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You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Wilky Property Holdings Plc v London & Surrey Investments Ltd [2011] EWHC 2226 (Ch) (17 August 2011) URL: https://www.bailii.org/ew/cases/EWHC/Ch/2011/2226.html Cite as: [2011] ArbLR 38, [2011] EWHC 2226 (Ch) |
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CHANCERY DIVISION
Strand, London, WC2A 2LL |
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B e f o r e :
(Sitting as a Deputy Judge of the High Court)
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WILKY PROPERTY HOLDINGS PLC |
Claimant |
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- and - |
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LONDON & SURREY INVESTMENTS LIMITED |
Defendant |
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Mr. Harry Matovu QC (instructed by Berg Legal) for the Defendant
Hearing date: 19 May 2011
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Crown Copyright ©
RICHARD SNOWDEN QC:
Background
"16. In addition to the monthly Consultancy Fee, [LSI] shall be entitled to charge a further fee (the Profit Share) whenever an Approved Scheme comes to fruition, whether by way of sale of the whole or part, or by retention, and the following paragraphs of this Letter of Appointment are intended to define, as far as possible the circumstances in which that Profit Share becomes payable, when it will become payable and the amount of that share.
(i) The Profit Share means 20% of the net profits earned consequent upon the completion of each Approved Scheme save that we [LSI] acknowledge that if any such scheme is retained as an investment, you [Wilky] have the right to elect to pay us either 20% of the Net Profit that might reasonably have been expected to be released if such scheme had been sold at arm's length in the market place or 20% of the net rents and profits you actually receive from time to time from such retained investment.
(ii) "Net Profits" means the profit which results from the completion of any Approved Scheme after the payment of all borrowings and other forms of loan or indebtedness, the deduction of all reasonable costs, interest payments, expenses, charges and other payments whether of a capital nature or otherwise and whether to third parties or otherwise including all proper overheads.
……
17. The right to receive a Profit Share shall be subject to [LSI] complying with the following obligations:
(i) The Service shall have been provided continuously from the time any scheme becomes an Approved Scheme to the date of Completion. If for any reason other than as provided for in this Clause 17 we [LSI] shall unilaterally determine this Letter of Appointment our Profit Share entitlement shall be reduced in respect of each Approved Scheme to such an amount as we shall agree between us fairly reflects on a quantum meruit basis our efforts to discharge our responsibilities hereunder up to the time of determination (the Compensatory Payment) and in the event that we cannot agree such Compensatory Payment either of us shall have the immediate right to refer the matter of calculating the amount of the Compensatory Payment to an independent expert pursuant to the terms of Clause 22 hereof."
"22. If there is any difference or dispute as to the meaning or effect of the terms of this letter of appointment, or the calculation of the Profit Share to be paid thereunder, we agree and acknowledge that either you or we acting independently shall be at liberty to refer any such dispute to an independent expert to be appointed by either you or ourselves jointly, but in the event that you or ourselves can not agree upon such an expert, then either we or yourselves shall request the president of the Royal Institution of Chartered Surveyors to appoint an expert to determine the dispute, whose decision thereon, and the liability for the costs of the referral, shall be binding upon ourselves and yourselves."
"The dispute concerns the proper settlement of development profit share and quantum meruit due to the Claimant under a 1996 Consultancy Agreement. It relates in particular to development profit share and other payments arising from a number of projects, notably a healthcare development for the NHS and MoD, agreed value in excess of £60M, and ongoing proposals for a business park project at Gatwick. Many of the costs and surpluses figures are actually agreed although some remain in dispute, including in relation to the fair proportion of the Defendant's internal overhead costs properly attributable to the projects."
i) a declaration that no entitlement to Profit Share under Clause 16 or any Compensatory Payment under Clause 17 arises in respect of an Approved Scheme until Completion of that Approved Scheme; and a declaration that the only Approved Scheme that had reached Completion was the Aldershot Scheme;
ii) a declaration that LSI had no entitlement to a Profit Share in respect of the Aldershot Scheme unless and until Wilky made an election whether or not to sell the project; a declaration that Wilky had made no such election; and a further declaration that there could be no expert determination of any Profit Share under Clause 22 unless and until Wilky had made such election; and
iii) a declaration that the right under Clause 22 to refer to expert determination any difference or dispute as to the "meaning or effect of the terms of [the Agreement]" is limited to determining such issues as are necessary for the calculation of "Profit Share" or "Compensatory Payment".
Summary of Submissions
Is Clause 22 an Arbitration Agreement?
