Scottish Court of Session Decisions

The first hearing in this case took place on 29 and 30 June 2000. The petitioner seeks reduction of a decision of the second respondent dated 15 December 1999 in which he determined the open market rental value of premises at 18 North Road, Bellshill (hereinafter referred to as the premises) which were leased by the petitioner to the first named respondent.

By lease dated 5 and 21 January 1994 the petitioner leased the premises to Shoprite Ltd for use as a retail supermarket with ancillary car parking and such other uses within Class 1 of the schedule to the Town & Country Planning (Use Classes) Scotland Order 1989 as the tenants required from time to time or for such other use as the petitioner from time to time approved in writing. The duration of the lease was from 7 January 1994 until 25 March 2019. The rent payable was £142,100 per annum. Clause 18 of the lease contains provisions for rent reviews on specified dates and also for determination of the market rental value as at the review date in the event of the parties failing to agree upon the appropriate rent. Clause 21 of the lease is an arbitration clause.

By assignation dated 3 January and subsequent dates which was recorded in the Books of Council and Session on 31 January 1995, the original tenants assigned the lease to the first named respondents. As at 25 December 1998, being the first relevant date of review of the rent in terms of Clause 18(1) of the lease, the petitioner and the first named respondents failed to agree upon the revised rent to be paid during each of the following five years until the next rent review on 25 December 2003. The market rental value of the premises at each relevant date of review is defined in Clause 18(2) of the lease as being the rent which is agreed between the parties or is determined in accordance with sub-clause 18(3). It also includes various assumptions and disregards which must be applied in assessing the market rental value.

Clause 18(3) provides inter alia:

By letter dated 16 July 1999 (6/3 of process) Messrs Gooch Webster, the first respondents' surveyors, wrote to the second respondent inter alia in the following terms:

By letter dated 9 August 1999 (6/4 of process) the second respondent accepted the appointment by writing inter alia in the following terms:

On 15 December 1999 the second respondent issued his determination in the terms set out in paragraph 2 of the petition. Attached to the determination were notes which were "not intended to be exhaustive but to give the parties an explanation for the conclusions reached". The relevant sections of the notes referred to in argument are as follows:

The determination and note are 6/2 of process.

The petitioner seeks reduction of the determination of the second respondent on the grounds that it is ultra fines compromissi or alternatively is ultra vires of the second respondent.

The submissions for the petitioner may be summarised as follows:

The submissions for the respondents may be summarised as follows:

Reference was made to British Shipbuilders v Vsel Consortium Plc 1997 1 L.L.R. 106: Sutcliffe v Thackrah and Others 1974 A.C. 727: Forbes v Underwood (1886) 13 R. 465: Cameron v Nicol 1930 S.C. 1: W.W. Promotions (Scotland) Ltd v De Marco 1988 S.L.T. (Sh.Ct. 43).

Although an issue of competence was raised in the pleadings but not argued at the first hearing, I shall deal with it briefly. The Answers for each respondent contained a plea to the competence of the Petition. The plea on behalf of the first named respondent was in the following terms:

The plea on behalf of the second named respondent was in more general terms.

The question of competence was not canvassed in argument except to the extent that counsel for the petitioner submitted, under reference to West v Secretary of State for Scotland and Shanks & McEwan (Contractors) Ltd v Mifflin Construction Ltd, that an arbiter's decision was amenable to judicial review. Counsel for the respondents did not dispute this proposition and did not advance any separate argument directed towards the competence of a Petition for judicial review of a valuation by an expert. While I have reservations about the competence of such a Petition, particularly where the parties may have a separate remedy against the valuer, I do not think that it is appropriate for me to express any concluded view on this question in the absence of detailed submissions and a full citation of authority.

For the purposes of the present case, it is sufficient to note that the basis of the submissions for the petitioner was that the second named respondent was, in fact, an arbiter. On that basis I am satisfied that the Petition is competent. Accordingly I shall repel the first plea in law for each of the respondents.

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 determination. At one stage in his submissions counsel for the petitioner suggested that in Scots law the distinction between an arbiter and an expert is tenuous and not supported by authority. He did, however, concede that in reaching a valuation an expert, unlike an arbiter, could undertake his own investigations without disclosing them to the parties and generally could determine a valuation according to his own experience without being constrained by the contentions of the competing parties. I was advised by counsel that although the distinction between a valuer and an arbiter had been noted on a number of occasions there was no direct authority which would answer the issue in this case. I was referred to the obiter dicta of Lord Shand in Forbes v Underwood at page 471 where he confirmed that the Court of Session had exclusive jurisdiction to compel an arbiter to fulfil his duties but thereafter stated:

In Cameron v Nicol at page 15 Lord Sands stated:

In Sutcliffe v Thackrah and in Arenson v Casson Beckman Rutley & Co Ltd the House of Lords refused to extend the immunity enjoyed by arbitrators to professional persons acting in a capacity different from arbitrators. In the latter case the majority of their Lordships recognised that the immunity enjoyed by arbitrators was an exception to the general rule of liability for negligence but they concluded that there was no reason of public policy to treat a "mutual" valuer as a similar exception.

