Scottish Court of Session Decisions

OUTER HOUSE, COURT OF SESSION
	[2013] CSOH 107A
CA91/11	OPINION OF LORD HODGE in the cause BAM BUCHANAN LIMITED Pursuer; against ARCADIA GROUP LIMITED Defender: ________________

Pursuer: R. Dunlop QC; Dundas & Wilson LLP

Defender: M. Richardson; DWF Biggart Baillie

5 July 2013

[1] The pursuer ("the landlord") is the heritable proprietor of a building at 20/26 Buchanan Street, Glasgow comprising seven floors and a basement ("the building"). The defender was the tenant of parts of the basement, ground floor and first floor of the building ("the premises") under a lease which had a date of entry of 18 September 1984 and expired on 27 January 2009. The upper floors of the building were not occupied during most of the period of the lease, including at its termination.

[2] The landlord and the tenant are in dispute about sums which the landlord claims as a service charge under the lease and also in relation to dilapidations. In order to limit the expense of resolving their differences, the parties, after raising this action, agreed a remit to William Morrison, a chartered building surveyor and a director of Capita Symonds Limited, ("the reporter"). He was instructed to address the questions which they posed in relation to the tenant's liability for the service charge and the dilapidations. By interlocutor dated 17 August 2012 I ordered a remit to the reporter to investigate and report on the facts and circumstances in terms of the parties' remit.

[3] The parties in the remit directed the reporter to produce a draft report. Clause 11 of the remit provided that, if a party objected to the draft report on an issue of law, the reporter was to apply to the court for directions. I have heard counsel in a debate on the landlord's note of objections to the draft report and the tenant's answers thereto. I am invited to give directions to the reporter.

Scope of the court's jurisdiction

[4] There is no dispute as to the scope of the court's jurisdiction. As the parties had agreed to give Mr Morrison the remit of determining their factual disputes, they have excluded probation of the matters which his report covered. They have confined their right to challenge his report to issues of law. This is consistent with the general approach of the court which Lord Eassie set out in Allied Dunbar Assurance plc v Superglass Sections Ltd (unreported) 20 August 2004 at paras 23 and 24: where the parties have agreed a remit to a skilled person to determine a question and he has performed that remit, the court will not allow another mode of proof. See also Dixon v Monkland Canal Company (1825) 1 W & S 636, Lord Gifford at 655; and Lord Blantyre v Glasgow, Paisley and Greenock Railway Company (1851) 13 D 570, Lord President Boyle at 573. Absent a reservation in the remit of the right to have a further proof, which would defeat the cost-saving purpose, the reporter's decision governs questions of fact.

[5] The legal challenges available are familiar. As the reporter has received a contractual remit, any failure to implement the directions of his remit, including a failure to exhaust the remit, would ground a legal challenge. If the reporter misconstrued a legal document, such as the lease, in a material way, that would be an error of law which would invalidate his determination to the extent that the error affected his decision. So also would be a material misunderstanding of a non-legal document, although the court allows the decision-maker greater discretion in interpreting such documents and will not treat a tenable interpretation as an error of law (Findlay, Petitioner [2006] CSOH 188, at paras 31-33). Where there required to be a factual basis for a decision, the absence of such a basis would support a legal challenge to the decision. Taking into account an irrelevant matter or failing to take into account a relevant matter are familiar grounds of challenge (Wordie Property Co Ltd v Secretary of State for Scotland 1984 SLT 345, Lord President Emslie at 347). Another way of analysing those grounds is to say that the decision maker has acted on the basis of a mistaken view as to the facts. Mr Dunlop referred me to that formulation in The Learning Trust v MP and the Special Educational Needs and Disability Tribunal [2007] ELR 658, [2007] EWHC 1624 (Admin), Andrew Nicol QC sitting as a deputy judge of the High Court at para 29. Wednesbury unreasonableness is another ground of legal challenge (Wordie (above)). So also is the failure to give an adequate statement of reasons for a decision so that the informed reader and the court are left in no substantial doubt as to the reasons for the decision (Safeway Stores plc v National Appeal Panel 1996 SC 37, Lord Justice Clerk Ross at 40-41).

