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You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> Holland House Property Investments Ltd v Norna Forsyth Crabbe & Anor [2008] ScotCS CSIH_40 (02 July 2008) URL: https://www.bailii.org/scot/cases/ScotCS/2008/CSIH_40.html Cite as: [2008] ScotCS CSIH_40, [2008] CSIH 40, 2008 SC 619 |
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FIRST DIVISION, INNER HOUSE, COURT OF SESSION |
|
Lord PresidentLord KingarthLord Clarke |
[2008] CSIH 40XA35/07OPINION OF THE COURT delivered by LORD CLARKE in APPEAL From the Sheriffdom of
Glasgow and Strathkelvin at in the cause HOLLAND HOUSE PROPERTY
INVESTMENTS LIMITED Pursuers and Respondents; against NORNA FORSYTH CRABBE and
J. EUAN EDMENT Defenders and Appellants: _______ |
Act: Weir; Semple Fraser (Pursuers
and Respondents)
Alt: Sandison;
Introduction
[1] This is an
appeal against an interlocutor of the sheriff principal of Glasgow and
Strathkelvin of
The context of the
dispute
[2] The lease
between the parties is contained in a Minute of Lease between Clydesdale Bank
plc (the original landlords) and the appellants dated 12 and
"Notwithstanding the foregoing
provisions of this Minute of Lease with a view to ensuring that the rent
payable hereunder shall from time to time be adjusted so as to be a fair market
rent, the rent so payable shall be subject to review at the instance of the
Landlords at the first rent payment term immediately following the fifth
anniversary of the date of entry and at the same term in each fifth year
thereafter up to and including the twentieth year of this Lease and at the same
term in every third year thereafter (hereinafter called 'the relevant term')
and such review shall be effected only in accordance with the following
provisions:-
(a) The
Landlords shall give to the Tenants three months written notice
prior to the relevant term of their
intention to exercise their right to require a review of rent. Such notice shall specify the rent which the
Landlords propose as the fair market rent at the time in lieu of the rent then
payable hereunder (hereinafter called 'the current rent') and in the event of
the Tenants not accepting the rent specified in the said notice as the fair
market rent at the time they shall within the period of twenty-one days after
receipt of the notice intimate in writing to the Landlords to that effect. Failing such intimation the rent payable
under this Lease shall from and after the relevant term be
the rent specified in the said notice.
(b) In
the event of the Tenants not accepting that the rent specified in the
said notice represents the fair market
rent at the time such rent shall be fixed, failing agreement, by an independent
surveyor to be nominated, failing agreement, by the Chairman for the time being
of the Scottish Branch of the Royal Institution of Chartered Surveyors on the
application of the Landlords. Such
surveyor shall determine the fair market rent at which the premises might
reasonably be expected to be let at the relevant term and disregarding any
effect on the rent of any additions or improvements to the premises made by and
at the expense of the Tenants otherwise than in pursuance of an obligation to
the Landlords in terms of this Lease.
The certificate of such surveyor as to such rent shall be final and
binding on the parties to the effect that in the event of the rent specified in
the said certificate being more than the current rent the rent specified in the
said certificate shall become the rent payable under this Lease from and after
the relevant term, the whole other terms and conditions of this Lease remaining
in full force and effect. In the event,
however, of the rent specified in the said certificate not being more than the
current rent, the current rent shall continue to be the rent payable under this
Lease from and after the relevant term.
The whole cost of having fixed as aforesaid the rent payable under this
Lease shall be borne by the Tenants.
...
(d) Unless
and until the rent payable under this Lease is varied in
accordance with the foregoing
provisions of this Clause the current rent shall continue to be the rent
payable under this Lease and within seven days after the rent has been so
varied (if such date be later than the relevant term) there shall be an
accounting between the parties in regard to any underpayment of rent in
consequence of a variation of rent as aforesaid".
The rent due under the lease was due to be reviewed as at the
[3] The sequence
of events leading up to Mr. Clearie's determination were
as follows. By letter of
"I refer to Mrs. Taylor's letter of
22nd February and confirm that I am willing to provide a rental
determination in accordance with your request, but I am unwilling to place a
limit (at this stage) on the level of fees that my legal advisor may
charge. If it is necessary to seek legal
advice, I would propose to consult Paul Hanniford of Semple Fraser. In the past I have found his charges in
matters of this nature to be modest but until all the issues are aired, it
would be unduly onerous to present him with a budget, particularly one as low
as £500 plus VAT.
On the basis that the foregoing is
acceptable to the parties I have prepared Terms of Engagement for your
consideration and these are attached. I
noted your desire to present me with Submissions today with Counter Submissions
in 14 days time but as there [has] been no indication whether this was
acceptable to the Tenants, it seems only fair to have
a short delay. Accordingly I suggest
that Submissions should be presented no later than
I trust that the foregoing is acceptable
and look forward to hearing from both parties to that effect. When responding, please clarify who will be
responsible for my fees etc."
The attached Terms of Engagement, referred to in that letter
were in the following terms:
"1.0 Unless
I am immediately advised in writing by the parties to the contrary, my
valuation will be on the basis that:-
(i) the property is free from latent and inherent defects, that
no
deleterious materials have been used in its
construction and that it is not built on or affected by contaminated land, and
(ii) complies with the relevant planning and other statutory
regulations and requirements, and
(iii) the only relevant tenancy document is a Deed between
Clydesdale Bank plc
and Michael Crabbe Hodge, Norna Forsyth Crabbe and Alexander Charles Reid.
