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SHERIFFDOM OF LOTHIAN AND BORDERS AT EDINBURGH

 

[2016] SC EDIN 27

A53/15

 

JUDGMENT OF SHERIFF FIONA LENNOX REITH, QC

 

in the cause

 

 

GABRIEL POLITAKIS

 

Pursuer:

 

against

 

JOHN DESPENSER SPENCELY

 

Defender:

 

and

 

JAMES SCOTT LIMITED

 

Party Minuter:

 

 

Act: Party

Alt: Manson, Advocate; BTO, Solicitors, Edinburgh

Party Minuter: Ellis QC; MacRoberts, Solicitors, Edinburgh

 

____________

 

EDINBURGH, 6 April 2016

 

The sheriff, having resumed consideration of the cause, sustains the first, second, third, fifth and seventh pleas-in-law for the defender and the first, second, third and fourth pleas-in-law for the party minuter; repels the fourth plea-in-law for the defender as being unnecessary; grants decree of absolvitor; finds the pursuer liable to the defender and the party minuter in the expenses of the action; allows an account of expenses to be given in and remits the same to the auditor of court to tax and to report; further, sanctions the employment of counsel by the defender and senior counsel by the party minuter for the purpose of the proceedings.

 

 

NOTE

Introduction

[1]     The action came before me for debate on 28 and 29 January 2016.  The background is that in about 1990 Apollo Engineering Limited (“Apollo”), of which the pursuer was a director and shareholder and from which the pursuer now claims to be the assignee of the claim for damages in the present proceedings, entered into a subcontract with the party minuter.  In terms of that subcontract Apollo were to supply specialist fabrication and installation services in connection with pipework required in the construction of an explosives handling floating jetty at Coalport.  The jetty was to service nuclear submarines and some of the pipework was to convey toxic waste from the submarines.  The value of the work was almost £4M and it was estimated initially that it would take 18 months, and later over two years, to complete.  The parties fell out and, by the end of September 1991, the subcontract was at an end.  The party minuter sued Apollo for recovery of materials which they maintained belonged to them but which were in Apollo’s possession.  This was met with a counterclaim for £2M, Apollo claiming that the party minuter had failed to pay them for work completed and that they were liable to them in damages for failing to provide the necessary drawings to enable them to carry out the contract works on time.  Apollo maintained that the party minuter had repudiated the contract.  On 24 June 1993, the Court of Session sisted the action, upon the party minuter’s plea, pending arbitration in terms of the subcontract.  After the action was sisted, Apollo went into liquidation.  In 2001, the then liquidator, Duncan McGruther, proposed that Apollo enter into a company voluntary arrangement (CVA).  The liquidation proceedings were sisted in 2002. 

[2]     An arbitration was commenced, but the arbiter later resigned on the ground of his advancing age.  Apollo and the party minuter required to select a new arbiter.  On 1 and 11 July 2005, Apollo and the party minuter executed a joint deed of appointment of a new arbiter, who is now the defender in the present proceedings.  It was agreed that the arbiter would have power (a) to award payment of any funds due and payable under the subcontract and (b) to award damages due in respect of any breach of the subcontract.  Although requested to do so by the defender, Apollo and the party minuter failed to agree any set of procedural rules to govern the conduct of the arbitration.  It, therefore, proceeded at common law.  The procedure which was adopted by Apollo and the party minuter was similar to that of an ordinary action in the Court of Session.  Apollo lodged their claim.  On 31 August 2005, there was an initial meeting with the defender who had the assistance of a legally qualified clerk.  The defender set a timetable for a response to the claim, adjustment of the claim and answers and the lodging of supporting productions and expert reports.  Apollo had originally stated that they would not be relying on expert testimony but, by the end of 2005, that position had changed.  By that time also, the adjustment period had been completed, but the defender allowed Apollo time to amend their claim thereafter.  There then ensued a prolonged period of adjustment of the consequent minute of amendment and answers.  After sundry procedure the defender heard a debate over a period of some five days in February 2007, followed by written submissions.  The defender produced his draft opinion on 28 March 2007.  This became a “Final Draft Option” in May 2007.  In short, the defender dismissed almost the whole of Apollo’s case other than a declaratory crave and a monetary crave regarding retained site accommodation.  The content of the defender’s final draft opinion was the subject of a stated case for the opinion of the Court of Session under section 3 of the Administration of Justice (Scotland) Act 1972 in 2007.  However, Apollo’s funds ran out.  As a result, the pursuer enrolled a motion in the Court of Session seeking that he be allowed to represent Apollo in any future court proceedings and in particular in relation to the stated case procedure.  This motion was refused.  He sought leave to appeal to the Supreme Court.  This was refused.  He also invited the Court of Session to allow him to be sisted in place of Apollo in the action by the party minuter against Apollo and in the arbitration proceedings or, alternatively, to sist the pursuer as a party to the action and arbitration.  These motions were refused.

[3]     In the meantime, an account of expenses in respect of the amendment procedure in the arbitration proceedings had been made up and submitted to the Auditor of the Court of Session for taxation.  On 30 May 2007 the Auditor taxed the account at the sum of £195,497.05.  The defender issued his decerniture for expenses in this sum on 22 June 2009.  On or about 11 December 2014 the defender issued a part award in terms of his final draft opinion.

 

The Pleadings

[4]     The pursuer’s craves are as follows:

“1.   To find and declare that by his arbiter’s part award the defender dismissed Apollo Engineering Limited’s £5 million claim in bad faith by pretending it was irrelevant.

2.   To find and declare that in bad faith the defender decerned against Apollo Engineering Limited for payment of £195K of claimed expenses against a Minute of Amendment knowing that said expenses were mostly misallocated to the Minute of Amendment.

3.   To grant decree for repayment to the pursuer by the defender of fees paid to him amounting to £40,000 sterling with interest thereon at the rate of 8% per annum from the date of payment of said fees or at such other rate and from such other date as the court shall consider proper until payment.

4.   To grant decree for payment to the pursuer by the defender for damages directly relating to lawyer’s fees paid in relation to Arbitration amounting to £300,000 inclusive of VAT sterling or thereabouts with interest thereon at the rate of 8% per annum from the date said damages were incurred or at such other rate and from such other date as the court shall consider proper until payment.

6.   Such further Orders or Decrees as may seem to the court to be just and reasonable in all the circumstances of this particular case”.

 

[5]     The pursuer avers in article 1 of condescendence that he is the assignee of the claims for damages now advanced in the present proceedings and that the assignor is Apollo, that Apollo were the claimants in the arbitration against the party minuter and that the now defender was the arbiter.  The pursuer then avers:

“… The pursuer understands that this court has jurisdiction on matters relating to claims for damages.  The pursuer seeks damages resulting from the defender’s bad faith actings reflected in his Arbiter’s Part Award (APA) by which he inflicted substantial injustice to Apollo when dismissing Apollo’s £5M claim against the minuter (sic) by pretending it was irrelevant.  The damages claim raised in this action directly relates to the narrow legal issue whether Apollo’s various craves were irrelevant and if so, did the defender act in bad faith in declaring them irrelevant.  Given that the craves, and in particular the craves relating to the £2.2M claimed for payments due to Apollo for completed performance, were indeed irrelevant then the defender has no case to answer.  However, the pursuer will provide cogent documentary evidence that the craves couldn’t possibly be irrelevant and the defender simply embarked upon a campaign of serious and malicious misrepresentation of Apollo’s pleadings in order to falsely pretend said craves were irrelevant.  The pursuer understands that the defender, acting as arbiter, served as a private judge under the auspices of the Deed of Appointment which in turn is a creature of contract…”

 

[6]     In article 15 of condescendence the pursuer avers inter alia :

 

“…As Arbiter, the defender’s virtually unchallengeable procedural discretion did not extend to implementing substantial injustice by finding so heavily against Apollo by falsely pretending Apollo’s £5M claims were irrelevant.  Given the defender’s actings were in bad faith, he is not gifted immunity from prosecution for damages in his quasi-judicial capacity during his tenure as arbiter.  The pursuer seeks a civil remedy by way of damages which directly relate to said bad faith and intentional misrepresentations employed in his APA so that he could pretend Apollo’s £5M claim was irrelevant.  Said damages are quantified as the £40,000 advanced to the defender in instalments to cover his fees, plus legal costs of circa £250,000 + VAT both of which directly relate to the Arbitration presided upon by the defender…  In relation to the £250K (before VAT) the pursuer clearly specifies that this sum directly relates to the Spencely Arbitration and corresponds to fees for law agents, counsel and expert reports incurred by Apollo and paid by the pursuer.  Details of said fees are provided at Tab 20”.

 

 

[7]     The pleas-in-law for the pursuer are as follows:

“1. The defender having dismissed Apollo’s £5M claim in bad faith by pretending it was irrelevant, as condescended upon, the pursuer is entitled to declaratory in terms of crave 1.

2.     The defender having discerned against Apollo for payment of £195K of claimed expenses knowing the largest portion was misallocated to the Minute of Amendment, as condescended upon, the pursuer is entitled to declarator in terms of crave 2.

3.     The pursuer having suffered loss and damage in consequence of the defender’s bad faith actings, as condescended upon, is entitled to reparation by way of repayment of fees paid to the defender by the pursuer, decree should be granted in terms of crave 3.

4.     Separatim, the pursuer having suffered loss and damage in consequence of the defender’s bad faith actings, as condescended upon, is entitled to reparation by way of damages corresponding to the amount of legal and expert’s fees paid by the pursuer, decree should be granted in terms of crave 4”.

 

[8]        The pleas-in-law for the defender are as follows:

 

“1. The pursuer having no title to sue and insufficient interest to pursue the action, the action should be dismissed.

2. The pursuer’s action as laid being incompetent on the basis that the pursuer’s craves for declarator are imprecise and ambiguous, the action should be dismissed.

3. The pursuer’s action as laid being incompetent on the basis that it seeks review of the conduct of the defender and orders against the defender relative to decisions he made as an arbiter in circumstances where the Court of Session enjoys exclusive competence to review such matters under its supervisory jurisdiction, the action should be dismissed.

4. The defender enjoying immunity from suit in relation to his acts as an arbiter, the action should be dismissed.

5. The pursuer’s averments being irrelevant et seperatim lacking in specification they should not be remitted to probation and the action should be dismissed…

7. Any right of action available to the pursuer having been extinguished by the operation of short negative prescription under sections 6 and 11 of the Prescription and Limitation (Scotland) Act 1973, the defender should be assoilzied.”

 

[9]        The pleas-in-law for the party minuter are as follows:

 

“1. This court having no jurisdiction as the matters raised, in whole or in part, fall within the supervisory jurisdiction of the Court of Session et seperatim the action being incompetent as the matters raised, in whole or in part, fall within the said supervisory jurisdiction, the action should be dismissed.

2. The pursuer having no title nor sufficient interest to pursue the action should be dismissed.

3. The obligations of the defender relied upon to found the claim for damages having been extinguished by the passage of time, the defender should be assoilzied.

4. The pursuer’s averments being irrelevant et seperatim lacking in specification the action should be dismissed.”

 

Submissions on behalf of the Defender

[10]      Mr Manson reminded me that the action appeared to relate to two decisions that the defender had made in the course of the arbitration.  The first decision was to find Apollo liable for the expenses of an amendment procedure which Apollo had instigated.  The second was to sustain a preliminary plea in the arbitration on behalf of the now party minuter following a diet of debate in the course of the arbitration which saw the vast majority of Apollo’s claim in the arbitration being dismissed.  Craves 1 and 2 in the present proceedings seek declarator in relation to these decisions, crave 3 seeks repayment of fees paid to the defender, crave 4 seeks repayment of damages directly relating to lawyer’s fees paid in the arbitration and crave 6 is an open invitation to the court to make such further orders or decrees as the court might think fit, but with no specification as to what these might be.  Mr Manson confirmed that he would be inviting the court to sustain the first, second, third, fourth, fifth and seventh pleas-in-law for the defender and to dismiss the action.  The arguments were presented in what were in effect six chapters.

 

First chapter: submissions in relation to the question of title to sue

[11]      I was reminded of the general proposition in relation to title and interest to sue as set out in Macphail, Sheriff Court Practice (3rd Edition) at paragraphs 4.29 and 4.30.  Mr Manson submitted that there were three distinct reasons why the pursuer had no title to bring the present proceedings.  He summarised these as follows:

(1) Apollo had no power to grant an assignation of the type relied upon thereby rendering it void;

(2) The purported assignation flows from the arbitration clause in the original contract between Apollo and the party minuter which could not itself be assigned;

(3) The purported assignation is in relation to a right to damages arising from the deed of appointment of the arbiter which involves delectus personae and therefore precludes assignation.

[12]      In relation to the first argument to the effect that Apollo had no power to grant an assignation of the type relied upon thereby rendering it void, Mr Manson submitted that the pursuer in the present case relied on a purported assignation granted to him by Apollo.  He submitted that, of itself, one could see why the pursuer had tried to do this as it was Apollo which had been a party to the arbitration; it was Apollo who had had their claim adjudicated upon by the defender.  If there is any complaint to be made about the defender’s conduct as arbiter, this can only be made by Apollo or the party minuter given that they are the parties to the arbitration.  The pursuer tries to circumvent this by asserting that he enjoys the right to raise this action as he is being provided with the right by the granting to him of the assignation by Apollo.  I was referred to the terms of the assignation dated 8 January 2015 which includes inter alia the following:

“The Assignor, Apollo Engineering Limited (Apollo), hereby assigns and transfers to the Assignee, Mr Politakis, the whole of Apollo’s contractual rights under the Joint Deed of Appointment as Arbiter of J D Spencely CBE dated 1 and 11 July 2005.  The assignation includes any and all claims, demands, and cause or causes of action of any kind whatsoever which the Assignor has or may have against J D Spencely CBE... To enable a claim to proceed against J D Spencely CBE, Apollo do hereby ASSIGN to Mr Gabriel Politakis Apollo’s contractual rights under said Deed of Appointment; these rights include the right to a claim for payment for damages from him and from any other party responsible for causing said damages.” 

