Scottish Court of Session Decisions

Hanover (Scotland) Housing Association Ltd for Judicial Review of a Decision of Michael Sandford, Arbiter [2002] ScotCS 2 (4th January, 2002)

OUTER HOUSE, COURT OF SESSION
	OPINION OF LORD WHEATLEY in the cause HANOVER (SCOTLAND) HOUSING ASSOCIATION LIMITED Petitioner; for Judicial Review of a decision of Michael Sandford Arbiter     ________________

 

 

Petitioner: Upton, Morison Bishop

Second and Third Respondents: Johnston, McSparran McCormick, Solicitors (Glasgow)

4 January 2002

1. The petitioners are an association incorporated under the Industrial Provident Societies Act 1965 and have their registered office at 36 Albany Street, Edinburgh. They are the superiors of heritable subjects at Millbrae Gardens, Glasgow, which consists of 36 dwelling houses, a guest suite and three lock-up garages. The subjects are used as sheltered accommodation. The first respondent is the arbiter who decided the dispute between the petitioner and the occupiers of the dwelling houses at Millbrae Gardens which is at the heart of the current action. The first respondent however intends to take no active part in the present case. The second and third respondents are heritable proprietors of one of the dwelling houses at Millbrae Gardens. The remaining interested parties are the other proprietors of the dwelling houses.
2. The houses at Millbrae Gardens are each subject to a deed of conditions which is part of the title deeds, and which is binding upon the petitioners as superiors of the subjects and each of the proprietors of the individual houses. The deed of conditions is in more or less standard terms and makes provision for the regulation and management of the property. In general terms the petitioners employed a warden to look after the property and to perform certain duties in respect of the residents. In addition they employed a factor to supervise repairs, maintenance and renewal of the building. There was also a property council to which both the petitioner as superiors and the owners of the dwelling houses belonged. Clause Ninth of the deed of conditions was concerned with the arrangements for the repair, maintenance and renewal of common parts of the building and the methods by which the costs of such work would be paid. Clause Twelfth provided for the arrangements by which the superiors through the factor would be responsible for the general management and administration of the property as a sheltered housing scheme. Clause Fifteenth described the composition of the property council, its powers and responsibilities, and the way in which it would work. Clause Seventeenth provided that the provisions of the deed of conditions were to be created as real burdens and included in the burdens section of any disposition granted to the purchasers of each of the dwelling houses. The same clause further provides that:

"The superiors shall have the right to waive or vary any or all of the said burdens and others with the consent of a majority of those voting at a meeting of the property council called for the purpose and the said burdens and others shall be engrossed or validly referred to in all conveyances and instruments of or affecting the said dwelling houses and lock-ups or any of them or any part of the property otherwise the same shall be null and void."

3. Disputes arose between the petitioners and the proprietors of the dwelling houses, whose interests are now represented by the second and third respondents. The dispute began when the petitioner raised the management fee which they charged without consulting the respondents, citing the need to increase the wages of the warden as the reason. The respondents then withheld payment of all management charges. It quickly became clear that there was a number of other areas of disagreement between the parties, and it was accepted by both sides that they should submit their dispute to arbitration in terms of the second clause of the deed of conditions. In terms of the subsequent joint deed of submission by the parties to the arbiter it was agreed under head (second) that the arbiter was

"to issue a final determination of this dispute between the parties (declaring that the arbiter shall be bound to give written reasons for such determination) and to order either party to comply with these directions, recommendations and generally to do or to desist from doing, anything which the arbiter shall, in his discretion, determine including payment of such sum or sums if any, as may be due by the respondents to the claimants ..."

In addition, in the introduction to the joint submission the parties also referred the question of the nature, powers and make up of the property council to the arbiter. In the closed record for the arbitration the petitioners sought a declarator that the respondents were liable for the full amount of the common charges unpaid to that date; the respondents among other things asked the arbiter to separate the employment of the factor from the other responsibilities of the superiors on the ground of conflict of interest; to require the petitioners to consult and comply with the views and instructions of the property council, to determine the financial position between the parties and to instruct the petitioners as superiors to vary the deed of conditions accordingly within a certain period of time.