2.0 The
Deed entitles the parties to make representations on rental and I am obliged to
take cognisance of these. The procedure
I propose to adopt is as follows:-
2.1 It
would be helpful if the parties would produce an agreed Statement of Facts Not
in Dispute. It should contain a
description of the subjects, floor areas, planning consents, lease use rights,
and if applicable, any tenant's improvements which have to be disregarded.
2.2 In
the event of there being any matters on which I require to seek a technical or
legal opinion, I will first advise both parties, give them an estimate of the
fees involved and ensure that my consultant or solicitor, who I may wish to
appoint does not have a conflict of interest.
2.3 No
correspondence or documents of a privileged nature should form part of either
Representation or Counter-Representation.
2.4 It
would be helpful if supporting evidence and comparables in the Reports and
Replies are corroborated in writing, and provided in a detailed manner.
2.5 Reports
should be lodged with me by
2.6 Replies
containing comments upon the initial written Representations are to be lodged
with me by
2.7 I
would remind the parties of the obligations and responsibilities imposed upon
chartered surveyors if purporting to act as Expert Witnesses, all as
referred to in the latest RICS Practice Statements and Guidance Notes. If I am persuaded that a serious and
deliberate breach has taken place, I may report the matter.
3.0 I
will arrange to inspect the premises and will contact the Tenant for this
purpose. I do not propose that I be
accompanied during my inspection.
4.0 If
there are any further matters on which I require additional information or
clarification, I will advise both parties and after receipt of Replies. I will not accept any further Representations
unless I consider it to be essential or by express agreement between the
parties.
5.0 My
Determination will take a form of a certificate without Reasons.
6.0 Despite the quasi-arbitral
nature of the foregoing, I have been invited and accepted, subject to these
Terms of Engagement, the role of Independent Expert Surveyor. I will conduct myself in accordance with the
Guidance Notes for Surveyors Acting as Independent Experts in Rent Reviews,
Scottish Edition, published by the RICS."
It appears that after the receipt of Mr. Clearie's letter of
"Thank you for your time yesterday
and the opportunity to reconcile some of the concerns relative to the Terms of
Engagement that accompanied my letter of 4th March.
I have prepared this letter to record
my understanding of our meeting and invite you to agree the contents.
(i) Agreed
(ii) Agreed
(iii) The
Tenant alleges that one or more Minutes of Agreement concerning
Tenant's improvements may exist and
the intention would be that these would be taken into account in the rental
valuation. The Landlord is not aware of
the existence of these documents. The
point requires to be established as soon as possible and preferably at least 5
working days prior to the deadline for written Submissions. This is designed to enable the parties to
present their opinions of value on the correct basis and avoid uncertainty on
matters of fact."
Those observations apparently related to the numbered
sub-paragraphs of paragraph 1.0 of the Terms of Engagement
"2.1 I
note that the parties will endeavour to agree on the net lettable floor areas
of the premises measured in accordance with the RICS Code of Measuring
Practice.
2.5 & 2.6 Revised date for Submissions and Counters
will be 8th and 22nd April respectively.
5.0 My
Determination will be provided with a separate note showing my calculations.
The remaining terms are understood to
be acceptable.
In the event that I decide that legal
or technical advice is required I will first approach the parties, explain the
point and invite the parties to approach an independent specialist/lawyer who
will then pass his/her opinion to me or I will arrange this having first
checked that a conflict of interest would not exist and the cost is within a
reasonable cap as discussed.
I would be grateful if both parties
would kindly confirm that the foregoing is acceptable and that they are willing
to proceed on this basis."
No written reply to that letter from either parties' representatives is before the court. Mr. Clearie, in any event, proceeded
thereafter to set about his task. He
received written representations from the parties' representatives, and counter
representations, which were exchanged between the parties' representatives.
[4] On
"WHEREAS
1. I
was appointed by the parties as independent surveyor and engaged
under the terms of my letter dated
2. I
have received written representations from Mrs. Taylor on behalf of
Holland House
Property Investments Ltd, the Landlord, and from Ms. Crabbe on behalf of
The Partners & Trustees of West Anderson & Company, the Tenant.
These, together with counter-representations were duly exchanged between
the parties' representatives,
3. The
relevant tenancy document is a Lease between the aforementioned
parties signed 12th and
4. I
have considered all of the facts, evidence and testimony, inspected
and measured the property and made independent
enquiries consistent with my duty as independent surveyor
NATURE OF THE QUESTION
Determine the fair market rent at
which the premises might reasonably be expected to let at the relevant term,
being 15th May 2002 and disregarding any effect on the rent of any
additions or improvements to the premises made by and at the expense of the
Tenants otherwise than in pursuance of any obligation to the Landlords in terms
of the Lease.
RENTAL DETERMINATION
I, Fraser William Clearie, hereby
determine that the fair market rent of
This concludes my rental
determination".
Mr. Clearie also issued what are described as "Notes on the
Rental Determination for
"These notes do not form part of the
Rental Determination and are provided at the request of the parties' agents to
illustrate my approach to the rental valuation.
They must not be published or released to a wider audience without the
writer's written consent".
The notes then go on to read as follows:
"My measurements and calculations of
the gross internal area result in a total of approximately 4,547 sq ft or
thereby. Within this area, I calculate
that the zoned area of the ground floor including that part of the basement
comprising the sub-let portion amounts to 869 units.
The Lease is unusual in many respects
and I have endeavoured to reflect relevant differences from comparable rental
evidence in the Valuation that is shown below.
By way of further explanation, I formed the view that water penetration
affecting the second floor offices should have a bearing on value. I carefully considered the parties'
Submissions on this point and made diligent enquiries and came to the view
that, although compliance with an obligation to repair might reasonably be
implied in a rent review case and the obligee (normally the Tenant) should not
gain by a lack of performance, similarly the Landlord should not gain
additional rent because he has failed.