"expert determination is a very different form of dispute resolution to which neither the Arbitration Act 1996 nor any other statutory codes apply"
"The question here is, whether the umpire was merely a valuer substituted for the valuers originally appointed by the parties in a certain event, or an arbitrator. If it appears from the terms of the agreement by which a matter is submitted to a person's decision, that the intention of the parties was that he should hold an inquiry in the nature of a judicial inquiry, and hear the respective cases of the parties, and decide upon evidence laid before him, then the case is one of an arbitration. The intention in such cases is that there shall be a judicial inquiry worked out in a judicial manner. On the other hand, there are cases in which a person is appointed to ascertain some matter for the purpose of preventing differences from arising, not of settling them when they have arisen, and where the case is not one of arbitration but of a mere valuation."
"any dispute or difference arising hereunder between the Assured and the Insurers shall be referred to a Queen's Counsel of the English Bar to be mutually agreed between the Insurers and the Assured on in the event of disagreement by the Chairman of the Bar Council."
"There is no need for a clause which deals with reference of disputes to say in terms that the disputes are to be referred to an 'arbitrator' or to 'arbitration'. The necessary attributes of an arbitration agreement are set out in the second edition of Mustill & Boyd, p. 41. But, for present purposes, the important thing is that there should be an agreement to refer disputes to a person other than the court who is to resolve the dispute in a manner binding on the parties to the agreement. That is what this clause in my opinion does, and it is therefore an arbitration agreement within the meaning of section 6 of the 1996 Act."
Then, after citing Re Carus-Wilson, Longmore LJ continued, at paras. 14-15,
"For my own part, it seems to me that the clause in the present case falls fairly and squarely into Lord Esher MR's first category, where the intention is that the inquiry is to be in the nature of a judicial inquiry and that the Queen's Counsel is to hear the respective cases of the parties and decide on evidence before him. That is what Queen's Counsel are normally expected to do when matters are referred to them, and all the more so if the formality of the position is such that, if there is disagreement as to the identity of the Queen's Counsel, he is to be appointed by the chairman of the Bar.
In the present case, the parties cannot, with respect to the judge, have intended a reference to a Queen's Counsel as an expert or a non-binding opinion, because in that way no finality could be achieved. They must in my judgment have wanted a binding result, and the clause thus constitutes an arbitration agreement."
"The appointment of an expert, as Lord Esher MR explained in Re Carus-Wilson … is designed essentially to prevent differences arising between the parties. General condition 1 expressly postulates that a difference or dispute has already arisen.
As to the suggestion that this was some sort of non-binding alternative dispute resolution clause, that seems to me to be nothing short of absurd. The condition goes to the lengths of providing, if necessary, for the chairman of the Bar Council to appoint a Queen's Counsel to deal with the reference. That, to my mind, is quite inconsistent with any suggestion that the process required by the clause is simply an optional extra in the contract. Rather it makes business sense only if it provides for a final and binding determination of whatever dispute or difference is referred – if, in short, it is an arbitration agreement."
"There may be cases of an intermediate kind, where, though a person is appointed to settle disputes that have arisen, still it is not intended that he shall be bound to hear evidence or arguments. In such cases it may be often difficult to say whether he is intended to be an arbitrator or to exercise some function other than that of an arbitrator. Such cases must be determined each according to its particular circumstances."
"It is often said that the distinction between an arbitration on the one hand and valuation and kindred proceedings on the other is that the object of one is to resolve disputes, and of the other to prevent disputes from arising.
This formulation is neat, but unhelpful. In many instances where the reference undoubtedly constitutes a valuation, a third person is appointed to fix the value precisely because the parties foresee that they may be unable to agree; and if in fact they do agree, it will be the agreement, not the decision of the valuer, which prevents the dispute arising."
"Such accountant shall act as an expert and not as arbitrator and shall determine the matter or matters in dispute (which may include any dispute concerning the interpretation of any provision of this Agreement or his jurisdiction to determine the dispute or the content or interpretation of his terms of reference) and his decision shall be final and binding on the parties hereto."
(emphasis added)
Such a structure would make it clear that the expert's jurisdiction to determine disputes over interpretation would arise only if he was validly appointed to determine the main dispute under the preceding clause, and would only exist in conjunction therewith.
"36. It was next submitted by Mr Tozzi QC that a court has to take into account the speed and informality of expert determination as important considerations to which the parties agreed by selecting that form of procedure. As the expert determination would be carried out quickly without recourse to the formalities of court or arbitration, a court should not deprive the parties of that upon which they had agreed, even if the process was not, on an objective basis, suitable for the dispute which had arisen.
37. As I have said, there is no procedural code for expert determination, in contradistinction to arbitration. The activities of an expert are subject to little control by the court, save as to jurisdiction or departure from the mandate given. Unless the parties specify the procedure, the expert determines how he will proceed; it is rare for what might be perceived as procedural unfairness in an arbitration to give rise to a ground for challenge to the procedure adopted by an expert. (See Expert Determination (4th Edition 2008) by Kendall, Freedman and Farrell, chapter 16.)
