Lord President

Lord Kingarth

Lord Clarke

[2008] CSIH 40



delivered by LORD CLARKE



From the Sheriffdom of Glasgow and Strathkelvin at Glasgow

in the cause


Pursuers and Respondents;



Defenders and Appellants:


Act: Weir; Semple Fraser (Pursuers and Respondents)

Alt: Sandison; Anderson Strathern LLP (Defenders and Appellants)

2 July 2008


[1] This is an appeal against an interlocutor of the sheriff principal of Glasgow and Strathkelvin of 16 January 2007, whereby he adhered to an interlocutor of the sheriff at Glasgow by which interlocutor the sheriff had granted decree against the defenders for payment to the pursuers of the sum of £49,725, with interest from the date of citation. The principal sum in question represents backdated rent said to be due by the appellants under a lease of premises occupied by them as tenants at 92-94 Bath Street, Glasgow of which the respondents are the landlords.

The context of the dispute

[2] The lease between the parties is contained in a Minute of Lease between Clydesdale Bank plc (the original landlords) and the appellants dated 12 and 19 August 1982. Clause FOURTH of the lease is, inter alia, in the following terms:

"Notwithstanding the foregoing provisions of this Minute of Lease with a view to ensuring that the rent payable hereunder shall from time to time be adjusted so as to be a fair market rent, the rent so payable shall be subject to review at the instance of the Landlords at the first rent payment term immediately following the fifth anniversary of the date of entry and at the same term in each fifth year thereafter up to and including the twentieth year of this Lease and at the same term in every third year thereafter (hereinafter called 'the relevant term') and such review shall be effected only in accordance with the following provisions:-

(a) The Landlords shall give to the Tenants three months written notice

prior to the relevant term of their intention to exercise their right to require a review of rent. Such notice shall specify the rent which the Landlords propose as the fair market rent at the time in lieu of the rent then payable hereunder (hereinafter called 'the current rent') and in the event of the Tenants not accepting the rent specified in the said notice as the fair market rent at the time they shall within the period of twenty-one days after receipt of the notice intimate in writing to the Landlords to that effect. Failing such intimation the rent payable under this Lease shall from and after the relevant term be the rent specified in the said notice.

(b) In the event of the Tenants not accepting that the rent specified in the

said notice represents the fair market rent at the time such rent shall be fixed, failing agreement, by an independent surveyor to be nominated, failing agreement, by the Chairman for the time being of the Scottish Branch of the Royal Institution of Chartered Surveyors on the application of the Landlords. Such surveyor shall determine the fair market rent at which the premises might reasonably be expected to be let at the relevant term and disregarding any effect on the rent of any additions or improvements to the premises made by and at the expense of the Tenants otherwise than in pursuance of an obligation to the Landlords in terms of this Lease. The certificate of such surveyor as to such rent shall be final and binding on the parties to the effect that in the event of the rent specified in the said certificate being more than the current rent the rent specified in the said certificate shall become the rent payable under this Lease from and after the relevant term, the whole other terms and conditions of this Lease remaining in full force and effect. In the event, however, of the rent specified in the said certificate not being more than the current rent, the current rent shall continue to be the rent payable under this Lease from and after the relevant term. The whole cost of having fixed as aforesaid the rent payable under this Lease shall be borne by the Tenants.


(d) Unless and until the rent payable under this Lease is varied in

accordance with the foregoing provisions of this Clause the current rent shall continue to be the rent payable under this Lease and within seven days after the rent has been so varied (if such date be later than the relevant term) there shall be an accounting between the parties in regard to any underpayment of rent in consequence of a variation of rent as aforesaid".

The rent due under the lease was due to be reviewed as at the 15 May 2002. The parties were unable to reach an agreement as to the fair market rent. They therefore invoked the provisions of Clause FOURTH (b) and an independent surveyor, Mr. Fraser Clearie, was appointed to determine the fair market rent. Mr. Clearie issued his rental determination on 9 June 2005. The sum sued for in the present proceedings represents the backdated rent due at the date of the raising of the present proceedings if Mr. Clearie's determination is binding on the parties. The appellants contend that Mr. Clearie's determination is not binding on them because Mr. Clearie was, in carrying out the exercise he did, acting as an arbiter and in performing that role he, it is said, breached the rules of natural justice. The appellants, accordingly, seek to have the determination set aside ope exceptionis. Before this court their position was that a proof before answer should be allowed for the purposes of establishing whether or not their contentions fell to be upheld.

[3] The sequence of events leading up to Mr. Clearie's determination were as follows. By letter of 4 March 2005, addressed to representatives of the respondents and copied to the appellants' representative (and apparently in response to a letter of 22 February 2005 from the respondents' representatives, which letter was not lodged in process), Mr. Clearie wrote as follows:

"I refer to Mrs. Taylor's letter of 22nd February and confirm that I am willing to provide a rental determination in accordance with your request, but I am unwilling to place a limit (at this stage) on the level of fees that my legal advisor may charge. If it is necessary to seek legal advice, I would propose to consult Paul Hanniford of Semple Fraser. In the past I have found his charges in matters of this nature to be modest but until all the issues are aired, it would be unduly onerous to present him with a budget, particularly one as low as £500 plus VAT.

On the basis that the foregoing is acceptable to the parties I have prepared Terms of Engagement for your consideration and these are attached. I noted your desire to present me with Submissions today with Counter Submissions in 14 days time but as there [has] been no indication whether this was acceptable to the Tenants, it seems only fair to have a short delay. Accordingly I suggest that Submissions should be presented no later than 5.00 p.m. on 1st April 2005 with Counter Submissions 14 days thereafter. The Terms of Engagement includes these dates however if both parties would prefer please indicate this writing (sic).

I trust that the foregoing is acceptable and look forward to hearing from both parties to that effect. When responding, please clarify who will be responsible for my fees etc."