Had the premises been available at the review date in the condition that
the parties agree they were in, it seems unrealistic not to expect some
diminution in value.
Approaching the rental value by
reference to the different elements (levels) is justified on account of a
number of factors including the relatively wide range of permitted uses,
suitability of the premises to a wide range of uses, no limitation on the
number of sub-tenants (although noting the restrictions concerning alienation),
and the regular demand for premises of this nature locally. I also had regard to the existing planning
use rights, as well
as the style and nature of the
neighbouring uses and prospects for other
uses.
I do not wish to give the impression
that the foregoing and the elements specifically reflected in the under noted
valuation were the only ones with a bearing on value at the review date, but
these were the ones which struck me as particularly worthy of comment.
The parties acknowledged there was a
dearth of directly comparable buildings (whole) in terms of quality, style and
proximity to retail facilities.
Nevertheless from the comparisons offered and additional rental evidence
arising from my own enquiries, I am satisfied that the values applied are fair
and reasonable in all the circumstances".
The calculations carried out by Mr. Clearie which brought out
the total of £50,800 were then set out by him in writing.
[5] Having
averred that Mr. Clearie had, in carrying out his task, adopted quasi-arbitral
procedure, which meant that he had to comply with the rules of natural justice,
the appellants, in answer 4, refer to the second paragraph of Mr. Clearie's note
and aver
"Said notes disclose that Mr. Clearie
sought and undertook further enquiries beyond the terms of the submissions of
the parties consideration of the water penetration
matter, which matter forms part of his rental determination. Mr. Clearie did not advise the parties
of the terms of these further diligent enquiries, and what form those enquiries
took. Mr. Clearie prior to issuing his
rental determination did not (a) advise the parties of the terms of said
enquiries, (b) the affect (sic) that
said enquiries had in the process of his rental determination or (c) give the
parties a fair opportunity to make further representations in the light of the
terms of said further enquiries. In so
doing Mr. Clearie has acted in a manner in the discharge of his function of an
Independent Expert, which are contrary to the
principles of natural justice.
Accordingly his rental determination dated
The appellants, furthermore, sought to make a case attacking
Mr. Clearie's decision based on Mr. Clearie's alleged failure to carry out
properly his functions in terms of the lease.
At first instance the sheriff repelled both of the appellants' lines of
defence and granted decree for payment as craved by the respondents. The appellants' appealed to the sheriff
principal only with regard to the sheriff's decision dealing with the case
based on Mr. Clearie's alleged failures to observe the rules of natural
justice. As has been noted the sheriff
principal adhered to the interlocutor of the sheriff.
The issue
[6] The issue
before the sheriff principal was whether or not Mr. Clearie could be said to
have been acting as an arbiter and, if so, whether he had failed to observe the
rules of natural justice. Counsel for
the appellants had urged upon the sheriff principal that a proof before answer
should be allowed on these issues. The
sheriff principal's decision on the question put before him is to be found at
paragraph 12 of his note where he states as follows:
"The indicia, when viewed in the
context of the terms upon which Mr. Clearie was engaged, point to him
being an expert and not an arbiter. In
my opinion, Mr. Clearie was acting as an expert. As such he was entitled to make his own
enquiries and not invite the parties to make submissions on the material
disclosed by such enquiries. This is so,
even if the material was used by him in answering the question posed by the
parties. As an expert he is liable in
damages to either party should he be negligent in carrying out his duties. That is the safeguard which the law gives to
parties when they appoint an expert. As
Mr. Clive put it, the parties' protection lies in knowing that the expert must
act fairly, impartially, honestly and with due skill. Should he fail to do so he opens himself to
an action of damages.
On the other hand if parties appoint an arbiter they have no recourse
against him personally should he act in a negligent manner. Their protection is in knowing that there is
a duty on an arbiter to adhere to the principles of natural justice and thus
act in a judicial manner. That
protection can be enforced by requiring the arbiter to state a case for the
opinion of the Inner House of the Court of Session. Thus if it can be established that Mr.
Clearie has acted in a negligent manner he will be liable in damages".
The sheriff principal went on to note (at para. 13) that
counsel for the appellants had submitted that
"I should only reject his submission
if I was satisfied that the position of the tenants could not prevail. If there was any doubt I should recall the
interlocutor of the sheriff and allow a proof before answer. I am of the view that even if the tenants
proved every averment which they make, the conclusion that Mr. Clearie was
acting as an expert would not alter".
The appellants'
submissions
[7] Before this
court counsel for the appellants renewed the argument which he had advanced
before the sheriff principal and submitted that a proof before answer should be
allowed. In opening his submissions,
counsel for the appellants contended that the question which the appeal raised
was whether or not
"the
circumstances in which Mr. Clearie carried out his job were such as to make it
appropriate to treat him as someone exercising a judicial or quasi-judicial function?".
That in turn, it was said, raised the question as to what was
meant in a context like the present, by the expressions "judicial" or "quasi-judicial
function". Guidance as to how that
question might be answered was to be found, it was
submitted, in the decisions in two House of Lords cases, namely, Sutcliffe v Thackrah [1974] AC 727 and Arenson
v Arenson [1977] AC 405.
[8] The first of
those two cases was concerned with whether an architect acting under the then
RIBA standard form of building contract was, in issuing interim certificates to
contractors, acting as an arbitrator with the consequence that they were
absolved from liability for negligence.
