Scottish Court of Session Decisions

OUTER HOUSE, COURT OF SESSION [2012] CSOH 116
CA52/12	OPINION OF LORD HODGE in the cause MIDLOTHIAN INNOVATION AND TECHNOLOGY TRUST Pursuers; against ROBERT WILLIAM FERGUSON Defender: ­­­­­­­­­­­­­­­­­________________

Pursuer: MacColl; Lindsays LLP

Defender: Malone, solicitor advocate; McClure Naismith LLP

2 July 2012

[1] This is an application by the defender ("Mr Ferguson") for interim interdict against the pursuer ("MITT") to prevent it from progressing or taking any step in relation to an arbitration between it and Mr Ferguson before Mr Allan Robertson ("the arbiter"). The arbitration commenced in 2007 and made slow progress while parties obtained expert conveyancing advice and expert reports on their claims. In a hearing in February 2012 Mr Ferguson challenged the arbiter's jurisdiction to determine the dispute. By a direction intimated by email dated 9 March 2012 the arbiter rejected the challenge to his jurisdiction. This application results.

Factual background

[2] By missives dated 1 July 2002 MITT and a partnership, of which Mr Ferguson and his late wife were the partners, entered into a contract which provided for the partnership (a) to grant MITT a lease of Pentlandfield Business Park, Roslin, Midlothian ("the business park") and (b) to confer on MITT an option to purchase the business park on 1 July 2007. The parties also signed a Minute of Agreement and a Minute of Lease ("the Lease") at or around 1 July 2002. The Minute of Agreement provided a mechanism for implementing the option. The Lease both governed the tenancy, which was to last until 30 June 2007, and provided for the exercise of the option.

[3] Clause 6(a) of the Lease imposed on the tenant responsibility for repair, maintenance and renewal of the business park. Clause 6(b) imposed on the landlord responsibility for costs, repairs and renewals to ensure compliance with certain statutory regulations and the obtaining of statutory consents as at the date of entry of 1 July 2002. Clause 15, which provided for the option to purchase at 1 July 2007, contained this provision (at clause 15(d)(g)):

"In exchange for the Purchase Price on the Purchase Date of Entry the landlord shall: ...

(g) deliver the Permissions, Warrants, Certificates of Completion, plans and specifications, Health and Safety files and other consents referred to in clause FIVE hereof."

After some discussion in the hearing today it became common ground between the parties that the reference to "clause Five hereof" was a patent error and that the reference was, on a proper construction, to clause Five of the Minute of Agreement which set out the various certificates and consents in relation to works carried out of the subjects prior to 1 July 2002 which the landlord was obliged to exhibit before the Purchase Date of Entry on MITT's exercise of the option.

[4] During the currency of the Lease MITT complained to the landlord about its failure to comply with clause 6(b) of the Lease. When the time for the exercise of the option to purchase approached, MITT sought to negotiate a reduced price because of that alleged failure but the landlord was not prepared to re-negotiate the price.

[5] On the exercise of the option MITT and the partnership executed a renunciation of the Lease dated 29 June and 2 July 2007 as required by clause 3 of the Minute of Agreement and clause 15.1(d)(i) of the Lease.

The application for interim interdict

[6] Mr Malone, solicitor advocate for Mr Ferguson in his capacity of a former partner of the now dissolved partnership which was the landlord and the seller of the business park, submitted that the arbiter had exceeded his jurisdiction as he was proposing to rule on a claim which arose not under the Lease but under the missives and the Minute of Agreement. MITT's complaint was that it had suffered loss because it had purchased the business park which was in a worse condition than it should have been. If MITT had such a claim it was in its capacity as purchaser under the Minute of Agreement to which it had referred in its notice of intention to exercise the option. While clause 16 of the Lease referred any dispute or difference arising out of the Lease to arbitration, there was no arbitration clause in the Minute of Agreement. Accordingly the arbiter had no jurisdiction.

[7] Secondly, Mr Malone submitted that in any event the arbiter had no power to assess or award damages as the arbitration was governed by common law.

[8] On the balance of convenience Mr Malone submitted that the grant of an interim order would avoid substantial wasted expense on an arguably ultra vires arbitration. It was sensible for the court to determine the issue of jurisdiction before such expense had been incurred. While time had passed since the arbitration commenced, it was only in October 2011 that the issue of jurisdiction had come to the fore when MITT sought to increase its claim by about £800,000 by amending to introduce alleged failures on the part of the landlord and heads of damage which had never been asserted during the currency of the Lease. It was proper for Mr Ferguson to have given the arbiter an opportunity to determine the question of his jurisdiction before invoking the power of the court. This application had not come too late.

Discussion

[9] I am not persuaded that Mr Ferguson has a prima facie case to support the application for interim interdict.

[10] The claim, which is set out in the Record in the arbitration, is for damages for alleged breaches of clause 6(b) of the Lease which provided:

"The Landlords shall be responsible for all costs and all repairs and renewals in connection with -

1. The non-compliance with statute and regulations of the plumbing and drainage, gas, central heating and other services within the Subjects;

2. Obtaining any statutory consents for any buildings and others upon the Subjects;

3. Compliance with Fire Regulations of the Subjects;

4. Any breaches by the Landlord of the responsibilities of the Landlord under the Leases referred to in Part II of the Schedule annexed and executed as relative hereto:

all as existing as at the Date of Entry. The Tenants shall have no responsibility for any such costs in their dealings with the Landlords. When called upon to do so the Landlords shall ensure that any such defects or breaches are rectified as soon as possible and shall indemnify the Tenant from any such failure to do so within a reasonable time".

