Scottish Court of Session Decisions

OUTER HOUSE, COURT OF SESSION [2011] CSOH NUMBER 202
P705/11	OPINION OF LORD MENZIES in the Petition of REDDING PARK DEVELOPMENT COMPANY LIMITED Petitioner; against FALKIRK COUNCIL Respondent: For Judicial Review of an expert determination of Donald Mackinnon dated 22 October 2010 ­­­­­­­­­­­­­­­­­________________

Petitioner: Patterson QC, Solicitor Advocate; Dundas & Wilson CS

Respondent: Howie QC; Morton Fraser LLP

8 December 2011

Introduction

[1] In this petition for judicial review the petitioner seeks reduction of a purported determination by an independent expert and an order for the respondent to repay the sum of £326,520 which was paid to the respondent following that determination.

[2] The dispute between the parties arises as a result of missives whereby the petitioner agreed to purchase from the respondent two areas of ground at Reddingmuirhead Village, Falkirk ("the subjects"). The areas of land adjoining the subjects were owned by the petitioner and by a director of the petitioner. Both the subjects and the adjoining lands (together "the whole site") had previously been used for industrial purposes, and required remediation works before being developed for residential use. Put shortly, the missives provided that the petitioner would pay a purchase price to the respondent. The petitioner would then carry out remediation works, and having completed these would evidence to the respondent the Certified Costs of doing so. If the parties could not agree the Certified Costs, the matter was to be referred to an independent expert. If the Certified Costs (as agreed or determined) were less than a specified figure, the petitioner was to pay the difference to the respondent. In the event of certain circumstances occurring after completion, the respondent would be entitled to an uplift in the purchase price. In security of such entitlement and the possibility that the respondent might be entitled to a "rebate" on Anticipated Remediation Costs, the petitioner delivered to the respondent at completion a standard security over the whole site.

[3] The petitioner paid the purchase price to the respondent and carried out remediation works to the whole site. The petitioner and the respondent were thereafter unable to agree what headings of costs incurred by the petitioner could fall within the definition of Certified Costs for the remediation works. While discussions were continuing between the parties on this matter, the petitioner wished to sell part of the subjects. In October 2006 the respondent agreed to (and did) grant the petitioner a discharge of the standard security in exchange for the sum of £300,000 being deposited with the petitioner's solicitors in an interest bearing account in trust for the benefit of the party entitled to repayment of this sum or any part of it.

[4] The parties could not agree which heads of cost fell within the definition of Certified Costs. By letter dated 4 December 2007 the petitioner applied to the Chairman of the Royal Institution of Chartered Surveyors in Scotland for the appointment of an independent expert to determine the dispute. The letter stated that "the dispute between the applicant and the respondent is in the interpretation of the "Certified Costs" and what should be included in Remediation costs." Mr Donald Mackinnon was nominated to act as independent expert, and accepted the nomination. Amongst the documentation placed before Mr Mackinnon was a document headed "7. Spreadsheet showing total costs and Falkirk Council total apportionment" ("sheet 7"), which was part of a document prepared by the petitioner entitled "Evidence of Actual Costs Properly and Reasonably Incurred by Redding Park Development Company in carrying out the Remediation Works ("the Certified Costs") and Development Costs All With Regard to the Contract with Falkirk Council re the Land at Reddingmuirhead, Falkirk" ("the evidence document"). These documents were designed to show how the petitioner had apportioned costs between the subjects and the adjoining land, and the various headings and sub-headings which the petitioner contended should fall within the definition of Certified Costs.

[5] Having considered submissions from both parties, Mr Mackinnon issued his determination on this dispute on 24 June 2008 ("the first determination"). He set out in paragraph 97 of his determination his decision as to what the Certified Costs included. In paragraph 98 he observed that "Many of the above items require quantification by the parties. As quantum did not form part of this process I have not and have not wished to ascertain the value of the clawback, if any, appropriate to the Council".

[6] Following the issue of the first determination, the parties were unable to agree the figure for Certified Costs, and in June 2010 they appointed Mr Mackinnon as independent expert to determine quantum of the sums claimed under Certified Costs. The petitioner relied on its written submission to Mr Mackinnon dated 7 July 2010. The respondent argued that the petitioner could not include further heads of claim beyond those referred to in sheet 7 submitted in the process leading up to the first determination, nor could the petitioner seek to change the method of apportionment relied on in that process. The petitioner maintained that Mr Mackinnon should have regard to all the evidence presented to him. By his determination dated 22 October 2010 ("the second determination") Mr Mackinnon essentially agreed with the respondent's position. He decided that he was not able to look beyond the heads of claim or the method of apportionment identified in the earlier process. He decided that he could not look beyond the value of items which had been accepted or not disputed by the respondent in the earlier process, and that the method of apportionment adopted in that earlier process could not be revisited. In these respects the petitioner now maintains that Mr Mackinnon misdirected himself, failed to exhaust his remit and failed to determine the Certified Costs as he was obliged to do. He asked himself the wrong questions and excluded the consideration of material which he was required to consider.

[7] Separately, the petitioner maintains that Mr Mackinnon exceeded his remit by finding that a "clawback" payment was due by the petitioner to the respondent. In paragraph 67 of the second determination Mr Mackinnon stated inter alia:

"Having considered the parties' submissions and all the evidence presented to me, I determine:

1.                 The amount of the Certified Costs is £3,946,233.35.

2.                 This results in a 'clawback' payment being due by Redding Park to the Council of £930,403.65 which is subject to the applicable VAT and which payment is to be made no later than 22 November 2010".