4. In his determination, issued on 1 November 1996, the arbiter directed that the respondents had to pay the common charges to the petitioners, and dealt with expenses in respect of that matter. He also found that there was a clear conflict of interest where, as in the present case, the superiors were acting as an interested party in the management of the dwelling houses and were at the same time employers of the factor, and directed that the offices of superior and factor should not be held by the same organisation. Further, the arbiter altered the status and function of the property council, and directed that consultation should take place at property council meetings on key issues concerning the property. Further, he directed that decisions made or authorised at such meetings should be binding upon both the superior and respondents. Finally the arbiter decided that the petitioners should modify the method of accounting used to pay for repairs, maintenance and renewals. In consequence of all of these things, the arbiter recommended that a number of specific variations be made to the deed of conditions. These were twenty in number. The arbiter then directed that these proposals be considered at a meeting of the property council and on 4 March 1997 the majority of those present at that meeting voted that the deed of conditions be varied in the terms suggested by the arbiter. The petitioners now take objection to four of these proposed alterations and it is in respect of these that the present judicial review is taken.
5. The detail of the changes proposed by the arbiter to the deed of conditions as a result of the joint deed of submissions is found in Part VI of the arbiter's award. Of the four proposed alterations by the arbiter which are the subject of concern to the petitioners in the present review, the first is contained in paragraph 10 of Part VI of his award, and directs changes to Clause Ninth (e)(i) of the deed of conditions. This sub-clause is concerned with the method by which the proprietors of the individual households will make their payments of their share of the common charges to the factor. Secondly, paragraph 11 of the arbiter's proposed alterations to the deed of conditions deletes the first twelve lines of Clause 9(e)(ii), which formerly allocated any excess of payments over charges to the factor to allow him to calculate the instalments of the various charges for the following year, and substitutes a simple requirement for proprietors to pay a one-twelfth share of the sums agreed by the property council to be set aside in respect of the reserves.
6. The relevant terms of Clause Ninth (e), having regard to the arbiter's directions should now read:

"As soon as reasonably practicable after the 31^st day of March in each year the factor shall prepare a statement of the common charges and of the lock-up charges incurred in respect of the year to that date and shall furnish a copy thereof to each proprietor. Each proprietor shall make payment to the factor of the proportion of the common charges and of the lock-up charges payable by him as follows:

(i) on the first day of each month in each year a sum notified by the factor to the proprietor from time to time, equivalent to a one-twelfth proportion of the share of the common charges and/or lock-up charges calculated by the factor as payable by such proprietor in respect of that year after deduction of any sums transferred from reserves with the agreement of the property council (hereinafter called "the monthly instalment") ...

(ii) A one-twelfth share of the sums agreed by the property council to be set aside in respect of the reserves ........."

The cumulative effect of these two changes was to allow for the creation of a different reserves fund in respect of repairs, alterations and renewals and a different payment method to support it. It is clear from his award that the arbiter had become concerned about the level of reserves which had built up in the past because of the accounting methods employed by the petitioners, and had concluded that there was no reason why the traditional method of accounting for such payments should not be preferred.

