Jersey Unreported Judgments

Arbitration - application by Representor regarding a question of law.

[2012]JRC019B

Royal Court

(Samedi)

23 January 2012

Before     :

J. A. Clyde-Smith, Esq., Commissioner, sitting alone.

 

IN THE MATTER OF AN ARBITRATION BETWEEN JERSEY SPORTS STADIUM LIMITED AND BARCLAYS PRIVATE BANK INTERNATIONAL LIMITED

AND IN THE MATTER OF THE ARBITRATION (JERSEY) LAW 1998

AND IN THE MATTER OF AN APPLICATION PURSUANT TO ARTICLES 22(1)(A) AND (22)(2) OF THE ARBITRATION (JERSEY) LAW 1998

Advocate D. J. Benest for the Representor.

Advocate A. D. Robinson for the Respondent.

judgment

the commissioner:

1.        The Representor applies to the Court under Article 22(1)(a) of the Arbitration (Jersey) Law 1998 ("the Arbitration Law") for it to determine a question of law  which has arisen in the course of an arbitration.  I will refer to the Representor as "the lessee" and the respondent as "the lessor". 

2.        The application arises out of an arbitration which is presently ongoing between the parties.  The lessee leased certain parts of the New Era complex, Victoria Road, Georgetown, in the parish of St Clement, Jersey from the lessor. 

3.        The dispute between the parties concerns the condition in which the demised premises were delivered up by the lessee to the lessor at the termination of the lease.  The lessor alleges that the lessee is in breach of its repairing obligations.  The lessee denies the nature and extent of any breaches.  There is also a dispute as to whether and to what extent any alleged breaches sound in damages in any event. 

4.        The latter issue has, says the lessee, raised a novel and interesting point - namely whether any restriction exists in Jersey law on the level of damages that can be recovered by a landlord from a tenant who is in breach of repairing obligations under a lease.  It contends that a restriction or cap does or should exist in Jersey law such that a landlord cannot in every case recover the full cost of the remedial works stemming from a breach of repairing obligation ("reinstatement").  Instead, the proper measure of damages may be limited to the diminution in value in the landlord's reversionary interest or by such other factors as are relevant in the circumstances.  In the instant case, the lessee contends that the diminution of value in the lessor's reversionary interest is nil and that this is the proper measure of any damages for disrepair. 

5.        The lessor contends that no such restriction exists.  In so far as it is entitled to damages from the lessee, the lessor contends that the measure of these is simply the cost of reinstatement. 

6.        Schedules of dilapidations were delivered to the lessee's agent in August 2009 and the demised premises were vacated in December 2009.  The matter was referred to arbitration and directions were first given by the arbitrator on 13^th October, 2010.  Pleadings were exchanged and witness and expert statements filed.  The 18^th - 20^th October, 2011, were fixed for the hearing.  Further directions were given on 14^th October, 2011, when the hearing was adjourned to 22^nd - 25^th November, 2011.  On 25^th October, 2011, leave was granted to the lessee to amend its defence by the inclusion of the following paragraph:-

"Further or alternatively, any damages which the lessor is entitled to recover should be limited to the diminution in the value of the lessor's reversionary interest in the Demised Premises, which the lessee asserts to be nil".

7.        On 10^th November, 2011, the lessee issued a summons seeking referral of this point of law to the Royal Court.  That application was opposed, but at a hearing on 16^th November, 2011, the arbitrator consented to the matter being referred to the Royal Court.  The hearing dates of the 22^nd - 25^th November have been vacated and provisional dates for the arbitration hearing have now been fixed for 23^rd - 27^th April, 2012. 

8.        The reference to the Court is made by a party, either with the consent of the arbitrator (the position in this case) or with the consent of all the parties.  Article 22(1) is in the following terms:-

"22     Determination of preliminary point of law by Court

(1)       Subject to paragraph (2) and Article 23, on an application to the Court made by any of the parties to a reference -

(a)       with the consent of an arbitrator who has entered on the reference or, if an umpire has entered on the reference, with the umpire's consent; or

(b)       with the consent of all the other parties,

the Court shall have jurisdiction to determine any question of law arising in the course of the reference."

9.        Under Article 22(2), the Court shall not entertain an application brought by a party with the consent of the arbitrator under Article 22(1)(a) unless it is satisfied in relation to two matters as follows:-

"(2)     The Court shall not entertain an application under paragraph (1) (a) with respect to any question of law unless it is satisfied that -

(a)       the determination of the application might produce substantial savings in costs to the parties; and

(b)       the question of law is one in respect of which leave to appeal would be likely to be granted under Article 21(3)(b)."