The attached Terms of Engagement, referred to in that letter were in the following terms:

"1.0 Unless I am immediately advised in writing by the parties to the contrary, my valuation will be on the basis that:-

(i) the property is free from latent and inherent defects, that no

deleterious materials have been used in its construction and that it is not built on or affected by contaminated land, and

(ii) complies with the relevant planning and other statutory

regulations and requirements, and

(iii) the only relevant tenancy document is a Deed between

Clydesdale Bank plc and Michael Crabbe Hodge, Norna Forsyth Crabbe and Alexander Charles Reid.

2.0 The Deed entitles the parties to make representations on rental and I am obliged to take cognisance of these. The procedure I propose to adopt is as follows:-

2.1 It would be helpful if the parties would produce an agreed Statement of Facts Not in Dispute. It should contain a description of the subjects, floor areas, planning consents, lease use rights, and if applicable, any tenant's improvements which have to be disregarded.

2.2 In the event of there being any matters on which I require to seek a technical or legal opinion, I will first advise both parties, give them an estimate of the fees involved and ensure that my consultant or solicitor, who I may wish to appoint does not have a conflict of interest.

2.3 No correspondence or documents of a privileged nature should form part of either Representation or Counter-Representation.

2.4 It would be helpful if supporting evidence and comparables in the Reports and Replies are corroborated in writing, and provided in a detailed manner.

2.5 Reports should be lodged with me by 5.00 p.m. on 1st April, 2005. They should contain the Valuer's opinion of the rental value of the subjects in accordance with the terms of the lease together with appropriate supporting evidence. The Representation should be made in duplicate and I will pass one copy of each party's Representation to the other party.

2.6 Replies containing comments upon the initial written Representations are to be lodged with me by 5.00 p.m., 15th April, 2005. The Reply should not contain any representations or evidence other than in rebuttal of the points made in the opposing parties (sic) initial representations. I will exchange Replies.

2.7 I would remind the parties of the obligations and responsibilities imposed upon chartered surveyors if purporting to act as Expert Witnesses, all as referred to in the latest RICS Practice Statements and Guidance Notes. If I am persuaded that a serious and deliberate breach has taken place, I may report the matter.

3.0 I will arrange to inspect the premises and will contact the Tenant for this purpose. I do not propose that I be accompanied during my inspection.

4.0 If there are any further matters on which I require additional information or clarification, I will advise both parties and after receipt of Replies. I will not accept any further Representations unless I consider it to be essential or by express agreement between the parties.

5.0 My Determination will take a form of a certificate without Reasons.

6.0 Despite the quasi-arbitral nature of the foregoing, I have been invited and accepted, subject to these Terms of Engagement, the role of Independent Expert Surveyor. I will conduct myself in accordance with the Guidance Notes for Surveyors Acting as Independent Experts in Rent Reviews, Scottish Edition, published by the RICS."

It appears that after the receipt of Mr. Clearie's letter of 4 March 2005 by the parties' representatives, Mr. Clearie had a meeting with them on 21 March 2005. He thereafter, on 22 March 2005 wrote to the parties' representatives in the following terms:

"Thank you for your time yesterday and the opportunity to reconcile some of the concerns relative to the Terms of Engagement that accompanied my letter of 4th March.

I have prepared this letter to record my understanding of our meeting and invite you to agree the contents.

(i) Agreed

(ii) Agreed

(iii) The Tenant alleges that one or more Minutes of Agreement concerning

Tenant's improvements may exist and the intention would be that these would be taken into account in the rental valuation. The Landlord is not aware of the existence of these documents. The point requires to be established as soon as possible and preferably at least 5 working days prior to the deadline for written Submissions. This is designed to enable the parties to present their opinions of value on the correct basis and avoid uncertainty on matters of fact."

Those observations apparently related to the numbered sub-paragraphs of paragraph 1.0 of the Terms of Engagement

"2.1 I note that the parties will endeavour to agree on the net lettable floor areas of the premises measured in accordance with the RICS Code of Measuring Practice.

2.5 & 2.6 Revised date for Submissions and Counters will be 8th and 22nd April respectively.

5.0 My Determination will be provided with a separate note showing my calculations.

The remaining terms are understood to be acceptable.

In the event that I decide that legal or technical advice is required I will first approach the parties, explain the point and invite the parties to approach an independent specialist/lawyer who will then pass his/her opinion to me or I will arrange this having first checked that a conflict of interest would not exist and the cost is within a reasonable cap as discussed.

I would be grateful if both parties would kindly confirm that the foregoing is acceptable and that they are willing to proceed on this basis."

No written reply to that letter from either parties' representatives is before the court. Mr. Clearie, in any event, proceeded thereafter to set about his task. He received written representations from the parties' representatives, and counter representations, which were exchanged between the parties' representatives.

[4] On 9 June 2005, as previously noted, Mr. Clearie issued his written determination. It provided as follows:


1. I was appointed by the parties as independent surveyor and engaged

under the terms of my letter dated 4th March, 2005 with subsequent adjustments,

2. I have received written representations from Mrs. Taylor on behalf of

Holland House Property Investments Ltd, the Landlord, and from Ms. Crabbe on behalf of The Partners & Trustees of West Anderson & Company, the Tenant. These, together with counter-representations were duly exchanged between the parties' representatives,

3. The relevant tenancy document is a Lease between the aforementioned

parties signed 12th and 19th August 1982,

4. I have considered all of the facts, evidence and testimony, inspected

and measured the property and made independent enquiries consistent with my duty as independent surveyor


Determine the fair market rent at which the premises might reasonably be expected to let at the relevant term, being 15th May 2002 and disregarding any effect on the rent of any additions or improvements to the premises made by and at the expense of the Tenants otherwise than in pursuance of any obligation to the Landlords in terms of the Lease.