Mr Mackinnon was only empowered by condition 4.2 of the missives to determine whether "the Certified Costs represent the proper and reasonable costs incurred by the Purchaser in carrying out the Remediation Works". Part 2 of paragraph 67 exceeded this remit, so the second determination is a nullity.

[8] For its part the respondent maintains that Mr Mackinnon did not fail to exhaust his remit, and that his decision that he was not permitted to look beyond the heads of claim or the method of apportionment which were in issue in the first determination was sound. If he exceeded his remit in making a finding that a "clawback" payment was due by the petitioner to the respondent and that payment was to be made no later than a particular date, this aspect was a discrete element of his determination and was severable from the rest of the determination - if he made an error in this regard, this would not result in the entire determination being reduced.

[9] The respondent makes a separate argument on approbation and reprobation. Following the issuing of the second determination the petitioner's solicitors consulted with the petitioner, and then wrote to the respondent enclosing a cheque in payment of the sum found due. The petitioner took no steps to challenge the validity of the second determination for about six months, and then only after the respondent had sought to enforce the determination by way of service of a statutory demand. The respondent argues that, having approbated the determination, the petitioner cannot be permitted to reprobate it by asserting its invalidity. The respondent further maintains that the petitioner is personally barred from asserting that the second determination is void and a nullity.

[10] Before the first hearing in this matter, both parties helpfully lodged written notes of arguments (Nos. 14 and 15 of Process). In the course of the first hearing, I indicated to Senior Counsel for the respondent that I would welcome authorities on the question of approbation and reprobation. He provided these, but did not address me on them in detail, and Senior Counsel for the petitioner sought the opportunity to consider them and make submissions on them. Parties agreed that the most convenient way of addressing this matter was by the lodging of further written submissions, without a further hearing. Such further written submissions were in due course lodged, and form Nos. 16 and 17 of Process. I have taken into account all of the submissions for the parties, both those written and those made at the bar.

The contractual provisions
[11] The most important elements of the parties' contract for present purposes are clauses 4 and 7 of the missives, which are in the following terms:

"4. Remediation Costs

4.1 No later than 3 months following completion of the Remediation Works the Purchaser shall evidence to the Council the actual costs properly and reasonably incurred by the Purchaser in carrying out the Remediation Works ("the Certified Costs"). For the avoidance of doubt the Certified Costs shall include all costs properly and reasonably incurred by the Purchaser relating to site survey and investigation, testing and certification in relation to the Remediation Works, all professional fees (including the fees of the Monitoring Consultants) properly and reasonably incurred by the Purchaser in connection with the Remediation Works, and any costs properly and reasonably incurred by the Purchaser in relation to water management and drainage required to effect the Remediation Works. On request from the Council, the Purchaser shall also provide to the Council such further information as may be reasonably required by the Council in order to satisfy itself that the Certified Costs represent the actual costs properly and reasonably incurred by the Purchaser in carrying out the Remediation Works.

4.2 In the event that the Council does not accept the Certified Costs as representing the proper and reasonable costs of carrying out the Remediation Works then the matter may be referred to the Independent Expert who shall determine in accordance with the provisions of Condition 7 below, whether the Certified Costs represent the proper and reasonable costs incurred by the Purchaser in carrying out the Remediation Works.

4.3 In the event that the Certified Costs are less than the Anticipated Remediation Costs then the amount by which the Certified Costs are less than the Anticipated Remediation Costs will be paid and made over by the Purchaser to the Council within one month of the Certified Costs being agreed between the parties or determined in accordance with Condition 4.2 above.

7. Disputes

7.1 In the event of any dispute arising between the parties in respect of any matter referred to in Conditions 4.2, 5.1 or 5.2 hereof the matter may be referred by either party to the Independent Expert for determination . Both parties shall be entitled to make written submissions to the Independent Expert within but not later than 28 days from the date on which acceptance of his appointment is received by the parties. The Independent Expert shall issue his decision as soon as possible after the expiry of said 28 day period, which decision shall be final and binding on the parties. If the Independent Expert shall fail to issue his determination within 3 calendar months from the date on which he accepts the appointment or if he shall relinquish his appointment or die or if it shall become apparent that for any reason he shall be unable or unwilling to complete his duties hereunder, then either party may apply to have those matters referred to him to be determined by a substitute Independent Expert, appointed on the same basis mutatis mutandis as the previous Independent Expert, which procedure may be repeated as many times as necessary. The costs of the Independent Expert shall be met equally by the parties unless the Independent Expert shall direct to the contrary."

Submissions for the petitioner
[12] Senior Counsel for the petitioner sought reduction of the second determination and an order for payment in terms of the first and second paragraphs of Statement 3 of the petition. Mr Mackinnon had failed to exhaust his jurisdiction and separately had exceeded it, and his determination should be reduced. A sum of money on deposit pending the outcome has been paid to the respondent, and this should be repaid.

[13] There is little Scottish authority on the legal basis for challenging the determination of an independent expert, but such an expert is a creature of contract, and it is necessary to look to the contract to find the requirements and extent of his jurisdiction. In this respect the exercise of ascertaining the jurisdiction of an independent expert is the same as the exercise of ascertaining the jurisdiction of an adjudicator. I was referred to Jones v Sherwood Computer Services plc [1992] 1 WLR 277 (particularly at 286H to 287C) and to my own decision in RBG Ltd v SGL Carbon Fibers Ltd [2010] CSOH 77. The same principles apply in the present case.