10.      Article 21(3)(b) is concerned with appeals against arbitration awards and Mr Robinson for the lessor conceded that this question of law was one in respect of which leave to appeal would be likely to be granted following an award, so that I was concerned with the first matter, namely whether the determination of the application might produce substantial savings in costs to the parties. 

11.      When commenting on the English equivalent to these provisions (section 2 of the Arbitration Act 1979) in the case of Babanaft International-v-Avant Petroleum Inc (1982) WLR 871 Donaldson LJ said this at page 876:-

"In the instant case the owners secured the consent of the charterers to their application and were thus able to proceed under section 2(1)(b) [Article 22(1) (b)].  In deciding whether or not to grant the application, the judge's discretion was accordingly unfettered by subsection (2) [Article 22(2)], no doubt because Parliament considered that prima facie it could be left to the parties to consider whether the determination of the question of law at that stage would be likely to lead to a substantial saving in costs (subsection (2)(a)) [Article 22(2) (a)] and whether it could substantially affect their rights."

12.      The parties agree as do I that even if the conditions of Article 22(2) are met and even when the reference is made with the consent of all the parties, the Court retains a discretion whether or not to entertain the application.  As Donaldson LJ said in Babanaft at page 882:-

"By contrast, in the case of an appeal on a preliminary point of law arising in the course of the reference (section 2), Parliament has indicated that the High Court is not bound by the agreement of the parties.  The judge has to consider the application on its inherent merits.  If he is not satisfied that the question of law proposed for determination ought to be determined at that stage, he should refuse the application."

13.      Counsel disagreed, however, as to the principles to be applied by the Court in the exercise of that discretion.  Mr Robinson relied on Chapman-v-Charlwood Alliance Properties Ltd [1981] 2 EGLR 4, the only case cited to me dealing with a referral under the equivalent of Article 22(1)(a), where Hodgson J said it was right to take into account the warnings issued by the courts as to the taking of preliminary points:-

"I am told that there has been no reported decision on section 2(2) of the 1979 Act.  Clearly section 2 of the Act is designed to give parties arbitrating the same facilities that litigants have to get preliminary points of law determined by the court; and I think that I have to take into account, in deciding how to exercise my discretion, the warnings as to the disadvantages of trying preliminary points of law which have been reiterated a number of times by the courts; perhaps most recently by Lord Scarman in the case of Tilling-v-Whiteman [1980] AC 1, Lord Scarman's observations being found at p 25."

14.      The observations of Lord Scarman in Tilling-v-Whiteman were:-

"The case presents two disturbing features.  First, the decision in the county court was upon a preliminary point of law.  Had an extra half hour or so been used to hear the evidence, one of two consequences would have ensued.  Either Mrs Tilling would have been believed when she said she required the house as a residence, or she would not.  If the latter, that would have been the end of the case.  If the former, your Lordships' decision allowing the appeal would now be final.  As it is, the case has to go back to the county court to be tried.  Preliminary points of law are too often treacherous short cuts.  Their price can be, as here, delay, anxiety and expense.  Secondly, it is a tragedy that Miss Whiteman, who has appeared in person before this House because of the expense of legal representation, was not legally aided.  She had an eminently arguable case and, if legally aided, would have been protected against the burden of costs which under our law falls upon the unsuccessful litigant.  Perhaps she was above the very modest limits set to eligibility for legal aid.  But there are indications that she chose not to apply.  I wonder whether she fully understood the protection offered a litigant by legal aid.  Surely those who helped her with advice (and she did have advisers, legal and lay, at various times) might have persuaded her.  Perhaps they tried and failed.  But the result, whatever its cause, is a financial disaster for her."

15.      Similar warnings have been given by the courts in this jurisdiction.  In Public Services Committee-v-Maynard [1996] JLR 343 at page 360 the Jersey Court of Appeal said this:-

"To single out of bare points of law in this way (which might, when the facts are found, prove to be hypothetical) is likely to increase costs and to extend the time before the Plaintiff knows whether he or she is to receive damages for his or her injury and receive the damages awarded.  Justice delayed is usually justice denied..."

16.      In Berry-v-BT Trustees [2000] JLR 293 at 299, the Royal Court further stated that:-

"In general, all matters should be resolved at the trial.  It is the exception to order that a case should be broken down into separate issues.  This is particularly so where the facts may be in issue as the court should not decide legal issues, particularly novel issues, on the basis of what may turn out to be erroneous facts or on the basis of hypothetical facts.  The Court can however, and often will, order the trial of a preliminary issue if satisfied that it is convenient to do so and that the resolution of the preliminary issue in one way would be likely to be determinative of the whole case, or at any rate a very substantial part of it, thereby saving time and costs."