The service charge
[6] Clause 8(2) of the lease provides that any part of the service charge shall be payable to the landlord by the tenant on demand as and when the item of expenditure is incurred or the landlord becomes liable to pay it. The service charge is defined in clause 8(1) as follows:

"To pay to the Landlord in the manner mentioned in Sub-clause (2)of this Clause 8 a fair proportion of the expense incurred by the Landlord in supplying any services facilities or amenities whatsoever to the Premises or the Building and in cleaning, decorating, painting, plenishing, lighting, repairing, maintaining, renewing or rebuilding any part of the Common Parts...

...and of any expenses incurred by the Landlord in complying with any requirements of a competent authority relating to the Premises or the Building or any part thereof or any obligation thereanent under any superior lease and to provide for periodic items including repairs and redecoration (and that regardless of the age or state of repair or dilapidation of the Building and irrespective of the cause of the damage causing such repair, maintenance, renewal, rebuilding or others, and including any which may be rendered necessary by any defects, latent or patent, which may exist or subsequently become manifest in the Building) together with any outgoings and Value Added Tax which the Landlord may be liable to pay in respect of such services and matters or in respect of the Building..."

Clause 8(3) defines "fair proportion" for the purposes of clause 8(1) in relation to different parts of the building.

[7] Mr Dunlop submitted that the range of work covered by the service charge in clause 8(1) of the lease was very broad. It covered works which at common law would be classified as extraordinary repairs (House of Fraser plc v Prudential Assurance Co Ltd 1994 SLT 416, Lord Cullen 419D-J) and extended to rebuilding. He emphasised that the disregards in parentheses in clause 8(1) had the effect that the history or the cause of a state of fact was not relevant and he referred to Lowe v Quayle Munro Ltd 1997 SC 346, Lord Penrose at 350G-351A. Mr Richardson did not seriously challenge this analysis but submitted that it fell to be implied into the lease that the costs must be reasonably incurred. I consider that that is correct (Gordon District Council v Wimpey Home Holdings Ltd (No 2) 1989 SLT 142). Mr Dunlop did not suggest otherwise. Further, I observe that the parties have acted on that understanding by including in the remit a question in relation to each of the disputed items whether the costs incurred were reasonable. Similarly, the parties, recognising that the service charge did not cover the redevelopment of the upper floors, included in the remit a question whether each of the disputed works related to the (phase 3) redevelopment of the building.

[8] Between 2008 and 2010 BAM Construction Limited, a company associated with the landlord, carried out works on the premises and the building in three phases under the supervision of Gardiner & Theobald, quantity surveyors. The first phase comprised works on the front façade, envelope repairs and roof works. The phase 2 works involved repairs to the rear façade of buildings in Morrison Court, later known as buildings A and B, of which only building A was within the tenant's demise. Phase 3 related to retail and office development which amounted to a re-development of the building, including the refurbishment of the upper floors to bring them back into use. The landlord makes no claim for a service charge in relation to that phase. But the tenant has suggested that certain works in the earlier phases related to the redevelopment of the building and involved betterment. The tenant has also challenged certain works as unnecessary and certain charges as excessive.

[9] The reporter produced a draft report dated 21 December 2012. Thereafter, the landlord lodged a note of objections, which the tenant answered. In this opinion I deal in turn with each of the landlord's objections.

(a) Phase 1 Works (pp.1-9 of the reporter's schedule)

[10] The landlord challenged the reporter's reduction of the claim in application for payment no. 5 by Stirling Stone Limited dated 28 October 2008. The reporter considered that the rates which the sub-contractor charged in respect of certain items were excessive. Mr Dunlop submitted that the reporter had no jurisdiction to look behind the invoice which the sub-contractor submitted and the landlord had paid. Further he had failed to give comprehensible reasons for holding those rates to be excessive.

[11] I am satisfied that the reporter has not erred in law in this regard. Two of the questions on which he was asked to report in relation to the service charge were:

"(e) In so far as evidenced, are the costs incurred reasonable?

(f) In the event that it is considered that costs in respect of particular items that are not yet agreed between the parties in terms of the Response have been evidenced but were not reasonable, what costs would have been reasonable for such items?"

