Arbitration Application No. 2 Of 2011 V. An Appeal Against An Arbitration Award On Grounds Of Legal Error
| Jurisdiction | Scotland |
| Judge | Lord Glennie |
| Neutral Citation | [2011] CSOH 186 |
| Court | Court of Session |
| Published date | 11 November 2011 |
| Year | 2011 |
| Date | 09 November 2011 |
| Docket Number | P487/11 |
| OUTER HOUSE, COURT OF SESSION [2011] CSOH 186 | |
| P487/11 | OPINION OF LORD GLENNIE in Arbitration Application No.2 of 2011 An appeal against an arbitration award on grounds of legal error in terms of Rule 69 of the Scottish Arbitration Rules ________________ |
Petitioners/Appellants: Lake, Q.C.; Maclay Murray and Spens
Respondents: Mrs Wolffe, Q.C.; Biggart Baillie
9 November 2011
Introduction
[1] This is a "legal error appeal" against an arbitration award dated 1 April 2011 ("the award") and a subsequent award on expenses ("the expenses award") made on 18 April 2011. The appeal on expenses raises no separate points, but is contingent entirely on the success of the legal error appeal. The appeal is brought in terms of Rule 69 of the Scottish Arbitration Rules ("SAR") scheduled to the Arbitration (Scotland) Act 2010 ("the 2010 Act"), with the agreement of the respondents, the other party to the arbitration, so that leave to appeal was not required.
[2] The petitioners have also brought a separate challenge to the award in terms of Rule 68 of the SAR on grounds of "serious irregularity". The basis of this challenge is that the arbitrator, having (with the consent of the parties) taken the opinion of counsel on the construction of the relevant provisions of the lease entered into between the parties, followed that advice in arriving at his award without first giving the parties an opportunity of commenting thereon. That serious irregularity appeal was brought by separate petition (Arbitration Application No.1 of 2011), though it could, perhaps more conveniently have been brought in the same petition. Both the legal error appeal and the serious irregularity appeal came before the court at the same time on a motion for further procedure under Rule of Court 100.5(5). It was agreed to hear the legal error appeal first, on the basis that if it were to succeed it would render the serious irregularity appeal unnecessary, while if it were to fail, it might deprive the serious irregularity appeal of any content, since if the Arbitrator was correct in the conclusion he reached, any failure to allow parties an opportunity of commenting upon the advice he had received from counsel would probably be of little or no consequence.
[3] The legal error appeal proceeds entirely upon the findings of fact found by the arbitrator in his award. Despite that, the case has become somewhat bogged down in pleadings, involving detailed averments in the answers and adjustments to the petition and answers thereafter. For my part, while different considerations may well apply to other appeals and applications under the SAR, I would not wish to encourage detailed pleading on a legal error appeal. In a legal error appeal, unless one party or the other wishes to assert facts relevant to the exercise by the court of any of its powers under the Act, for example the power under Rule 71(8) of the SAR to order the tribunal to state its reasons in greater detail to enable the appeal to be dealt with properly, there is no scope for either party to make averments of fact about the underlying dispute, and extensive pleading will be unnecessary and, being unnecessary, is likely to be conducive of unnecessary delay. It will normally be sufficient for the respondents in their answers to make clear that they seek to support the award. Adjustment to the petition and answers will seldom, if ever, be required. The hearing of the appeal itself will usually proceed on a basis of written notes of argument lodged in advance of the hearing, rather than on the basis of the formal pleadings.
The issue in the appeal
[4] The petitioners ("the tenants") and the respondents ("the landlords") both carry on business as electricity undertakers. They are respectively tenants and landlords of some 49 properties ("the Premises") under a "Master Lease Agreement" made in 1999. The lease runs until 2014 and from year-to-year thereafter unless terminated by notice. An initial rent for the Premises is specified in the lease, which rent is subject to annual revisal in line with changes in the Retail Prices Index ("RPI"). The rent was subject to review as at 1 March 2009, after which the new revised rent is payable for the remainder of the duration of the lease subject, as before, to annual revisal in line with the RPI.
[5] This dispute concerns the operation of the rent review clause in the lease. The arbitrator, having taken counsel's opinion on some of the issues, found in favour of the landlords' contention as to the correct methodology in relation to two categories of premises (SSPs and TAPs), though he fixed a rental for those premises at rather less than the full amount for which the landlords were contending. The appeal is brought by the tenants. It should be noted that the arbitrator found substantially in favour of the tenants in relation to the other two categories of premises.