Their Lordships held that in issuing interim certificates an architect, did not, apart from specific agreement, act as an
arbitrator between the parties, that he was under a duty to act fairly in
making his valuation and was liable in an action of negligence at the instance
of the building owner. Counsel for the
appellants referred to the speech of Lord Reid in that case at page 737G to
738A. There his Lordship said:
"Persons who undertake to act fairly
have often been called 'quasi-arbitrators'.
One might almost suppose that to be based on the completely illogical
argument - all persons carrying out judicial functions must act fairly, therefore all persons who must act fairly are
carrying out judicial functions. There
is nothing judicial about an architect's function in determining whether
certain work is defective. There is no
dispute. He is not jointly engaged by
the parties. They do not submit evidence
as contentious to him. He makes his own
investigations and comes to a decision."
At page 745B-C in the speech of Lord Morris of Borth-y-Gest
the following passage appears:
"One of the features of an arbitration is that there is a dispute between two or
more persons who agree that they will refer their dispute to the adjudication
of some selected person whose decision upon the matter they agree to accept. As an example, the dispute may involve an
issue as to what a particular article is worth or as the value of work that has
been done. It follows that the task of
an arbitrator may in some cases be the task of arriving at a valuation. In some circumstances, therefore, someone
might be regarded both as a valuer and an arbitrator. But it by no means follows that everyone who
has a duty of valuing, a duty which obviously must be fairly and honestly
discharged, is an arbitrator. A valuer
may not be exercising any judicial function".
Counsel for the appellants particularly stressed the
reference in that passage to a feature of a valuer acting as an arbiter being
that the parties had agreed to be bound by his decision. That point is made again by Lord Morris of
Borth-y-Gest at page 747B. Lord Morris
of Borth-y-Gest then, at page 744, analysed the role of the architect in
issuing interim certificates and, in so doing, highlighted the features of his
role that meant he was not acting as an arbitrator. At page 752C to 753A-B Lord Morris of
Borth-y-Gest summed up his approach to the question raised in the Sutcliffe case as follows:
"In summarising my conclusions I must
preface them by the observation that each case will depend upon its own facts
and circumstances and upon the particular provisions of the relevant
contract. But in general any architect
or surveyor or valuer will be liable to the person who employs him if he causes
loss by reason of his negligence. There
will be an exception to this and judicial immunity will be accorded if the
architect or surveyor or valuer has by agreement been appointed to act as an
arbitrator. There may be circumstances
in which what is in effect an arbitration is not one
that is within the provisions of the Arbitration Act. The expression 'quasi-arbitrator' should only
be used in that connection. A person
will only be an arbitrator or a quasi-arbitrator if there is a submission to
him either of a specific dispute or of present points of difference or of
defined differences that may in the future arise and
if there is agreement that his decision will be binding. The circumstance that an
architect in valuing work must act fairly and impartially does not constitute
him either an arbitrator or a quasi-arbitrator".
[9] We were
referred also to the speech of Lord Salmon in the Sutcliffe case, particularly at page 759D-G where his Lordship was
to the following effect:
"I confess that I can see no more
reason for regarding the architect as being in the same position as a judge or arbitrator
than there is for so regarding the valuer.
No reason has ever been suggested.
I suspect that is because none exists.
The descriptions 'quasi-arbitrator' and 'quasi-judicial functions' have
been invoked but never defined. They
cannot mean more than in much the same position as an arbitrator or judge. In reality, however, there are the most
striking differences between the roles of the valuer and architect in the
circumstances to which I have referred and the role of a judge or
arbitrator. Judges and arbitrators have
disputes submitted to them for decision.
The evidence and the contentions of the parties are put before them for
their examination and consideration. They
then give their decision. None of this
is true about the valuer or the architect who were merely carrying out their
ordinary business activities."
We were then referred to another passage from Lord Salmon's
speech at page 763A-F. In reliance on
these passages counsel for the appellants submitted that if the individual in
question accepted material presented to him for his consideration by the
parties and contentions made by them, which he agreed to have regard to, then
he had assumed the role of arbiter and had left behind the role of expert
valuer.
[10] In the case of
Arenson the circumstances were as
follows. An employee of a private
company who held shares in it, entered into an agreement that, in the event of
his employment with the company being terminated he
would sell his shares to the chairman and controlling shareholder of the
company at their fair value. "Fair
value" was defined in the agreement as meaning the value of the shares as
determined by the auditors for the time being of the company "whose valuation
acting as experts and not as arbitrators shall be final and binding on all
parties", The employee's employment with
the company terminated and the auditors valued his shares at a certain
sum. The employee then sought to sue the
auditors for negligence in carrying out the valuation. The Court of Appeal, by a majority, held that
the auditors had been performing quasi-judicial functions and were immune from
any liability for negligence in respect of their valuation. The House of Lords reversed the decision of
the Court of Appeal, holding that the immunity of judges and arbitrators was
exceptional to the general rule of liability for negligence and that there was
no reason of public policy making it necessary to treat a "mutual" valuer as an
exception to that rule. It is, perhaps,
of some passing interest and significance to note that both the cases of Sutcliffe and Arenson were, at heart, concerned with the question of whether Hedley-Byrne type liability for negligent
misrepresentation attached to the individuals in question in performing the
task that they had made out.
[11] In Arenson Lord Simon of Glaisdale at page
423B said:
"The main issue in this part of the
case was whether it was of the essence of a judicial decision that it answers a
question (the respondents' contention) or decides a dispute (the appellants'
contention). The latter seems to me to
be the right view both in principle and on authority. It is true that judges sometimes answer
questions. Examples are references by
the Home Secretary to the Court of Appeal (Criminal Division), certain references
to the Judicial Committee of the Privy Council and summonses by executors or
trustees for the construction of a will or settlement. But these are exceptional, and not the
characteristic, activities of judges.