 

The assignation bears to have been signed by the pursuer and Mrs Politakis as directors

of Apollo as assignors and by the pursuer as assignee.   

[13]      In relation to this first argument, I was told that parties were not in dispute that there is a company voluntary arrangement (CVA).  This had been proposed by the then liquidator, Mr McGruther.  In relation to paragraph 1.10 of the CVA, it could be seen that the proposal was that the creditors approve a voluntary arrangement which was intended to result in a stated dividend to creditors.  Mr Manson, therefore, submitted that this was the first indication in the CVA that this was to achieve a dividend for the benefit of the creditors of the company.  He also referred to paragraph 1.11 of the CVA from which he submitted that it could also be seen that the voluntary arrangement was to be for the benefit of the creditors.  Details of the proposal were then set out in paragraph 2.1 of the CVA.  It could be seen from this that the proposal was to enable Apollo to apply for a sist in the liquidation to allow it to pursue the arbitration with the party minuter.  Paragraph 2.1.3 then provided:

“The directors of the Company in the event of a sist in the liquidation… shall have absolute control of the Arbitration and the right to instruct Messrs Boyds and counsel in connection with the Arbitration”. 

 

“The Company” was Apollo.  The proposal was that the funds were to be provided to Apollo by a third party company (Adquest Ltd) to allow this to happen. 

Paragraph 2.8 of the CVA then provided:

“The creditors bind and oblige themselves to accept that Adquest shall as a result of providing the necessary funds… to pursue the Arbitration, have the right to require that the directors of the Company… shall retain full control over the conduct of the Arbitration…”

 

[14]      It was therefore the directors of the company (Apollo) who were to retain full control over the arbitration.  In relation to paragraph 2.14 of the CVA, this provided that the supervisor (who was also the liquidator) was to have a number of functions including the function of receiving the proceeds of the arbitration (if any) and making payment of the dividend to ordinary creditors.  Mr Manson submitted that it could therefore be seen from this that a limited power was provided, with the consent of the creditors of Apollo, to Apollo’s directors to conduct the arbitration.  The only reason Apollo was being given this ability was to allow it to try to recover something which was an asset which would then, if recovered, be paid to creditors of Apollo.  But what the CVA did not do was to provide Apollo with any right to assign the claim arising from the subcontract it had with the party minuter.  It did not allow it to assign any right to damages.  He submitted that that made sense because, if Apollo were to start divesting itself of rights it had to assets, that would offend against the terms of the CVA (which provided that Apollo was to recover assets for the creditors).

[15]      Mr Manson submitted, by way of background, that the parties were not in dispute, first, that Apollo is in liquidation, second, that Apollo’s liquidation was sisted in 2002 and, third, that Apollo entered into the CVA which was approved in 2001. 

[16]      If the pursuer is saying that Apollo has assigned away its right to claim damages, it would have divested itself of what the pursuer says is a claim for £340,000.  If effective, the assignation would have divested Apollo of any title to sue the defender: Microwave Systems (Scotland) Limited v Electro-Physiological Instruments Limited 1971 SC 140.  If the pursuer is right about that, then Apollo has given away an asset, namely a right to claim damages.  However, Apollo does not have the power to do that as the CVA only gave Apollo the power to conclude the arbitration for the express purpose of recovery of money for the creditors.  Consequently, the very granting of the assignation offended against the sole purpose of a CVA.  There was nothing on the face of the assignation to say that the supervisor of the CVA or all the creditors had consented.  It was obvious why they would not do so as that would be consenting to giving away a £340,000 claim enjoyed by Apollo.  He submitted that this was all the more important when one had regard to the true character of a CVA.  In this connection, he referred to Re NT Gallagher & Son [2002] WLR 2380.  This was a case in which the Court of Appeal in England considered the nature of a CVA and, under reference to the opinion of Peter Gibson, LJ, at paragraph 29, Mr Manson submitted that the effect of a CVA was to create a trust over the company’s assets for the benefit of creditors.  The supervisor is a trustee who holds the assets of the company, in this case Apollo, in trust for the benefit of Apollo’s creditors.  The assignation in this case does not have the consent of the supervisor to the assignation.  He, therefore, submitted that Apollo had acted outwith the power given to it by the CVA to conclude the arbitration.  The assignation was, therefore, void and did not assign the right that the pursuer relies on.  Mr Manson submitted that this reason of itself would entitle the court to sustain the first plea-in-law for the defender.  

[17]      The second reason why the pursuer has no title to sue was that the purported assignation flows from the arbitration clause in the original contract between Apollo and the party minuter which could not itself be assigned.  Mr Manson submitted that the assignation cannot be regarded as having any operative effect where it flows directly from a contract which cannot itself be assigned.  I was reminded that the assignation upon which the pursuer relies for his title purports to assign a right of damages arising from a contract entered into between Apollo and the party minuter.  In turn, the deed of appointment of the defender as arbiter arises from a claim under that contract between Apollo and the party minuter and, in particular, the arbitration clause that they entered into between themselves.  In terms of that arbitration clause, the contract cannot be assigned.  If the main contract cannot be assigned, then neither can a contract entered into for arbitration of a claim arising under the contract.  The question of the validity of an assignation of Apollo’s rights under the contract was considered in James Scott Limited v Apollo Engineering Limited 2000 SC 228.  In that case the Lord Ordinary, Lord Johnston, held that the arbitration clause in the contract between Apollo and the party minuter prohibited assignation.  The contract between Apollo and the party minuter had contained the following provision:

“The sub-contractor shall not assign the benefit of the sub-contract nor sublet the whole or any part of the subcontract works without the prior written consent of (James Scott Limited)”.

 

[18]      In that case the liquidator of Apollo had assigned a third party (Adquest Ltd) the claims competent to Apollo under the subcontract between themselves and the party minuter in this case.  The party minuter had refused to consent to the assignation and Adquest had applied to be sisted as an additional defender in the action on the basis that they argued that the subcontract did not prohibit assignation of a completed contract.  The Lord Ordinary held that the determining issue was one of construction of the contract to examine the scope of the purported prohibition and that, on a proper construction of the provision in question, the purported assignation of the claims was excluded. 

[19]     Mr Manson submitted that the effect of this was that the claims under the subcontract could not be assigned.  If the main claim cannot be assigned, then neither can a right arising out of the arbitration of that main claim.  The deed of appointment of the arbiter is a creature of the claim in the arbitration of the contract between Apollo and the party minuter.  It would make no sense for the parties to agree that the claim could not be assigned yet, if a right to damages arose out of it, this could be given away.  He submitted that further support for the proposition that there could be no valid assignation of Apollo’s rights could be found in Apollo Engineering Limited v James Scott Limited 2012 CSIH 88 per Lady Paton at paragraphs 26-29.  The consequence was that the purported assignation in the present case was of no effect and the pursuer has no title to sue.

[20]     The third reason why the assignation was fundamentally defective was that the purported assignation was in relation to a right to damages arising from the deed of appointment which involved delectus personae.  This, therefore, precluded assignation without all parties’ consent.  Mr Manson submitted that rights under a contract involving delectus personae cannot be assigned: McBryde, The Law of Contract in Scotland (3rd Edition) at paragraph 12.33.  He submitted that the deed of appointment of the arbiter was a type of contract.  The pursuer also avers this at article 1 of condescendence.  He submitted that the contract in this case was one for a personal service of a peculiar nature: Cole v CH Handasyde & Co 1910 SC 68 at page 73.  Apollo and the party minuter selected the defender to provide them with a service, namely to arbitrate over their dispute.  That service was personal to the defender.  The defender accepted that appointment in relation to the particular dispute between the particular parties of Apollo and the party minuter.  The intention to effect the joint appointment of a private judge in the form of the defender as arbiter in the context of two parties to a particular dispute could not be clearer.  Rights and obligations arising from the deed of appointment could not therefore be assigned.  The pursuer does not aver that the party minuter has consented to the assignation.  That of itself is sufficient to hold that the pursuer has no title to sue as the assignation is invalid because it purports to give away something which cannot be given away.

[21]     For these three reasons the court was therefore invited to sustain the first plea-in-law for the defender.

 

Second chapter: submissions on the question of competency of craves 1 and 2
[22]     Mr Manson’s submitted that the pursuer’s craves 1 and 2, being declaratory craves, are imprecise and ambiguous and are, accordingly, incompetent.  Mr Manson referred to Rothfield v The North British Railway Company 1920 SC 805 in this connection.  That was a case in which it was held that the declarator sought there was much too vague and general.  Lord Ormidale said, at page 838:

“It is… crowded with phrases and words of quite indefinite meaning…”

 

[23]     Mr Manson submitted that, in relation to crave 1, for example, no date was given and there was no specification given in relation to what was meant by “bad faith”.  There was also no explanation of what was meant by “irrelevant”.  Similarly, crave 2 was imprecise and ambiguous.  No specification was given of what the minute of amendment was and whose it was.  The court was therefore invited to sustain the second plea-in-law for the defender.

 

Third chapter: submissions on the competency of the action 

[24]     Mr Manson submitted that the action was fundamentally incompetent on the basis that this court, the sheriff court, was being invited to engage in an exercise which it had no power to engage in, namely to review and interfere with decisions of the defender as arbiter in relation to the arbitration.  Mr Manson submitted that, put shortly, taken at its highest, the pursuer’s averments amounted to a complaint that he was dissatisfied with the defender’s decisions and the reasoning for those decisions, that this court (the sheriff court) should review these decisions on the view that the decisions were wrong.  The sheriff court has no power to do any of these things.  These matters fall within the exclusive jurisdiction of the Court of Session.  This was well settled by authority:  Brown v Hamilton District Council 1983 SC (HL) 1.  The Court of Session enjoys exclusive jurisdiction to review the decisions of inferior courts, tribunals or decision makers such as arbiters. 

[25]      Lord Fraser said, at page 44:

“… First, the Court of Session has a supervisory jurisdiction over decisions of administrative bodies such as local authorities, whether the decisions are administrative, judicial or quasi – judicial; and secondly, that supervisory jurisdiction is privative to the Court of Session and is not shared by the sheriff court”.

 

[26]      Mr Manson further submitted that simply because the jurisdiction of the sheriff court includes actions of declarator does not carry any implied extension of the jurisdiction of the sheriff court to review the decisions of other bodies. In this connection, he reminded me of what Lord Fraser had said in Brown, above, at page 45:

            “The jurisdiction of the sheriff court was extended by the Sheriff Courts (Scotland) Act 1907, section 5(1) to include actions of declarator…  That extension did not in my opinion carry any implied extension of their jurisdiction to review the decisions of other bodies.  The effect of section 5(1) was to add to the forms of procedure available in the sheriff court, but not to confer upon it by implication any new jurisdiction…  The reason why the sheriff court is not competent to review the decisions of administrative bodies is not merely a matter of procedure, but springs from a fundamental lack of jurisdiction in this field”.

 

[27]      Mr Manson submitted that there was also a further reason why the pursuer’s action was incompetent.  This was because the decisions of the arbiter of which the pursuer complains stand until reduced.  There is no crave for reduction in the present case.  In Brown Lord Fraser said, at page 46:

“A mere declarator that the decision was one which they were not entitled to reach does not get rid of the decision, nor can it open the way for the housing authority to reach a different decision if, on further consideration of the matter in the light of the court’s decision on matters of law, it thinks fit to do so.  In a case such as this, where the housing authority is both the decision making authority and the decision implementing authority, the proper procedure is for the decision to be reduced so that a different decision, creating different legal rights for the private party in the position of the respondent, can be made”.

 

[28]      Mr Manson submitted that the import of the pursuer’s averments was to challenge the decisions arrived at by the arbiter.  This necessarily would involve the sheriff in acquainting him or herself with those decisions and in deciding whether the decisions were within or outwith the arbiter’s powers, and that would mean deciding whether the decisions were correct on their merits.  All such matters are within the exclusive jurisdiction of the Court of Session.  The court was therefore invited to sustain the defender’s third plea-in-law.

 

Fourth chapter: irrelevancy of averments as regards immunity from suit

[29]      Mr Manson submitted that the pursuer’s pleadings were irrelevant from the point of view of the defender’s immunity from suit.  What the pursuer is asking the court to do is to review the merits of the reasoning behind the arbiter’s decisions, but even the Court of Session ought not properly to do anything to interfere with the merits of the arbiter’s decision as it could only look at his decisions through the prism of the well-recognised grounds upon which judicial review is available.  But even if the case was in the Court of Session, the Court of Session could only examine an arbiter’s decision with a view to awarding damages in specific circumstances and, in the present case, the pursuer’s averments do not set out any proper, relevant basis for a claim for damages against the arbiter.  The pursuer craves payment for damages by the defender.  The basis of that claim arises solely from the conduct of the defender whilst acting as an arbiter.  The defender was exercising a judicial function.  Esto he fell into error in discharging that function (which is denied), it does not render him liable in damages to the parties for the consequences of that error unless the error arises from corruption, malice or bad faith: McMillan v The Church of Scotland (1862) 24D 1282 per Lord Curriehill at page 1295.  Mr Manson submitted that it would be unfair to say that there was a total absence of allegations of such allegations.  However, what was not provided was any substance or specification at all as to what the defender did that shows that he was acting in such a manner and shows that he was acting corruptly, maliciously and in bad faith.  Mr Manson submitted that it appeared from the pursuer’s averments that the pursuer seemed to be saying that the very fact of the dismissal by the defender of the pursuer’s claims was itself indicative of malice and bad faith on his part.  However, it was, he submitted, nonsense to say that simply because a judge dismissed a case there was malice on his part.  I was also referred to the pursuer’s averments in article 10 of condescendence at page 17 of the closed record where the pursuer avers, on one hand, as follows:

“No-one at the time envisaged that what the respondents had in mind was to generate and allocate to the MoA (sic) extortionate expenses to the tune of £163K rather than some £5K”.