17.      Mr Benest for the lessee submitted that Chapman was wrongly decided.  He referred me to the following passage in the judgment of Donaldson J in Babanaft at page 882:-

"Put colloquially, the arbitrator or the parties nip down the road to pick the brains of one of Her Majesty's judges and, thus enlightened, resume the arbitration.  It is essentially a speedy procedure designed to interrupt the arbitration to the minimum possible extent and it is an exception to the general rule that the courts do not intervene in the course of an arbitration."

18.      Donaldson LJ's description, Mr Benest submits, throws into sharp focus the distinction between an application under Article 22 and an application for the determination of a preliminary point of law in advance of a trial.  The latter has - justifiably - sometimes given cause for concern in the Jersey courts as it can involve the deciding of an issue on a false or erroneous factual basis.  The inevitable result is wasted time and costs. 

19.      However, as Donaldson LJ makes clear, an application under section 2 (and by analogy Article 22) is, he argued, a very different beast.  It involves not the hiving off of particular points in advance of a trial (with all the attendant problems and risks), but instead the pausing of an arbitration in order to allow for an infusion of judicial expertise on a difficult or novel point of law.   The question of law raised by the lessee is, he says, a pure point of law which has not previously been decided in Jersey and which can be decided in isolation from the facts.  Once it has been determined, the parties, thus enlightened, can speedily resume the arbitration, whose course will have been substantially shortened, applying the resulting legal principle to the facts as appropriate   

20.      Babanaft was concerned with an application to appeal from a decision of the Divisional Court of the Queen's Bench Division on a point of law which had been referred to the court with the consent of all the parties to the arbitration.  His description was made for the purpose of contrasting the difference in attitude of the Court towards an application for leave under section 2 (our Article 22) and an application to appeal, which is less readily given. 

21.      I doubt whether the notion of nipping down to the Royal Court to pick the brains of the judges has much bearing on the practical realities of referring matters to the Royal Court.  Taking into account the need to find time in the court diary, firstly for the application for leave and thereafter for the hearing itself, the process is likely to take many months and to be costly with it.  Furthermore any decision by the Court on the point of law is susceptible to appeal, with leave, and thus further delay and cost. 

22.      The dangers of taking points in this way in advance of the arbitration hearing may not be so prominent in the mind of the Court where both parties have agreed to the referral and can be presumed, therefore, to have taken those dangers into account, but where, as here, the application for leave is opposed, then it seems to me right that the Court should, following Chapman, take those dangers into account in the exercise of its discretion. 

23.      Mr Robinson points out with some justification that but for this application the arbitration would have proceeded on the 22^nd November, 2011, and an award made by now.  The referral has already therefore delayed the determination of this dispute.  Any appeal on an issue of law from that award would then have been on the preferable basis of clear findings of fact by the arbitrator.  

24.      The defence was filed on the 17^th December, 2010, but the point of law was not raised until a month before the hearing in November 2011.  Bearing in mind the low threshold for obtaining the arbitrator's consent (see paragraph 26 below), the Court must guard against the tactical use of such a referral.  I do not regard this application as tactical but if points of law are to be referred to the Court they should be identified and the application made much earlier in the arbitration process. 

25.      In addition the Court must in every case consider whether the question of law referred to it can properly be answered in isolation from the facts of the case.  As Donaldson LJ said at page 876:-

"It is a not uncommon experience to be faced in the Divisional Court of the Queen's Bench Division with a question of law stated by justices which, although important as a question, can on the facts found only be answered by saying, 'Well, it all depends.'  If such were the position, it would not be surprising if an application were refused notwithstanding the fact that it was supported by both parties."

26.      Before I turn to the issues before me, I note that the threshold for the giving of the arbitrator's consent under Article 22 (1) (a) to the referral of a question of law to the Court is a low one.  Quoting from Chapman:-

"In this case the arbitrator has been persuaded to give his consent and in doing so I am told that he directed himself, in my view properly, in saying that if there was an arguable point of law involved in the proposed application, it was not for him but for this court to decide whether leave should be given"

I am informed that this was the test applied by the arbitrator in the instant case.  The referral to the Court is of course made by one (with the arbitrator's consent) or all of the parties to the arbitration, not by the arbitrator.  It is not a facility therefore by which the arbitrator can seek the guidance of the Court on a point of law. 