The general judicial role in society is to resolve disputes which the
parties cannot resolve by conciliation, compromise or surrender".
Counsel for the appellants referred the court to a later
passage from the speech of Lord Simon at page 424E-F. In that passage it was acknowledged that the
role of a valuer may in the particular circumstances of a particular case properly
attract the description "judicial".
This led counsel for the appellants to make the submission
which lay at the heart of his approach to matters. That submission was that the procedure which
Mr. Clearie had adopted, in the present case, had transformed him from being a
non-judicial valuer into a valuer performing a judicial role. Lord Simon, however, it must be noted, went
on to say, in the passage just cited as follows:
" ... the essential prerequisite for him
to claim immunity as an arbitrator is that, by the time the matter is submitted
to him for decision, there should be a formulated dispute between at least two
parties which his decision is required to resolve. It is not enough that parties who may be
affected by the decision have opposed interests - still less that the decision
is on a matter which is not agreed between them".
In Arenson at page
428E-F Lord Wheatley sought to set out the indicia
which he considered should be present for the court to reach the conclusion
that a person was performing a judicial or quasi-judicial function. These were
"(a) there is a dispute or a difference between
the parties which has been
formulated in some way or another;
(b) the dispute or difference has been remitted by the parties
to the person
to resolve in such a manner that he is
called upon to exercise a judicial function;
(c) where appropriate, the parties must have been provided with
an
opportunity to present evidence and/or submissions
in support of their respective claims in the dispute; and
(d) the parties have agreed to accept his decision."
As regards the case before their Lordships, Lord Wheatley at
page 428G-H concluded:
"There is nothing in the appellant's
pleadings and relevant documents to suggest that a dispute or difference
between the parties existed and was being remitted to the respondents for a
judicial (or quasi-judicial) determination, and nothing to suggest that the
remit was so treated."
[12] Counsel for
the appellants, in seeking to apply the dicta
in the cases just cited to the circumstances of the present case commenced by
saying, correctly, that the starting point must be the terms of the relevant
provisions in the lease itself though he stressed that this was not the
finishing point. Addressing the terms of
Clause FOURTH of the lease, counsel submitted that three steps had to be taken
before there was any question of a surveyor being appointed to determine the
rent. First, the landlord had to send a
notice to the tenant indicating that he intended to exercise his right to
require a review of the rent. Second,
that notice had to contain a proposed fair market rent. Third, the tenant had to then indicate that
he was not accepting the rent specified in the notice. In the event of all these three steps having
been taken then, submitted counsel, the situation was that at that stage there
was a difference between the parties. He
did accept, however, that at the next stage, that is the stage of the reference
to the agreed or nominated surveyor, there was no formulated dispute. It was important, however, counsel submitted,
to note that in the present case the surveyor's decision was to be binding on
the parties. The lease did not specify
what procedure the surveyor should adopt in carrying out his task. In the present case there was a subsequent
exchange of correspondence, among the parties and the appointed surveyor, whereby
the procedure to be adopted was agreed.
That procedure was set out in Mr. Clearie's document headed Terms of
Engagement dated
[13] At this stage
in his argument, counsel for the appellants drew our attention to an Outer
House decision in which the decisions of the House of Lords in the Sutcliffe and Arenson cases were considered and applied. The case in question is A.G.E. Limited v Kwik Save
Stores Limited 2001 SC 144. That
case, like the present, was concerned with a rent review clause in a commercial
lease. The relevant clause provided that
the market rental value of the premises at each date of review would be the
rent agreed between the parties under reference to various assumptions and
disregards. The clause then provided as
follows:
"Decision on Rental Value
If the Landlords and the Tenants
shall be unable to agree on the amount of the market rental value as aforesaid
by the relevant date of review then the same shall be decided by an independent
Surveyor who for at least five years prior to the relevant date of review has
been either a partner or an associate partner or consultant in a firm of
Surveyors and is experienced in the letting and valuation of subjects similar
to the premises, to be agreed upon by the parties hereto or in the event of
failure so to agree such Surveyor to be nominated at any time at the request of
the Landlords or the Tenants by the Chairman or Senior Office Holder or his
deputy for the time being of the Scottish Branch of the Royal Institution of
Chartered Surveyors and which Surveyor will determine the market rental value
as aforesaid and shall act as an expert and not as an arbiter and the decision
of such surveyor shall be binding on both the Landlords and the Tenants; ... ".
The parties, in that case, were unable to agree what the
reviewed rent should be. They,
accordingly, appointed a surveyor in the following terms:
"We have agreed to make a joint
approach to you and would be grateful if you could consider acting in the
capacity of Independent Expert. In this
respect I attach a copy of the lease for your consideration and I would
appreciate if you could confirm whether you are able to undertake this
instruction".
The surveyor in question accepted the appointment by writing
in, inter alia, the following terms:
"THIRD PARTY REFERRAL TO INDEPENDENT
EXPERT
... I would confirm that I would be free to act
as an independent expert and undernote below the procedure I would wish to
adopt for representations.
1. Matters
to be dealt with by way of written submissions which should be sent to me in duplicate
and which will afford both parties the opportunity of presenting evidence to
support their case ...
2. Counter
submissions in reply to the original ...
3. I
will inspect the premises following the receipt of counter submissions ...
4. I
shall issue my determination in writing to both parties ...
8. When
presenting evidence for comparable properties in counter submissions I would
prefer that corroboration is provided by the surveyors and/or principals
directly involved in the particular transaction".
