ARBITRATION APPEAL NUMBER 1 OF 2023 [2023] ScotCS CSOH

OUTER HOUSE, COURT OF SESSION

[2023] CSOH 78

P378/23

OPINION OF LORD RICHARDSON

in the Petition

ARBITRATION APPEAL NO 1 OF 2023

Petitioner: Davidson Chalmers Stewart

Respondent: Dentons

8 November 2023

Introduction

[1]

The petitioner challenges the Part Award of an arbitrator dated 10 March 2023.

[2]

The petitioner challenges the Part Award on two grounds. The first ground is said to

concern a serious irregularity under rule 68 of the Scottish Arbitration Rules. A ground of

appeal advanced on this basis does not require leave to appeal. As an alternative, the

petitioner submits that the arbitrator has made a legal error. This ground of appeal is

advanced pursuant to rules 69 and 70 of the Scottish Arbitration Rules. Grounds of appeal

made under these rules require the leave of the court to proceed unless they are made with

the agreement of the parties.

[3]

The respondent does not agree to the legal error appeal being made by the petitioner.

Accordingly, the petitioner seeks leave to advance its legal error appeal. The respondent has

lodged grounds of opposition resisting the grant of leave.

[4]

In terms of rule 70(5) of the Scottish Arbitration Rules, I am to determine the

petitioner's application for leave without a hearing unless I am satisfied that a hearing is

required. Having considered the papers, I am not so satisfied and, accordingly, deal with

the issue of leave in this opinion.

Background

[5]

The petitioner and respondent are, respectively, the tenant and landlord of a lease in

respect of commercial subjects in Glasgow. The petitioner operates a hotel accommodation

business from the property. The petitioner took occupation of the property in

February 2011.

[6]

A dispute arose between the parties because the petitioner alleged that the

respondent was not maintaining the common parts of the property, a proper system of

heating, and the windows of the property in accordance with the respondent's obligations

under the lease. As a result of the petitioner's contention that the respondent was not

complying with its obligations under the lease, the petitioner made deductions from the

rental and services charges it made to the respondent from December 2017. From 10 March

2020, the petitioner has made no further rental payments.

[7]

On 11 February 2022, the respondent served a pre-irritancy notice on the petitioner

requiring payment of the outstanding rent arrears. The respondent subsequently served an

irritancy notice on the petitioner dated 27 May 2022. On 22 June 2022, the respondent

commenced proceedings at Glasgow Sheriff Court seeking declarator of irritancy and decree

for ejection further to the notices that it had served.

The arbitration

[8]

Clause 9 of the lease provides that any question between the parties in respect of the

meaning of the lease or the rights and obligations of the parties under the lease is to be

determined by arbitration. On 5 July 2022, the petitioner served a notice of arbitration and

the arbitrator was appointed. The Sheriff Court proceedings were and remain sisted.

[9]

In its notice of arbitration, the petitioner asserts that the respondent is in material

breach of the lease and, accordingly, the respondent is entitled to the remedy of retention of

rent. The petitioner also seeks a declaration that it would be entitled, in light of the breaches

of contract by the respondent, to rescind the lease and to damages in the sum of £800,000

together with interest.

[10]

The respondent answered the notice. The respondent asserted that it was not in

breach of its obligations under the lease; that the petitioner was not entitled to retain

payments of rent or any other charges due under the lease; that its irritancy notice dated

27 May 2022 was valid; and that the petitioner should pay it the outstanding rent arrears

together with interest.

[11]

Following further procedure, the arbitrator fixed a hearing for 12 December 2022 on

the issues of (1) the petitioner's right to withhold payment for rent; (2) the relevancy of the

petitioner's claim for abatement of rent; and (3) the validity of the irritancy notice dated

27 May 2022.

The Part Award

[12]

The arbitrator issued the Part Award on 10 March 2023. For present purposes, the

relevant parts of the Part Award may be summarised as follows.

[13]

The arbitrator considered that the key to determining whether the respondent's

notice of irritancy was operative was the provision of the lease which required the rent (as

defined) to be paid "clear of any deduction, right of compensation or set-off whatsoever".

(See paragraph 76 of the Part Award and clause 2 of the lease). The arbitrator considered

that the question of whether or not the petitioner's claim for the abatement of rent was

relevant also required to be considered against this wording (see paragraph 80).

[14]

From this starting point, the arbitrator concluded that the wording of the lease did

not displace the petitioner's right to claim for an abatement of rent (see paragraphs 87

and 92).

[15]

However, the arbitrator also concluded, based upon the wording of the lease and, in

particular clause 2, that where abatement is claimed the rent must nonetheless be paid

unless and until an abatement is fixed or established (see paragraph 95). In reaching this

conclusion, the arbitrator expressly rejected the petitioner's argument that the retention of

rent by the petitioner did not fall within the scope of the wording "clear of any deduction,

right of compensation or set off whatsoever" in clause 2 of the lease (see paragraph 98).

[16]

At paragraph 102 of the Part Award, the arbitrator said the following:

"As to the argument noted at paragraph 69 above, that a landlord cannot irritate

when itself in breach (on the principle of mutuality), this does not on the face of it

take account of the express terms of the lease in the instant matter, which in effect, by

implication, accept that certain `deductions' could otherwise be due (brought about,

for example, by a landlord breach of contract) but the parties have agreed

notwithstanding this, that the Rent must simply be paid in the first instance."