 

[30]      However, the very next averment reads as follows:

 

“The defender ordained the Minute of Amendment knowing what the respondents’ agents would get up to”.

 

[31]      The two averments were inconsistent.  There was also no basis averred for the averment about the defender “knowing” what the respondents’ agents would do.  I was reminded that the arbiter had decided on the basis of a report from the Auditor of the Court of Session.  On the pursuer’s hypothesis, if a judge accepts the submission of a party and sustains that party’s plea-in-law, he is acting corruptly and maliciously if the pursuer would have arrived at a different decision.  Similarly, on the pursuer’s hypothesis, if a judge - a private judge or any judge - finds a party liable in expenses following an amendment procedure, that is enough to point to malice, bad faith and corruption on the part of the judge.  There were no averments specifying from where the malice arises or from where the corruption arises.

[32]      I was also reminded that the defender’s decisions had been examined by the Inner House in Apollo Engineering Limited v James Scott Limited 2009 SC 525, Lord Carloway, in giving the opinion of the court, said at paragraph [32]:

“Where an arbiter does decide to make a finding in expenses, it is a matter for him to decide what the level of these expenses might be.  He can fix a sum himself, or he can remit the assessment of the appropriate amount, at least in the first instance, to a man of skill, such as the auditor of the Court of Session, to tax”.

 

[33]      Lord Carloway then went on to say at paragraph [34]: “It is certainly true that the amount taxed by the auditor appears to be remarkably high but, until the submission to the arbiter is exhausted, or there has been a decerniture for the amount which has been taxed by the auditor, it is arguable that the matter of the level of expenses remains before the arbiter for final determination.  It may be, therefore, that, if there are objections to the findings of the auditor upon taxation, the party may be able to air these before the arbiter.”  Lord Carloway had then gone on to address the question of whether the arbiter was entitled to dismiss the claims upon grounds of irrelevancy.  He went on to say:

”[36]…Although understanding the arbiter’s written reasons is not a straightforward task, it is clear from a reading of them that he did consider the claims to be irrelevant in a legal sense.  He was not purporting to decide matters of contested facts without hearing evidence.  He did not, for example, have regard to the content of the respondents’ experts in order to make his decision.  He did not take his decision simply by disapproving of the methodology specified in the petitioners’ expert’s report.  Rather, what he did do was to look as he was invited to do, at that report to see if it could bolster the content of the petitioners’ pleadings, the relevancy of which was concerning him. 

[37] At the time of the debate, it was not disputed that the arbiter was entitled to decide matters of relevancy.  Both parties had preliminary pleas and both sought to argue them.  In that state of affairs, the petitioners cannot complain that the arbiter did what both parties asked him to do.  Even if the decision of 18 May 2007 could be considered a part award, it was one which both parties had agreed could be made by the arbiter at the time he made it. 

[38] Furthermore, the merits of the arbiter’s decision on relevancy cannot normally competently be made the subject of a judicial review.  There is a statutory remedy open to the petitioners to challenge the arbiter’s proposed decision.  That is to apply for a stated case in terms of section 3 of the Administration of Justice (Scotland) Act 1972… 

[40].  Since, throughout the arbitration, it appears that the arbiter has simply reacted to the request of both parties, there is nothing in the decisions which he has taken that reveals any form of unreasonableness, procedural impropriety or conduct contrary to natural justice.  Insofar as the petitioners made complaints about bias, these were not pressed.  There is no obvious bias evident in the decisions of the arbiter.  The decisions have undoubtedly gone heavily against the petitioners.  It may be surprising, stated boldly, for a repudiation of a multi-million pound contract to have caused no relevant loss.  But that, of itself, does not demonstrate bias or error.  If the arbiter has erred, then he can be corrected in the context of the stated case”.

 

[34]      I was reminded by Mr Manson that Apollo did appeal by way of stated case to the Court of Session but that, owing to the pursuer’s inability to represent Apollo, that avenue was shut down. 

[35]      Mr Manson submitted that, even on a standard application of the tests of relevancy or specification, the present action should be dismissed, but that they should be held to a higher standard of specification owing to the nature of the allegations made.  I was reminded that allegations of fraud, bad faith or immoral conduct should not be pleaded unless expressly instructed and unless there is in the papers before the pleader clear and sufficient evidence to support them:  Macphail, at paragraph 9.12.  I was also reminded of the passage in Macphail, at paragraph 9.30 which reads as follows:

“In many cases the defender is entitled to have the grounds of action specified in some detail.  Where a charge of fraud is made, the facts and circumstances from which fraud may be inferred must be distinctly stated”.

 

[36]      Mr Manson submitted that in view of the seriousness of the allegations in the present case about bad faith, malice and corruption, the court should expect a similar standard.  In the absence of averments from which any inference of malice, corruption or bad faith can be inferred the court was invited to sustain the fourth and fifth pleas-in-law for the defender.

[37]      Mr Manson told the court that he would prefer to reserve his position in relation to his sixth plea-in-law, about res judicata and therefore did not wish to argue it at this point. 

 

Fifth chapter: submissions in relation to prescription
[38]      I was reminded that in crave 3 the pursuer sought repayment of fees of £40,000 paid to the defender as arbiter.  Crave 4 sought damages (£300,000) relating to legal fees which Mr Manson presumed to be those of Apollo, although this had not been specified.  He submitted that it was extremely difficult to ascertain how these claims and craves were supported by the averments and what these losses really were.  However, he submitted that there was no suggestion that the pursuer only began to suffer loss in the five years preceding the raising of the present proceedings (served on the defender on 6 February 2015).  The defender had found Apollo liable in expenses in September 2006.  The defender’s draft opinion following the debate was issued in March 2007.  His final draft opinion was issued in September 2007.  The defender then decerned against Apollo for payment to the party minuter of expenses in the sum of £195,497.05 on 29 June 2009.  If the pursuer’s claims for repayment of fees in both craves 3 and 4 were characterised as damages owing to breach of contract, they would be subject to the five year negative prescription period specified in section 6 of the Prescription and Limitation (Scotland) Act 1973.  I was reminded of the terms of sections 6 and 11 of the 1973 Act.  There were no averments in the pursuer’s pleadings that fees were paid to the defender in the five years preceding the raising of the action.  The dates of the decisions upon which the pursuer founds as amounting to breaches by the defender were all on dates more than five years prior to the raising of the action.  It was almost impossible to make sense of how the pecuniary craves had been made up.  What was, however, certain was that the dates founded upon were all more than five years before the raising of the action.  He submitted that the pursuer had tried to get around this when, after the plea on the question of prescription had been added, the pursuer had in turn added averments about the arbiter’s part award in December 2014.  However, Mr Manson submitted that this made no difference.  The “wrongs” committed by the defender were his decisions in relation to the minute of amendment and the decision to dismiss the majority of Apollo’s claim, both of which came before the arbiter’s part award in December 2014.

[39]      Another question was “when was the loss incurred?”  In relation to the fees paid to the defender (crave 3), these must all have been paid before the five years prior to the raising of the action.  In relation to the legal fees (crave 4), the defenders had been unable to relate these fees to any of the alleged wrongs of which the pursuer complained in his averments.  There was no apparent causal connection. 

[40]      He submitted that the fees paid to the arbiter would have been paid anyway and that this begged the question whether the fees paid to the arbiter in the course of the arbitration could be characterised as a loss which could be said to have flowed from the “wrongs” of which the pursuer complains.

[41]      In relation to the averments about the arbiter’s part award in 2014, Mr Manson submitted that, in any event, there had been no averments of fees having been paid after that date.  Mr Manson said that he had not been able to marry up either of the pecuniary craves with the “wrongs” complained of by the pursuer.  He also submitted that, in any event, there was nothing in the averments to suggest that any loss only began to be suffered in the five years prior to the raising of the action.

[42]      Mr Manson also submitted that, insofar as the pursuer’s averments about fraud might be designed to seek to exempt the current action from the five year prescriptive period, they were irrelevant.  He submitted that, in order to suspend the prescriptive period owing to fraud or error, a pursuer must prove that he was induced by that fraud or error into failing to bring an action:  section 6(4) of the 1973 Act.  The pursuer does not offer to prove that this was the case.  His repeated litigations to challenge the defender’s decisions pointed the other way.  The court was, therefore, invited to sustain the seventh plea-in-law for the defender.

 

Sixth chapter: submissions on relevancy and specification

[43]      Mr Manson advanced a general submission to the effect that the pursuer’s pleadings were contradictory and confusing.  I understood this to be under reference to the defender’s fifth plea-in-law.  Mr Manson submitted generally that it was impossible to make any sense of the pursuer’s complaints as regards the conduct of the defender and of his decision making and reasoning and that, even if every averment was held to be true, it would not permit the court to grant the craves which the pursuer seeks: Jamieson v Jamieson 1952 SC (HL) 44.  However, Mr Manson did not draw the court’s attention to any particular averments about which he was complaining in this respect.

[44]      The pursuer’s averments in relation to the Arbitration (Scotland) Act 2010 were irrelevant.  That legislation does not apply as it came into force on 7 June 2010, well after the commencement of the arbitration in the present case. 

[45]      Further, the pursuer’s averments in relation to the European Convention on Human Rights are irrelevant.  The defender is not a public authority.  He is a private judge appointed by the parties to a contract by way of a contract.  Mr Manson adopted in advance the submissions on this issue to be made by Mr Ellis on behalf of the third party. 

 

Submissions on behalf of the Party Minuter
[46]      Mr Ellis told the court that he would be inviting the court to sustain the first, second, third and fourth pleas-in-law for the party minuter.  However, before advancing detailed submissions under these four heads, he had general opening submissions as follows.

 

General Opening Submissions

[47]      Mr Ellis first of all drew my attention to craves 1 and 2, the declaratory craves.  These both told the court what decisions the pursuer is criticising.  In crave 1 it is the decision of the defender to dismiss Apollo’s claim.  In crave 2 it is the defender’s decerniture for expenses.  Both craves 3 and 4 appear, when read with the pursuer’s pleas-in-law, to be craves for damages despite the use of the word “repayment” in crave 3.

[48]      Mr Ellis then pointed to a number of averments in article 1 of condescendence.  The pursuer avers that he is the assignee of the damages claim and that the assignor is Apollo.  The pursuer goes on to aver that he understands that the sheriff court has jurisdiction on matters relating to claims for damages.  The critical issue is then averred in a passage in article 1 of condescendence which commences “The damages claim raised in this action directly relates to the narrow legal issue whether Apollo’s various craves were irrelevant…”.  Mr Ellis submitted that it tells the court that the pursuer is asking the court to look at the decision of the arbiter and to conclude that the decision was wrong in law.  The pursuer then takes a jump from saying that the decision was wrong in law to saying that the defender was motivated by improper motives.  The whole purpose of asking the court now to reconsider whether what the arbiter did was wrong in law is asking the court to review the findings of the arbiter.  That would be to ask this court to be an appellate court.  However, the sheriff court has no such jurisdiction.  Only the Court of Session has the supervisory jurisdiction. 

[49]      Mr Ellis submitted that another problem with “the jump” is that there is no warrant for concluding from the fact that the defender was wrong (which is not accepted) that he was acting improperly.  There would be a need to add something else beyond the fact that an arbiter was simply wrong.

[50]      Turning to article 15 of condescendence at page 31, Mr Ellis submitted that this told the court two things.  First of all it told the court what the damages were.  Secondly, it repeated what is averred in article 1 of condescendence about what was said to be “the narrow legal issue whether Apollo’s claim was irrelevant or not”.  There were also averments, as there were in article 1 of condescendence, about what was said to be “pretences” or “false pretences” by the defender.  However, there are no averments of any factual circumstances upon which to base an insertion of falsehood.  The references to “false pretending” or “pretending” were developed by the pursuer in article 13 of condescendence, starting at page 26 of the closed record.  Mr Ellis submitted that the averments here were hard to follow, but that they described the process of the arbiter deciding between the competing contentions.  However, the pursuer was relying only upon saying that the decisions were wrong.  

[51]      I was reminded that article 13 of condescendence dealt with dismissal of the £5M claim and that averments in relation to the award of expenses are in article 10 of condescendence.  Despite the fact that the pursuer at one point averred “no-one at the time envisaged that what the respondents had in mind was to generate and allocate to the Minute of Amendment expenses to the tune of £163K rather than the sum of £5K”, the pursuer nevertheless asked the court to infer falsehood on the part of the defender.  Mr Ellis also pointed to averments in article 10 of condescendence at page 17 as follows:

“Much more important however was the defender decerning against Apollo for payment of £195K knowing that most of these expenses were falsely allocated to the costs of 3 of Scott’s 4 experts and that the bad faith intent of doing so was to facilitate MacRoberts first failed attempt to recall Apollo’s liquidation”.