I, Fraser William Clearie, hereby determine that the fair market rent of 92/94 Bath Street, Glasgow at 15th May 2002 was £50,800 (FIFTY THOUSAND AND EIGHT HUNDRED POUNDS STERLING) per annum, exclusive.

This concludes my rental determination".

Mr. Clearie also issued what are described as "Notes on the Rental Determination for 92/94 Bath Street, GLASGOW relative to Rent Review 15th May 2002". The heading to the notes is as follows:

"These notes do not form part of the Rental Determination and are provided at the request of the parties' agents to illustrate my approach to the rental valuation. They must not be published or released to a wider audience without the writer's written consent".

The notes then go on to read as follows:

"My measurements and calculations of the gross internal area result in a total of approximately 4,547 sq ft or thereby. Within this area, I calculate that the zoned area of the ground floor including that part of the basement comprising the sub-let portion amounts to 869 units.

The Lease is unusual in many respects and I have endeavoured to reflect relevant differences from comparable rental evidence in the Valuation that is shown below. By way of further explanation, I formed the view that water penetration affecting the second floor offices should have a bearing on value. I carefully considered the parties' Submissions on this point and made diligent enquiries and came to the view that, although compliance with an obligation to repair might reasonably be implied in a rent review case and the obligee (normally the Tenant) should not gain by a lack of performance, similarly the Landlord should not gain additional rent because he has failed. Had the premises been available at the review date in the condition that the parties agree they were in, it seems unrealistic not to expect some diminution in value.

Approaching the rental value by reference to the different elements (levels) is justified on account of a number of factors including the relatively wide range of permitted uses, suitability of the premises to a wide range of uses, no limitation on the number of sub-tenants (although noting the restrictions concerning alienation), and the regular demand for premises of this nature locally. I also had regard to the existing planning use rights, as well

as the style and nature of the neighbouring uses and prospects for other


I do not wish to give the impression that the foregoing and the elements specifically reflected in the under noted valuation were the only ones with a bearing on value at the review date, but these were the ones which struck me as particularly worthy of comment.

The parties acknowledged there was a dearth of directly comparable buildings (whole) in terms of quality, style and proximity to retail facilities. Nevertheless from the comparisons offered and additional rental evidence arising from my own enquiries, I am satisfied that the values applied are fair and reasonable in all the circumstances".

The calculations carried out by Mr. Clearie which brought out the total of £50,800 were then set out by him in writing.

[5] Having averred that Mr. Clearie had, in carrying out his task, adopted quasi-arbitral procedure, which meant that he had to comply with the rules of natural justice, the appellants, in answer 4, refer to the second paragraph of Mr. Clearie's note and aver

"Said notes disclose that Mr. Clearie sought and undertook further enquiries beyond the terms of the submissions of the parties consideration of the water penetration matter, which matter forms part of his rental determination. Mr. Clearie did not advise the parties of the terms of these further diligent enquiries, and what form those enquiries took. Mr. Clearie prior to issuing his rental determination did not (a) advise the parties of the terms of said enquiries, (b) the affect (sic) that said enquiries had in the process of his rental determination or (c) give the parties a fair opportunity to make further representations in the light of the terms of said further enquiries. In so doing Mr. Clearie has acted in a manner in the discharge of his function of an Independent Expert, which are contrary to the principles of natural justice. Accordingly his rental determination dated 9 June 2005 requires to be set aside, in terms of these proceedings ope exceptionis".

The appellants, furthermore, sought to make a case attacking Mr. Clearie's decision based on Mr. Clearie's alleged failure to carry out properly his functions in terms of the lease. At first instance the sheriff repelled both of the appellants' lines of defence and granted decree for payment as craved by the respondents. The appellants' appealed to the sheriff principal only with regard to the sheriff's decision dealing with the case based on Mr. Clearie's alleged failures to observe the rules of natural justice. As has been noted the sheriff principal adhered to the interlocutor of the sheriff.

The issue

[6] The issue before the sheriff principal was whether or not Mr. Clearie could be said to have been acting as an arbiter and, if so, whether he had failed to observe the rules of natural justice. Counsel for the appellants had urged upon the sheriff principal that a proof before answer should be allowed on these issues. The sheriff principal's decision on the question put before him is to be found at paragraph 12 of his note where he states as follows:

"The indicia, when viewed in the context of the terms upon which Mr. Clearie was engaged, point to him being an expert and not an arbiter. In my opinion, Mr. Clearie was acting as an expert. As such he was entitled to make his own enquiries and not invite the parties to make submissions on the material disclosed by such enquiries. This is so, even if the material was used by him in answering the question posed by the parties. As an expert he is liable in damages to either party should he be negligent in carrying out his duties. That is the safeguard which the law gives to parties when they appoint an expert. As Mr. Clive put it, the parties' protection lies in knowing that the expert must act fairly, impartially, honestly and with due skill. Should he fail to do so he opens himself to an action of damages. On the other hand if parties appoint an arbiter they have no recourse against him personally should he act in a negligent manner. Their protection is in knowing that there is a duty on an arbiter to adhere to the principles of natural justice and thus act in a judicial manner. That protection can be enforced by requiring the arbiter to state a case for the opinion of the Inner House of the Court of Session. Thus if it can be established that Mr. Clearie has acted in a negligent manner he will be liable in damages".

The sheriff principal went on to note (at para. 13) that counsel for the appellants had submitted that

"I should only reject his submission if I was satisfied that the position of the tenants could not prevail. If there was any doubt I should recall the interlocutor of the sheriff and allow a proof before answer. I am of the view that even if the tenants proved every averment which they make, the conclusion that Mr. Clearie was acting as an expert would not alter".