7. The third variation which the arbiter proposed and which causes the petitioners concern is described in paragraph 18 of Part VI of the arbiter's award and is concerned with Clause Fifteenth (b)(iii). Clause Fifteenth in general terms describes the constitution of the property council, its make up and its powers. Originally the effect of Clause Fifteenth (b)(iii) was to empower the property council to carry out the functions assigned to it in accordance with the provisions of the deed of conditions, but with the provision always that the property council was not able to order works of repair, maintenance or renewal which the superiors considered unnecessary, nor could they prevent the execution of common works which the superiors did consider necessary. The change directed by the arbiter was to remove these provisos and therefore in effect transfer control of such work from the superior to the property council. Finally, in terms of paragraph 19, the arbiter directed that Clause Fifteen (c) of the deed of conditions should be amended. This clause deals with meetings of the property council and the effect of the alteration is to allow special meetings to be convened by a sub-committee established by the property council for the purpose of doing certain things. The overall effect of these changes by the arbiter was therefore to give the property council control over the major decisions in respect of the repair, maintenance and renewal of the building, to allow them to operate a reserves account in order to arrange their finances, and to allow them to devolve matters to a sub-committee. The arbiter then directed the petitioners to put these proposals for varying the deed of conditions before a meeting of the property council.
8. In the course of submissions at this review, the petitioners raised a number of matters about which, it was claimed, there was uncertainty surrounding the arbiter's award. In general, the petitioners claimed that they were uncertain about whether the proposals directed by the arbiter were variations of the deed of conditions, or whether they were something more. The petitioners also suggested that by placing the arbiter's proposed variations to the meeting of the property council in March 1997, they had done all that was required of them by the arbiter. In Part VI of his award the arbiter had directed that the petitioners should propose to vary the deed of conditions within twenty eight days of the date of issue of the arbiter's final award and that the proposal to vary the deed of conditions be considered at a meeting of the property council to take place within the three months after the date of proposal being issued by the petitioners. The petitioners had done exactly that. It was submitted that the petitioners could not thereafter be ordered to do anything else; that would be unlawful and of no effect and thus ultra vires. The alterations described by the arbiter are incapable of being completed; express powers to vary the deed of conditions is required before the petitioners can act. Reference was made to Montgomerie Bell: The Law of Arbitration in Scotland (2^nd Ed.); Hunter: The Law of Arbitration in Scotland, para. 15.44; Irons: Law of Arbitration in Scotland, p.205; Mitchell-Gill v Buchan 1921 S.C. 390. In my view however there were little grounds to support this argument, which seemed somewhat disingenuous. The whole purpose of the exercise, and the award of the arbiter, was to secure a resolution of the dispute between the parties. Both the petitioners and the respondents agreed to this course, and further they both agreed to be bound by the arbiter's conclusions. In the course of his award the arbiter makes a number of key points about the operation which he is conducting. First he makes it clear that it is necessary for the deed of conditions to be varied to enable his award to be implemented (Part VI, p.i). He also understands (Part VI, p.v) that he is not in a position to set out the mechanism by which the deed of condition is to be altered; that is a matter for the parties to accomplish in terms of their contractual arrangements. However, in order to implement the decision he has been asked to reach by the parties, in the same passage he indicates that the variations could be dealt with by the execution of a supplemental deed of conditions, and the terms of Clause Seventeenth of the present deed of conditions specifically provides for such alterations with the consent of the majority of those voting at a meeting of the property council. It is also clear that in terms of Clause Seventeenth only the superiors can vary the conditions. In these circumstances it is, I think, wrong for the petitioners now to claim that they are unable to comply with the arbiter's award, or that they have done everything that the arbiter had asked them to do. The arbiter has asked that the deed of conditions be varied in order to implement his award. The petitioners, who have a heritable interest in the whole subjects as superiors, and who alone have power to vary the conditions in terms of the agreement, have not done so. As the proposed variations have been properly approved by the property council there is no reason why the new conditions should not now be engrossed and recorded in the Land Register by the petitioners in terms of Clause Seventeenth, which plainly contemplates future burdens as well as present ones. Indeed, as I understood the petitioners' later submissions, they would be content to write a new deed of conditions if the controversial proposals were excluded. The whole purpose and intent of the arbiter's award is entirely evident and capable of being implemented, and I can therefore find no substance in the submissions that the petitioners are somehow incapable of carrying through the arbiter's award, or that they have already done everything required of them.