In due course the surveyor issued his determination. He attached to his determination a note which
gave an explanation as to how he had carried out his instructions. These included a reference to the fact that:
"In addition to the comparables
referred to me by the parties, I have carried out my own investigations and
taken into account that evidence where considered relevant".
Later on in his note the surveyor said:
" ... I have made extensive enquiries
to various potential operators and have formed the opinion that as of the
review date there was little or no demand for a unit of this size in
Bellshill".
The landlords sought reduction of the surveyor's
determination on the basis that he had been acting as an arbiter and, having
regard to his duties in acting in such a capacity, his determination for a
number of reasons fell to be reduced as ultra
vires. The lease in that case,
unlike the position in the present case, contained an arbitration clause
(Clause 21). At page 148E the Lord
Ordinary (Lord Hardie) said:
"The issue in this case is a narrow
one and involves the determination of the capacity in which the second
respondent was acting when he issued his decision".
His Lordship then, at page 149, noted the speech of Lord
Wheatley in the Arenson case, particularly
passages at pages 427 and 428. He then
continued at page 149E-H:
"Having considered the speech of Lord
Wheatley, I am of the opinion that the starting point must be to consider the
terms upon which the second respondent was appointed. In the present case the appointment of the
second respondent is determined by the terms of clause 18(3) of the lease,
which states that in determining the market rental value the second respondent
'shall act as an expert and not as an arbiter'.
The reference later in the clause to the right to have the rent reviewed
not being lost or abandoned by reason of inter
alia 'arbitration to settle the rent review' is, in my opinion, intended to
cover the situation where the parties disagree over the meaning of the
assumptions or disregards specified in clause 18(2). For example disregard (vi)
relates to rent free periods, reverse premiums or other financial inducements
granted to the tenants at the commencement of the lease or during any fitting
out period. If the parties disagreed as
to how this provision should be interpreted, that issue would require to be
determined by arbitration in terms of clause 21 and it is probable that in such
a case the rent review would be settled by arbitration".
The Lord Ordinary at page 150 of his Opinion at B-D then
recorded the following:
"Counsel for the petitioner submitted
that notwithstanding the terms of the lease and the letter of appointment, the
second named respondent by his behaviour transformed himself from an
independent expert valuer into an arbiter.
The behaviour relied upon was the letter of acceptance of the
appointment ... and the procedure following thereon. It was submitted that by inviting and receiving
written submissions the second respondent formulated the dispute, thereby
satisfying the first guideline of Lord Wheatley in Arenson v Casson Beckman
Rutley & Co. Ltd. That guideline
requires that 'there is a dispute or difference between the parties which has
been formulated in some way or another'".
The submission just noted was, to all intents and purposes,
the same as the argument being advanced on behalf of the appellants in the
present appeal. The Lord Ordinary in the
AGE Limited case went on to reject
that argument and did so in the following way at page 150D-H:
"I am not convinced that the
submissions of counsel for the petitioner in this regard are well-founded. In my opinion, the criteria specified in this
guideline are not satisfied. Failure to
agree the amount of the market rental value does not, in my opinion, constitute
a difference or dispute between the parties to the lease. Nor do I consider that the reference to a
third party for determination amounts to the formulation of any difference or
dispute which may exist. I derive
support from the fact that the contrary view would have the effect of rendering
clause 18(3) meaningless, requiring all failures to reach agreement to be
referred to arbitration. I also consider
that Lord Wheatley intended that the formulation of the difference or dispute
would be by the parties and would occur prior to the reference to the arbiter
was made (sic). I gain support for my views from the speech
of Lord Simon of Glaisdale at p 424 to which I shall return later. Any alternative meaning would result in
experts being able to transform informal references to them into arbitrations
by their formulating the dispute after the reference to them has occurred. In my opinion this should not be permitted
without the unequivocal agreement of the parties. If an expert were able to transform informal
references into arbitrations without the consent of the parties, the effect
would be that the expert could alter the terms of a lease to which he was not a
party. Moreover he would be clothing
himself with immunity from claims by either or both of the parties arising from
his negligence. In the present case I do
not consider that the second respondent intended such a result. The letter of acceptance (6/4 of process)
confirms his willingness to act as an independent expert; he was in possession of a copy of the
lease and would therefore be aware of the terms of clause 18, particularly the
distinction made between an expert and an arbiter. Nor do I consider that the petitioner or the
first named respondent intended that the reference to the second named
respondent should be transformed into a formal arbitration".
The court in the AGE
Limited case drew formidable support for its decision from the speech of
Lord Simon of Glaisdale in the Arenson case
at page 424 which we have referred to above.
The conclusion of the court in the AGE
case was that in applying the test set out by Lord Simon of Glaisdale in
that passage
" ... it is clear that the second named
respondent was not acting in a judicial capacity, in the present case. There was no formulated dispute by the time
the matter was referred to him. There
was merely a failure by the petitioners and the first named respondent to agree
the market rental income" (at page 151B-C).
While counsel for the appellants, in the present case, did
not expressly invite the court to hold that the decision of the Lord Ordinary
in the AGE Limited case was wrong,
that was the effect of his submissions.
Counsel expressly criticised the Lord Ordinary's view that for the
surveyor to have been acting as an arbiter there must have been a formulated
dispute between the parties by the time the matter came before him - but that
is exactly what Lord Simon of Glaisdale in Arenson
expressly declared to be "the essential prerequisite" in the dictum relied upon by the Lord Ordinary
in the AGE Limited case.