 

[52]      It was, therefore, apparent that the pursuer was asking the court to infer falsehood, but there was nothing to back this up.  There was no averment of why the arbiter knew that the decision of the Auditor of the court to tax £195,000 was (allegedly) falsely allocating costs.

[53]      Mr Ellis submitted that there were averments in article 15 of condescendence which told the court what the claims for damages were, albeit that the averments were not clear.  For example, at page 31, the pursuer avers:

“The pursuer seeks a civil remedy by way of damages which directly relate to said bad faith and intentional misrepresentations employed in his APA so that he could pretend Apollo’s £5M claim was irrelevant.  Said damages are quantified as the £40K advanced to the defender in the instalments to cover his fees, plus legal costs of circa £250K plus VAT both of which directly relate to the Arbitration presided upon by the defender”. 

 

[54]      Mr Ellis submitted that this therefore tells the court that the pursuer had two claims for damages, namely for £40,000 and £250,000 plus VAT.  I was also reminded of the averments at the end of article 15 of condescendence as follows:

“In relation to the £250K (before VAT) the pursuer clearly specifies that this sum directly relates to the Spencely Arbitration and corresponds to fees for law agents, counsel and expert reports incurred by Apollo and paid by the pursuer.  Details of said fees are provided at Tab 20”.

 

[55]      I was reminded that, as the pursuer maintains that he is assignee of Apollo’s claim, this should, therefore, be treated as having been paid by Apollo.  An assignee can only claim for an assignor’s claim.

[56]      Mr Ellis’ detailed submissions fell into four chapters as follows.

 

First chapter: submissions in relation to the jurisdiction and competency of the action
[57]      Mr Ellis’ submission was that any review of an arbiter’s actings can only be undertaken under the supervisory jurisdiction of the Court of Session.  There is no appeal available against the merits of the arbiter’s decisions.  If there was an application to the Court of Session under its supervisory jurisdiction, even that court could not review the merits of the arbiter’s decisions, including decisions on relevancy.  Such a court could only look at the way in which an arbiter had gone about matters.  It was only if an arbiter’s decision was reduced under the supervisory jurisdiction that the merits of such a decision could be open for consideration again.  An arbiter’s decision is final; there is no appeal against it.  While it remains unreduced it still stands.  Reduction is only possible under the supervisory jurisdiction, and the Court of Session alone has the power, in the exercise of its supervisory jurisdiction, to review decisions of inferior courts and tribunals and administrative bodies: Macphail, at paragraph 2.48.

[58]      Mr Ellis submitted that, although this passage related to the position under the Sheriff Courts (Scotland) Act 1907, the position remained unchanged under the Courts Reform (Scotland) Act 2014.  Insofar as section 38 of the 2014 Act introduced a power of reduction, this was a procedural change only; it did not attempt to introduce a supervisory jurisdiction to the sheriff court.  I was reminded of what had been said in Brown v Hamilton District Council by Lord Fraser of Tullybelton at page 45 to the effect that an extension of jurisdiction in relation to the 1907 Act was to add to the forms of procedure available in the sheriff court but not to confer upon it by implication any new jurisdiction.  This was, therefore, a procedural change only.

[59]      On the thread of the action in the present case falling within the supervisory jurisdiction, Mr Ellis next referred me to Forbes v Underwood 1886 13R 465.  I was referred to the opinion of the Lord President in support of the proposition that the sheriff court does not have jurisdiction to review a decision of an arbiter, and in particular at pages 467, 468 and 469 where he said:

“The question whether the sheriff has jurisdiction in a case such as this is, I think, one of very great importance.  The position of an arbiter is very much like that of a judge in many respects, and there is no doubt whatever that whenever an inferior judge, no matter of what kind, fails to perform his duty, or transgresses his duty, either by going beyond his jurisdiction, or by failing to exercise his jurisdiction when called upon to do so by a party entitled to come before him, there is a remedy in this court, and the inferior judge if it turns out that he is wrong, may be ordered by this court to go on and perform his duty… Now, all this belongs to the Court of Session as the Supreme Civil Court of this country in the exercise of a court is called, very properly, its super-eminent jurisdiction.  It is not of very much consequence to determine whether it is in the exercise of its high equitable jurisdiction, or in the performance of what is sometimes called its nobile officium.  But of one thing there can be no doubt, that in making such orders against inferior judges… or the like, this court is exercising an exclusive jurisdiction – a jurisdiction which cannot possibly belong to any other court in the country.  It is enough to suggest the idea, that an inferior judge should be called upon to ordain another inferior judge to perform his duty – the very idea carries absurdity with it.  It can only be the Supreme Court of the country that can possibly exercise such jurisdiction.  Now, if that be true in the case of all inferior judges… the question which we have to determine is, whether the same rule must not, by parity of reasoning, apply to the case of arbiters…  It appears to me that the parallel between the position of an arbiter and the position of inferior judges – judges in the proper sense of the term – is complete, and that the two are quite indistinguishable in this question of jurisdiction.”

 

[60]      Mr Ellis also again referred to Brown v Hamilton District Council and in particular to the opinion of Lord Fraser of Tullybelton at pages 42, 45 and 46 in support of the proposition that, until the arbiter’s decisions are reduced, they are valid.  He submitted that it is not possible for someone to come along to say that they disputed the arbiter’s decision, that it was wrong and that they wanted damages and a declarator that the decision is wrong but with the decision still standing.  As Lord Fraser said in Brown at page 46: “A mere declarator that the decision was one which they were not entitled to reach does not get rid of the decision”.  Mr Ellis submitted that this principle would apply with equal force to the decision of an arbiter because, until the arbiter’s decision is reduced, the legal rights remain settled by the arbiter’s decision.  Declarator could, therefore, not be granted without the decision being reduced.  He also referred to Farrans v Roxburgh County Council 1969 SLT 35 in support of this proposition.  The decision of the arbiter is binding and the only appropriate remedy is an action for reduction.

[61]      Mr Ellis submitted that a further point was that the supervisory jurisdiction would not allow even the Court of Session to go into the merits of the substantive decision reached by the arbiter.  In this connection I was referred to West v Secretary of State for Scotland 1992 SC 385, and in particular the opinion of the Lord President (Hope) at pages 412 and 413 where he summarised certain propositions to define the principles by reference to which the competency of all applications to the supervisory jurisdiction was to be determined.  The first of these propositions was that the Court of Session has power, in the exercise of its supervisory jurisdiction, to regulate the process by which decisions are taken by any person or body to whom a jurisdiction, power or authority has been delegated or entrusted by statute, agreement or other instrument.  The second proposition is that the sole purpose for which the supervisory jurisdiction may be exercised is to ensure that the person or body does not exceed or abuse that jurisdiction, power or authority or fail to do what the jurisdiction, power or authority requires.  Lord Hope also said by way of explanation that:

“Judicial review is available, not to provide machinery for an appeal but to ensure that the decision-maker does not exceed or abuse his powers or fail to perform the duty which has been delegated or entrusted to him.  It is not competent for the court to review the act or decision on its merits, nor may it substitute its own opinion for that of the person or body to whom the matter has been delegated or entrusted”.

 

[62]      Mr Ellis next referred to Apollo Engineering Limited v James Scott Limited 2009 SC 525 being a decision of the Inner House.  My attention was particularly drawn to paragraph [38] where Lord Carloway, who gave the opinion of the court, said: “Furthermore, the merits of the arbiter’s decision on relevancy cannot normally competently be made the subject of a judicial review.  There is a statutory remedy open to the petitioners to challenge the arbiter’s proposed decision.  That is to apply for a stated case in terms of section 3 of the Administration of Justice (Scotland) Act 1972”.  I was also reminded of what Lord Carloway said at paragraph [40] to the effect that there was no obvious bias evident in the decisions of the arbiter.  Mr Ellis also submitted that what was said here by Lord Carloway illustrated the point that the fact that an arbiter’s decision is wrong is not enough to infer wrongdoing; for that you need something else as well.

[63]      Mr Ellis also submitted that there was a more fundamental reason why a court could not look at an arbiter’s decision on law.  In this connection he referred me to Hamlyn & Company v The Talisker Distillery 1894 21R (HL) 21, and in particular a passage in the opinion of Lord Watson at page 27 where he said:

“…The law of Scotland has, from the earliest times, permitted private parties to exclude the merits of any dispute between them from the consideration of the court by simply naming their arbiter”.

 

[64]      Consequently, simply by naming their arbiter, this excludes the merits of any dispute between them from being considered by the court.  That is what happened with the deed of appointment in the present case.  In this connection I was also referred to The Caledonian Railway Company v Messrs Turcan & Company 1898 25R (HL) 7, and in particular to a passage in the opinion of the Lord Chancellor, Lord Halsbury, at page 16 where he said:

“… The arbiter has done what by law he was entitled to do; he has received the evidence, he has considered the evidence, and he has decided adversely to the present appellants.  I do not mean, for the reasons I have given, to express any opinion whether he was right or wrong in what he has done, because, whether he is right or wrong, the state of the law, as I understand it, is that we are not entitled to review his decision.  The parties have selected him as the judge both of law and fact, and if he be ever so erroneous in the decision at which he has arrived, it is conclusive upon the parties.  Therefore, on that part of the case, I am not entitled to review the decision of the arbiter; his award is final, and, whether his award be right or wrong in point of law, it is a matter with which I am not entitled to deal”.

 

[65]      Lord Watson then went on to say, at page 17:

 

“Assuming that the arbiter went wrong, what jurisdiction has this House or the courts below to interfere with his finding?  My Lords, by the law of Scotland the oversman who is appointed in terms of the deed of submission, is made judge of law as well as of fact, and he is not liable to have his decision reviewed, reversed, or modified unless the parties undertake to show – what has not been attempted here – either that he was guilty of misconduct in his office, or that he exceeded the bounds of the jurisdiction conferred upon him by the terms of the submission”.

 

[66]      Mr Ellis also referred me to Barrs v The British Wool Marketing Board 1957 SC 72, and in particular to the opinion of the Lord President at page 82 in support of the proposition that the court cannot review the merits of a decision of a quasi-judicial body.

[67]      Mr Ellis therefore submitted that the authorities to which he had made reference supported the following propositions:

1. The court has no jurisdiction to review the arbiter’s views on law;

2. That a challenge is only possible on the grounds of judicial review which relate to the process by which a decision was arrived at; and

3. Judicial review in the exercise of the supervisory jurisdiction is exclusive to the Court of Session.

 

[68]      This all means that the sheriff court in which the current action has been raised has neither competence nor jurisdiction to entertain the action.  I was accordingly invited to sustain the first plea-in-law for the party minuter and to dismiss the action.

[69]      At this point Mr Ellis wished to respond to certain points made in this connection in the “Response for pursuers” lodged by the pursuer in response to the notes lodged by the defender and the party minuter of the basis for their respective preliminary pleas.  The first point was in relation to the reference made by the pursuer to the Arbitration (Scotland) Act 2010.  I was reminded about Mr Manson’s submissions on this issue.  My attention was also drawn to section 36(1) of the 2010 Act which provides that the 2010 Act did not apply to an arbitration begun before commencement of the Act.  I was told that 7 June 2010 was the commencement date, and that the arbitration in this case had begun well before that.  References by the pursuer to the 2010 Act were, therefore, of no relevance in this case.

[70]      Mr Ellis next referred to paragraphs 6 and 7 of the pursuer’s “Response” where it was maintained that this court has jurisdiction on the view that the pursuer was seeking awards of damages.  Mr Ellis submitted that Brown had made it clear that the form of the remedy did not affect the fact that the court did not have a supervisory jurisdiction.  The same argument had been attempted in Brown, but it had been held that the provision had just been procedural and that it had not conferred a substantive jurisdiction.  Mr Ellis submitted that the basis upon which the pursuer was seeking damages in the present case would require the court to investigate the conduct of the arbiter and to find that his decisions were invalid.  However, that would be a matter for the supervisory jurisdiction, which the sheriff court does not have.

[71]      Mr Ellis’ final point was in relation to paragraph 11 of the pursuer’s “Response” where the pursuer was saying that judicial review could not review the merits of the arbiter’s decision.  Mr Ellis submitted that this was correct but that it did not flow from that that the pursuer can now come to this court. 

 

Second chapter: submissions in relation to title and interest to sue

[72]      Mr Ellis submitted that on two grounds the purported assignation was of no effect.  Before expanding upon these two grounds, Mr Ellis submitted that the starting point was that the nature of the defender’s relationship with Apollo was one founded on contract.  It arose when the defender accepted appointment under the deed of appointment between Apollo and the party minuter.  By his acceptance of the offer the defender entered into contractual relationships with both Apollo and the party minuter: Stair Memorial Encyclopaedia, The Laws of Scotland, volume 2, at paragraph 440.  A tripartite contractual relationship was formed. 

[73]      Turning to the first ground upon which Mr Ellis submitted that the purported assignation was of no effect, he submitted that the tripartite contractual relationship had strong elements of delectus personae which meant that the parties may not assign their rights and liabilities.  He submitted that it is a matter of construction of the particular contract in question whether or not parties’ rights and liabilities are assignable or whether there is delectus personae preventing a party from assigning its rights and liabilities: Cole v Handasyde, supra; Karl Construction Limited v Palisade Properties Plc 2002 SC 270.

[74]      Mr Ellis further submitted that the construction of a contract must include the context in which it was made and the circumstances known to all the contracting parties at the time: Rainy Sky SA v Kookmin Bank [2011] 1WLR 290 at para 14.