Savings in costs

27.      With regard to Article 22(2) (a), Mr Benest emphasised the word "might" and Mr Robinson the word "substantial".  In my view "substantial savings" must mean substantial in relation to the costs of the arbitration as a whole. 

28.      The lessor estimates that the parties have already incurred costs on both sides of £330,000.  Experts both on reinstatement and the reversionary values have been commissioned and their reports filed along with the statement of the other witness.  There are six expert witnesses in all. 

29.      Mr Robinson submits that if the Court accepts the referral and the lessee succeeds in its application, then the arbitrator is still going to have to hear all of the evidence as he will still need to adjudicate on reinstatement and the reversionary values.  There would be a saving in not having to argue the point of law before the arbitrator but at the probably much greater cost of arguing the point before the Court. 

30.      If the Court accepts the referral but the lessee fails in its application, then the parties agree that there will be a saving in that the arbitrator will not have to hear the evidence of the two experts on valuation or submissions on that evidence and on the point of law.  Mr Benest says the savings would be substantial; Mr Robinson disagrees.  In the latter's view, the savings would be limited and would outweighed by the costs of this application.  

31.       Mr Benest argues that if the lessee is successful and the arbitrator is persuaded to take the valuation issue first (as a further preliminary point) and in the event of the arbitrator accepting the valuation provided by the lessee, then that will dispose of the whole matter in favour of the lessee - a knock-out blow.  Mr Robinson contends that it would not be possible for the arbitrator to take that issue in isolation first. 

32.      The threshold "might" is a low threshold and I agree that determining this point of law (if it can be answered and I come to that later) "might" lead to a saving in costs.  However I am persuaded by the arguments of Mr Robinson that the savings will not be substantial in the context of this arbitration. 

Question of law

33.      In its representation the lessee sets out the question of law as follows:-

"With the consent of the Arbitrator the Lessee applies by this Representation for the determination by the Royal Court, as a preliminary point of law, the question as to whether or not there exists in Jersey law a cap on the level of damages that may be recovered by a landlord from a defaulting tenant, in other words as to the appropriate measure of damages in Jersey law at the termination a lease for breach by the tenant of its repairing obligations."

34.      It is clear that in putting forward the possibility of such a cap existing under Jersey law the lessee has been prompted by section 18(1) of the Landlord and Tenant Act 1927, which is in the following terms:-

"18.    (1)        Damages for a breach of a covenant or agreement to keep or put premises in repair during the currency of a lease, or to leave or put premises in repair at the termination of a lease, whether such covenant or agreement is expressed or implied, and whether general or specific, shall in no case exceed the amount (if any) by which the value of the reversion (whether immediate or not) in the premises is diminished owing to the breach of such covenant or agreement as aforesaid; and in particular no damage shall be recovered for a breach of any such covenant or agreement to leave or put premises in repair at the termination of a lease, if it is shown that the premises, in whatever state of repair they might be, would at or shortly after the termination of the tenancy have been or be pulled down, or such structural alterations made therein as would render valueless the repairs covered by the covenant or agreement."

35.      No such statutory provision applies under the law of Scotland, but Mr Benest referred me to the case of Prudential Assurance Co Ltd-v-James Grant & C (West) Limited (1982) SLT 423 where there is a helpful commentary on the history of section 18:-

"Reference was made to certain English cases.  In some of these, e.g. Conquest-v-Ebbetts [1896] AC 490, an action for damages for breach of contract to keep in repair and deliver up in good repair was brought before the lease had expired.  In such cases it may be appropriate to measure damages by the estimated diminution in value of the landlord's version but not always (per Lord Herschell in Conquest-v-Ebbetts at p. 494). 

Joyner-v-Weeks [1891] 1 QB 31 appears to state the proposition that when there is a lease with a covenant to leave the premises in repair at the end of the term and such covenant is broken, the lessee must pay what the lessor proved to be a reasonable and proper amount for putting the premises into the state of repair in which they ought to have been left.  Lord Esher MR was inclined to think this rule was absolute.  The rule was applied in that case even although the lessor had suffered no actual loss because he succeeded in letting the premises at a high rent to a new lessee who carried out all the necessary repairs without claim for reimbursement.  