[14] In these missives the parties had agreed the Anticipated Remediation Costs in relation to the subjects, and it was against that background that the price in clause 10 was fixed. Clause 4 made provision for the situation in which the actual costs properly and reasonably incurred by the petitioner in carrying out the Remediation Works were less than the Anticipated Remediation Costs. In that event, the balance would be payable by the petitioner to the respondent. Clause 7 provided the mechanism for determining a dispute as to this matter, and defined the function of the independent expert.

[15] The missives were amended by the letter from the respondent's solicitors dated 13 October 2006 and accepted by the petitioner. In terms of this amendment, the standard security over the whole site which had been granted by the petitioner in favour of the respondent was discharged, and £300,000 was placed on deposit to be held by the petitioner's solicitors in trust for the benefit of the party entitled to repayment of that sum. In the event that it was agreed between the parties or determined by an independent expert that any sums were due to the respondent in accordance with clause 4.3 of the missives, these sums would be paid by the petitioner's solicitors to the respondent, and any balance remaining would be paid to the petitioner. If it was agreed between the parties or determined by the independent expert that no sums were due to the respondent, the whole sum would be paid over to the petitioner.

[16] The first determination was concerned only with which headings were properly to be considered under Certified Costs; it was not concerned with whether the actual costs represented the proper and reasonable costs incurred by the petitioner in carrying out the Remediation Works. This is apparent from the terms of the evidence document. For example, part 4 of that document addresses the method of apportioning costs between the subjects and the adjoining lands; it states that four methods of apportionment were considered, that the contract did not specify a method of apportionment, and that the most favourable method for the respondent has been used for present purposes. Sheet 7 was included in the evidence document not for the figures shown therein, nor for the apportionment of costs to the respondent, but because of the headings of costs claimed. Mr Mackinnon proceeded on this basis in the first determination - he stated at paragraph 13 that quantum did not form part of the reference, and he reiterated this in paragraph 98. At paragraph 57, before considering the various heads of costs, he reminded the reader that his jurisdiction did not extend to considering the amounts of the various costs, simply what items ought to be allowed in terms of the Certified Costs. He then went on to determine which heads of claim listed in sheet 7 were properly to be regarded as forming part of the Certified Costs. He summarised his determination as to the headings included in Certified Costs in paragraph 97 of the first determination. The first determination was therefore not concerned with detailed costs, but only with the proper heads of claim.

[17] Mr Mackinnon fundamentally misdirected himself on a number of matters in the second determination. First, he attached a greater importance to his first determination than he was entitled to do. In paragraph 22 of the second determination he decided that sheet 7 formed the basis on which the decision on liability was made in the first determination, and that the respondent was correct in submitting that he was bound by his decision in that regard. He reiterated this in paragraph 26, holding that sheet 7 circumscribed the heads that he was permitted to consider in the second determination and the values of the accepted items. This was simply wrong - the first determination was not concerned with the details of costs or values. In paragraph 33 he held that the apportionments for the disputed items provided in the first determination were binding on him and not open for review. Again, in this respect he misdirected himself, because the proper method of apportionment was not the subject of the first determination. He was mistaken in limiting his considerations in the second determination in this way.

[18] Mr Mackinnon and both parties proceeded on the basis that the subject matter of the first determination was limited to the issue of what heads of claim were justified in principle; it was not concerned with detailed costs nor methods of apportionment. That this was so is clear from the submissions from the respondent in respect of the second determination, where the respondent submitted (at page 3) that "the First Expert Determination was required to decide (without considering the amount of each claim) whether the Heads of Claim themselves were to be considered part of the Certified Costs". In the second determination he misdirected himself by limiting himself in relation to values of claims and in relation to apportionment - see particularly paragraphs 26 and 33 of the second determination.

[19] He also misdirected himself in his approach to "Issue 3: Valuation of the Certified Costs". In paragraphs 34 and 35 he ignored both the new figures for total costs and the revised apportionment as shown at page 18 of the petitioner's submission for the second determination, and found that the detailed costs and the method of apportionment shown in sheet 7 before the first determination was the value of this part of the Certified Costs. In reaching this view he does not appear to have considered the costs or the method of apportionment, but merely adopted the figures and the method shown in sheet 7. In paragraph 48 of the second determination he allowed the revised cost in respect of the wayleave, but declined to interfere with the apportionment contained in sheet 7. Again, this amounted to a failure to exhaust his jurisdiction.

[20] Separately, Mr Mackinnon had no power to order payment to be made in terms of part 2 of paragraph 67 (although senior counsel accepted that this part of the determination was a discrete matter which was severable from the rest of the determination).

[21] Senior counsel reiterated that the first determination was only concerned with heads of claim, and was not concerned with determining apportionment. There were a number of possible methods of apportionment identified, and it was clear that apportionment was not an issue in dispute which was to be determined in the first determination.

Submissions for the respondent
[22] Senior counsel for the respondent moved me to refuse the petition. The petitioner does not complain of any breach of natural justice, but merely that Mr Mackinnon misunderstood his jurisdiction. In this respect the petitioner contends both that he exceeded his jurisdiction and that he failed to exhaust it. The only complaint of excess of jurisdiction relates to part 2 of paragraph 67. Senior counsel submitted that this was not an excess of jurisdiction, but even if it was, it is severable from the rest of the determination. Paragraph 3 of the letter dated 13 October 2006 amending the missives impliedly gave the independent expect power to do what he did in part 2 of paragraph 67, namely make a finding that a "clawback" payment was due by the petitioner to the respondent and that payment of the sum due should be made by the petitioner.