It is clear from this remit that the reporter was empowered to look behind the rates contained in an invoice submitted by the main contractor or a sub-contractor and to take a view on what was a reasonable charge for the work in question. The reporter accepted the rates which the sub-contractor had charged for certain items of work and modified others. Where the reporter reduced the rate for an item, he recorded that the rate claimed was excessive for "the scope of the work" or for "the nature and scope of the work" and stated what he considered to be a reasonable rate.

[12] Mr Dunlop accepted that it would have been sufficient reasoning if he had stated that the rate was excessive by reference to the market rates that were current when the works were carried out. In my view that was implicit in what the reporter has stated. In para 5.1.6 of his report Mr Morrison listed the main variables that determined the cost of the works. They included "fluctuations in labour and material costs" and "prevailing market forces". He explained that he had based his assessment of reasonable costs on:

"a combination of the following:

·    The costs which have been evidenced by the Pursuer

·    The costs detailed in the Defenders' response

·    Reference to the BCIS Building Maintenance Price Book ?Edition [sic] for guidance on labour and material rates

·    My professional opinion.

On a number of occasions I have not accepted the contractor's rate where in my opinion the specified rate or cost in the bill item is not appropriate."

I consider this to be adequate reasoning in the circumstances of his remit.

(b) Phase 1 Works: biocidal wash (p.8 of reporter's schedule)

[13] On page 8 of his schedule the reporter considered a claim for £11,584.75 which related to the biocidal wash of the glazed brick section of the building. The tenant contested that charge and suggested a cost of £6,750. The reporter decided that the area and rate claimed were excessive and referred to an email dated 12 November 2008 in support of the conclusion that the cleaned area was only 146 sq metres. Applying a rate of £8.00 per square metre, he valued the claim at £1,168.

[14] Mr Dunlop submitted that the reporter had fallen into error by misunderstanding the evidence before him. In particular, he suggested that the reporter had misconstrued the email of 12 November 2008 from Stirling Stone Ltd to the landlord. In that email Mr Bill Smith of Stirling Stone Ltd stated:

"Further to our discussions regarding the Final Account we would confirm the following reductions should be made to the proposed final account:

1.	Holes on glazed bricks	49 nr @ £500	= £2450.00
2.	Cleaning	146 sq m @ £19.18	= £2800.28
3.	Out of hours	Tender does not require this therefore variation remains. ..."

Stirling Stone Ltd initially claimed £14,385 for 750 sq m of biocidal wash at a rate of £19.18 per sq. m. in its application for payment no. 5. The landlord deducted £2,800.25 from that sum and claimed £11,584.75 (604 sq m x £19.18) from the tenant. The email intimated agreed reductions from the sub-contractor's claim in its final account and one had to look at that account and apply the reductions to understand what Stirling Stone Ltd had claimed from the landlord and what properly was the landlord's claim.

[15] I am persuaded that the reporter has misread the email which bears the meaning that Mr Dunlop suggested. In short, the reporter has treated the proffered reduction as the result or product of a reduction. Mr Richardson pointed out that the reporter had found that both the area and the rate were excessive. While that is so, it appears that the reporter has relied on the email of 12 November 2008 as vouching that the area which was cleaned was 146 square metres. As, in the absence of evidence of the factual matrix which supports a contrary construction, I consider that to be a misinterpretation of the email, I think that the reporter has erred. I will therefore direct him to reconsider this claim together with any further submissions which he allows the parties to make in relation to the interpretation of the email.

(c) Further coats of biocidal wash at fire damaged area (p. 8 of reporter's schedule)

[16] The reporter disallowed the claim for £750 in respect of two further coats of biocidal wash which the landlord claimed was required at a fire damaged area. He found that the work would improve the appearance of the building but that the two coats were "in excess of the cleaning of the common parts as detailed in clause 8(1) of the sub under lease". He suggested that the work related to phase 3 works.

[17] Mr Dunlop submitted that this was an error as Stirling Stone Ltd carried out and charged for the biocidal works well before phase 3 started in February 2009.