[75]      In the present case the contract involving the defender was formed by the deed of appointment and his acceptance as arbiter.  Mr Ellis submitted that one important element of the background was the subcontract between Apollo and the party minuter out of which the disputes arose and which included a binding arbitration clause.  I was reminded that that subcontract had contained a prohibition against assignation which made any attempts to assign by Apollo void: Apollo Engineering Limited v James Scott Limited 2009 SC 525 and Apollo Engineering Limited v James Scott Limited [2012] CSIH 88.  Mr Ellis submitted that it was not just the terms of the subcontract, but that there were other elements which pointed to delectus personae in the arbitration contract.  Apollo and the party minuter chose the arbiter for his skill and experience.  Apollo and the party minuter chose each other as parties to the arbitration contract because they were in dispute and needed their differences resolved.  They had joint and several liability to the arbiter for his fees and each was relying on each other’s covenant.  Who you are litigating with is critically important.  One party could not just decide to opt out and pass on their responsibilities to someone else.  Apollo was prohibited from assigning its rights under the subcontract.  The party minuter could not assign its interests under the arbitration contract because to do so might deprive Apollo of the party minuter’s covenant.  It was necessary that all original parties remain in the arbitration contract to ensure the proper administration of justice.  He submitted that these were very strong indicators of delectus personae.  He submitted that, taken altogether, the rights under the arbitration contract were not assignable as a matter of construction of the contract.

[76]      Mr Ellis further submitted that, if rights and obligations were not assignable, any purported assignation of the right in face of that is of no effect:  Linden Gardens Trust Limited v Lenesta Sludge Disposals Limited [1994] 1AC 85.  Mr Ellis, therefore, submitted that the purported assignation in favour of the pursuer in this case was of no effect to transfer rights of Apollo under the arbitration contract to him and that he, therefore, had no title to pursue Apollo’s rights.

[77]      The second ground upon which Mr Ellis submitted that the purported assignation was of no effect was that, in any event, the purported assignation did not relevantly instruct a title to sue and is of no effect because the CVA gave the directors of Apollo no power to assign the assets of Apollo.  Mr Ellis adopted Mr Manson’s submissions on this issue.  All of the assets of the company fell within the CVA and are, Mr Ellis submitted, held in trust for the creditors for the purposes of the CVA.  In addition to the authorities to which Mr Manson referred, Mr Ellis also referred to Re Beloit Walmsley Limited [2008] EWHC 1888, and in particular passages from paragraphs [21] and [22] of the opinion of Judge Pelling, QC where he said:

“[21]…The correct approach is that identified by Nourse LJ – the court does not have the power to direct a variation to the terms of a CVA nor does it have jurisdiction to direct a course of action that would involve a breach of the terms of the CVA other than to the extent that the terms of the CVA confer a power on supervisors to depart from the strict terms of the CVA. 

[22] Even if this general point is wrong, in my judgement there is a narrower reason why in the circumstances of this case a direction to the effect sought… is one that the court does not have the power to make.  It has been clear since the Court of Appeal decided Re NT Gallagher & Son Limited… that where (as here) a company (or individual) voluntary arrangement provides for moneys to be held for the benefit of the CVA creditors, that created a trust of those moneys for those creditors and (subject to any express powers conferred by the CVA) that trust has to take effect according to its terms”.

 

[78]      Mr Ellis, therefore, submitted that CVAs are so sacrosanct that even a court cannot vary the terms of a CVA.  A trust is created for the creditors.  The purposes of the CVA in this case do not allow for assignation of the assets of Apollo.

[79]      In relation to paragraph 35 of the pursuer’s “Response”, Mr Ellis reminded the court that the pursuer’s position there was that the terms of the CVA had not been breached as the sums sued for were not due to the general body of the creditors in that they are only due to the pursuer and that, in any event, the pursuer is the principal creditor of Apollo.  Mr Ellis submitted that it was important to note that the pursuer was not the only creditor.  It explained the pursuer’s ongoing interest, but this ignored the corporate personality of Apollo.  I was reminded that the claim is being pursued in the shoes of Apollo and that Apollo had a corporate personality which was not the same as its shareholders or its creditors.  A second point made by Mr Ellis was that this also ignored what may be the different interests of the remaining creditors.  Mr Ellis told the court that he understood that the pursuer was creditor to the extent of about two-thirds, leaving the remaining one-third with the other creditors of Apollo.  Mr Ellis submitted that it did not do the remaining creditors any good if Apollo’s rights were given away.  They were all entitled to be protected by the CVA as well as it was a trust for the creditors.  In all the circumstances, Mr Ellis invited the court to sustain the second plea-in-law for the party minuter and to dismiss the action.

 

Third chapter: submissions in relation to prescription

[80]      I was reminded that the damages claimed (in crave 3) by the pursuer were said to be £40,000 paid to the arbiter on account of his fees and expenses and £250,000 (plus VAT in crave 4) paid for legal expenses incurred by Apollo in conducting the Arbitration.  The sums of expenses are detailed in article 15 of condescendence and in Tab 20.  All parties confirmed to me that they were agreed that the court could look at the schedule of fees paid as set out in Tab 20.  I was told that it could be seen from this that fees started to be incurred in 2003 and that all but two of the payments listed had been invoiced by 2009.  All of these were incurred more than five years prior to the raising of the action in February 2015.  In relation to item 13 in Tab 20, this was a payment to the arbiter on 2 June 2005. 

[81]      I was reminded that the appropriate prescriptive period is set out in section 6 of the Prescription and Limitation (Scotland) Act 1973 (“the 1973 Act”) and that claims for reparation for loss and damage are subject to the five year prescriptive period.  I was also reminded that section 6(1) of the 1973 Act includes the words “in relation to the obligations”.  The five year period runs from the appropriate date and section 6(3) provides that the appropriate date is a reference to the date when the obligation became enforceable.  In turn, section 11 of the 1973 Act provides:

“Any obligation (whether arising from any enactment, or from any rule of law or from, or by reason of any breach of, a contract or promise) to make reparation for loss, injury or damage caused by an act, neglect or default shall be regarded for the purposes of section 6 of this Act as having become enforceable on the date when the loss, injury or damage occurred”.

 

[82]      Mr Ellis submitted that the sort of obligation referred to include the present one and that time started to run when the obligation became enforceable, which was the date when the loss, injury and damage occurred.  The obligation to make reparation is a single and indivisible obligation.  The right to bring the action and prescription starts to run when there is a concurrence of injuria and damnum: Dunlop v McGowans 1980 SC (HL) 73.  Essentially, that concurrence is the first time loss is suffered following the wrong complained of.  Mr Ellis submitted that, in the present case, the wrongs alleged were the making of the order for expenses and proposing to dismiss the action.

[83]      Articles 10, 21 and 22 of condescendence and the pursuer’s second plea-in-law criticised the defender’s actings as arbiter in relation to making an award of expenses in favour of the party minuter.  The finding of liability in expenses subject to taxation was made in 2006.  The taxed report of the Auditor of the Court of Session was issued in May 2007.  The defender’s decerniture for expenses in the amount as taxed was dated 30 June 2009.  Mr Ellis submitted that it was therefore clear in relation to the expenses that this was all completed more than five years prior to the raising of the present action.

[84]      Mr Ellis submitted that the position of the dismissal by the defender as arbiter of almost all of Apollo’s case was more complicated as there was the arbiter’s part award in December 2014, as averred in article 13 of condescendence.  The loss which Apollo sought to recover first occurred, according to its averments, in about 2006.  There ought to have been concurrence of damnum and injuria at that stage.  Mr Ellis submitted that there was a difficulty of analysis because there was no proper causal link between the damages claimed and the alleged defaults or wrongs.  It was, therefore, necessary to examine the defaults or wrongs alleged.  The pursuer asserted that he relied upon the arbiter’s part award issued in December 2014, but Mr Ellis submitted that this was, on a proper analysis, incorrect.  He submitted that it was a mere convenience introduced by the pursuer by adjustment to attempt to avoid the merit of the prescription pleas taken by the defender and the party minuter.  That part award was made following upon a final draft opinion of the defender issued in May 2007 as averred in article 13 of condescendence.  This had been the point at which the defender as arbiter had intimated that it was his intention to dismiss the action.  It was not a final decision at that stage.  However, in his averments, the pursuer criticises the defender for acting in bad faith and “falsely pretending” various things in reaching his view that Apollo’s claims ought to be dismissed, and that alleged “false pretending” had all occurred by the time of the final draft opinion in 2007.

[85]      I was told that, following the final draft opinion, Apollo lodged a stated case seeking the opinion of the Inner House of the Court of Session.  I was also told that Apollo had raised judicial review proceedings seeking to reduce the final draft opinion and the finding of liability in expenses.  Expenses and liabilities in relation to those proceedings started to be incurred in 2007.  Mr Ellis submitted that, even if the pursuer did not properly aver any causal connection between the alleged wrongs and the sums which he now sought, it could be seen clearly from the pursuer’s averments that losses would have been suffered in terms of expense and award of expenses as a result of the alleged wrongs which culminated in the production of the final draft opinion from 2007 onwards.  The pursuer in article 10 of condescendence described the defender as arbiter as “functus officio” after September 2007. Mr Ellis submitted that one of the problems was that there was no clear causal link averred between the losses alleged and the alleged defaults.  However, it was a matter of record that the decision of the Inner House following judicial review was issued in May 2009.  There would also have been the stated case by Apollo in 2007.  Expenses and liabilities in those proceedings were incurred by 2007.  Apollo had, therefore, been incurring expenses from 2007 onwards.  The action was raised in February 2015.  Anything occurring before February 2010 was therefore outwith the five year prescriptive period.  If one was looking for concurrence between damnum and injuria, it was clear from Dunlop v McGowans that the last date in this case was much earlier than five years before the raising of the action.

[86]      Mr Ellis submitted that it could not be right for the pursuer to seek to rely on the arbiter’s part award in December 2014.  The losses alleged had been incurred well before that.  The last loss claimed was in 2012.  The arbiter’s part award therefore could not have been the cause of any of the losses claimed.  It was a logical impossibility to say that any of the losses flowed from the arbiter’s part award in December 2014.

[87]      I was reminded that there are two grounds of extension of time available to a pursuer under section 11 of the 1973 Act.  The first is under section 11(2) where the prescriptive period does not start running even although losses have been incurred when the act, neglect or default is a continuing one.  The wrongs alleged in the present case were not continuing ones. 

[88]      I was also reminded of the decision of Lord Tyre in John G Sibbald & Sons Limited v Johnston [2014] CSOH 94 where his Lordship said at paragraph [8]:

 “… The first step is to identify the act, neglect or default that is founded upon by the pursuer and from which the loss, injury or damage sued for is said to flow, and then to determine whether or not that act, neglect or default is a continuing one.  In the present case it is readily apparent from the pursuer’s pleadings that the losses sued for are said to flow from the failures which are set out at paragraph 3 above.  These are all completed acts or defaults which are averred to have occurred in the course of designing (and possibly constructing) the bridge, i.e. at best for the pursuer, at some time prior to June 2004; it is unnecessary for present purposes to be more precise.  There is, in my opinion, no causal link between, on the one hand, any breach of duty to review the design which may continue to subsist and, on the other hand, the occurrence of any of the losses claimed in this action”.

 

[89]      Mr Ellis submitted that the losses alleged, all of which are said to have occurred before 2014, cannot possibly be said to have “flowed from” the arbiter’s part award in December 2014.

[90]      Mr Ellis further submitted that any case for extension of time under section 11(3) of the 1973 Act must be averred and proved by the pursuer: Pelagic Freezing v Lovie [2010] CSOH 145; Santander v Allied Surveyors 2011 SCLR 249.  The onus is, therefore, on the pursuer to make appropriate averments.  He has not done so in the present case.  In Santander UK Plc v Allied Surveyors Temporary Judge Wise, QC, (as she then was) said at paragraph [34]:

“… Once the question of prescription has been raised it is for the pursuer to prove that his title to sue has been preserved…”

 

[91]      The pursuer in the present case has not made any such averments.  I was therefore invited to sustain the third plea-in-law for the party minuter. 

 

Fourth chapter: submissions on relevancy and specification

[92]      Mr Ellis submitted that the action was hopelessly irrelevant in general terms.  It was irrelevant because it sought to invite the court to undertake an incompetent exercise which could not justify the remedies sought.  It was irrelevant because, even if all the averments were proved, the pursuer could not succeed.  It was irrelevant because there were no adequate averments of the facts and circumstances from which fraudulent behaviour on the part of the defender (which is in essence what is being averred against him) could be established.

[93]      Mr Ellis said that he had four submissions to develop under this head.  However, he first of all made submissions about the pleadings generally as follows.  I was reminded that the action proceeded on the basis that the defender had acted as arbiter in bad faith.  This was described in various terms, such as acting with malice or making false representations.  The pleas-in-law made it clear that the action throughout was based on this premise.  In article 1 of condescendence the pursuer described the issue in the case as follows:

“The damages claim raised in this action directly relates to the narrow legal issue whether Apollo’s various craves were irrelevant and if so, did the defender act in bad faith in declaring them irrelevant.  Given that the craves, and in particular the craves relating to the £2.2M claim for payments due to Apollo for completed performance were indeed irrelevant then the defender has no case to answer.  However, the pursuer will provide cogent documentary evidence that the craves couldn’t possibly be irrelevant and the defender simply embarked upon a campaign of serious and malicious misrepresentation of Apollo’s pleadings in order to falsely pretend said craves were irrelevant”.