[23] Turning to the contention that Mr Mackinnon had failed to exhaust his jurisdiction by not considering material put forward as a new basis of apportionment, the jurisdiction afforded to an independent expert is to be found from a correct construction of the contract - see British Shipbuilders v F S E L Consortium plc [1997] 1 Lloyd's Rep 106, and particularly the five legal principles set out at page 109. In the present contract, clause 7 proceeds on the hypothesis that there is a dispute between the parties in respect of inter alia clause 4.2. Clause 4.2 is concerned with determining whether the Certified Costs represent the proper and reasonable costs of carrying out the Remediation Works. There is a tension between clauses 4.1 and 4.2; in clause 4.1 the Certified Costs are defined as "the actual costs properly and reasonably incurred by the Purchaser in carrying out the Remediation Works", whereas clause 4.2 appears to proceed on the basis that there may be something challengeable about this. The word "whether" in clause 4.2 is crucial, and means that it must be possible to answer the question either yes or no. However, on a literal reading of the clause, it would be impossible to give a negative answer. How then is the clause to be construed? The reasonable and commercially sensible construction is that clause 4.2 refers to a document setting out the costs which the purchaser asserts were actually incurred by him and were properly and reasonably incurred in carrying out the Remediation Works. It follows that the independent expert is entitled to determine those costs which the purchaser puts forward as his vouched costs.

[24] Sheet 7 was the petitioner's statement of the actual costs which it claimed were properly and reasonably incurred in carrying out the Remediation Works, resulting in the total costs apportioned to the respondents of £5,296,839. This is shown by what follows on page 13 of the document, namely a clawback calculation showing an underpayment by the respondent. The purpose of the document is to obtain the respondent's agreement not only to the figure of costs, but that the costs were properly and reasonably incurred in relation to the Remediation Works - ie, after apportionment. The independent expert has no jurisdiction to reach a determination on other costs.

[25] It is also necessary to look to the scheme of clause 7. There is a timetable for written submissions, and a timetable for the independent expert to issue his decision, which shall be final and binding. It cannot be reopened or looked at again. A head of claim deleted by the independent expert cannot subsequently be reinstated.

[26] The effect of these contractual provisions is as follows. First, the independent expert could consider only those Certified Costs claimed under clause 4.2, that is, the costs set out in the three pages comprising sheet 7. Sheet 7 was intended to be the statement of Certified Costs, and it went on to apply these figures to a clawback calculation; the whole purpose of sheet 7 was to show that the respondent had no contractual entitlement to clawback. Second, sheet 7 sets out the boundaries for the heads of claim which could be considered as candidates for costs reasonably and properly incurred. In terms of clause 4.1, it required to be comprehensive, and include all such costs. This entailed it showing all costs and all apportionments. This means that it was not open to the petitioner subsequently to add further heads of claim. The petitioner did attempt to add further heads of claim in the proceedings leading to the second determination - eg. a claim under section 5 for "joint venture intellectual documentation". This was completely new and could not be properly considered by the independent expert. Similarly the independent expert could not deal with revised figures (except where the revisal arose from a clerical error, or which derive from the fact that claims made by the petitioner in the proceedings leading to the first determination were excluded at that time). With these exceptions, the figures in sheet 7 must be regarded as maximum figures, because sheet 7 was a comprehensive claim.

[27] Another important aspect of the independent expert's jurisdiction is that he could only make a determination on matters which were referred to him and which were in dispute; heads of claim which appeared in sheet 7 and which were not disputed could not be scrutinised by him. The respondent never disputed any of the claims or costs on the first page of sheet 7, so the figure of £3,408,510.34 was never in dispute and could not be looked at by the expert. Again, some of the professional fees and their apportionment to the respondent, which appear on the second page of sheet 7, were never disputed, and so the expert had no jurisdiction to look at them. This was narrated by the expert in paragraph 56 of the first determination, in which he observes that the respondent commented on the petitioner's account "detailing those parts with which they agreed, and those with which they did not. They did not disagree with the manner of apportionment". Again, in section D of the first determination the independent expert listed those items which the respondent accepted (both as to total cost and as to apportionment). These items in which cost and apportionment were accepted by the respondent included (iii) Nigel Rudd (re badgers), (vi) Chandler KBS, (viii) Pottie Wilson and (xi) URS Corp. The respondent having accepted the total costs and the apportionment for these items, there was no dispute about them before the independent expert, and it was not open to the petitioner to revisit either the cost or the apportionment. As maintained by the respondent in its submissions to the expert in the procedure leading up to the second determination (in the second paragraph of page 2), following consideration of sheet 7, the respondent accepted some of the costs shown therein as having been properly and reasonably incurred by the petitioner in carrying out the Remediation Works. The whole of the petitioner's claim for costs and apportionment relating to I & H Brown has never been disputed by the respondent, and similarly the cost and apportionment relating to DTZ was not disputed. Accordingly these were not matters properly before the independent expert.

[28] The task for the expert was, where items were in dispute, to determine whether they represented the proper and reasonable costs incurred by the petitioner in carrying out the Remediation Works. In paragraph 56 of his first determination, he records that the respondent did not disagree with the manner of apportionment. He excluded some heads of claim completely in his first determination, and allowed some only in part. In his second determination he was concerned with the Remediation Works, and whether the disputed heads represented the proper and reasonable costs incurred by the petitioner. This is what he addressed in paragraphs 22 to 33 of the second determination. He reached the correct decision on both issue one and issue two; he could not look at anything which had been accepted by the respondent, and it was not open to the petitioner to revise its claim. He exhausted his jurisdiction and his determination should be allowed to stand.