[18] I am satisfied that there is nothing in this challenge. The landlord did not focus on this challenge in its note of objections and it is therefore not properly before me. In any event, I construe the reporter's decision as meaning that the two further coats were in excess of the scope of the service charge in the lease. That was the gravamen of his decision and the comment about phase 3 was not essential to his reasoning. I construe the reference to phase 3 as shorthand for the works to redevelop the building. In relation to the objection in the note of objections, I consider that it was for the reporter to judge both whether the work that was carried out fell within the concept of "cleaning" in clause 8(1) and whether it was reasonable to incur the claimed costs. He has treated the work as entailing cleaning but has concluded that the works went beyond what clause 8(1) of the lease envisaged. That is a matter for his judgement. I detect no legal error on his part.

(d) Repairing holes (reduced) (p. 9 of reporter's schedule)

[19] The landlord claimed £1,450 for the repair of holes as part of the restoration works on the building. The tenant suggested that the appropriate charge was £600. The reporter found that the rate charged by Stirling Stone Ltd was excessive and allowed for the filling of 19 holes at £25 per hole. He stated in response to the question as to what costs would have been reasonable "allow 19 No (49 - 30) @ £25.00 = £475)".

[20] Mr Dunlop submitted that the reporter had erred in misconstruing the email dated 12 November 2008 which Stirling Stone Ltd sent to the landlord (para [14] above). Stirling Stone Ltd's application for payment no. 5 included a claim for the repair of 78 holes at the rate of £50 per hole. The email intimated a reduction of 49 holes, leaving a balance of 29 holes.

[21] In my opinion the reporter has misconstrued the email as discussed in para [15] above. He treated the reduction of 49 holes as the product of the reduction, namely that the total number of holes filled under items 5.5.f and 5.5.g of the Scott schedule was 49. Of that figure he allocated 30 to the repairs under 5.5.f and the balance of 19 to 5.5.g.

[22] As the error affects his treatment of items 5.5f and 5.5.g, I will direct the reporter to reconsider both of those items in the light of this guidance and any further submission which he allows the parties to make on this issue.

(e) Disallowance of claims because nature of work was unclear (p. 10 of reporter's schedule)

[23] The landlord claimed £200 for cleaning off mortar from previous builderwork and £1,500 for "stripping down butt at top floor (glazed brick)". The tenant suggested that no sums were due under either entry. Both entries were included in Stirling Stone Ltd's application for payment no. 5 dated 28 October 2008. The reporter found that the landlord had become liable to pay for those items before the termination of the lease on 27 January 2009 but decided that the costs were not reasonable because the nature of the works was unclear.

[24] Mr Dunlop submitted that the reporter's conclusion was irrational because, like other items, the claims were supported by the evidence of Stirling Stone's application for payment and the landlord had paid for the work. Alternatively, the error could be seen as a lack of adequate reasoning or as a failure to fulfil his remit by asking parties for further information about the claim.

[25] Mr Richardson submitted that the reporter's approach was not irrational. When he found that the nature of the work was unclear, he was responding to a question "in so far as evidenced, are the costs incurred reasonable?" The reporter was entitled to disallow a claim if, having considered the detailed reports which each party provided him, he was unclear as to the nature of the work. He submitted that the reporter's powers to obtain further information under clause 7 of his remit were discretionary.

[26] I do not think that the reporter was irrational. He had a power under clause 7 of his remit to interview any individual to obtain further information or to ask the parties to produce further evidence so that he had sufficient information to reach an opinion. But, as Mr Richardson contended, he had a discretion whether to exercise that power. In my opinion when he was dealing with comparatively low value items, the reporter was entitled to decide whether a cost was reasonable in the light of the information which the parties placed before him. I detect no legal error in this regard.

(f) Scaffolding (p.11 of the reporter's schedule)

[27] Mr Dunlop also attacked the reporter's decision to reduce the landlord's claim for scaffolding from £74,312.27 to £42,600 on the basis that part of the scaffolding costs related to the phase 3 redevelopment works. He observed that the charge for scaffolding works was vouched by an invoice from TTAG Scaffolding Ltd which the landlord had paid well before the phase 3 works commenced. The reporter had been provided with documentary evidence of the charge and its payment. Further, in assessing what costs were reasonable, the reporter had omitted to allow anything for ties for signage and for adaptations which formed part of TTAG Scaffolding Ltd's claim. By so failing, the reporter had not completed his remit.