 

This general line was then repeated in article 15 of condescendence as follows:

 

“Whether the defender acted in bad faith or not is a matter of proof.  As averred at paragraph 1 (sic) said proof consists of the narrow legal issue whether Apollo’s claim was irrelevant or not.  If the claim was indeed irrelevant then the defender would have nothing to answer and Apollo’s case would come to an end.  If the claim was not irrelevant then the pursuer will also prove that the various craves were dismissed on false pretences by the defender.  That being the case it is respectfully submitted that the defender acted in malice and in bad faith”.

 

[94]      Mr Ellis submitted that it was, therefore, clear from the passage quoted from article 1 of condescendence that, essentially, the pursuer was asking the court to review the merits of the decision of the defender that most of Apollo’s claims had been irrelevant, to find that that decision was wrong and to infer from that erroneous decision that the defender was in bad faith.  The same line was essentially confirmed by the passage quoted from article 15 of condescendence.  The assertions of falsification and a campaign of misrepresentation seem to be based solely on the assertion that the arbiter had got the decisions wrong.  Mr Ellis submitted that there was no attempt to aver other circumstances from which it could be inferred that the final draft opinion was in bad faith or that the defender deliberately chose to give a false decision.

[95]      Mr Ellis submitted that it also appeared that the pursuer was criticising the award of expenses in relation to the minute of amendment.  The averments in article 10 of condescendence alleged that the defender allowed the minute of amendment “knowing what the respondents’ agents would get up to”.  The pursuer had also asserted that the defender decerned against Apollo for payment of the taxed amount of expenses “knowing that most of these expenses were falsely allocated”.  Mr Ellis submitted that there was no basis averred for that knowledge or what evidence the pursuer would rely upon to show that knowledge.  Mr Ellis further submitted that this was no surprise because, where the allocation had been done by the Auditor of the Court of Session, how could be defender “know” that the allocation was wrong?  He may have known that Apollo disputed it, but the defender would have been aware that the Auditor had adjudicated on that issue.

[96]      Against this general background, the first of Mr Ellis’ detailed submissions on relevancy and specification was as follows.  The effect of an arbitration clause was to exclude the jurisdiction of the court to decide the merits of the dispute or to review the merits of the defender’s decision as arbiter (except under section 3 of the Administration of Justice (Scotland) Act 1972).  This was the argument about it being incompetent for this court to look at the merits of the defender’s decision, as already referred to.  He submitted that this was also pertinent to the question of the relevancy of the action.  The defender has decided that the craves are irrelevant.  Until that decision is reduced the court has no power to review the merits.  What has been attempted by the pursuer is analogous to asking a court, outwith any appeal process, to decide again that which has already been decided by a competent court.  The whole basis of the pursuer’s action proceeds on the basis that the defender’s decision is wrong.  He invites the court to revisit the question of relevancy and to decide it differently from the defender as arbiter.  This court is not entitled to enter into that process of reconsideration of the merits, and most certainly not unless and until the defender’s decision as arbiter is reduced.

[97]      The second of Mr Ellis’ detailed submissions on relevancy and specification was as follows.  In relation to the defender’s decision to dismiss Apollo’s craves (and perhaps also, at least in part, in relation to the award of expenses), the pursuer sought to draw inferences that there had been deliberate misconduct on the part of the defender based only on the supposition that he could show that the decision had been wrong.  The pursuer sought to re-argue the case before this court and, as submitted already, that was incompetent.  Nonetheless, even if the decisions of the defender were shown to have been wrong in law, that would not establish bad faith, as the Inner House had already said about this very arbitration in Apollo Engineering Limited 2009 SC 525 at paragraph [40].  Mr Ellis submitted that if that was all the pursuer offered to prove then he must necessarily fail.

[98]      Mr Ellis submitted that these considerations applied with equal force to the award of expenses by the defender as arbiter.  That decision was on a matter reserved to the defender on which he had given a decision and, unless that decision was shown to be susceptible to judicial review (which it is not), it had to be respected.  The merits of it cannot be reviewed by this court.

[99]      The third of Mr Ellis’ detailed submissions on relevancy and specification was as follows.  I was reminded that the pursuers’ criticisms of the defender proceeded on the basis of the defender acting with deliberate dishonesty and thus in bad faith.  Mr Ellis submitted that in such circumstances the party criticised was entitled to notice of all that was to be relied upon to establish the false conduct.  That included clear averment of the basis upon which the falsity of conduct was to be inferred.  In order to be suitable to proceed to proof in alleging deliberately false conduct the averments must be clear:  McMullen Group Holdings Limited v Harwood [2011] CSOH 132 at paragraph [77].  That was a case in which fraud had been alleged.  This involved dishonesty.  Mr Ellis submitted that, logically, the same test should apply in this case as it was alleged that the defender had falsely represented matters.  That was a fraudulent misrepresentation that was, therefore, being alleged.  I was also referred to Dunn v Roxburgh [2013] CSOH 42 where the same test had been applied.  Mr Ellis submitted that this case was a useful illustration of a case which had failed because circumstances had not been averred from which it could be inferred that the representations concerned were false.  All that was said in the present case was that the defender had been wrong.  The pursuer relied on nothing in respect of the final draft opinion other than the decision itself.  In relation to the award of expenses the pursuer may be trying to rely on the defender “knowing” certain things.  That knowledge was presumably intended to be used to draw the inference of the conduct being dishonest.  However, there was no averment of how or by what means the pursuer intended to prove that knowledge.  For these reasons, the averments of dishonest conduct in relation both to the decision to dismiss Apollo’s craves and to the award of expenses were irrelevant and lacking in specification. 

[100]    Mr Ellis went on to remind me that the importance of having grounds for making allegations of dishonesty and the need for clear averment of those grounds was emphasised by the legal position that an arbiter enjoyed immunity from liability and damages unless it was proved that he was acting from malice or in bad faith.  This was referred to in McMillan v Free Church.  Mr Ellis submitted that this was very important here as it highlighted the fact that it was absolutely essential for the pursuer to give proper averments.  Without having grounds for the allegation there could be no case for damages.  This consideration also highlighted that misconduct on the part of a judge (whether private or otherwise) cannot be asserted simply from the proposition that he or she got the law wrong.  One needed something else to show that the proceedings were being conducted dishonestly. 

[101]    The fourth of Mr Ellis’s detailed submissions on relevancy and specification was as follows.  Mr Ellis submitted that the pursuer did not offer to establish any causal connection between the damages sought and the alleged wrongs.  The pursuer sought damages in respect of the sums paid to the defender by Apollo in relation to his fees and outlays.  The pursuer also seeks damages in respect of Apollo’s own expenses for conducting the arbitration.  All of those payments would have been incurred in any event even if the defender’s actings as arbiter had not been subject to the criticisms now made by the pursuer.  Mr Ellis submitted that the pursuer, therefore, could not establish that the sums he sought as damages were caused by the wrongs alleged.

[102]    Mr Ellis also reminded me of the passage in Kyprianou v Cyprus [2007] 44 EHRR 27 at paragraph 119 where the court said: “In applying the subjective test the court has consistently held that the personal impartiality of a judge must be presumed until there is proof to the contrary”.

[103]    Mr Ellis finally submitted under reference to his fourth plea-in-law that the pursuer’s sixth crave did not crave a relevant remedy, and neither was it supported by any relevant averments.  I was, therefore, invited to sustain the fourth plea-in-law for the party minuter for all of these reasons and accordingly to dismiss the action.

 

Submissions by the Pursuer

[104]    The pursuer first of all addressed the court in relation to the issue of the CVA.  He drew the court’s attention to paragraph 1.4 of the CVA headed “Assets” and that it had been recorded here that the only remaining asset of the company (Apollo) was an arbitration claim against the party minuter, James Scott Limited, referred to as the “Arbitration”.  He then referred the court to paragraph 1.11.2 of the CVA which provided:

“1.11 The Basis of the Proposal…I believe that a voluntary arrangement would be to the benefit of the unsecured creditors of the Company (Apollo) because: …1.11.2 the costs of pursuing the Arbitration are being met by a third party but the proceeds of the successful outcome of the Arbitration, after deduction of the various costs associated therewith as detailed in the agreement that I have reached with Adquest, details of which are set out below are being paid to the Company…”. 

 

It was then provided in paragraph 2.1.2 of the CVA that any funds provided by Adquest to the company were to rank as a first charge on any proceeds of the arbitration.  The balance would therefore go to the creditors.  The pursuer submitted that money loaned to Apollo was not an asset of Apollo or an asset of the CVA.  The pursuer told the court that the funding of the arbitration was provided by one person, namely him.  He said that he and his wife were “Adquest” and were directors of that company.  He went on to tell the court that “Adquest” had signed a resolution which gave him full control of the loan to Apollo back to himself.  In the CVA it was Adquest which was to provide a loan to Apollo to conduct the arbitration but in fact it was he, the pursuer, who had provided it.  He had averred in article 5 of condescendence (at page 10 of the closed record) that clause 2.1 of the CVA had inter alia provided that the liquidator had reached an agreement with “Adquest” whereby funds would be provided by Adquest to Apollo to allow the supervisor (the liquidator) to apply for a sist in the liquidation and allow Apollo to pursue the arbitration.  He had gone on to aver that paragraph 2.1.2 of the CVA had provided that any funds provided by “Adquest” to Apollo would rank as a first charge on any proceeds of the arbitration, that “Adquest” was dormant and with no assets, that the pursuer owned it, that “Adquest” was in the CVA in name only and that, in terms of the CVA, there was no prohibition to the assignation.  He submitted that he was entitled to the assignation.  The assignation was the way that Apollo has attempted to pay him back.  It is the pursuer’s money loaned to Apollo.  He had had to get the assignation so that he could sue for damages.  The loan was, therefore, not an asset of the CVA or the creditors.

[105]    The pursuer also referred the court to paragraph 1.7 of the CVA which listed the preferential creditors totalling £166,087.47.  At paragraph 1.10 of the CVA the proposal was that the creditors approve a voluntary arrangement which was intended to result in a dividend to creditors as set out there.  The pursuer told the court that he had had to raise this sum of money, that he had paid this to the liquidator and that the liquidator had paid the preferential creditors.  The pursuer told the court that he had lent Apollo about £600,000 to fund the arbitration.  His submission was that the loan was not an asset of Apollo.  He, therefore, submitted that the assignation from Apollo to him did not assign any assets of Apollo; it only assigned monies which Apollo had owed him to start with.  The £167,000 paid to the preferential creditors of which the pursuer had been the ultimate provider was a loan which was due to be paid back to him from any sums recovered from the claim against the party minuter. 

[106]    The pursuer referred generally to paragraphs 19, 22, 23, 24, 28, 29, 30, 32, 33 and 36 of his “Response” (number 15 of process).  In summary, the pursuer’s position was that, although he was already the principal creditor of Apollo, the assignation provided “belt and braces”.  As he put it, “I am the majority creditor directly now”.  The total monies owed to creditors was about £650,000, of which he was a creditor to the extent of about £432,000.  He understood that the CVA was binding on all creditors, but submitted that “most” had “gone away” so that “the only one left really is me”.  The balance of about £221,000, which was the balance due to ordinary creditors, therefore, did not really exist as they had, as he put it, “gone away”.  He said that there might be some small creditors who might still be there though.  He submitted that, if he was successful, all of the creditors would benefit from his proving that the defender’s actings were in bad faith.  What he was doing was totally in their interests.

[107]    The pursuer told me that he did not think that he would have to reduce the defender’s decision if the defender had acted in bad faith.  The pursuer’s position was that, if damages were awarded on the basis that the defender had acted in bad faith, the defender’s awards as arbiter would become null and void. 

[108]    The pursuer also submitted that, because the CVA was between Apollo, its creditors, its members and its directors, no one else had a say in its construction or its implementation.  He submitted that the party minuter should, therefore, have no say in the construction of the CVA because the party minuter was not a creditor of Apollo.  He submitted that McGruther v James Scott Limited 2004 SC 514 provided support for this submission.  He submitted that the deed of appointment could not be construed as having imported clause 2(E) of the subcontract which had provided that the subcontractor was not to assign the benefit of the subcontract or sublet the whole or any part of the subcontract works without the prior written consent of the party minuter.  In any event, the damages claim against the defender entirely related to the arbitration costs which entirely related to the defenders “bad faith actings”.  The pursuer submitted that the arbitration costs, which were entirely funded by him, had nothing whatsoever to do with the benefit of the subcontract.

[109]    The pursuer also submitted that the present proceedings carried, without exception, the consent and interests of all the outstanding Apollo creditors.  That was because, he submitted, any vote by the creditors on that right would be the same as that when the CVA was approved which would bind all the creditors.  Given this, and in protecting the rights and interests of the CVA creditors, Apollo had had the right to sue the defender for damages, and that those rights and interests included those of the pursuer who had lent Apollo money to fund the arbitration.  He referred to paragraph 33 of his “Response”.

[110]   In relation to the issue of delectus personae, the pursuer referred in particular to paragraph 36 of his “Response”.  The pursuer submitted that all that could be taken from Cole v Handasyde was that such a contract was not assignable by a person in a position of the defender as arbiter to a third person.  The court had not said that the equivalent to the pursuer in that case could not assign his rights.