[29] In the event that the court was not with him on his primary submission, senior counsel for the respondent advanced two further secondary submissions. First, even if the expert failed to exhaust his jurisdiction by declining to revisit apportionment, this is irrelevant because it is not a ground for reducing the determination. Although senior counsel did not quarrel with the overall approach set out in Jones v Sherwood, the case of R B G Ltd v S G L Carbon Fibers Ltd was not in point. That was a case concerning adjudication. Adjudication is a sui generis method of dispute resolution, and distinct from the determination of an independent expert. Senior counsel referred to Paul Boardwell T/A Boardwell Construction v k3D Property Partnership Ltd [2006] Adj.C.S. 04/21 and also to Bernhard Schulte G.M.B.H. & Co K.G. and others v Nile Holdings Ltd [2004] EWHC 977 (Comm), [2004] 2 Lloyd's Rep. 352, particularly at paragraphs 94 - 99. There is an essential distinction between judicial decisions and expert decisions. Greater latitude is accorded to experts in making their determinations than is given to persons sitting in a judicial capacity. An expert determination is binding between the parties unless it can be challenged on the basis of fraud, collusion, bias or material departure from instructions.

[30] It is in any event factually wrong for the petitioner to assert that the expert did not turn his mind to the issue of apportionment in the second determination. He considered apportionment at paragraphs 30 to 32 of the second determination and regarded the apportionment used and accepted in the first determination as being a fair and reasoned method. He therefore considered the merits of the petitioner's revised apportionment, and decided against this. He did exhaust his jurisdiction.

[31] Finally, senior counsel turned to the arguments about approbation and reprobation, and personal bar, raised in answer 12 of the respondent's answers. Following the second determination, the petitioner consulted the solicitors then acting on its behalf. By letter dated 2 December 2010 those solicitors wrote to the solicitors acting for the respondent stating that they had uplifted the amount placed on deposit in 2006 and enclosing a cheque payable to the respondent for the whole sum placed on deposit receipt together with interest thereon. The letter continued as follows:

"Whilst, as you know, my clients have accepted that in terms of the recent determination and given the original agreement in respect of the deposit, they do not have any option but for this money to be handed over. I must mention again that my clients remain very concerned about certain aspects of the determination and are reviewing their options".

The only basis on which the solicitors could uplift the money on deposit and pay it to the respondent was that the second determination was valid and created an unavoidable obligation to make payment to the respondent. The "options" referred to could not therefore include an attack on the validity of the determination. If the determination was invalid or a nullity for any reason, the obligation to pay would not arise - indeed, the contractual obligation on the solicitors would have been not to make any payment. After the letter dated 2 December 2010 enclosing payment, there was email correspondence in January 2011 between the respondent's asset manager for development services and Mr Macpherson of the petitioner; there was nothing in this email correspondence, nor in any other correspondence or discussions, to indicate that the petitioner regarded the second determination as invalid. It was only about six months after the issue of the second determination, and after the respondent had gone to the expense of serving a statutory demand on the petitioner to enforce the determination, that the petitioner sought to challenge the validity of the second determination. The petitioner cannot be allowed to reprobate the second determination having previously approbated it. Moreover, the respondent has incurred expenditure in seeking to enforce the second determination, in reliance on the conduct of the petitioner in failing to challenge it and in making payment of the sum on deposit. In these circumstances the petitioner is now personally barred from challenging the second determination. In support of his submission on approbation and reprobation, (and in response to a request from the court) senior counsel referred to Linnett v Halliwell [2009] EWHC 319 (TCC), [2009] BLR 327; PT Building Services Ltd v ROK Build Ltd [2008] EWHC 3434 (TCC); Shimizu Europe Ltd v Automajor Ltd [2002] BLR 113 (particularly at paragraphs 29 and 30); Lissenden v CAV Bosch Ltd [1940] AC 412; and Bells Commentaries, paragraph 141.

Reply for the petitioner
[32] As the authorities on approbation and reprobation which were provided on behalf of the respondent following a request from the court had not featured on any list of authorities, senior counsel sought the opportunity to respond in detail on this matter by way of written submissions. There being no opposition to this suggestion, I allowed the petitioner a period of time after the hearing in which to lodge written submissions, and I allowed the respondent to respond to these also in writing. However, senior counsel for the petitioner presented oral submissions at the bar in answer to the points raised for the respondent. On the question of approbation and reprobation, the letter of 13 October 2006 obliged the petitioner's solicitors to issue the cheque to the respondent - it was not for them to determine any underlying issue as to the validity of the second determination. They were entitled to take the determination at face value. It was apparently valid, and issues of validity were between the creditor and the debtor. If the solicitors receive a document which is ex facie a valid determination they are obliged in terms of the letter to intromit the funds. This cannot amount to approbation by the petitioner. Furthermore, looking to the terms of the letter dated 2 December 2010, it is impossible to infer that the petitioner has approbated the determination as valid. The words "given the original agreement in respect of the deposit" indicate that the solicitors consider that they have an obligation to make payment of the funds. This does not amount to conduct by the petitioner in acceptance of the determination.

[33] With regard to personal bar, the respondent must have been induced to act, and to change its position, in the reasonable belief that the petitioner accepted that the determination was valid. In order to argue personal bar, the respondent must show that it has changed its position. All that the respondent did was to pay Sheriff Officers to serve a statutory demand on the petitioner. That does not amount to a change in position by the respondent, nor has it suffered any prejudice.