From a review of these authorities I have no hesitation in concluding that the Courts have always recognised that a distinction falls to be drawn between an arbiter and an expert appointed by parties to determine a valuation. Even in the absence of these authorities, I consider that any other conclusion would be difficult to substantiate in this case in view of the distinction drawn in the lease between "an expert" and "an arbiter".

Counsel for the petitioner relied upon the opinion of Lord Wheatley in Arenson v Casson Beckman Rutley & Co Ltd and in particular invited me to conclude that the indicia enumerated at page 428 were satisfied with the result that the second respondent was truly an arbiter acting in a quasi-judicial capacity. Before considering the application of the indicia to the present case, I respectfully agree with Lord Wheatley at page 427 where he observed:

Lord Wheatley then goes on to set out certain indicia which are not to be seen as exhaustive which he has "culled from the speeches in Sutcliffe v Thackrah". The indicia are to serve as guidelines to determine if the valuer has the immunity of an arbiter.

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. Moreover the matter could be referred to the Court by Stated Case as occurred in Church Commissioners for England v Etam Plc 1997 S.C. 117. I have no doubt from the terms of Clause 18(3) that it was the intention of the petitioner and the first named respondent that the nominated surveyor was to act as a valuer, as distinct from an arbiter, in determining the market rental value. Nor do I think that the terms of the letter of appointment (6/3 of process) alters the position. Although it was written by the surveyor for the first named respondent, the terms of the letter had been agreed with the surveyor on behalf of the petitioner. The letter makes it clear that it constituted a joint approach to the second respondent and wished him to act "in the capacity of Independent Expert". There was enclosed with the letter a copy of the lease for the consideration of the second respondent. I have no hesitation in concluding that the terms of both the lease and the letter of appointment disclose that the intention of the parties was to appoint the second respondent as an expert valuer, as distinct from an arbiter.

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 (No. 6/4 of process) 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".

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. I gain support for my views from the opinion of Lord Simon of Glaisdale at page 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 second of Lord Wheatley's guidelines relied upon by counsel for the petitioners was that "the dispute or difference has been remitted to the parties to the person to resolve in such a manner that he is called upon to exercise a judicial function." In my opinion this is probably the most significant distinction between an expert and an arbiter. It is the exercise of a judicial function which sets an arbiter apart from an expert and confers upon him immunity from claims of negligence. I am not convinced that this test is satisfied in the present case. In this regard I would refer to the opinion of Lord Simon of Glaisdale at page 424 where he states:

Applying the foregoing test, 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. Moreover there was merely a failure by the petitioner and the first named respondent to agree the market rental income.

I have also considered whether the letter from the second respondent (6/4 of process) or his subsequent conduct had the effect or altering his status from that of an expert to that of an arbiter. I have concluded that neither had that effect. The second respondent was merely indicating to parties that he wished them to make written representations to him and that these should include evidence about comparable properties. In view of his liability for negligence, it was not unreasonable for the second named respondent to seek to inform himself of all of the comparable properties which each party considered to be relevant. It would be astonishing if the mere fact that he requested the information in written form had the effect of altering the status of the second named respondent. In addition a prudent valuer would undertake his own investigations prior to fixing a value. If counsel for the petitioner is correct that the effect of the letter is to alter the status of the second respondent and clothe him with the rights and obligations of an arbiter, this would have serious consequences for the petitioner and the first named respondent. The second respondent would be afforded immunity from claims for negligence by either of them. Before the issue of his determination they would have been entitled to request the second named respondent to state a case for the opinion of the Court but have been denied that opportunity. I do not consider that the petitioner or either of the respondents intended such consequences.

In the circumstances of this case I do not consider that the second respondent was acting as an arbiter. I have also concluded, and I understood it to be conceded by counsel, that if the second respondent were truly an expert, he was entitled to rely upon his expertise in determining a market rental value. In particular, unlike an arbiter, he could rely upon his own experience and was not confined to the submissions of parties. Moreover, in the event of the second respondent acting negligently he would be liable in damages to either or both parties whereas an arbiter would enjoy immunity from such claims. Accordingly I am of the opinion that the second respondent, as an expert, was under an obligation to undertake such investigation as he considered necessary to inform his opinion. The views which I have reached relating to the practical differences between arbiters and experts are consistent with the guidance given to members of the Royal Institution of Chartered Surveyors both at the time that the lease was entered into (7/1 and 7/2 of process) and at the time of the appointment of the second respondent (6/5 and 6/5A of process).

In view of the concession of counsel for the petitioner that if the second respondent were acting as a valuer, he was entitled to undertake his own investigations and to apply the results of these investigations as well as his experience in reaching a determination of the market rental value, the petitioner must fail.

I shall accordingly repel the plea-in-law for the petitioner, sustain the second, third and fourth pleas-in-law for the first named respondent, sustain the second and third pleas-in-law for the second named respondent and dismiss the petition.