[111]   The pursuer next referred to paragraph 19 of his “Response”.  He submitted that he really was the principal creditor or possibly the only creditor now and that he was, therefore, in control of the CVA for the benefit of all of the creditors and members of Apollo.  He also referred to paragraph 24 of his “Response”.  He was in control of the CVA for the benefit of everybody.  He was also in control of the CVA even if another supervisor was appointed.  Because of the assignation he has title to sue and he has a “huge interest” in an assignation in view of everything he had loaned.

[112]   The pursuer next turned to the issue of relevancy and specification.  He referred particularly to paragraph 60 of his “Response” at page 24.  He was aware of the responsibility of the pleader.  He believed that he had made sufficient averments which alleged that the defender had acted in bad faith.  He had quoted this in nearly every article of condescendence.  He referred, for example, to the averments in article 11 of condescendence which he had also referred to at paragraph 64 of his “Response”.  He referred to the appendices to which reference had been made in his averments.  These were appendices A-G.  I reminded the pursuer that these were not part of the pleadings because they had not been incorporated into the pleadings. 

[113]      The pursuer also took me through his averments in article 11 of condescendence.  The defender as arbiter had ignored submissions which had been made by Apollo.  He had “made it all up”.  What he had said was “totally made up” so that he could dismiss Apollo’s claim.  He “appears to have done this deliberately”.  The pursuer also added “he knew he was doing wrong in his part award”.  The pursuer further submitted: “The odds against making all these mistakes unconsciously are astronomical”.  I also noted that this was also what the pursuer had said at paragraph 98 of his “Response”.

[114]      In relation to what he had said about the defender being in collusion with the party minuter, the pursuer alleged that the Note of Basis of Preliminary Pleas (No 11 of process in the present case) for the party minuter was also “full of misrepresentations”.  The defender “had obviously wanted to be misled; he had concocted his own wording”.  The defender had quoted the “Note of Argument” lodged on behalf of Apollo in the arbitration proceedings in saying that he was dismissing claims.  The pursuer added “he (the defender) then made it all up about the pleadings”.  He (the defender) had “made it all up” in relation to each part complained about in article 13 of condescendence.

[115]      It was the arbiter’s part award (issued in December 2014) that was wrong.  Before that the draft opinion could have been revised as he could have changed his opinion.  The defender “knew it was all wrong”.  The pursuer took me through his averments in article 13 of condescendence.  In each case where the defender had said that Apollo’s methodology was flawed this was the defender’s “own invention”.  He had done this repeatedly.  The pursuer submitted that his averments were sufficient to entitle him to go to a proof before answer.  He had explained his points about this in his “Response”. 

[116]        Turning to the question of prescription, the pursuer told the court that he had dealt with this at paragraphs 50 through to 56 of his “Response”.  His submission was that prescription had only started from the point when the defender issued his part award in December 2014.  The final draft opinion issued in May 2007 could have been amended before that.  The pursuer accepted that costs had been incurred before the part award in December 2014, but he submitted that they were recoverable.  He accepted that the defender had made his decerniture in relation to the question of expenses in 2009.  He then said that this had “probably realistically prescribed”.  However, he confirmed that he relied on section 6(4) of the 1973 Act as set out in paragraph 56 of his “Response”.  He confirmed that his position was that there had been “fraud” on the part of the defender.  I asked whether he could point to any averments about error having been induced by words or conduct of the defender or any person acting on his behalf as required by section 6(4)(a)(ii) and whether, in particular he wished to say anything in relation to the submissions made about this particular point by Mr Manson and Mr Ellis, and the pursuer confirmed that he had nothing to say in response to this.

[117]        In relation to the question of immunity, the pursuer referred me to paragraph 118 of his “Response”.  Immunity did not arise if the actings complained of had been malicious or in bad faith. That was what was alleged here.  He submitted that he had sufficient averments to meet the requirements of relevancy and specification.

[118]        The pursuer, therefore, invited the court to allow a proof before answer and, in the event of his being successful, to award him the expenses occasioned by the debate.  I asked the pursuer whether he had anything to say about the motions for certification of the court as being suitable for counsel and senior counsel; he responded that they “probably were entitled to it”.

 

Response on behalf of the Defender

[119]        Mr Manson reiterated that his submission was that if, first, there was a contract and, second, it was a contract to which delectus personae applied, the rights under that contract cannot be assigned, Cole v Handasyde at page 73.  Mr Manson pointed out that the pursuer had suggested that if you asked a painter to paint a picture the painter cannot assign that but that the pursuer had said that the person paying the painter for it could assign the benefit of the painting.  Mr Manson submitted that this ignored the fact that the painter (the equivalent here being the defender) had agreed to carry out a professional service on a particular basis for particular people.  The defender has the privilege of not having to act as arbiter for every Tom, Dick or Harry.  This was a critical issue.  Delectus personae applied when the appointment was made that he was to provide professional skills in a particular context to particular parties he was proposing to render the services to.  If the pursuer was correct, that would mean that the defender was deprived of his choice as a private judge.  He had agreed to arbitrate in relation to a particular dispute in which he considered that the parties to the arbitration would behave responsibly. If the pursuer was right, one of the parties could simply assign their rights to someone who had no money and who could not pay the arbiter.

[120]      In relation to the CVA, he reminded the court that the pursuer had in effect said that the CVA did not matter.  Mr Manson submitted that it did matter.  Mr Manson said that he understood that the pursuer was not a lawyer, but he thought that there might be an inherent misunderstanding in law on the part of the pursuer in relation to the question of “legal personality”.  Mr Manson reminded the court that this was Apollo’s claim and that the pursuer was a litigant standing in Apollo’s shoes.  It is Apollo’s claim in relation to which the pursuer is litigating about rights he says Apollo enjoys. Apollo had simply given him the right to claims arising from those rights.  Mr Manson submitted that the assignation itself made it clear that Apollo purported to assign “claims”.  A “claim” of itself is an asset because, if a pursuer is right about a claim, that pursuer gets money.  By way of illustration about the point about claims being assets, I was reminded that liquidators raise claims all the time for an estate. 

[121]      Mr Manson submitted that the CVA did one thing: it provided that Apollo could conclude the arbitration, and it could do so for the express purpose of recovering sums for creditors for the benefit of creditors.  To assign a right to damages was something outwith the four corners of the CVA.  The liquidator was also the supervisor under the CVA.  The supervisor is a trustee of the assets.  He controls them so that he might benefit the creditors.  The assignation cannot be valid as Apollo did not have the power to grant it unless it was at the instance of the liquidator or mutually agreed under the CVA.

[122]      Mr Manson submitted that it may be that the pursuer envisages that he is a majority of the creditors.  Mr Manson submitted that if we looked at the CVA to tell us what the directors of the company were allowed to do, the company was to conclude the arbitration.  If the pursuer was right about Apollo’s relationship to the CVA, £340,000 had just been taken out of the creditor’s pot and given to the pursuer as a private individual.  Mr Manson submitted that our law regarded a company as one person and the pursuer as another person.  They were different legal entities.

[123]      In relation to the submissions made about relevancy and specification, Mr Manson said that, having followed the pursuer’s submissions, he was none the wiser as to the basis of the allegations despite all that the pursuer had said, one was left with the single proposition that the defender had got it wrong, but if he had got it wrong on the merits then it would exceed the function even of the Court of Session to review that.  The sheriff court was not allowed to exercise a supervisory jurisdiction.  Only a senator of the College of Justice could do that, and Mr Manson reminded me (although I thought it hardly necessary to do so) that I was “not a Senator of the College of Justice sitting round the corner in Parliament House”.

[124]      In relation to the question of prescription, Mr Manson told the court that he adopted also the submissions on this point by Mr Ellis on behalf of the party minuter.  Any loss occurred before the arbiter’s part award in 2014.  Any alleged losses did not flow from the alleged wrong if that alleged wrong was the part award in 2014.  The two cannot be matched up.

[125]      In relation to the question of the assignation and Mr Ellis’ submissions on this as set out at paragraphs 8 and 9 of his Note of Basis of Preliminary Pleas (No 11 of process), Mr Manson said that he also adopted these submissions.  He submitted that the result of this approach was the same as the result reached by Mr Manson’s approach in his initial submissions.  Either way, the rights and obligations under the arbitration contract were not assignable.

[126]      In relation to the question of specification, Mr Manson submitted that there was good reason why the higher standard required of the pleader when certain allegations were made was appropriate.  This was in the context of the defender having an unblemished reputation.  A careful application of the higher standard of specification was, therefore, required when allegations of the nature concerned here were made and should be applied. 

 

Response on behalf of the Party Minuter

[127]      Mr Ellis told the court that he wished to address two issues at this point.  The first was about the assignability of the deed of appointment.  Mr Ellis submitted that the pursuer had said that the court should look at particular rights and decide whether they were assigned.  Mr Ellis accepted that that might be acceptable in relation to some contracts, but submitted that in this case that would be absurd.  If the court looked at the rights relied on by the pursuer, they were not simply claims for payment; they included rights to challenge the arbiter’s actings.  The position, therefore, was that, according to the pursuer, those rights could be assigned by Apollo now to someone else.  Mr Ellis submitted that this pointed to the absurdity of the suggestion when one considered that Apollo is still a party to the arbitration which is still continuing (the sist in which I was told has now been recalled) and it is contended that it is possible to assign the rights to challenge the ongoing arbitration to a third party.  One could, therefore, end up with a potentially ridiculous result that Apollo was still engaging in the arbitration and a third party brings it all crashing down behind someone’s ears because rights about the arbitration had been divorced from the people actually involved in it.  That he submitted was absurd and could never have been intended.

[128]      Mr Ellis’ second point was in relation to the relevancy argument.  The pursuer, under reference particularly to crave 2(ii)(a) in the arbitration (referred to in article 13 of condescendence at letter A at the top of page 27 of the closed record) had sought to say that the exercise he wanted the court to embark on did not involve a reconsideration of the merits of what had been decided by the arbiter.  Mr Ellis submitted that the pursuer had sought to demonstrate that one could take that simply from the defender’s decisions.  He submitted that the arbiter’s judgment had been a relatively short judgment in response to very detailed arguments and that it could not be taken out of context.  If further consideration was to be given to it, this would require consideration of the arguments put to the defender as arbiter.  Averments had been made on behalf of the party minuter in answer 11 (at page 24 of the closed record) as to what the defender as arbiter was doing.  This would lie within the scope of what the court would have to consider.  Mr Ellis accepted that the court could not look at documents which were not part of the record at the debate stage, but he submitted that it was sufficient for him to say that production 17 for the party minuter contained a very large and detailed Note of Argument and that crave 2(ii)(a) in the arbitration had been dealt with in detail between pages 107 and 119 of that Note of Argument.  Mr Ellis’ submission was that the pursuer might say that one could tell from the defender’s judgment alone, but Mr Ellis submitted that one could not.  The court would have to ask whether the defender’s decisions in the arbitration and about expenses were right or wrong.  If they were right, that would be the end of the matter.  If they were wrong, the court would then have to consider how wrong they were.  That would inevitably involve a re-hearing of the argument before the defender as arbiter, and the court would be invited to come to a different conclusion (by the pursuer) as that was a necessary basis of the pursuer’s case.  This would clearly be within territory to which no court could go. 

 

Decision

[129]      Parties’ submissions at the debate before me in effect fell under four heads, namely title to sue, competency of the action, prescription and relevancy.

 

Title to sue

 [130]     The pursuer avers in article 1 of condescendence that he is the assignee of “the damages claimed” and that the assignor was Apollo.  The relevant terms of the assignation have already been noted at paragraph [12] above.

[131]      Against that background, the claim for damages in this action at the instance of the pursuer is in respect of two alleged wrongs in relation to Apollo, from whom he maintains he derives his title to sue in place of Apollo.  The first alleged wrong was dismissal of Apollo’s claim for £5M in the arbitration (crave 1).  The second alleged wrong was a decerniture by the defender as arbiter against Apollo in relation to an award of expenses (crave 2).  The first question, therefore, is whether Apollo had power to grant the assignation to the pursuer.  In my opinion, it did not.  The background includes the fact that Apollo was in liquidation and there was the company voluntary arrangement (CVA).  According to the CVA, all of the assets of Apollo fell within the CVA.  In my opinion, it is clear from the terms of the CVA that it was to be for the benefit of the creditors of Apollo.  Paragraph 2.1.3 of the CVA provided that it was the directors of the company who were to retain full control over the arbitration.  Read with paragraph 2.14 of the CVA, a limited power was provided to Apollo’s directors (with the consent of the creditors of Apollo) to conduct the arbitration which would then, if monies were recovered, be paid to creditors of Apollo.  I accepted Mr Manson’s submission to the effect that the CVA did not provide Apollo with any right to assign any claim arising from the sub-contract it had with the party minuter.  In particular, it did not allow Apollo to assign any right to damages.  I accordingly accepted counsels’ submissions to the effect that the CVA does not allow for assignation of Apollo’s assets. 

[132]      Counsel also submitted that the effect of the CVA was to create a trust over Apollo’s assets for the benefit of the creditors of Apollo and that the supervisor (the liquidator in this case) was, therefore, a trustee who held the assets of Apollo in trust for the benefit of Apollo’s creditors.  However, the authorities to which I was referred in support of these propositions are concerned with the law of trusts in England and I was not addressed on whether the Scots law of trusts was the same. 

[133]      The pursuer contended that the money loaned by “Adquest Limited” (with which the pursuer identified himself personally) was not an asset of Apollo or an asset of the CVA.  His contention was to the effect that it was “his money” which had been loaned to Apollo and that the assignation was the way that Apollo had attempted to pay him back.  The assignation had only assigned monies which Apollo had owed him to start with.  He was also the majority creditor of Apollo directly now.