[34] Turning to the respondent's substantive arguments, senior counsel submitted that there was no distinction between the independent expert considering value and considering apportionment; the issue was the cost of Remedial Works on the subjects, not on the whole site, so it was necessary in the procedure leading up to the second determination to consider not only the cost of each item, but the allocation or apportionment to the subjects. The assessment of the value of each head of claim in the second determination involved an assessment of the cost and of apportionment of that cost. The respondent's argument that the expert did consider the merits of apportionment in paragraphs 29 to 32 of his second determination is misconceived - it is clear from the last sentence of paragraph 32 and from paragraph 33 that he was not considering the merits of apportionment and was relying on material before him in the first determination. Indeed, the last sentence of paragraph 32 is another example of his error in this regard - there was no acceptance as to the method of apportionment in the first determination, because apportionment was not within the scope of the first determination. The observation in paragraph 56 of the first determination that the respondent did not disagree with the manner of apportionment is irrelevant, because that was not something which was being determined at that time.

[35] It was argued for the respondent that it was not open to the expert to reconsider or revisit those items of cost in the second determination which had not been disputed in the first determination. However, while the expert has adopted this approach with regard to the head of claim relating to I & H Brown (cf paragraph 58 of the first determination and paragraph 35 of the second determination), that is not the approach which he took in relation to some of the other heads of claim (eg. Nigel Rudd re badgers; Chandler KBS; and Pottie Wilson). He reduced each of these figures from the figures originally agreed by the respondent. Indeed, the respondent revisited these figures at pages 13 to 15 of its submissions in the second determination. This is inconsistent with the submission that items which were not disputed in the first determination cannot be revisited in the second determination. If the expert had power (as he did) to look at values in the second determination, it follows that he must have had power to look at the method of apportionment as between the subjects and the whole site.

[36] Finally, the submission for the respondent that paragraph 3 of the letter dated 13 October 2006 extended the expert's remit to include the power to order payment is misconceived. His power was contained in clause 7 of the original missives, and that power does not extend to clause 4.3. The parties could, of course, have given the independent expert power to make such an order, but clause 3 of the letter of 13 October 2006 did not do this, and nowhere else is such a power to be found.

Written submission for the petitioner on approbation and reprobation
[37] It is unnecessary to repeat at length the written submission for the petitioner which forms no. 16 of process. In summary, senior counsel for the petitioner sought to distinguish the authorities relied on by the respondent. The doctrine of approbate and reprobate is generally more readily applicable in cases of succession and wills. The circumstances of each of the cases to which reference was made were sufficiently different from the present case that they were not in point. The letter dated 2 December 2010 could not constitute approbation by the petitioner of the second determination, because it cannot be inferred from its terms that the petitioner accepted the second determination as valid, it did not give rise to any benefit to the petitioner, and it did not constitute an election by the petitioner that the second determination was valid. The first paragraph of the letter was no more than a statement that the solicitors were implementing their obligations as trustee to uplift the deposit sum and deal with it in terms of the missives. The second paragraph did no more than state that, given the original agreement in the missives in respect of the deposit, the petitioner had no option but for the money to be handed over. This is insufficient to constitute approbation of the second determination.

Written submission for the respondent on approbation and reprobation

[38] Again it is unnecessary to rehearse in detail the respondent's written submission, which forms no. 17 of process. The authorities referred to make it clear that the doctrine of approbate and reprobate is not restricted to the field of wills and trusts, but has been extended to arbitration and adjudication. The circumstances in Shimizu and PT Building Services were particularly relevant to the present case. At paragraph 30 of the judgment in Shimizu the court observed (albeit obiter) that by paying the sum which was the subject of the award, the party had elected to treat the award as valid - otherwise, there was no need to pay anything and it was not appropriate to do so. The same reasoning applied to the present case. Paragraphs 3 and 5 of the letter dated 13 October 2006 only permitted the payment to be made against agreement or determination finding a sum due to the council; if the second determination was a nullity, there was no determination and there was no need to pay the respondent nor would it have been appropriate to do so. This amounted to an election to forgo any right to challenge the validity of the award, or a homologation of that award.

[39] The submission for the petitioner that the payment by the solicitors to the respondent was an action with which the petitioner had nothing to do, and that the solicitors were obliged to pay out on presentation of an ex facie valid determination is mistaken. The whole purpose of paragraphs 3 and 5 of the letter dated 13 October 2006 was to make sure that the money was not paid unless payment was justified by the merits of the underlying dispute on which the expert was to determine. There was no reason to construe the word "determination" in paragraph 3 as meaning "ex facie valid determination" rather than the more usual and natural meaning, being simply a valid determination. The missive letter was the antithesis of a letter of credit or an "on demand" bond on which the bank or bondsman would have to pay out without enquiry on the merits of the dispute - the construction of the missive letter for which the petitioner contends is not merely unwarranted by its terms but destructive of the commercial purpose of the deposit sum arrangement.

[40] Moreover, the letter of 2 December 2010 was not a unilateral act of Brodies acting for their own behoof, but a letter written by the petitioner's solicitors acting in that capacity and with the petitioner's knowledge and consent. It indicated that the petitioners have accepted that they do not have any option but for the money to be paid over. It indicated that, despite the petitioner's unhappiness with the result of the second determination, the circumstances (namely a valid determination awarding the respondent at least £300,000) existed which required payment to be made. The petitioner had consulted with its solicitors before this letter was written; the terms of the letter, and the payment of the deposit sum to the respondent, clearly indicate an acceptance that the second determination was valid and not a nullity. If it had been a nullity, the obligation on the solicitors would have been not to pay.