The appellants' submissions

[7] Before this court counsel for the appellants renewed the argument which he had advanced before the sheriff principal and submitted that a proof before answer should be allowed. In opening his submissions, counsel for the appellants contended that the question which the appeal raised was whether or not

"the circumstances in which Mr. Clearie carried out his job were such as to make it appropriate to treat him as someone exercising a judicial or quasi-judicial function?".

That in turn, it was said, raised the question as to what was meant in a context like the present, by the expressions "judicial" or "quasi-judicial function". Guidance as to how that question might be answered was to be found, it was submitted, in the decisions in two House of Lords cases, namely, Sutcliffe v Thackrah [1974] AC 727 and Arenson v Arenson [1977] AC 405.

[8] The first of those two cases was concerned with whether an architect acting under the then RIBA standard form of building contract was, in issuing interim certificates to contractors, acting as an arbitrator with the consequence that they were absolved from liability for negligence. Their Lordships held that in issuing interim certificates an architect, did not, apart from specific agreement, act as an arbitrator between the parties, that he was under a duty to act fairly in making his valuation and was liable in an action of negligence at the instance of the building owner. Counsel for the appellants referred to the speech of Lord Reid in that case at page 737G to 738A. There his Lordship said:

"Persons who undertake to act fairly have often been called 'quasi-arbitrators'. One might almost suppose that to be based on the completely illogical argument - all persons carrying out judicial functions must act fairly, therefore all persons who must act fairly are carrying out judicial functions. There is nothing judicial about an architect's function in determining whether certain work is defective. There is no dispute. He is not jointly engaged by the parties. They do not submit evidence as contentious to him. He makes his own investigations and comes to a decision."

At page 745B-C in the speech of Lord Morris of Borth-y-Gest the following passage appears:

"One of the features of an arbitration is that there is a dispute between two or more persons who agree that they will refer their dispute to the adjudication of some selected person whose decision upon the matter they agree to accept. As an example, the dispute may involve an issue as to what a particular article is worth or as the value of work that has been done. It follows that the task of an arbitrator may in some cases be the task of arriving at a valuation. In some circumstances, therefore, someone might be regarded both as a valuer and an arbitrator. But it by no means follows that everyone who has a duty of valuing, a duty which obviously must be fairly and honestly discharged, is an arbitrator. A valuer may not be exercising any judicial function".

Counsel for the appellants particularly stressed the reference in that passage to a feature of a valuer acting as an arbiter being that the parties had agreed to be bound by his decision. That point is made again by Lord Morris of Borth-y-Gest at page 747B. Lord Morris of Borth-y-Gest then, at page 744, analysed the role of the architect in issuing interim certificates and, in so doing, highlighted the features of his role that meant he was not acting as an arbitrator. At page 752C to 753A-B Lord Morris of Borth-y-Gest summed up his approach to the question raised in the Sutcliffe case as follows:

"In summarising my conclusions I must preface them by the observation that each case will depend upon its own facts and circumstances and upon the particular provisions of the relevant contract. But in general any architect or surveyor or valuer will be liable to the person who employs him if he causes loss by reason of his negligence. There will be an exception to this and judicial immunity will be accorded if the architect or surveyor or valuer has by agreement been appointed to act as an arbitrator. There may be circumstances in which what is in effect an arbitration is not one that is within the provisions of the Arbitration Act. The expression 'quasi-arbitrator' should only be used in that connection. A person will only be an arbitrator or a quasi-arbitrator if there is a submission to him either of a specific dispute or of present points of difference or of defined differences that may in the future arise and if there is agreement that his decision will be binding. The circumstance that an architect in valuing work must act fairly and impartially does not constitute him either an arbitrator or a quasi-arbitrator".

[9] We were referred also to the speech of Lord Salmon in the Sutcliffe case, particularly at page 759D-G where his Lordship was to the following effect:

"I confess that I can see no more reason for regarding the architect as being in the same position as a judge or arbitrator than there is for so regarding the valuer. No reason has ever been suggested. I suspect that is because none exists. The descriptions 'quasi-arbitrator' and 'quasi-judicial functions' have been invoked but never defined. They cannot mean more than in much the same position as an arbitrator or judge. In reality, however, there are the most striking differences between the roles of the valuer and architect in the circumstances to which I have referred and the role of a judge or arbitrator. Judges and arbitrators have disputes submitted to them for decision. The evidence and the contentions of the parties are put before them for their examination and consideration. They then give their decision. None of this is true about the valuer or the architect who were merely carrying out their ordinary business activities."

We were then referred to another passage from Lord Salmon's speech at page 763A-F. In reliance on these passages counsel for the appellants submitted that if the individual in question accepted material presented to him for his consideration by the parties and contentions made by them, which he agreed to have regard to, then he had assumed the role of arbiter and had left behind the role of expert valuer.

[10] In the case of Arenson the circumstances were as follows. An employee of a private company who held shares in it, entered into an agreement that, in the event of his employment with the company being terminated he would sell his shares to the chairman and controlling shareholder of the company at their fair value. "Fair value" was defined in the agreement as meaning the value of the shares as determined by the auditors for the time being of the company "whose valuation acting as experts and not as arbitrators shall be final and binding on all parties", The employee's employment with the company terminated and the auditors valued his shares at a certain sum. The employee then sought to sue the auditors for negligence in carrying out the valuation. The Court of Appeal, by a majority, held that the auditors had been performing quasi-judicial functions and were immune from any liability for negligence in respect of their valuation. The House of Lords reversed the decision of the Court of Appeal, holding that the immunity of judges and arbitrators was exceptional to the general rule of liability for negligence and that there was no reason of public policy making it necessary to treat a "mutual" valuer as an exception to that rule. It is, perhaps, of some passing interest and significance to note that both the cases of Sutcliffe and Arenson were, at heart, concerned with the question of whether Hedley-Byrne type liability for negligent misrepresentation attached to the individuals in question in performing the task that they had made out.