[28] I am satisfied that Mr Morrison has not erred in law in this regard. First, his reference to phase 3 works is shorthand for the redevelopment works which do not fall within the service charge. Thus the fact that an invoice was paid before the phase 3 works were started does not indicate any error of law. Secondly, in relation to the alleged failure to include charges for ties for signage and adaptations, Mr Richardson pointed out that the landlord's expert report by Mr Francis Fitzpatrick, which formed the basis of its claim before the reporter, did not separate out those items in its claim for £74,312.27 (Appendix p.6). I agree with Mr Richardson that there is nothing to suggest that the reporter failed to perform his remit. He had before him the claim for £74,312.27 from the Fitzpatrick report and he identified in answer to the parties' questions the costs which he considered to be reasonable.

(g) Supply and fit Gypliner; beam encasure works; dry lining the roof light; and cut and remove water damaged flooring and joist caused by leaking roof (pp. 17, 19, 20 and 21 of reporter's schedule)

[29] The reporter disallowed each of these items in answering the question whether the costs were reasonable. In each case he expressed the view that the costs related to the phase 3 works and were not reasonable "in the context of the service charge". Mr Dunlop's challenge to this treatment of each of the items was that the reporter had misconstrued the scope of the service charge in the lease. Clause 8(1) entitled the landlord to recover through the service charge the costs of repair and rebuilding regardless of the state of the disrepair. All of the works were carried out under phase 1 and predated the phase 3 redevelopment.

[30] I am satisfied that the reporter has not erred in law in excluding these items. The third question in the remit relating to the service charge (question (c)) was:

"Do the items claimed by the pursuer in the Phase 1 Scott Schedule Final Report and the Phase 2 Scott Schedule Final Report as produced in the "Fitzpatrick Report" that are not yet agreed between the parties in terms of the Response relate to the Phase 3 Works ...?"

This question clearly recognised that one issue in the dispute was about whether works done in phases 1 and 2 were in substance redevelopment works which were not properly within the service charge. Further, question (e), which I set out in para [11] above, asked whether the costs incurred were reasonable. In the context of the parties' agreed position that the costs claimed under the service charge must have been reasonably incurred (see para [7] above), the reporter had the remit of reaching a view on whether items in phases 1 and 2 were outside the service charge because they related to the redevelopment of the building. If they were, he was entitled to hold that the costs of those items were not reasonable as part of the service charge. Each of the items related to works on the upper floors which, before the works, were vacant and semi-derelict. The reporter found that the first three altered the pre-existing nature or quality of the building and improved the condition of the upper floors. The reporter took the view that they were properly categorised as redevelopment work. I detect no error of law in his approach to the questions he was asked to address.

(h) Strip out glass in two roof lights and install patent glazing bars and Georgian wired obscure glazing (p. 22 of reporter's schedule)

[31] Mr Dunlop submitted that the reporter had erred in disallowing this item because there was no evidence that there was water penetration. That, he suggested, involved a misconstruction of the scope of the service charge.

[32] I am satisfied that there is no substance on this challenge. As Mr Richardson submitted, it takes a statement in his response to question (e) ("Insofar as evidenced, are the costs reasonable?") out of context. When one considers the entirety of the reporter's answers to the questions on this item, it is clear that he considered that the item involved improvement and related to the redevelopment of the building. Accordingly, it did not fall within the service charge. That was a matter for the reporter to decide.

(i) All gutter bearers, raggling, pointing etc. necessary to completely renew all associated leadwork; strip out existing lead gutter to front and sides of dome and renew etc.; and overlay wallhead to front and sides of dome (pp. 24-25 of reporter's schedule)

[33] This challenge concerned to three items of work in relation to the dome of the building. The reporter allowed only 20% of the overall cost as part of the service charge in relation to the first and last items but 80% in relation to the second item (stripping out and replacing the lead gutter). Mr Dunlop submitted that he had failed to explain why he had awarded different proportions of the costs in respect of the different items. The findings were prima facie inconsistent. He had failed to give adequate reasons for his decision. Further, in relation to the first and second items the reporter had observed in his response to question (e) ("Insofar as evidenced, are the costs reasonable?") that the replacement leadwork had a 25 year guarantee, which amounted to betterment. Mr Dunlop submitted that as the landlord had excluded the cost of that guarantee from his claim, the reporter had taken an irrelevant consideration into account.