38. I therefore accept that if the parties have chosen such a process and the dispute falls within the jurisdiction of the expert, then they must be held to it, whatever view might be taken as to the appropriateness of the procedure for the matters submitted to the expert."
"70. I appreciate that, in cases of this sort, the advantage of leaving all points of law to the final determination of the expert is that it results in a relatively quick and cheap process for the parties. However, it must be questionable whether the parties would have intended an accountant, surveyor or other professional with no legal qualification, to determine a point of law, without any recourse to the courts, even if it has a very substantial effect on their rights and obligations. It would, I suggest, be surprising if that were the effect of an expert determination agreement, when the Arbitration Act 1996 gives a right (albeit a limited and prescribed right) to the parties to refer points of law to the court. That Act applies where the parties have entered into an arbitration agreement, which gives them a much greater ability, in law and in practice, to make representations and to involve lawyers in connection with the arbitration, than parties enjoy in connection with the great majority of contractual expert determinations."
Ought the Court to exercise its discretion to stay the Part 8 Claim?
"So in questions in which the parties have entrusted the power of decision to a valuer or other decision-maker, the courts will not interfere either before or after the decision. This is because the court's views about the right answer to the question are irrelevant. On the other hand the court will intervene if the decision-maker has gone outside the limits of his decision- making authority.
One must be careful about what is meant by 'the decision-making authority'. By 'a decision-making authority' I mean the power to make the wrong decision, in the sense of a decision different from that which the court would have made. Where the decision-maker is asked to decide in accordance with certain principles, he must obviously inform himself of those principles and this may mean having, in a trivial sense, to 'decide' what they mean. It does not follow that the question of what the principles mean is a matter within his decision-making authority in the sense that the parties have agreed to be bound by his views. Even if the language used by the parties is ambiguous, it must (unless void for uncertainty) have a meaning. The parties have agreed to a decision in accordance with this meaning and no other. Accordingly, if the decision-maker has acted upon what in the court's view was the wrong meaning, he has gone outside his decision-making authority. Ambiguity in this sense is different from conceptual imprecision which leaves to the judgment of the decision-maker the question of whether given facts fall within the specified criterion….
These are the principles upon which a court will decline as a matter of substantive law from interfering in a matter which the parties have agreed to submit to the decision of a third party. It does not follow, however, that because the court will intervene to correct a decision-maker who has gone outside his authority, it will declare in advance what the limits of that authority are. The reason for this reluctance is not one of substantive law but procedural convenience. It is because in advance of the decision, the true meaning of the principles upon which he has to decide is usually a hypothetical question. It is hypothetical because it will only become a live issue if one of the parties think that the decision-maker has got it wrong. It is always possible that he may get it right and therefore wasteful and premature to come to the court until he has made his decision. The practice of the courts is not to decide hypothetical questions: see Re Barnato [1949] Ch 258."
"The defendants under this head are entitled to say that the court normally will not give a ruling as to the meaning of words to be applied by another decision-maker before he has had a chance to express his own views about it and that the courts will not answer questions which are wholly academic and hypothetical"
"In my view it is not necessary to go further than the statement of principle by Hoffmann LJ in Mercury Communications; it does not assist to describe the circumstances in which a court will intervene as "exceptional". The court has to determine first whether it is faced with a dispute which is real and not hypothetical and then if it is real, whether it is in the interests of justice and convenience to determine the matter in issue itself rather than allowing the expert to determine it first."
"The position is very different to the other cases to which I have referred where a party has sought the intervention of the court. First, whatever the expert decides on jurisdiction, his decision is not final. It can always be challenged, unlike his determination of a matter within his jurisdiction. This is the principle applicable to arbitrations. It would be wasteful and contrary to principle to have any different rule applicable to expert determinations. It would be wasteful because if the expert determined he had no jurisdiction and that was challenged, then the court would have to determine it. If the expert determined he had jurisdiction but in fact the court held he was wrong, then nothing could be more wasteful than the expert entering into a determination of the substance of the dispute when he had no jurisdiction to do so."
"After a point of law has arisen, the parties may often be well advised to consider whether to refer it to court as a preliminary issue. If they do not, they may also think it sensible to try and agree whether the expert's decision on the point will be treated as final and binding or whether the disappointed party should have the right to refer the issue to the court. If the latter, then the expert should indicate whether, and in precisely what way, his determination would have been different if he had decided the point the other way: that may help the disappointed party decide whether it is worth challenging the decision, and it may also assist the parties in arriving at a settlement."