[11] In Arenson Lord Simon of Glaisdale at page 423B said:

"The main issue in this part of the case was whether it was of the essence of a judicial decision that it answers a question (the respondents' contention) or decides a dispute (the appellants' contention). The latter seems to me to be the right view both in principle and on authority. It is true that judges sometimes answer questions. Examples are references by the Home Secretary to the Court of Appeal (Criminal Division), certain references to the Judicial Committee of the Privy Council and summonses by executors or trustees for the construction of a will or settlement. But these are exceptional, and not the characteristic, activities of judges. The general judicial role in society is to resolve disputes which the parties cannot resolve by conciliation, compromise or surrender".

Counsel for the appellants referred the court to a later passage from the speech of Lord Simon at page 424E-F. In that passage it was acknowledged that the role of a valuer may in the particular circumstances of a particular case properly attract the description "judicial".

This led counsel for the appellants to make the submission which lay at the heart of his approach to matters. That submission was that the procedure which Mr. Clearie had adopted, in the present case, had transformed him from being a non-judicial valuer into a valuer performing a judicial role. Lord Simon, however, it must be noted, went on to say, in the passage just cited as follows:

" ... the essential prerequisite for him to claim immunity as an arbitrator is that, by the time the matter is submitted to him for decision, there should be a formulated dispute between at least two parties which his decision is required to resolve. It is not enough that parties who may be affected by the decision have opposed interests - still less that the decision is on a matter which is not agreed between them".

In Arenson at page 428E-F Lord Wheatley sought to set out the indicia which he considered should be present for the court to reach the conclusion that a person was performing a judicial or quasi-judicial function. These were

"(a) there is a dispute or a difference between the parties which has been

formulated in some way or another;

(b) the dispute or difference has been remitted by the parties to the person

to resolve in such a manner that he is called upon to exercise a judicial function;

(c) where appropriate, the parties must have been provided with an

opportunity to present evidence and/or submissions in support of their respective claims in the dispute; and

(d) the parties have agreed to accept his decision."

As regards the case before their Lordships, Lord Wheatley at page 428G-H concluded:

"There is nothing in the appellant's pleadings and relevant documents to suggest that a dispute or difference between the parties existed and was being remitted to the respondents for a judicial (or quasi-judicial) determination, and nothing to suggest that the remit was so treated."

[12] Counsel for the appellants, in seeking to apply the dicta in the cases just cited to the circumstances of the present case commenced by saying, correctly, that the starting point must be the terms of the relevant provisions in the lease itself though he stressed that this was not the finishing point. Addressing the terms of Clause FOURTH of the lease, counsel submitted that three steps had to be taken before there was any question of a surveyor being appointed to determine the rent. First, the landlord had to send a notice to the tenant indicating that he intended to exercise his right to require a review of the rent. Second, that notice had to contain a proposed fair market rent. Third, the tenant had to then indicate that he was not accepting the rent specified in the notice. In the event of all these three steps having been taken then, submitted counsel, the situation was that at that stage there was a difference between the parties. He did accept, however, that at the next stage, that is the stage of the reference to the agreed or nominated surveyor, there was no formulated dispute. It was important, however, counsel submitted, to note that in the present case the surveyor's decision was to be binding on the parties. The lease did not specify what procedure the surveyor should adopt in carrying out his task. In the present case there was a subsequent exchange of correspondence, among the parties and the appointed surveyor, whereby the procedure to be adopted was agreed. That procedure was set out in Mr. Clearie's document headed Terms of Engagement dated 5 March 2005 (as subsequently amended). The thrust of the submission made on behalf of the appellants was to the effect that the procedures referred to in that document met the criteria or indicia which required to be met for a person to be said to be acting in a judicial or quasi-judicial capacity. The features upon which counsel for the appellants founded in this respect were as follows - clause 2.3, clause 2.4, clause 2.5, clause 2.6 and clause 2.7. Those provisions, it was contended, were redolent of a judicial or quasi-judicial process being followed. Evidence was to be presented to the third party. There was an express exclusion of privileged material. All materials submitted by the parties, in support of their respective positions, were to be exchanged. The possibility, at least, of expert evidence being obtained was at least envisaged by clause 2.7. Each party was to be allowed to comment on the representations of the other. Counsel submitted that, properly construed, clause 6.0 of the Terms of Engagement did not advance matters one way or another as regards whether a proof before answer should be allowed save for the fact that Mr. Clearie acknowledged that the procedure set out in the preceding clauses was "quasi-arbitral". While in clause 6 of the Terms of Engagement, Mr. Clearie expressly stated that he was acting as an independent expert, the label he chose to apply to himself was not conclusive. The court had to have regard to the substance of the matter. Reference in this connection was made to the case of Taylor v Yielding (1912) Sol. Journal 253. While it was accepted by counsel for the appellants that it was legitimate for the court to have regard to the notes which Mr. Clearie had attached to his determination, what he said that he did could not determine the question of what he should have done.

[13] At this stage in his argument, counsel for the appellants drew our attention to an Outer House decision in which the decisions of the House of Lords in the Sutcliffe and Arenson cases were considered and applied. The case in question is A.G.E. Limited v Kwik Save Stores Limited 2001 SC 144. That case, like the present, was concerned with a rent review clause in a commercial lease. The relevant clause provided that the market rental value of the premises at each date of review would be the rent agreed between the parties under reference to various assumptions and disregards. The clause then provided as follows:

"Decision on Rental Value

If the Landlords and the Tenants shall be unable to agree on the amount of the market rental value as aforesaid by the relevant date of review then the same shall be decided by an independent Surveyor who for at least five years prior to the relevant date of review has been either a partner or an associate partner or consultant in a firm of Surveyors and is experienced in the letting and valuation of subjects similar to the premises, to be agreed upon by the parties hereto or in the event of failure so to agree such Surveyor to be nominated at any time at the request of the Landlords or the Tenants by the Chairman or Senior Office Holder or his deputy for the time being of the Scottish Branch of the Royal Institution of Chartered Surveyors and which Surveyor will determine the market rental value as aforesaid and shall act as an expert and not as an arbiter and the decision of such surveyor shall be binding on both the Landlords and the Tenants; ... ".