[34] I am not persuaded that there is any substance in the first part of this challenge. The items are three separate items which the reporter had to consider individually. Further, on considering the reporter's answers to all of the questions in relation to these items, it is clear that, in the cases in which he allowed only 20% of the claim, he was not persuaded that there needed to be renewal to the extent claimed. Thus he attributed most of the cost to redevelopment rather than the service charge.

[35] I am satisfied that the reporter proceeded under a mistaken understanding of the evidence when he founded on the existence of the guarantee as the Fitzpatrick report in schedule 2 (item 21) had stated that the landlord had not claimed on the basis of the tender which included that guarantee but on a lower tender which did not. I will therefore direct the reporter to reconsider this aspect of his decision with the assistance of such further submissions from the parties on those items as he may order.

(j) Entries from scope of work H 71 (Lead sheet coverings/flashings) where reporter allowed no cost (pp.23-28 of the reporter's schedule)

[36] Mr Dunlop submitted that the reporter had erred in excluding altogether claims for certain items in scope of work H 71 on the ground that they were not essential. In relation to several items he had answered question (e) by saying that the costs were not reasonable in the context of the service charge and by referring to a survey report of March 2006 which recorded that the bituminous felt was serviceable and that re-covering was not considered to be essential. This, he submitted, demonstrated a misunderstanding of clause 8(1) of the lease which did not confine the works for which the landlord could claim under the service charge to items which were essential.

[37] Mr Richardson objected to the argument that there was an error in requiring items to be essential. This was not foreshadowed in the note of objections which wrongly asserted (in para 13) that the reporter had allowed nothing for items under scope of work H 71. In my view there is substance in that objection. In order to ensure timely resolution of disputes, it is incumbent on parties to identify their objections in the manner which the remit provided in clause 5. In any event, I construe the reporter's answers to the earlier questions as expressing the view that the works involved betterment and were to be treated as part of the redevelopment of the building. The reference to re-covering not being essential appears to be a summary of the survey report rather than the ground of his decision. The reporter's answer to question (e) in my view is the result of his answers to the earlier questions about betterment and redevelopment rather than the application of an incorrect criterion in answering question (e).

[38] Mr Dunlop also submitted that the reporter had erred because the excluded works were required by statute. While it may be correct that the landlord would have to use a specific code leadwork on the dome in place of the felt to comply with listed building legislation, the matter was not focused in submissions to the reporter, including the King Sturge dilapidations report to which Mr Dunlop referred. I am not persuaded that the reporter erred in law in this regard. If he were aware of the listed building requirements in relation to the building, that awareness would not necessarily alter his judgement that the claimed items were redevelopment rather than proper charges under the service charge.

(k) Lifts (p. 35 of the reporter's schedule)

[39] Mr Dunlop submitted that the reporter had erred in law in treating a claim for lift replacement as betterment on the mistaken understanding that the original lift had been removed and a new lift installed at a new location as part of the redevelopment of the building. The reporter had misunderstood the evidence and so erred in law. The landlord had claimed only for the removal of the lift as part of the service charge and not for the cost of the lift which replaced it at the same location.

[40] Mr Richardson explained that the reporter had not erred in his understanding of the evidence. The relevant lift (which counsel referred to as the "Dorothy Perkins" lift) had been a combined goods and passenger lift. It was removed and replaced at the same location by a passenger lift which was to a higher specification. A new goods lift was installed on the east of the building at the location of a pre-existing goods lift, as part of the redevelopment. The reporter had not erred in his understanding of the evidence. He referred me to a diagram of the building (Pro 7/23) which appeared to bear out his submission.

[41] On the information before me I am not persuaded that the reporter erred in law in his treatment of this item. He was entitled to treat the removal of the "Dorothy Perkins" lift as part of the redevelopment rather than a proper item for the service charge.