[14] In the present
case the sheriff principal at paragraph [7] of his note said:
"In my opinion there was no
formulated dispute which Mr. Clearie required to resolve, such as would cloak
him as an arbiter and thus confer upon him immunity should he be
negligent. Mr. Clearie was not here
fulfilling the role traditionally undertaken by judges and arbiters such as
deciding what documents constitute the contract between parties or deciding
whether a party is in breach of any contractual provision or assessing the
damages which reasonably flowed from any breach of contract which there might
have been. Mr. Clearie's role was
much simpler. He had to produce a
figure."
Counsel for the appellants criticised that passage by saying
that it failed to have proper regard to how Mr. Clearie actually conducted
himself and the particular significance of what was said in the Terms of Engagement. The question should not be determined without
an enquiry into these matters.
The respondents'
submissions
[15] In reply
counsel for the respondents invited the court to refuse the appeal and to
adhere to the interlocutor of the sheriff principal. When seeking to determine whether a
particular person was acting in the capacity of an expert or an arbiter it was
necessary, it was submitted, to do so in the context of the agreement by virtue
of which he was appointed to carry out his function. Reference was made to the speech of Lord
Morris of Borth-y-Gest in Sutcliffe
at pages 747E and 752G. There was
nothing in the wording of Clause FOURTH of the lease to suggest that it was the
parties' intention that the surveyor should act as an arbiter. The Terms of Engagement set out the procedure
that the parties had agreed could be adopted by Mr. Clearie to enable him
to answer the question which was put to him, namely, what was the fair market
rent of the premises. It was wrong to
read the Terms of Engagement as only inviting the ingathering of material from
the parties themselves upon which the surveyor had to adjudicate. Clause 4.0 of the Terms of Engagement
provided that the surveyor could himself seek additional information. As Lord Reid in Sutcliffe, particularly at page 735G, had pointed out, persons
exercising judicial functions do not themselves carry out investigations. In clause 6.0 of the Terms of Engagement the
surveyor, it was submitted, was making it perfectly clear that he was acting as
an independent expert and not as an arbiter.
[16] Counsel for
the respondents then referred to the Guidance Notes referred to in clause 6.0
of the Terms of Engagement which were lodged in process. These, it was said, could not, in the
circumstances, be regarded as having contractual force in the present
case. Counsel did, however, invite the
court to have regard to the notes which were attached to Mr. Clearie's
determination as providing context in which the issue raised should be
determined. It was abundantly clear,
from those notes, that Mr. Clearie had carried
out his own enquiries, particularly with regard to the question of water
penetration, which was the particular matter which the appellants were
apparently complaining about now in the present proceedings. Clause 3.0 of the Terms of Engagement had
expressly provided that he would inspect the premises on an unaccompanied
basis. In his final determination he
reiterated, at paragraph 1, that he had been appointed
as an independent surveyor and at paragraph 4 stated that he had "made
independent enquiries consistent with my duty as independent surveyor". The whole process carried out by Mr. Clearie
did not involve, and was not intended by the parties to involve, an
adjudication of a dispute between them.
A valuer carrying out a valuation exercise was not necessarily
exercising a judicial function. Reference
was made to what was said in Sutcliffe by
Lord Morris of Borth-y-Gest at page 752G and Lord Salmon at 759F. All that had happened, in the present case,
was that there had been presented to the surveyor competing contentions and he
was invited, having regard to, inter alia,
these contentions, to reach a decision.
He had throughout made it perfectly clear in what capacity he was acting
and his notes attached to his determination confirmed that position. The dictum
of Lord Simon of Glaisdale in Arenson
at page 424E-F fell to be applied in the present case. For a valuer to be held to be acting in a
judicial capacity, the essential prerequisite was that:
" ... by the time the matter is submitted
to him for a decision, there should be a formulated dispute between at least
two parties which his decision is required to resolve. It is not enough that parties who may be
affected by the decision have opposing interests - still less that the decision
is on a matter which is not agreed between them".
[17] In the present
case the appellants had relied on certain indicia
which, they said, pointed to Mr. Clearie acting as an arbiter. But there were contra indicia, it was submitted,
pointing in the opposite direction. The
surveyor, in the present case, was being asked to answer a question "What is
the fair market rent?" He was not
confined in answering that question to the material submitted to him by the
parties. Clause 2.2 of the Terms of Engagement
(as amended) made him virtually a free agent as to what technical or legal
advice he might seek. The submission by
parties of their contentions and supporting materials did not define the
question before the surveyor. Nor did the Terms of Engagement. That question had been determined by clause
FOURTH of the lease. In relation to that
last point support was taken from what the Lord Ordinary said in the AGE Limited case at page 150D-E. The appellants' counsel had emphasised the
fact that the surveyor's decision was to be binding on the parties, but that
feature on its own could not determine the matter. That a decision was binding, of itself, did
not characterise it as being judicial.
Counsel for the respondents pointed out that although the focus of the
appellants' position was on Mr. Clearie's investigation into the question of
water penetration, the outcome of that investigation did not, on the face of
things, appear to have prejudiced the appellants because it had apparently
resulted in a diminution of the rent that would otherwise have been fixed by
Mr. Clearie.
Appellants' reply
[18] In a short
reply, counsel for the appellant maintained that it was under the Terms of Engagement
that Mr. Clearie became "seized of the question" which he had to resolve. On the basis of the position advanced on
behalf of the appellants, not only did Mr. Clearie act illegitimately with
regard to the investigation of water penetration, but he did so in having
regard to rental values not put to him by either of the parties. The construction put on clause 4 of the Terms
of Engagement by counsel for the respondents was disputed by the
appellants. It did not, it was
submitted, permit the surveyor carrying out independent enquiries.