9. Counsel for the petitioner next submitted that there was a difficulty over the powers to vary the deed of conditions by the superior in terms of Clause Seventeenth. Clause Seventeenth in particular provides, in part, that the superior shall have the right to waive or vary any or all of the burdens with the consent of a majority of those voting at a meeting of the property council. While the power given in terms of Clause Seventeenth may appear to be obvious on a superficial examination, counsel argued that there must be a limit to what can be varied. Clause Seventeenth allows for a change of conditions on a majority of votes, thus allowing the property council to bind dissenting householders. Accordingly a minority proprietor may be bound to a decision without his consent. Conditions in heritage are to be viewed strictly in favour of the proprietor of the dominium utile, not the superior; further the granter of rights in a heritable property may not derogate from his own grant. Therefore, the argument ran, the power to vary ends when what has been done would or could increase the burden on, or remove the rights of, any individual proprietor. If there was no limit in the power to vary, this would derogate from the grant. Accordingly any changes which increase the burden on any particular proprietor is ultra vires of the property council. Reference was made to The General Rules of Constitution of Real Burdens (Reed: Law of Property in Scotland. Para. 386 et seq., and in particular the principles of interpretation at para. 415 et seq.; Colquhoun's Curator Bonis v Glen's Trustee 1920 S.C. 737). Finally, it was submitted that the imposition of real burdens can only be imported into a deed by the proprietor of lands (Conveyancing (Scotland) Act 1874 S.32). Accordingly in the present case new burdens have been imposed on all of the proprietors in respect of the new powers now available to the property council to arrange questions of repair, maintenance and renewal to the common property.
10. Again I found this argument had little to commend it. First of all, I cannot see that any new burdens have been created by the proposed alterations. What in effect the arbiter has proposed is that a more efficient and practical method of calculating the way in which the common charges should be paid by the proprietors requires to be put in force. The arbiter had become concerned about the level of reserves which the petitioners had allowed to accumulate under the system that they had introduced. He therefore proposed that a more traditional and fairer method of acquiring reserves and accounting for the monthly payments in respect of these matters should be introduced. There can be no doubt that this was precisely the sort of matter about which the parties had disagreed and about which they had submitted their dispute to the arbiter for his decision. The fact that the common charges are to be calculated and collected on a different basis cannot be described as an additional burden; this is plainly nothing more than a different and more efficient method of discharging the present burden. Further, I cannot accept the proposition that this procedure is invalid because dissenting minority voters at property council meetings could be bound by a majority decision. That is precisely the position which operates at present, and parties to the deed of conditions have clearly bound themselves to being subject to majority decisions in this way. I note that Professor Rennie's opinion, which was instructed by the petitioners, takes a similar view.
11. Counsel for the respondents then criticised the individual changes proposed by the arbiter. The first two, namely those contained in paragraphs 10 and 11 at Part VI of his award were in effect a power granted to the property council to propose a levy on the proprietors of the dwelling house to create a reserve for the following year's costs. This it was said was a charge which the proprietors would have to pay and must therefore be an increase on the burdens on the householders. This detailed submission merely repeated an argument used earlier and I have already dealt with it. The third proposed alteration by the arbiter to which objection was taken concerned the removal of the provisos in the original Clause Fifteenth preventing the property council from executing repairs, maintenance and renewal or stopping the superiors executing such work which they thought was necessary. It was submitted that this variation in particular removed the limit on the property council concerning the instruction of works to be done and accordingly this meant that the cost of common charges which included expenses of repair, maintenance and renewal might be increased. It was argued that if the property council had greater powers to instruct repairs there was the potential for greater costs to fall on individual proprietors, and this would cause an increase in the burden on individual householders. Again I cannot see that this alters the essential nature of the burden on the householders. Finally, in his fourth proposed variation the arbiter has allowed for the creation of a sub-committee to be established by the property council. It was submitted that in terms of the deed of conditions each proprietor has the right to vote; this variation means either that the sub-committee would have no legal authority in respect of the terms and conditions under which it operated, in which case it is pointless, or it is intended to act in place of the property committee in which case it necessarily involves a dilution of the rights of each proprietor, and excludes dissenting minorities from participation in the process. In my view this argument was also unfounded. The sub-committee provides an obvious administrative advantage of the sort which the arbiter was asked to look into. The petitioners bound themselves to agree to his decision. They therefore have no grounds for objecting to this proposal. In any event, the sub-committee has no powers and all matters for decision must be referred to the property council, which is governed by a democratic vote. There is therefore no question of any dilution of the rights or any greater disenfranchisement of any individual proprietor. I therefore consider this argument without merit.
12. I have therefore concluded that in their entirety the petitioners' submissions are without substance. The arbiter's award makes it clear that his proposed variations, if agreed by the property council, should be put into effect, and the petitioners have sole responsibility for doing so. It is on that latter premise that the arbiter made his award. If, as the petitioners protest, the provisions in the arbiter's decision were in any way unclear (which I do not accept) and they require authoritative directions on what they can or cannot do, I am happy to direct and authorise that in terms of the arbiter's award and the deed of conditions, the petitioners are empowered and indeed obliged to draft an altered deed of conditions as directed by the arbiter and approved by the property council in March 1997 and to have that recorded in the Land Register, on the understanding that it will apply henceforth to all proprietors present and future who are present to the deed of conditions. I should add that this should be done immediately and any further quibbling on this issue by the petitioners would be entirely unjustified. I have therefore repelled the petitioners' pleas-in-law and dismissed the petition.