[11] If, as Mr Malone submitted, MITT do not have a valid claim under that clause of the Lease, he will be able to argue in the arbitration that the averments in support of the claim are irrelevant. In his challenge before the arbiter Mr Malone argued that MITT's claim did not arise under the Lease and that obligations giving rise to the new claims had prescribed. The arbiter in his direction of 9 March 2012 in substance allowed MITT a proof before answer on those issues. He stated:

"I am content that the Claimants' revised submission and the alleged breaches contained within it, may relate to the obligations of the parties to the original contract of lease, which expired in 2007 and so are not prescribed. While it is recognised that many of the alleged breaches are new, they are of a fundamental similar basis (i.e. alleged breaches of statutory compliance). ..."

(My emphasis)

[12] Mr MacColl for MITT did not dispute that the court could interdict an arbiter from proceeding with an arbitration if he were to exceed his powers but submitted that the court intervened only in exceptional circumstances and where it was perfectly plain that the arbiter did not have jurisdiction. I consider that he is supported by authority in that submission: Glasgow and South-Western Railway Co v Caledonian Railway Co (1871) 44 Scot Jurist 29, Lord Neaves at p. 31; Dumbarton Water Commissioners v Lord Blantyre (1884) 12 R 115, Lord President Inglis at p. 119; Caledonian Railway Co v Morrison (1898) 25 R 1001, Lord Kinnear at pp. 1009-1010.

[13] Such circumstances do not exist in this case. MITT has made its arbitral claim under clause 6 of the Lease. If the claim is unfounded, the arbiter can dismiss it after proof as irrelevant. By his direction of 6 March 2012 he has reserved that issue. In my view the arbiter has jurisdiction to decide whether a claim pleaded under clause 6 of the Lease is a relevant claim. Mr Malone submitted that clause 6 of the Lease was an executorial clause, to use the phrase of Lord President McNeill in Pearson v Oswald (1859) 21 D 419 at p. 425, and could be invoked only during the currency of the Lease. I do not express a view on whether that is so. In deciding that matter it will be necessary to have regard to the terms of the Lease, including (a) the existence of clause 15 of the Lease which sets out the rights of parties on the exercise of the option and (b) the close relationship between the landlords' obligations under clause 6(b) and clause 15(d)(g). The arbiter will have to consider whether it was sufficient that MITT had intimated certain claims under clause 6(b) during the currency of the Lease and had sought to reflect those claims in its attempt to re-negotiate the price downwards before exercising and implementing its option to purchase.

[14] I turn to the submission that the arbiter has no jurisdiction to award damages. In support of that contention Mr Malone cited Aberdeen Railway Co v Blaikie Brothers (1853) 15 D (HL) 20. Whether the parties have conferred on an arbiter jurisdiction to award damages will depend in each case on the contract which they have agreed. In this case there is the arbitration clause in clause 16 of the Lease. There is also the application to the chairman of the RICS in Scotland, which the solicitors for both parties signed, in which they stated that the nature of the dispute was (i) a claim for loss by MITT resulting from the landlord's failure to perform its obligations under clause 6(b) of the Lease and (ii) a claim for loss by the landlord for MITT's failure to comply with its obligations under clause 6(a) of the Lease.

[15] The arbiter in his discussion of issue 2 in his direction of 9 March 2012 decided on two grounds that the parties had conferred on him power to award damages. First, he considered that the parties had contracted in the application to the chairman of the RICS in Scotland to confer a power to award damages. Secondly, he held that, for the first three years of the arbitration until late 2010, the respondents had not questioned his entitlement to award damages and that accordingly by their actings "the parties had by that time given me the power to assess an award of damages."

[16] It is my prima facie view that he was entitled to do so on the bases (a) of express consent in the application to the chairman of the RICS in Scotland, and in any event (b) that the parties by failing to raise any objections to the claims in the three-year period had impliedly consented to confer on him the power to award damages: Cairncross v Lorimer (1860) 3 Macq 827; Johnson v Lamb 1981 SLT 300, Lord Maxwell at p. 304. MITT has expended significant sums in pursuing its claim in the arbitration in the belief that the parties had agreed that the arbiter should determine that claim. The second basis is not a question of the competency of raising a challenge to the jurisdiction of an arbiter as in Christison's Trs v Callender-Brodie (1906) 8 F 928. Rather it is an assertion of bar resulting from acquiescence.

[17] If I am wrong in my view that Mr Ferguson has not set out a prima facie case, I am satisfied that the balance of convenience does not favour the grant of interim interdict. He has at best a weak prima facie case. It would be very unfortunate to cause further delay in the arbitral proceedings which have already been hindered by the parties' attempt to resolve certain issues by a remit to a conveyancing expert. Should Mr Ferguson, after considering this decision, wish to take his challenge to a final hearing, it is likely that he will be able to do so quite quickly if the facts are not in dispute. I think that there is a good prospect of using commercial roll procedure to obtain a determination by this court after a legal debate before the arbiter has heard a proof of the claim. I am not persuaded that it would be appropriate to halt the arbitration proceedings pending that challenge.

[18] Mr MacColl also submitted that the application for interim interdict was incompetent because Mr Ferguson had not called the arbiter as a defender. He referred to his plea in law of "All parties not called." While I think that it is appropriate to give notice to an arbiter of an application to interdict proceedings before him, I do not need to decide whether a failure to do so is fatal to an application for interim interdict.

Conclusion

[19] I therefore refuse the motion for interim interdict and on MITT's unopposed motion award it the expenses occasioned by that motion.