(l) Costs of the structural engineer (p. 36 of the reporter's schedule)

[42] Mr Dunlop's final challenge under the service charge was that the reporter had erred in his conclusion that it had not been necessary to engage a structural engineer owing to the nature of the works, the costs of which were recoverable under the service charge. He contended that no reasonable reporter would have concluded that a structural engineer was not needed in relation to:

(i) the works in the scope of work H 71;

(ii) the structural strengthening between level 6 and the roof;

(iii) remedial and strengthening works to the roof and 6^th floor support structure;

(iv) replacing steel channels and plates between the 6^th floor and the roof, including rebuilding a section of wall; and

(v) installing permanent structural support of the basement roof supporting Buchanan Street pavement.

Mr Dunlop submitted that the reporter had failed to give comprehensible reasons for his decision.

[43] The background to the reporter's decision was the tenant's challenge to the claim for the structural engineer's fees (appendix 1 p. 17 of the Fitzpatrick report) which stated (so far as relevant):

"In addition, Beattie Watkinson are a firm of structural engineers and it is not clear why their input was required for works in relation to the service charge. Beattie Watkinson were appointed to design structural alterations to the property, including the redevelopment of the rear section of the property. The works are not part of the service charge."

The reporter, when he considered the claim for professional fees, answered question (e) ("Insofar as evidenced, are the costs incurred reasonable?") in the negative. He stated:

"The inclusion of fees for a structural engineer is unreasonable in my opinion given the nature of the work recoverable through the service charge for works to the common parts."

His decision flows from his assessment of the scope of the service charge. I have not detected any significant errors of law in that assessment which would impact on the role of a structural engineer. I therefore reject the challenge that the reporter was unreasonable in his refusal to allow the recovery of the fees of the structural engineer under the service charge. Further, I do not have difficulty in following his reasoning and do not consider it to be inadequate.

Dilapidations
[44] The tenant had an obligation under clause 4(6) of the lease:

"at all times throughout the term at the tenant's expense well and substantially to repair, maintain, rebuild, reinstate, decorate, cleanse, glaze, point and generally in all respects put and keep in good repair and condition the premises and every part thereof ..."

Under clause 4(7) of the lease the tenant was obliged on every fifth year of the term and also:

"in the last three months of the term to decorate the interior of the premises in a workmanlike manner to the reasonable satisfaction of the Landlord, and in the case of the last such decoration prior to termination of this lease to carry out the same in accordance with colour schemes and finishes approved by the landlord."

[45] Mr Dunlop mounted two challenges to the reporter's determination in relation to dilapidations. First, he submitted that the reporter erred in law in disallowing the cost of replacing a disused goods lift to the east of the demised premises (marked "3" in the annotated lease plan which is item c. in appendix IX to the Fitzpatrick report). Clause 1 (12) of the lease defined the demised premises as the subjects specified in the first schedule to the lease. In turn, the first schedule described the premises by reference to what was outlined in red on annexed plans

"together with (one) right of egress in emergency only by the staircase shown coloured yellow on said plans (subject to payment of 50% of the whole costs of maintenance and decoration thereof, as certified by the landlord's surveyor); (two) the goods lift shown on said plans ...".

[46] The difficulty which has arisen is that the plans of the basement and ground floors attached to the lease show two lifts. One, which is within the red line of the premises at the south is marked "goods/passenger lift" and counsel referred to it as the "Dorothy Perkins lift". The other, which lies to the east of the premises and outside the red-lined area, is marked "goods lift".

[47] The reporter construed the lease as referring to the "Dorothy Perkins lift" on the south of the premises, which I discussed in paras [39] and [40] above in relation to the claim for removal costs under the service charge. He found that the costs of redeveloping that lift were not reasonable in the context of a dilapidations claim but that they were reasonable costs for the redevelopment of the building. He stated:

"From my review of the sub-under-lease, I am of the opinion that the goods lift referred to in (two) of the first schedule relates to the lift within the leased premises located at the south external wall adjacent to the stair, rather than the goods lift to the east out with the leased premises as the Tenant only had a right of egress in emergency to the common passageway giving access to the exit stair and the east goods lift.

Should my opinion subsequently be proved to be incorrect and the east goods lift did form part of the leased premises, I reserve the right to amend my opinion on the reasonable costs."

[48] Mr Dunlop submitted that the reporter's opinion was indeed incorrect and that he had erred in treating the "Dorothy Perkins lift" as the lift to which the first schedule referred. He advanced two reasons for his submission. First, the lift to the east was the only lift which the plans described as "goods lift". It was located at the rear of the building. Secondly, the lift marked "goods/passenger lift" (i.e. the "Dorothy Perkins lift") was clearly located within the red lines of the premises.