Decision
[19] The
distinction between a person who has an expertise in valuation matters,
exercising the role of an independent expert on the one hand, and a
quasi-judicial role, on the other hand, is now well recognised, whatever might
have been the position in the past. It
is a distinction which carries with it different legal consequences. As to into which category a particular
individual falls, in any particular case, depends on what the parties who have
invited him to carry out a task for them intended his function to be. This, in turn, is to be gleaned from the
agreement between them, as the result of which he assumed his task. In the present case the only document before
the court which sets out an agreement between the parties themselves is the Lease. It is clause FOURTH of that lease which
regulates, as between the parties, the circumstances in which an appointment of
a surveyor like Mr. Clearie, will be appropriate and which defines what his
task will be. In the absence of any
agreed variation of the provisions of that clause, it appears to us that the
nature of the function which the parties were agreed the surveyor should be
required to carry out, on their behalf, has to be gathered from construing the
provisions of that clause. Having regard
to the language of those provisions, we agree with counsel for the respondents
that there is nothing in it that would suggest that the parties, at the time at
which the lease was executed, were agreeing that any surveyor appointed by them
would carry out a quasi-judicial function.
The purpose of the clause, properly construed, in our judgment, was to
provide the machinery for arriving at the fair market value of the rent due
under the lease at the relevant review date when the parties themselves could
not agree that matter. The surveyor's
expertise as surveyor was being called upon to answer the question "What is the
fair market rental?" Clause FOURTH does
not, in any respect, restrict or curtail the use, by the surveyor, of his
expertise in arriving at the answer to that question. In particular the clause does not provide
that the surveyor will simply be called upon to adjudicate upon rival
contentions of the parties in relation to what the fair market rental should be
and to restrict himself to deciding which of these two
rival contentions is to be preferred.
The parties, therefore, in our judgment, intended, by their agreement,
contained in the lease, that any surveyor appointed under clause FOURTH should
be free to carry out his own investigations in arriving at the answer to the
question put to him. That, in itself, in
our judgment, goes a very long way in establishing that the parties agreed that
the surveyor was to act as an independent expert and not in any quasi-judicial
capacity for, as Lord Reid observed in Sutcliffe,
"judicial duties do not involve investigation".
On the other hand, as his Lordship put it "In other forms of
professional activity the professional man is generally left to make his own
investigations". Nothing in the material
relied upon by the appellants in this case, in our view, demonstrates that the
agreement contained in clause FOURTH of the lease was subsequently varied by
agreement of the parties to it. The
Terms of Engagement, as amended, to which the parties agreed, in our judgment,
do not evidence any variation of clause FOURTH as we
have construed it. To the contrary, in
our judgment, they are consistent with it.
Quite apart from the express declaration by Mr. Clearie, in this
document, that he was acting as an independent expert surveyor, the clear
implication of the terms was that he was to be free to carry out his own
investigations and have regard to material other than, or in addition, to
materials put before him by the parties themselves (we refer to clause 2.2,
clause 3.0 and clause 4.0).
[20] What the
surveyor explained he had done in reaching his determination, in the notes
attached to it, is entirely consistent with what the parties had agreed by
reason of the provisions of clause FOURTH and certainly does not provide any
basis for arguing that they had in some way, by agreement, departed from the
agreement contained in that clause.
[21] As has been
seen, counsel for the appellants apparently took issue with the suggestion that
for Mr. Clearie to have been exercising a judicial or quasi-judicial function
there must have been a formulated dispute in existence by the time the matter
was submitted to him. He accepted that
there was no such formulated dispute at that stage. But that is what Lord Simon of Glaisdale in Arenson at page 424E-F said was "the
essential requirement" to be met if the valuer was to be held to be acting as
an arbiter. We respectfully agree that
that does provide one of the tests as to whether a judicial function is being
exercised or not.
[22] The essence of
the matter, in our judgment, is that in the present case, the parties were not
inviting the surveyor, at the time the matter was referred to him, to
adjudicate as between their rival contentions and to decide which side he
preferred, having regard solely to the material which parties chose to put
before him, which characteristics define the nature of adversarial judicial and
arbitral procedures in our system.
Rather they were inviting him, using his expertise and experience, to
fix the consideration which was appropriate, at the relevant time, under their
agreement, the lease.
[23] Although
clearly each case falls to be decided, having regard to its own particular
circumstances and according to what was contracted for by the parties, the
wording of clause FOURTH is the kind of language which is frequently adopted in
rent review clauses in commercial leases.
We agree with counsel for the respondents that by using wording of that
sort the parties, absent other material pointing to what their agreement was,
are aiming to arrive at the appropriate level of rent by a relatively speedy
and informal means, when they themselves are unable to agree upon the
matter. It would be regrettable if that
commercial purpose could be put at risk by arguments emerging, after the
conclusion of the parties' agreement on the matter, to the effect that by virtue
of some procedure adopted by the valuer himself he had become an arbiter. Provided the language of the provisions in
the lease is clear then only a subsequent agreement between the parties
themselves can convert his role from that of an independent expert into a
quasi-judicial role.
[24] It was, as has
been noted, the position adopted by counsel for the appellants that the issue
could not be determined by simply having regard to the documents and other
materials put before the court and that a proof before answer should be
allowed. He was, however, unable to
suggest what material, other than the documents referred to in this Opinion,
would fall to be considered at any such enquiry. We are of the opinion that the matter clearly
falls to be determined by reference to the provisions of the lease in this
case.
[25] For the
foregoing reasons we consider that the sheriff principal was well-founded in
dismissing the appeal before him and we shall adhere to his interlocutor. We should add that it will be apparent that
the reasoning in the present case is similar to that adopted by the Lord
Ordinary in the AGE Limited case
which we consider to have been correctly decided.