The parties, in that case, were unable to agree what the reviewed rent should be. They, accordingly, appointed a surveyor in the following terms:

"We have agreed to make a joint approach to you and would be grateful if you could consider acting in the capacity of Independent Expert. In this respect I attach a copy of the lease for your consideration and I would appreciate if you could confirm whether you are able to undertake this instruction".

The surveyor in question accepted the appointment by writing in, inter alia, the following terms:


... I would confirm that I would be free to act as an independent expert and undernote below the procedure I would wish to adopt for representations.

1. Matters to be dealt with by way of written submissions which should be sent to me in duplicate and which will afford both parties the opportunity of presenting evidence to support their case ...

2. Counter submissions in reply to the original ...

3. I will inspect the premises following the receipt of counter submissions ...

4. I shall issue my determination in writing to both parties ...

8. When presenting evidence for comparable properties in counter submissions I would prefer that corroboration is provided by the surveyors and/or principals directly involved in the particular transaction".

In due course the surveyor issued his determination. He attached to his determination a note which gave an explanation as to how he had carried out his instructions. These included a reference to the fact that:

"In addition to the comparables referred to me by the parties, I have carried out my own investigations and taken into account that evidence where considered relevant".

Later on in his note the surveyor said:

" ... I have made extensive enquiries to various potential operators and have formed the opinion that as of the review date there was little or no demand for a unit of this size in Bellshill".

The landlords sought reduction of the surveyor's determination on the basis that he had been acting as an arbiter and, having regard to his duties in acting in such a capacity, his determination for a number of reasons fell to be reduced as ultra vires. The lease in that case, unlike the position in the present case, contained an arbitration clause (Clause 21). At page 148E the Lord Ordinary (Lord Hardie) said:

"The issue in this case is a narrow one and involves the determination of the capacity in which the second respondent was acting when he issued his decision".

His Lordship then, at page 149, noted the speech of Lord Wheatley in the Arenson case, particularly passages at pages 427 and 428. He then continued at page 149E-H:

"Having considered the speech of Lord Wheatley, I am of the opinion that the starting point must be to consider the terms upon which the second respondent was appointed. In the present case the appointment of the second respondent is determined by the terms of clause 18(3) of the lease, which states that in determining the market rental value the second respondent 'shall act as an expert and not as an arbiter'. The reference later in the clause to the right to have the rent reviewed not being lost or abandoned by reason of inter alia 'arbitration to settle the rent review' is, in my opinion, intended to cover the situation where the parties disagree over the meaning of the assumptions or disregards specified in clause 18(2). For example disregard (vi) relates to rent free periods, reverse premiums or other financial inducements granted to the tenants at the commencement of the lease or during any fitting out period. If the parties disagreed as to how this provision should be interpreted, that issue would require to be determined by arbitration in terms of clause 21 and it is probable that in such a case the rent review would be settled by arbitration".

The Lord Ordinary at page 150 of his Opinion at B-D then recorded the following:

"Counsel for the petitioner submitted that notwithstanding the terms of the lease and the letter of appointment, the second named respondent by his behaviour transformed himself from an independent expert valuer into an arbiter. The behaviour relied upon was the letter of acceptance of the appointment ... and the procedure following thereon. It was submitted that by inviting and receiving written submissions the second respondent formulated the dispute, thereby satisfying the first guideline of Lord Wheatley in Arenson v Casson Beckman Rutley & Co. Ltd. That guideline requires that 'there is a dispute or difference between the parties which has been formulated in some way or another'".

The submission just noted was, to all intents and purposes, the same as the argument being advanced on behalf of the appellants in the present appeal. The Lord Ordinary in the AGE Limited case went on to reject that argument and did so in the following way at page 150D-H:

"I am not convinced that the submissions of counsel for the petitioner in this regard are well-founded. In my opinion, the criteria specified in this guideline are not satisfied. Failure to agree the amount of the market rental value does not, in my opinion, constitute a difference or dispute between the parties to the lease. Nor do I consider that the reference to a third party for determination amounts to the formulation of any difference or dispute which may exist. I derive support from the fact that the contrary view would have the effect of rendering clause 18(3) meaningless, requiring all failures to reach agreement to be referred to arbitration. I also consider that Lord Wheatley intended that the formulation of the difference or dispute would be by the parties and would occur prior to the reference to the arbiter was made (sic). I gain support for my views from the speech of Lord Simon of Glaisdale at p 424 to which I shall return later. Any alternative meaning would result in experts being able to transform informal references to them into arbitrations by their formulating the dispute after the reference to them has occurred. In my opinion this should not be permitted without the unequivocal agreement of the parties. If an expert were able to transform informal references into arbitrations without the consent of the parties, the effect would be that the expert could alter the terms of a lease to which he was not a party. Moreover he would be clothing himself with immunity from claims by either or both of the parties arising from his negligence. In the present case I do not consider that the second respondent intended such a result. The letter of acceptance (6/4 of process) confirms his willingness to act as an independent expert; he was in possession of a copy of the lease and would therefore be aware of the terms of clause 18, particularly the distinction made between an expert and an arbiter. Nor do I consider that the petitioner or the first named respondent intended that the reference to the second named respondent should be transformed into a formal arbitration".

The court in the AGE Limited case drew formidable support for its decision from the speech of Lord Simon of Glaisdale in the Arenson case at page 424 which we have referred to above. The conclusion of the court in the AGE case was that in applying the test set out by Lord Simon of Glaisdale in that passage

" ... it is clear that the second named respondent was not acting in a judicial capacity, in the present case. There was no formulated dispute by the time the matter was referred to him. There was merely a failure by the petitioners and the first named respondent to agree the market rental income" (at page 151B-C).