[41] The petitioner argues that it made no election because it had no option but to do as it did. This is wrong. The obligation to pay arose only on a valid determination. If there was no option but to pay, it was because the second determination was valid. It is not necessary for the homologation by approbation of an expert's determination that the approbating party should obtain a benefit under the instrument approbated - PT Building Services Ltd (at paragraph 29); Shimizu (at paragraphs 26 and 30). The essential element of approbation is inconsistency of conduct in attempting to reverse an earlier election; the taking of benefit under a judgment is merely an example of approbation. In any event, the petitioner has derived benefit by its approbation of the second determination, because the respondent has been prevented from obtaining the greater sum by way of claw back which it had sought to recover in the determination process.

Discussion

Failure by the independent expert to exhaust his jurisdiction

[42] The jurisdiction of the independent expert derives from the terms of his appointment, and from the mechanisms set out in clauses 4 and 7 of the missives which are quoted at paragraph [11] above (Jones v Sherwood; British Shipbuilders v FSEL). It is important to note that his jurisdiction extends only to determining any dispute arising between the parties in respect of any matter referred to in clause 4.2. If a matter is not in dispute it does not arise for determination by the independent expert. Whatever his own views as to the competency of a particular head of claim, or as to the quantification of costs relating to that claim, if there is no dispute between the parties on that matter he cannot have regard to it.

[43] The procedure for determining the actual costs properly and reasonably incurred by the petitioner in carrying out the Remediation Works is set out in clauses 4.1 and 4.2 of the missives. The first step in this procedure is for the petitioner, not later than three months following completion of the Remediation Works, to provide evidence to the respondent of the actual costs properly and reasonably incurred in carrying out the Remediation Works. The evidence document (no. 10/4 of the joint bundle) was clearly prepared and submitted in order to fulfil this procedural step.

[44] It is important to note that there is no provision for the petitioner to amend or revise upwards its claim. The evidence document is the petitioner's "best case"; if the respondent accepts it in its entirety, that is an end of the matter and no dispute arises as to the Certified Costs. The petitioner has no opportunity to change its mind or alter its approach to apportionment or actual costs.

[45] The next step in the procedure, in the event that the respondent does not accept the evidence in its entirety, is for the respondent to request from the petitioner such further information as may be reasonably required to enable the respondent to satisfy itself as to Certified Costs. At this stage the parties are still in the process of attempting to reach agreement as to the Certified Costs. Again, there is no right in the petitioner to increase or vary its claim - it is merely required to provide further information to support its claim.

[46] Only if agreement between the parties cannot be reached is the next step in the procedure - namely referral to the independent expert - required. The only matters which may be referred to the expert are matters in dispute arising from the petitioner's claim. Items which are not disputed by the respondent are not open to scrutiny by the expert, who must confine himself to matters in dispute. Again, at this stage of the proceedings there is no provision enabling the petitioner to amend or revise upwards its claim nor to change the way in which it approaches its claim. It is important to bear this in mind when considering the evidence document, and particularly part 4 thereof, to which reference has been made at paragraph [16] above. Whatever may have been in the mind of the drafter of the evidence document when, having considered four methods of apportionment and adopting the most favourable for the respondent, he stated that "this method of apportionment has been used for present purposes", it is clear from the analysis above that there was no opportunity in the contractual procedures which would enable the petitioner to revisit this issue. The petitioner is confined to arguing for the sums and the methodology contained in its own evidence document.

[47] Substantial parts of the evidence document were not disputed - for example, the entire first page of sheet 7 was accepted by the respondent, as were other smaller heads of claim. Because they were not in dispute, they were not the subject of referral to the independent expert. However, some areas remained in dispute. Parties could not agree as to what heads of claim properly fell within the Remediation Works. The dispute on this matter was the subject of the first determination. Thereafter, parties could not agree as to the quantum of those heads of claim which the expert had held in the first determination to be relevant. It was therefore necessary to proceed to the second determination to enable the expert to determine that matter. However, the petitioner's claim was still that advanced in the evidence document (subject to such deletions as required to be made as a result of the first determination). There was still no provision which entitled the petitioner to amend the methodology of its claim nor to increase sums claimed. The petitioner could not alter the method of apportionment which it elected to adopt in the evidence document.

[48] The independent expert was correct when he held (at paragraph 26 of the second determination) that "the Original Spreadsheet 7 circumscribes the heads that I am permitted to consider in this second determination and the values of the accepted items". He was also correct in holding (at paragraph 33) that "the apportionments for the disputed items, provided in the First Expert Determination, are binding on both the parties and me and are not open for review". The evidence document was not something prepared just for the first determination - it formed the first step in the procedures outlined above. It was the foundation for both the determination procedures which followed. There was no contractual mechanism whereby the petitioner could depart from this foundation and increase the costs claimed or change the method of apportionment on which it had elected to place reliance.

[49] For these reasons I prefer the submissions for the respondent to those for the petitioner on this point. I do not consider that the independent expert has failed to exhaust his jurisdiction.

Excess of jurisdiction

[50] The petitioner submitted that the second numbered paragraph of paragraph 67 of the second determination (quoted at paragraph [7] above) exceeded the expert's remit and was pronounced without jurisdiction. The submission for the respondent was that paragraph 3 of the letter dated 13 October 2006 gave the expert power to make a finding that a "claw back" payment was due and that payment of the sum due should be made by the petitioner.

[51] I agree with the petitioner that the independent expert had no power to do what he purported to do in the second numbered paragraph of paragraph 67 of his second determination. Clause 7 of the missives only enabled a dispute between the parties in respect of any matter referred to in (reading short) clause 4.2 of the missives to be referred to the independent expert for determination. Questions of a "claw back" payment or the amount of any sum due are questions arising from clause 4.3, not clause 4.2. The independent expert was required to confine himself to considering what were the actual costs properly and reasonably incurred in carrying out the Remediation Works, and in determining the Certified Costs. This he did, quite properly, in sub-paragraph (1) of paragraph 67. What he purported to do in sub-paragraph (2) was beyond his remit.