The test for leave to appeal

[17]

The test which must be satisfied in order for leave to be granted is contained in

rule 70(3) of the Scottish Arbitration Rules which provides:

"(3) Leave to make a legal error appeal may be given only if the Outer House is

satisfied--

(a) that deciding the point will substantially affect a party's rights,

(b) that the tribunal was asked to decide the point, and

the tribunal treated as established for the purpose of deciding the point), the

tribunal's decision on the point

(i) was obviously wrong, or

(ii) where the court considers the point to be of general importance, is open to

serious doubt."

[18]

The test for granting of leave was helpfully addressed by Lord Glennie in the first

reported decision under the Arbitration (Scotland) Act 2010, Arbitration Application No.3

of 2011 2012 SLT 150 at paragraph 8:

"In substance, therefore, the test for the grant of leave is the same in both

jurisdictions [England and Scotland]. Since the Act was closely and unashamedly

modelled on the English Act, and reflects the same underlying philosophy,

authorities on the Act (and its predecessor, the Arbitration Act 1979) in relation to

questions of interpretation and approach will obviously be of relevance. There is no

point in re-inventing the (arbitration) wheel."

[19]

From this starting point, I consider that the approach to be adopted by the Court in

considering the decisions of arbitrators is neatly summarised by Bingham J (as he then was)

in Zermalt Holdings SA v Nu-Life Upholstery Repairs Ltd [1985] 2 EGLR 14:

"[...] as a matter of general approach, the courts strive to uphold arbitration awards.

They do not approach them with a meticulous legal eye endeavouring to pick holes,

inconsistencies and faults in awards and with the objective of upsetting or frustrating

the process of arbitration. Far from it. The approach is to read an arbitration award

in a reasonable and commercial way, expecting, as is usually the case, that there will

be no substantial fault that can be found with it."

The petitioner's legal error appeal

[20]

The petitioner submits that the arbitrator's conclusion in paragraph 102 of the Part

Award is flawed and obviously wrong. The petitioner submits as follows:

"The reasoning proceeds on the basis that the right to exercise the remedy of

irritancy arises where the petitioner has failed to pay rent irrespective of whether the

landlord is in material breach. The tribunal failed to consider firstly whether the

respondent was in breach of the obligations, and secondly whether those breaches

were material and prevented the respondent exercising the remedy of irritancy

applying the principle of mutuality of obligations." (statement 13 of the Petition)

[21]

The petitioner also submits that the point raised is one of general importance and is

open to serious doubt. The petitioner argues that the point raised is of importance to

landlords and tenants more generally and is not restricted to the facts of the present dispute.

Decision

[22]

I am satisfied that the requirements of rule 70(3)(a) and (b) are met in the present

petition. However, I am not satisfied that either limb of rule 70(3)(c) is made out.

[23]

The arbitrator has concluded, primarily on the basis of a construction of the material

terms of the lease, that the petitioner's claims of breach of contract by the respondent could

not provide a defence to the exercise by the respondent of its right to irritate the lease for

non-payment of rent and other payments by the petitioner. In essence, the arbitrator held

that the parties had agreed to a contractual scheme whereby the petitioner's obligation to

pay the rent and other sums as they became due under the lease was not affected by the any

claims the petitioner might have arising from alleged breaches by the respondent. As such,

the proof of the petitioner's case of breach against the respondent did not arise at that stage.

Furthermore, it follows from the arbitrator's construction of the terms of the lease, that the

obligations which the respondent is said by the petitioner to have breached are not the

counter-parts of the petitioner's obligation to make payment. Therefore, on the arbitrator's

approach, the principle of mutuality of obligations provided no defence to the respondent's

right to irritate the lease.

[24]

I do not consider that the arbitrator's conclusion can be said to be "so obviously

wrong as to preclude the possibility that he might be right" Antaios Compania Naviera SA v

Salen Rederierna AB [1985] 1 AC 191 at 206D-E. The arbitrator was engaged in an exercise of

contractual construction. Plainly, as it is put in the case law, respectable intellects may

disagree about the results of such an exercise (see Braes of Doune Wind Farm (Scotland Ltd v

Alfred McAlpine Business Services Ltd [2008] 1 CLC 487 at paragraph 29). In my opinion, the

Part Award simply does not disclose an error of the type required by rule 70(3)(c)(i).

[25]

As to the second limb, I am quite satisfied that the point raised by the petitioner does

not raise any issue of general importance. It turns on the proper construction of the bespoke

terms of a commercial lease. There is no suggestion that either the lease as a whole or the

relevant clauses are standard.

Disposal

[26]

Accordingly, I will refuse the petitioner leave to appeal on the ground of a legal

error, pursuant to rules 69 and 70 of the Scottish Arbitration Rules. I will have the case put

out by order in order that I can be addressed on any further procedure in respect of the

petitioner's ground of challenge under rule 68 of the Scottish Arbitration Rules.

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You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> ARBITRATION APPEAL NUMBER 1 OF 2023 [2023] ScotCS CSOH_78 (08 November 2023) URL: http://www.bailii.org/scot/cases/ScotCS/2023/2023_CSOH_78.html Cite as: [2023] ScotCS CSOH_78, [2023] CSOH 78

Scottish Court of Session Decisions