While counsel for the appellants, in the present case, did not expressly invite the court to hold that the decision of the Lord Ordinary in the AGE Limited case was wrong, that was the effect of his submissions. Counsel expressly criticised the Lord Ordinary's view that for the surveyor to have been acting as an arbiter there must have been a formulated dispute between the parties by the time the matter came before him - but that is exactly what Lord Simon of Glaisdale in Arenson expressly declared to be "the essential prerequisite" in the dictum relied upon by the Lord Ordinary in the AGE Limited case.

[14] In the present case the sheriff principal at paragraph [7] of his note said:

"In my opinion there was no formulated dispute which Mr. Clearie required to resolve, such as would cloak him as an arbiter and thus confer upon him immunity should he be negligent. Mr. Clearie was not here fulfilling the role traditionally undertaken by judges and arbiters such as deciding what documents constitute the contract between parties or deciding whether a party is in breach of any contractual provision or assessing the damages which reasonably flowed from any breach of contract which there might have been. Mr. Clearie's role was much simpler. He had to produce a figure."

Counsel for the appellants criticised that passage by saying that it failed to have proper regard to how Mr. Clearie actually conducted himself and the particular significance of what was said in the Terms of Engagement. The question should not be determined without an enquiry into these matters.

The respondents' submissions

[15] In reply counsel for the respondents invited the court to refuse the appeal and to adhere to the interlocutor of the sheriff principal. When seeking to determine whether a particular person was acting in the capacity of an expert or an arbiter it was necessary, it was submitted, to do so in the context of the agreement by virtue of which he was appointed to carry out his function. Reference was made to the speech of Lord Morris of Borth-y-Gest in Sutcliffe at pages 747E and 752G. There was nothing in the wording of Clause FOURTH of the lease to suggest that it was the parties' intention that the surveyor should act as an arbiter. The Terms of Engagement set out the procedure that the parties had agreed could be adopted by Mr. Clearie to enable him to answer the question which was put to him, namely, what was the fair market rent of the premises. It was wrong to read the Terms of Engagement as only inviting the ingathering of material from the parties themselves upon which the surveyor had to adjudicate. Clause 4.0 of the Terms of Engagement provided that the surveyor could himself seek additional information. As Lord Reid in Sutcliffe, particularly at page 735G, had pointed out, persons exercising judicial functions do not themselves carry out investigations. In clause 6.0 of the Terms of Engagement the surveyor, it was submitted, was making it perfectly clear that he was acting as an independent expert and not as an arbiter.

[16] Counsel for the respondents then referred to the Guidance Notes referred to in clause 6.0 of the Terms of Engagement which were lodged in process. These, it was said, could not, in the circumstances, be regarded as having contractual force in the present case. Counsel did, however, invite the court to have regard to the notes which were attached to Mr. Clearie's determination as providing context in which the issue raised should be determined. It was abundantly clear, from those notes, that Mr. Clearie had carried out his own enquiries, particularly with regard to the question of water penetration, which was the particular matter which the appellants were apparently complaining about now in the present proceedings. Clause 3.0 of the Terms of Engagement had expressly provided that he would inspect the premises on an unaccompanied basis. In his final determination he reiterated, at paragraph 1, that he had been appointed as an independent surveyor and at paragraph 4 stated that he had "made independent enquiries consistent with my duty as independent surveyor". The whole process carried out by Mr. Clearie did not involve, and was not intended by the parties to involve, an adjudication of a dispute between them. A valuer carrying out a valuation exercise was not necessarily exercising a judicial function. Reference was made to what was said in Sutcliffe by Lord Morris of Borth-y-Gest at page 752G and Lord Salmon at 759F. All that had happened, in the present case, was that there had been presented to the surveyor competing contentions and he was invited, having regard to, inter alia, these contentions, to reach a decision. He had throughout made it perfectly clear in what capacity he was acting and his notes attached to his determination confirmed that position. The dictum of Lord Simon of Glaisdale in Arenson at page 424E-F fell to be applied in the present case. For a valuer to be held to be acting in a judicial capacity, the essential prerequisite was that:

" ... by the time the matter is submitted to him for a decision, there should be a formulated dispute between at least two parties which his decision is required to resolve. It is not enough that parties who may be affected by the decision have opposing interests - still less that the decision is on a matter which is not agreed between them".

[17] In the present case the appellants had relied on certain indicia which, they said, pointed to Mr. Clearie acting as an arbiter. But there were contra indicia, it was submitted, pointing in the opposite direction. The surveyor, in the present case, was being asked to answer a question "What is the fair market rent?" He was not confined in answering that question to the material submitted to him by the parties. Clause 2.2 of the Terms of Engagement (as amended) made him virtually a free agent as to what technical or legal advice he might seek. The submission by parties of their contentions and supporting materials did not define the question before the surveyor. Nor did the Terms of Engagement. That question had been determined by clause FOURTH of the lease. In relation to that last point support was taken from what the Lord Ordinary said in the AGE Limited case at page 150D-E. The appellants' counsel had emphasised the fact that the surveyor's decision was to be binding on the parties, but that feature on its own could not determine the matter. That a decision was binding, of itself, did not characterise it as being judicial. Counsel for the respondents pointed out that although the focus of the appellants' position was on Mr. Clearie's investigation into the question of water penetration, the outcome of that investigation did not, on the face of things, appear to have prejudiced the appellants because it had apparently resulted in a diminution of the rent that would otherwise have been fixed by Mr. Clearie.

