The context of the dispute

"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 15 May 2002. The parties were unable to reach an agreement as to the fair market rent. They therefore invoked the provisions of Clause FOURTH (b) and an independent surveyor, Mr. Fraser Clearie, was appointed to determine the fair market rent. Mr. Clearie issued his rental determination on 9 June 2005. The sum sued for in the present proceedings represents the backdated rent due at the date of the raising of the present proceedings if Mr. Clearie's determination is binding on the parties. The appellants contend that Mr. Clearie's determination is not binding on them because Mr. Clearie was, in carrying out the exercise he did, acting as an arbiter and in performing that role he, it is said, breached the rules of natural justice. The appellants, accordingly, seek to have the determination set aside ope exceptionis. Before this court their position was that a proof before answer should be allowed for the purposes of establishing whether or not their contentions fell to be upheld.

"I refer to Mrs. Taylor's letter of 22^nd 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 5.00 p.m. on 1^st April 2005 with Counter Submissions 14 days thereafter. The Terms of Engagement includes these dates however if both parties would prefer please indicate this writing (sic).

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 5.00 p.m. on 1st April, 2005. They should contain the Valuer's opinion of the rental value of the subjects in accordance with the terms of the lease together with appropriate supporting evidence. The Representation should be made in duplicate and I will pass one copy of each party's Representation to the other party.

2.6 Replies containing comments upon the initial written Representations are to be lodged with me by 5.00 p.m., 15th April, 2005. The Reply should not contain any representations or evidence other than in rebuttal of the points made in the opposing parties (sic) initial representations. I will exchange Replies.

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 4 March 2005 by the parties' representatives, Mr. Clearie had a meeting with them on 21 March 2005. He thereafter, on 22 March 2005 wrote to the parties' representatives in the following terms:

"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.

"WHEREAS

1. I was appointed by the parties as independent surveyor and engaged

under the terms of my letter dated 4th March, 2005 with subsequent adjustments,

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 19th August 1982,

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 15^th 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 92/94 Bath Street, Glasgow at 15^th May 2002 was £50,800 (FIFTY THOUSAND AND EIGHT HUNDRED POUNDS STERLING) per annum, exclusive.

This concludes my rental determination".

Mr. Clearie also issued what are described as "Notes on the Rental Determination for 92/94 Bath Street, GLASGOW relative to Rent Review 15^th May 2002". The heading to the notes is as follows:

"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.

"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 9 June 2005 requires to be set aside, in terms of these proceedings ope exceptionis".

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

"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

"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.

"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".

"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.

"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."

"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.

"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

" ... 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".

Appellants' reply

Decision