cleaning contractors. It is perfectly reasonable to infer from this that commissions may have been paid by other contractors, that the contractors were required to pay commission as part of the terms on which they were engaged and that the costs incurred would have been less but for the requirement to pay the commissions.

commissions issue, it is not in my view appropriate to give them permission to re-amend their defence in relation to this issue given that the application was late, there was no good reason why it was as late as it was, the claimant will be put under undue pressure if it has to deal with the issues involved in a period of less than four weeks before trial and the amounts involved are relatively small in the context of the overall claim.

carried out in 2017/18 was not the landlord's responsibility and should not therefore be included in the service charge.

McKinsey on the basis of unjust enrichment or estoppel by acquiescence or convention.

be important to determine exactly what was said or agreed (or not agreed) at the time the works were planned.

documents ranging between July 2015 and June 2018 in support of their positions.

these issues. It is however clear that there is evidence supporting both parties' cases in relation to these issues and it will only be after a proper trial when the evidence can be fully tested and witnesses cross-examined that a conclusion can be reached as to whether the requirements for unjust enrichment or some sort of estoppel are made out.

case is not as strong as in relation to the commissions issue.

in the original defence. The defendants clearly had all the information available to them and it is clear from the evidence that the defendants were aware through Mr Douglas (as their service charge consultant) that any maintenance work to their windows was their responsibility and not that of Criterion and so should not be included in any service charge. 57 The explanation for the delay is that it was only when this point was raised by the

defendants' buildings expert in his report that the defendants realised that part of the costs which Criterion were seeking to recover included these elements. Whilst that is an explanation, it is not a good reason for not having raised the issue before.

be critical to a resolution of the unjust enrichment and estoppel arguments. The claimant will therefore not only have to make significant changes to their pleadings in order to plead these issues but will also need to review their witness evidence and disclosure. This would be a very significant burden at this stage of the proceedings and one which is potentially capable of impacting on the trial date. I would therefore categorise this proposed amendment as "very late" which, as confirmed by the Court of Appeal in Nesbit [at 41] places:-

"a heavy burden on the party seeking a late amendment to justify the lateness of the application and to show the strength of the new case and why justice requires him to be able to pursue it."

potentially avoid having to pay if the proposed new part of their defence is successful. In this case, the parties agree that the amount involved is just under £30,000. In my view, this is clearly insignificant in the context of the overall proceedings.

application to re-amend the defence in respect of the works issue should be refused. There is a reasonable prospect of success but it is certainly far from clear that this aspect of the defence would be successful. There would be a very significant burden on the claimant in terms of the additional work which it will need to carry out in the short period before trial. There is a risk that the trial date could be jeopardised and the amount of work which would be involved is completely disproportionate to the amount at stake.

hearing.