Such a rule universally applied could lead to inequitable results and to meet this it was provided by s. 18(1) of the Landlord and Tenant Act 1927 that damages for breach of covenant to keep and put premises in repair shall in no case exceed the amount (if any) by which the value of the reversion in the premises is diminished by the breach.  This does not displace the test of cost of repair.  It simply sets a limit to it.  In a case where the landlord was unable to regain possession of the subjects when the lease expired because they had been requisitioned the diminution in value of the reversion had to be assessed at the date of expiry of the lease (Smiley-v-Townshend [1950] 2 KB 311).  Another case in which the general rule in Joyner-v-Weeks was not applied was James-v-Hutton [1950] KB 9.  This again was a case where the landlord suffered no damage by the tenant yielding up the premises out of repair.  The question to be answered in English law now seemed to be what damage has the landlord really suffered from the breach? (Duke of Westminster-v-Swinton [1948] 1 KB 524."

36.      It would appear therefore that section 18 does not enshrine the common law but was enacted to reverse what were perceived to be the harsh effects of the common law.  As to the position under the law of Scotland, the judgment goes on to conclude:-

"I would be reluctant to rely too heavily on English authority in a matter of this nature.  There is, fortunately, an authoritative Scottish decision which in my view is much in point.  In the Duke of Portland-v-Wood's GTrs (1926) SLT 321: (1926) SC 640, reference was made to the rule in Joyner-v-Weeks which, it was pointed out, was not binding in Scotland.  The Lord President (Clyde) was not prepared to affirm that the measure of damages laid down in Joyner-v-Weeks is, according to the law of Scotland, the sole legal measure of damages in cases of this nature.  It may be that the true value of the damages may only be found after employing more measures than one and checking one result with another.  Thus, if the lessees can prove that the true loss suffered by the lessor is materially less than the more readily ascertainable cost of repairing their neglect it may be that they may be entitled to ask the court to restrict the lessor's claim. 

Applying this dictum to the present case I conclude that the pursuers are entitled, in the first instance, to quantify their claim by reference to what it will cost to do the work which the defenders have failed to do.  If the defenders can prove that the true loss suffered by the pursuers is materially less than this it is open to them, on suitable averments, to do so.  I do not consider that it is incumbent upon the pursuers at this stage to enumerate in their pleadings all the legitimate but not necessarily conclusive measures of damage, to check these against each other and to produce, as matter of averment, a figure reached on this basis.  They have produced prima facie a figure based upon the readily ascertainable cost of repair and it is for the defenders, if they can, to aver and prove that this is too high."

37.      Mr Benest also referred me to the House of Lords' decision in Ruxley Electronics and Construction Ltd-v-Forsyth [1996] HL(E) from which it is clear that in building contracts, there is a considerable body of English law on reasonableness in the context of reinstatement. 

38.      As to Jersey law, Mr Benest informed me that it was entirely silent on whether or not a cap exists but he will be asking the Court to develop our customary law by adopting the principles enshrined in section 18.  He submitted that on the issue of damages for breach of contract Jersey law looked to English law for guidance but it is not clear to me why the Court should necessarily look to English common law let alone English statutory law on this issue and the extent to which research has been conducted into the sources from which Jersey customary law is derived, but it can be seen from the laws of England and Scotland alone that there are a number of approaches to the issue. 

39.      In my view there is great danger in the Court seeking to pronounce general principles of very wide practical application in a factual vacuum.  It is the sort of question that can only be answered by saying "Well, it all depends".  It is possible that the Court may consider that there could be situations in which it would impose some cap or restriction on damages for reinstatement depending on the circumstances (the terms of the lease, the nature of the breaches, the cost of reinstatement, the conduct of the parties, the intentions of the lessor and so on) but such generalised guidance would be of no value to the arbitrator.  He wants to know whether a cap should be placed on the facts as he finds them.  At this stage, the Court does not know what those facts will be.  When I asked Mr Benest whether the question of law could be considered in isolation, for example, of the terms of the lease, he immediately conceded that the Court should at least have regard to that, but as Mr Robinson says, there starts the slippery slope. 

40.      In summary I am not satisfied that this referral might produce substantial savings in costs and the application fails on that ground alone but even if I am wrong on that, I would still refuse the application on the ground that this is not a question that can properly be answered in isolation from the facts of the case. 

41.      The application is therefore refused.  

Authorities

Arbitration (Jersey) Law 1998.

Arbitration Act 1979.

Babanaft International-v-Avant Petroleum Inc (1982) WLR 871.

Chapman-v-Charlwood Alliance Properties Ltd [1981] 2 EGLR 4.

Tilling-v-Whiteman [1980] AC 1.

Public Services Committee-v-Maynard [1996] JLR 343.

Berry-v-BT Trustees [2000] JLR 293.

Landlord and Tenant Act 1927.

Prudential Assurance Co Ltd-v-James Grant & C (West) Limited (1982) SLT 423.

Ruxley Electronics and Construction Ltd-v-Forsyth [1996] HL(E).