The relevant provisions of the lease
[6] The Premises leased are described in Schedule 1 to the lease. There is a distinction between "the Premises", which are let to the tenants, and "the Subjects" of which the Premises form part, but for present purposes it is not necessary to go into this in detail. Schedule 1 identifies the 49 properties individually. As appears from the award, they fall into four distinct categories namely (a) Site Sharing Premises ("SSPs"); (b) Trunk (or Transfer) Access Points ("TAPs"); (c) Equipment Accommodation Modules ("EAMs"); and (d) offices. This appeal is concerned only with the rent fixed for SSPs and TAPs.
[7] Part 1 of Schedule 1 is headed "The Premises" and deals with what is included within the Premises thus described. It provides, so far as material, as follows:
"1 Where the Premises described in any part of this Schedule comprise an Equipment Accommodation Module the Premises shall be deemed to comprise the area of ground shown delineated on the relevant plan but shall exclude the pre-fabricated module or cabin, any associated foundations, supports, hard standing or the like and any security frame (which excluded items shall be deemed to be tenants fixtures and fittings for which the tenant shall be solely responsible).
2. Where the Premises described in any part of this Schedule form part of a larger building the Premises shall include:-
(i) ...
(v) any channels, drains, sewers, watercourses, pipes, cisterns, tanks, pumps, valves, drainpipes, wires, cables, aerials and other conducting media, manholes, meters, and connections and all associated parts, plant and equipment which exclusively serve the Premises;
3. Where the Premises described in any part of the Schedule comprise a rack or racks designed to accommodate telecommunication plant and equipment the Premises shall be deemed to comprise the floor space occupied by such rack or racks as shown delineated on the relevant plan but shall exclude the rack or racks themselves which shall be deemed to be tenants' fixtures and fittings for which the Tenants shall be solely responsible.
In each case with all additions, alterations and improvements thereto and the Landlords' fixtures and fittings therein and thereon; and
Together Also With:-
(a) ...
and reference in the Lease to the Premises shall in the absence of any provision to the contrary include any part or parts of the Premises."
[8] It is necessary to set out the provision for rent review in clause 3.2 of the lease. So far as material, this provides as follows:
"3.2 With effect from 1 March 2009 (such date being hereinafter referred to as the "Review Date") the Rent shall be reviewed and shall be the market rent (as after defined) of the Premises as at the Review Date.
3.2.1 The expression "the market rent" shall mean the rent at which the Premises might be expected to be let without fine or premium each of the Premises taken individually as one entity on the open market at the Review Date for a period equal to the unexpired period of the Duration computed from the Review Date, with vacant possession by a willing landlord to a willing tenant and subject to similar provisions to those contained in this Lease (other than the amount of rent but including provision equivalent to the provisions contained herein for review of rent)
(i) Upon the following assumptions:-
(a) that the Premises, the Subjects are in good and tenantable condition available, fit and equipped for immediate occupation and use;
(b)...
(ii) But taking no account of any effect on rent of:-
(a) ...
(c) any improvements to the Premises carried out by the Tenants or any permitted sub-tenants with the Landlords' consent otherwise than in pursuance of an obligation to the Landlords or their predecessors in title whether before or after the Date of Entry and whether under the provisions of this Lease or otherwise."
The focus of this appeal was on the effect to be given to the words "fit and equipped for immediate occupation and use" in assumption (i)(a).
[9] It is clear, in general terms, that the tenants were to use the Subjects in connection with their telecommunications business. Thus, in cl.12, dealing with the Regulatory Position, the landlords acknowledged that the tenants were in the business of providing telecommunications services and were bound to comply with the Telecommunications Act 1984 (the 1984 Act) and the licence granted pursuant thereto. The tenants were specifically prohibited from using the Premises other than for purposes connected with telecommunications (cl.4.2.7); the landlords had a right to terminate if the tenants ceased to use the Subjects in connection with their business as electricity undertakers (cl.2.3); and the landlords also had the right to irritate the lease if the tenants' licence under the 1984 Act was revoked (cl.9.1(iv)). Some of the other detailed provisions of the lease were clearly specific to such use. The tenants had the right, without requiring the landlords' consent, to lay new cables in existing telecommunications...
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