Appellants' reply

[18] In a short reply, counsel for the appellant maintained that it was under the Terms of Engagement that Mr. Clearie became "seized of the question" which he had to resolve. On the basis of the position advanced on behalf of the appellants, not only did Mr. Clearie act illegitimately with regard to the investigation of water penetration, but he did so in having regard to rental values not put to him by either of the parties. The construction put on clause 4 of the Terms of Engagement by counsel for the respondents was disputed by the appellants. It did not, it was submitted, permit the surveyor carrying out independent enquiries.


[19] The distinction between a person who has an expertise in valuation matters, exercising the role of an independent expert on the one hand, and a quasi-judicial role, on the other hand, is now well recognised, whatever might have been the position in the past. It is a distinction which carries with it different legal consequences. As to into which category a particular individual falls, in any particular case, depends on what the parties who have invited him to carry out a task for them intended his function to be. This, in turn, is to be gleaned from the agreement between them, as the result of which he assumed his task. In the present case the only document before the court which sets out an agreement between the parties themselves is the Lease. It is clause FOURTH of that lease which regulates, as between the parties, the circumstances in which an appointment of a surveyor like Mr. Clearie, will be appropriate and which defines what his task will be. In the absence of any agreed variation of the provisions of that clause, it appears to us that the nature of the function which the parties were agreed the surveyor should be required to carry out, on their behalf, has to be gathered from construing the provisions of that clause. Having regard to the language of those provisions, we agree with counsel for the respondents that there is nothing in it that would suggest that the parties, at the time at which the lease was executed, were agreeing that any surveyor appointed by them would carry out a quasi-judicial function. The purpose of the clause, properly construed, in our judgment, was to provide the machinery for arriving at the fair market value of the rent due under the lease at the relevant review date when the parties themselves could not agree that matter. The surveyor's expertise as surveyor was being called upon to answer the question "What is the fair market rental?" Clause FOURTH does not, in any respect, restrict or curtail the use, by the surveyor, of his expertise in arriving at the answer to that question. In particular the clause does not provide that the surveyor will simply be called upon to adjudicate upon rival contentions of the parties in relation to what the fair market rental should be and to restrict himself to deciding which of these two rival contentions is to be preferred. The parties, therefore, in our judgment, intended, by their agreement, contained in the lease, that any surveyor appointed under clause FOURTH should be free to carry out his own investigations in arriving at the answer to the question put to him. That, in itself, in our judgment, goes a very long way in establishing that the parties agreed that the surveyor was to act as an independent expert and not in any quasi-judicial capacity for, as Lord Reid observed in Sutcliffe, "judicial duties do not involve investigation". On the other hand, as his Lordship put it "In other forms of professional activity the professional man is generally left to make his own investigations". Nothing in the material relied upon by the appellants in this case, in our view, demonstrates that the agreement contained in clause FOURTH of the lease was subsequently varied by agreement of the parties to it. The Terms of Engagement, as amended, to which the parties agreed, in our judgment, do not evidence any variation of clause FOURTH as we have construed it. To the contrary, in our judgment, they are consistent with it. Quite apart from the express declaration by Mr. Clearie, in this document, that he was acting as an independent expert surveyor, the clear implication of the terms was that he was to be free to carry out his own investigations and have regard to material other than, or in addition, to materials put before him by the parties themselves (we refer to clause 2.2, clause 3.0 and clause 4.0).

[20] What the surveyor explained he had done in reaching his determination, in the notes attached to it, is entirely consistent with what the parties had agreed by reason of the provisions of clause FOURTH and certainly does not provide any basis for arguing that they had in some way, by agreement, departed from the agreement contained in that clause.

[21] As has been seen, counsel for the appellants apparently took issue with the suggestion that for Mr. Clearie to have been exercising a judicial or quasi-judicial function there must have been a formulated dispute in existence by the time the matter was submitted to him. He accepted that there was no such formulated dispute at that stage. But that is what Lord Simon of Glaisdale in Arenson at page 424E-F said was "the essential requirement" to be met if the valuer was to be held to be acting as an arbiter. We respectfully agree that that does provide one of the tests as to whether a judicial function is being exercised or not.

[22] The essence of the matter, in our judgment, is that in the present case, the parties were not inviting the surveyor, at the time the matter was referred to him, to adjudicate as between their rival contentions and to decide which side he preferred, having regard solely to the material which parties chose to put before him, which characteristics define the nature of adversarial judicial and arbitral procedures in our system. Rather they were inviting him, using his expertise and experience, to fix the consideration which was appropriate, at the relevant time, under their agreement, the lease.

[23] Although clearly each case falls to be decided, having regard to its own particular circumstances and according to what was contracted for by the parties, the wording of clause FOURTH is the kind of language which is frequently adopted in rent review clauses in commercial leases. We agree with counsel for the respondents that by using wording of that sort the parties, absent other material pointing to what their agreement was, are aiming to arrive at the appropriate level of rent by a relatively speedy and informal means, when they themselves are unable to agree upon the matter. It would be regrettable if that commercial purpose could be put at risk by arguments emerging, after the conclusion of the parties' agreement on the matter, to the effect that by virtue of some procedure adopted by the valuer himself he had become an arbiter. Provided the language of the provisions in the lease is clear then only a subsequent agreement between the parties themselves can convert his role from that of an independent expert into a quasi-judicial role.

[24] It was, as has been noted, the position adopted by counsel for the appellants that the issue could not be determined by simply having regard to the documents and other materials put before the court and that a proof before answer should be allowed. He was, however, unable to suggest what material, other than the documents referred to in this Opinion, would fall to be considered at any such enquiry. We are of the opinion that the matter clearly falls to be determined by reference to the provisions of the lease in this case.

[25] For the foregoing reasons we consider that the sheriff principal was well-founded in dismissing the appeal before him and we shall adhere to his interlocutor. We should add that it will be apparent that the reasoning in the present case is similar to that adopted by the Lord Ordinary in the AGE Limited case which we consider to have been correctly decided.