[52] I do not accept the argument for the respondent that the letter dated 13 October 2006 impliedly gave the expert power to deal with this matter. It would have been open to the parties to have made provision for this to be within the remit of the expert, but they did not do so. I cannot infer from the terms of the letter dated 13 October 2006 that the parties chose to give the expert this power.

[53] However, both parties agreed before me that sub-paragraph (2) of paragraph 67 was severable from the rest of the determination. An excess of jurisdiction in this sub-paragraph does not of itself invalidate the rest of the second determination.

Approbation and reprobation

[54] Although the doctrine of approbate and reprobate was initially developed in the field of trusts, wills and succession, it is clear that it has been applied much more widely in the context of determinations of commercial and other compensation disputes over the last 70 years - see the cases of Lissenden, Linnett, PT Building Services, and Shimizu referred to above. I am satisfied that the doctrine may be applied in the present circumstances.

[55] The respondent points to two aspects of the letter of 2 December 2010 as amounting to approbation. First, the solicitors for the petitioner enclosed a cheque to the respondent for the whole sum originally placed on deposit with interest accrued thereon. Second, the petitioner's solicitors stated that "my clients have accepted that in terms of the recent determination and given the original agreement in respect of the deposit they do not have any option but for this money to be handed over."

[56] I consider that the respondent's submission regarding approbation is sound. Payment of the entire deposit sum together with interest to the respondent is a step which is incompatible with the assertion that there has been no valid determination. Similarly, the statement that the petitioner has accepted that in terms of the recent determination it does not have any option but for this money to be handed over is inconsistent with maintaining that the determination is a nullity and of no effect. Clause 5 of the letter dated 13 October 2006 provided that both parties agreed and confirmed that the deposit sum should fall to be dispersed only in accordance with the provisions contained therein. Clause 3 provided that payment to the respondent of the whole or part of the deposit sum would only be made in the event that it was agreed between the parties or determined by an independent expert that sums were due to the respondent. Payment of the deposit sum to the respondent by the petitioner's solicitor, and the terms of the letter which the solicitor wrote on the instructions of the petitioner, are each inconsistent with a challenge to the validity of the determination. If the determination was a nullity, it was the duty of the solicitor not to disperse the deposit sum.

[57] I do not accept the submission for the petitioner that the payment of the deposit sum was an independent act by the solicitor as trustee, and that in that capacity the solicitor was entitled to rely on an ex facie valid determination by an independent expert. The decision to disperse the funds was taken after consultation with the petitioner, and the letter enclosing the cheque was written on the petitioner's instructions. The petitioner had the benefit of legal advice at that time. If the petitioner reached the view that the determination was a nullity, it is difficult to imagine that the petitioner would authorise payment of the deposit sum and the writing of the letter dated 2 December 2010 in these terms.

[58] Although the circumstances of the two cases are not identical, the facts in the present case are not so very far removed from those in Shimizu. In the final paragraph of his judgment in that case, HH Judge Richard Seymour QC stated that "I also accept the submission of Mr Constable" (counsel for the claimant) "that by paying part of the sum the subject of the Award Automajor elected to treat the Award as valid. Otherwise there was no need to pay Shimizu anything, and it was not appropriate to do so." I find that logic persuasive, and the same may be said with equal force in the present case. I also agree with the view expressed by Ramsey J in PT Building Services Ltd (at paragraph 29) that it is unnecessary for approbation to be established that the approbating party should obtain a benefit. He observed that "the taking of a benefit, whilst sufficient for there to be an election, is not necessary. What has to be determined is whether there has been an election. Objectively, a party who decides to pay a sum awarded against it in an adjudicator's decision does so in reliance on that decision being valid".

[59] By instructing its solicitors to write the letter dated 2 December 2010 in the terms used, enclosing the cheque to the respondent for the deposit sum and interest, I consider that the petitioner has approbated the second determination. Having done so, I do not consider that it is open to the petitioner to seek to reprobate it by means of this petition, which was raised more than six months after the letter dated 2 December 2010.

[60] The approbation by the petitioner relates to the whole of the second determination, not just to a part of it. By adopting the position which it took in the letter dated 2 December 2010 the petitioner accepted that it was obliged by a valid determination to make payment of the deposit sum. It elected not to found on any excess of jurisdiction of the independent expert in relation to sub-paragraph (2) of paragraph 67 of the second determination, and accepted that it did not have any option but for the money to be handed over.

[61] I should add that although the respondent's averments in Answer 12 suggest that the submission on approbate and reprobate was separate and distinct from a submission on personal bar, and although paragraph 7 of the respondent's written submission (No. 17 of process) might suggest that personal bar is a separate issue, neither party developed fully their arguments on personal bar except insofar as relating to approbation and reprobation, and I do not consider that it is necessary for me in the circumstances to address personal bar as a separate issue.

Decision

[62] For the reasons given above, I have reached the conclusion that the independent expert did not fail to exhaust his remit in the second determination, nor did he fall into such material error that his decision was a nullity. Although the independent expert exceeded his jurisdiction in the second part of paragraph 67 of the second determination, that matter is severable and does not affect the validity of the remainder of the determination. Moreover, the petitioner having approbated the second determination in its entirety, it is not open to it to seek to reprobate it in these proceedings. I shall accordingly refuse the petition.