[49] Mr Richardson disputed that construction of the lease. He pointed out (consistently with the reporter's construction) that in the first schedule the right to use the building to the east of the premises was confined to the emergency egress (para [45] above). It made no sense for the demised premises to include a goods lift to which the tenant had no access. It made more sense to interpret the expression "goods lift" as referring to the "Dorothy Perkins lift" which could have served the other floors if they had been in use as well as the demised premises. That lift would not otherwise fall within the clause 1(12) definition. There was no reference to lifts in that definition. It extended "the premises" only to those other parts of the building, including services, which exclusively served the premises. The "Dorothy Perkins lift" did not serve the premises exclusively. It made sense therefore to include the "Dorothy Perkins lift" in the definition of the premises by the reference in "(two)" in the first schedule. It was also a standard conveyancing practice to demise a lift expressly.

[50] I think that the reporter has correctly construed the lease. The use on the plans of the expression "goods/passenger lift" to describe the "Dorothy Perkins lift" has created some ambiguity. But I am persuaded that the lack of access to the lift at the rear of the building makes it highly unlikely that the parties intended that lift to be within the definition of the demised premises. I consider the fact that the "Dorothy Perkins lift" is shown within the red line of the premises is of no moment. I detect no error in the reporter's exclusion of the claim for the replacement of the goods lift to the rear of the building.

[51] Mr Dunlop's final challenge related to the reporter's exclusion of the landlord's claim for redecoration of sales areas, staff rooms, lavatories, staircase enclosures and stockrooms (item 19 in appendix 4 to the reporter's report). Mr Dunlop referred to the tenant's obligation in clause 4(7) of the lease (para [44] above) and observed that while the tenant had contested the landlord's claim (£8,099.67) under this head, it had suggested that £7,103.46 was due. That notwithstanding, the reporter had disallowed the claim. He explained his decision to allow nothing under this head in answer to question (e) ("Insofar as evidenced, are the costs reasonable?"), stating:

"While it is clear that the tenant did not redecorate at the ish in accordance with the lease terms, the scope of the decoration carried out by the landlord was in connection with the redevelopment of the building and the works altered the premises superseding the requirement in my opinion."

Mr Dunlop submitted that the issue was properly one of quantification, by the exclusion of betterment, rather than disallowance in total and accordingly the reporter had erred.

[52] Mr Richardson's riposte was succinct: the reporter was entitled to hold that the landlord had suffered no loss because the redecoration was part of the redevelopment.

[53] I do not think that Mr Richardson's point is a complete answer to the challenge. As I said in a case which involved another report by Mr Morrison, namely Sane Investments Ltd v AstraZeneca UK Ltd [2013] CSOH 81, at para 13, the landlord is entitled to be placed in the same position in monetary terms as it would have been if the tenant had not breached its contract by failing to redecorate. That may raise issues of savings or of betterment when the landlord decorates the premises in a way which differs from the tenant's obligation. In other cases where the landlord radically alters the layout of the premises in a redevelopment, that work would have superseded the tenant's redecoration and would give rise to an argument that the tenant's failure to redecorate caused no loss.

[54] There is some ambiguity in the reporter's explanation of his decision. If he is saying that the redevelopment works changed the layout of the areas in question to such a degree that any redecoration by the tenant would have been wasted expenditure, that may be unexceptionable. But if part of his reasoning is that the redecoration was to a higher standard than that which the lease required, that would not provide a reason for disallowing the whole claim. I propose to direct the reporter to clarify his reasoning and, if necessary, reconsider this item of claim.

Conclusion
[55] I have generally sustained the reporter's decisions because I have not been persuaded that he erred in law. But in paragraphs [15], [22], [35] and [54] above I have upheld Mr Dunlop's challenges in relation to some of the smaller items or parts of claims. Counsel invited me to express my views on the challenges and have the case put out by order to enable a brief discussion of the precise terms of any directions which arose from my decision. I will have the case put out by order for that purpose and invite the parties to submit in advance of that hearing a draft of the directions which they propose.