[134]      In my opinion, the pursuer’s approach in relation to this was wholly misconceived.  It was clear that he did not appreciate that Adquest Limited and Apollo were distinct legal personalities from him personally.  He has in effect approached matters on the basis that he is one and the same as both Adquest and Apollo.  I am also satisfied that a “claim” for damages is an asset.  If the claim for damages were to be successful, the pursuer would be awarded sums of money which would otherwise have been due, if the claims were otherwise competent, to Apollo.  The CVA did not give Apollo power to assign rights to any such claims.

[135]      The second ground upon which it was submitted that the assignation was of no effect and, therefore, did not provide the pursuer with the necessary title to sue was that the tripartite contractual relationship (between the defender, Apollo and the party minuter) created by the deed of appointment of the defender as arbiter had such strong elements indicating that there was delectus personae that the consequence was that the rights and obligations under it are not assignable without the consent of all parties to that contract.  There was no dispute between the parties that the deed of appointment created a contractual relationship between the defender, Apollo and the party minuter.

[136]      In my judgement, the submissions made under this head by Mr Ellis represented the better legal analysis.  The starting point is that it is a matter of construction of the particular contract in a question whether there is delectus personae preventing a party from assigning its rights and obligations: Cole v Handasyde; Karl Construction Limited v Palisade Properties Plc.  It is also well established that the construction of that contract must include the context in which it was made and the circumstances known to all the parties at the time: Rainy Sky SA v Kookmin Bank at paragraph 14.  An important element of the background context was the fact that the sub-contract between Apollo and the party minuter had included a prohibition against assignation.  This had made any attempts to assign by Apollo void: Apollo Engineering Limited v James Scott Limited 2009 SC 525; Apollo Engineering Limited v James Scott Limited [2012] CSIH 88, both decisions of the Inner House of the Court of Session.

[137]      Mr Manson’s approach to this issue was that the fact that there had been an arbitration clause in the original sub-contract between Apollo and the party minuter had itself meant that the assignation from Apollo to the pursuer of a right to claim damages flowing from the original sub-contract could not be assigned.  However, in my opinion, the better analysis was that advanced by Mr Ellis, namely that this was an element – an important element – forming part of the context in which the deed of appointment had subsequently been entered into.

[138]      Mr Ellis also pointed to other elements that he submitted pointed to delectus personae in the arbitration contract, including the fact that both Apollo and the party minuter had chosen a mechanism to attempt to resolve the dispute between them and that they had together chosen the defender as the person to resolve the dispute between them as arbiter for them.  Mr Ellis’ submissions about this were, in my opinion, correct.  I am satisfied that the rights and obligations under the arbitration contract are, as a matter of construction, not assignable by any of the three parties without the consent of the other parties.  It follows that the purported assignation now relied upon by the pursuer is of no effect: Linden Gardens Trust Limited v Lenesta Sludge Disposals Limited.  If the pursuer were to be correct this would, as Mr Ellis pointed out, lead to the result that Apollo could still be engaged in the arbitration but a third party to whom rights to challenge the arbitrator’s actings had been assigned could “bring it all down”, as Mr Ellis put it.  That would clearly be, as Mr Ellis suggested, an absurdity.  For this reason also I am, therefore, satisfied that the pursuer has no title to pursue Apollo’s rights and, accordingly, that he has no title to sue in the present proceedings.

[139]      In so far as the pursuer submitted that the party minuter had “no say” in the construction of the CVA because it was not a creditor of Apollo, this argument was misconceived.  The party minuter was clearly entitled as a party to the present proceedings to make submissions to the court about the proper construction of the CVA as a matter of law.

 

[140]      I therefore sustain the first plea-in-law for the defender and the second plea-in-law for the party minuter to the effect of dismissing the action by virtue of having no title to sue.

 

The competency of the action

[141]      In my opinion, it is clear from the pursuer’s averments that he is inviting this court to engage in an exercise which would inevitably involve in effect reviewing, and interfering with the effect of, decisions made by the defender as arbiter.  The wrongs complained of by the pursuer are, first, dismissal of Apollo’s claim for £5M in the arbitration (crave 1 and the first plea-in-law for the pursuer) and, second, a decerniture by the defender against Apollo for payment of expenses (crave 2 and the pursuer’s second plea-in-law).  It is in respect of these alleged “wrongs” that the pursuer then seeks awards of damages sought in terms of craves 3 and 4 coupled with his pleas-in-law 3 and 4.

[142]      As I understand it, the pursuer seeks to maintain that he is asking the court to “investigate” how the defender reached these decisions, but his position is that this would not involve a “review” of the defender’s decisions as arbiter. However, this argument ignores the fact that, upon any such “investigation”, the court could only then proceed to award damages (if it was otherwise competent to do so) if, following any such “investigation”, the court were then to form the view (on what would have to be in effect a “review”) that the defender as arbiter had been wrong.  That is precisely what this court cannot do.  In my opinion, therefore, the present proceedings are wholly misconceived.  It has long been recognised that the Court of Session enjoys exclusive jurisdiction to review the decisions of inferior courts, tribunals and decision makers such as arbiters: Brown v Hamilton District Council; Forbes v Underwood.  The fact that the sheriff court has jurisdiction in relation to actions of declarator is procedural only.  Section 5(1) of the Sheriff Courts (Scotland) Act 1907 did not confer any new general jurisdiction on the sheriff court to review the decisions of other bodies such as arbiters: Brown, supra.  The position is the same in relation to the introduction of a power of reduction for the sheriff court by virtue of section 38 of the Courts Reform (Scotland) Act 2014.  Again, this was a procedural change only; it did not confer upon the sheriff court any new substantive jurisdiction to enable it to reduce decisions of other bodies, such as arbiters, which it does not have fundamental jurisdiction to do as a matter of substantive law.

[143]      I, therefore, have no hesitation in accepting the submissions made by both counsel to the effect that any review of the defender’s decisions as arbiter could only ever by undertaken under the supervisory jurisdiction of the Court of Session, and that even that court could not review the merits of the defender’s decisions, including his decision on the question of relevancy, unless and until his decisions had been reduced.  Until then, the legal rights remain settled by the defender’s decisions as arbiter: Farrans v Roxburgh County Council.

[144]      It is similarly well established that, simply by having named their arbiter, this excluded the merits of any dispute between Apollo and the party minuter from being considered by the court: Hamlyn and Company v The Talisker Distillery.  The court cannot then review the decision of an arbiter: The Caledonian Railway Company v Messrs Turcan and Company.  This is subject to an exception where it is alleged that the arbiter is “guilty of misconduct in his office, or that he exceeded the bounds of the jurisdiction conferred upon him by the terms of the submission”: The Caledonian Railway Company, supra per Lord Watson at page 17.  As to the exception on the basis of an arbiter being “guilty of misconduct in his office”, that is in effect what the pursuer has sought to aver in the present case.  However, any such averments would require to be relevant and sufficiently specific to entitle the pursuer to go to proof, and would require also that he has title to sue and that the action is otherwise competent.  In my opinion, these essential prerequisites are not met by the pursuer in the present case.

[145]      The only mechanism available to challenge an arbiter’s decision is to apply for a stated case in terms of section 3 of the Administration of Justice (Scotland) Act 1972: Apollo Engineering Limited v James Scott Limited 2009 SC 525 per Lord Carloway at paragraph [38].

[146]      References by the pursuer in his “Response” to the Arbitration (Scotland) Act 2010 were of no assistance as the arbitration in the present case began before the commencement date of that legislation.

[147]      In so far as the pursuer sought to pray in aid the fact that he is seeking awards of “damages” in the present case, in my opinion this is not relevant to the question of whether the present action is one which falls within the competence of the sheriff court to determine as a matter of substantive law.  The position remains, in my opinion, that the sheriff court simply does not have the substantive jurisdiction to allow it to determine an action of this nature which would inevitably involve this court in an exercise of in effect reviewing the decisions of the arbiter to determine whether the pursuer is correct in asserting that the arbiter was wrong, or proceeded in a manner which he should not have done, thereby entitling the pursuer to an award of damages which would have otherwise been due to Apollo: Brown, supra.

[148]      I, therefore, hold that this action is incompetent and, accordingly, sustain the third plea-in-law for the defender and the first plea-in-law for the party minuter.

[149]      Under reference to his second plea-in-law, Mr Manson had an ancillary argument to the effect that the pursuer’s craves 1 and 2, being declaratory craves, were imprecise and ambiguous and were, accordingly, incompetent.  In support of this proposition, he criticised the lack of specification in both craves.  I am satisfied that, as currently framed, both craves 1 and 2 are lacking the necessary specification required of a competent declaratory crave.  If the action had otherwise been competent and relevant, and if the pursuer had had the necessary title to sue with no issue about prescription, I would have been minded to have given the pursuer an opportunity to seek leave to amend both craves in an attempt to give the necessary specification.  However, as I am satisfied that the action as a whole is both fundamentally incompetent and irrelevant, it would not be appropriate to take that course.  I, therefore, also sustain the second plea-in-law for the defender to the competency of craves 1 and 2.

 

Prescription

[150]      The action was commenced on 6 February 2015.  Reading craves 3 and 4 with his pleas-in-law 3 and 4, the pursuer has claims for reparation for loss and damage which are subject to the five year short negative prescriptive period specified in section 6 of the Prescription and Limitation (Scotland) Act 1973 (“the 1973 Act”).  The obligation to make reparation is a single and indivisible obligation, and the right to bring an action in respect of such an obligation, and the prescriptive period within which to do so, starts to run when there is concurrence between injuria and damnum: Dunlop v McGowans.

[151]      The position in this case is complicated by the fact that there is no proper causal link averred by the pursuer as between the alleged wrongs or defaults and the damages then claimed in craves 3 and 4.

[152]      The wrongs or defaults complained of by the pursuer are the defender’s decerniture for expenses following the amendment procedure and the issue by the defender of his arbiter’s part award dismissing almost the whole of Apollo’s case in December 2014.

[153]      So far as the decerniture for expenses is concerned, this followed an initial finding of liability in expenses, subject to taxation, made in 2006.  The taxed report of the Auditor of the Court of Session was issued in May 2007, followed by the defender’s decerniture in June 2009.  No losses are said by the pursuer to have “flowed” from this within the five-year short negative prescriptive period prior to the raising of the action.  In his submissions to the court, the pursuer confirmed that this claim had “probably realistically prescribed”.  I think that he was right about that.

[154]      So far as the alleged “wrong” in the form of the arbiter’s part award issued in December 2014 is concerned, the pursuer submitted that prescription had only started to run at the point when the part award was issued by the defender as arbiter.  However, I had no hesitation in agreeing with the submissions made by Mr Ellis to the effect that it is a logical impossibility to say that any of the losses claimed by the pursuer “flowed from” the arbiter’s part award: cf John G Sibbald and Sons Limited v Johnston per Lord Tyre at paragraph [8] where he said:

“…The first step is to identify the act, neglect or default that is founded upon by the pursuer and from which the loss, injury or damage sued for is said to flow, and then to determine whether or not that act, neglect or default is a continuing one…There is, in my opinion, no causal link between, on the one hand, any breach of duty to review the design which may continue to subsist and, on the other hand, the occurrence of any of the losses claimed in this action”.

 

In my opinion, as in John G Sibbald and Sons Limited v Johnston, there is simply no causal link averred between, on the one hand, the arbiter’s part award (or, indeed, the decerniture for expenses) as comprising the alleged wrong or default and, on the other hand, the occurrence of any of the losses claimed in this action.  The acts, neglects or defaults which are founded upon by the pursuer are not continuing ones.  

[155]      There are two possible grounds of extension available to a pursuer under section 11 of the 1973 Act.  However, any such case must be averred and proved by a pursuer: Pelagic v Lovie; Santander v Allied Surveyors.  The pursuer has not done that in the present case.

[156]      The pursuer maintained that he relied on section 6(4) of the 1973 Act, his position being that there had been “fraud” on the part of the defender.  However, he confirmed that he could not point to any averments about error having been induced by words or conduct of the defender or any person acting on his behalf as required by section 6(4)(a)(ii).  In my opinion, therefore, section 6(4) does not come into play in this case.

[157]      It follows that I am of the view that any right of action which the pursuer might have had to claim damages (and he stands in the shoes of Apollo and can claim no higher right than Apollo could have claimed) has now been extinguished by prescription.  I have, accordingly, sustained the seventh plea-in-law for the defender and the third plea-in-law for the party minuter and have granted decree of absolvitor.

 

Relevancy and specification (and immunity from suit)

[158]      Mr Manson advanced an argument in relation to what he submitted was the irrelevancy of the pursuer’s pleadings in relation to the defender’s immunity from suit.  This was under reference to his fourth plea-in-law.  In view of the fact that Mr Manson was seeking dismissal on the grounds of irrelevancy in this respect, I took the view that the more apt plea-in-law was the defender’s fifth plea-in-law which was a general plea to the relevancy.  I noted that Mr Ellis had approached the issue in this manner, under reference to the fourth plea-in-law for the party minuter.  Mr Ellis did this on the basis of a submission that the need for clear averment in relation to allegations of dishonesty was emphasised by the fact that, as a matter of law, an arbiter enjoys immunity from liability in damages unless it is proved that he was acting from malice or in bad faith and that, without having grounds for such allegations, there can be no case for damages.  I take the view that Mr Ellis’ approach on this issue was the better one and, therefore, that this issue more appropriately fell to be considered in the context of the general pleas to the relevancy for the defender and the party minuter.

[159]      Both Mr Manson and Mr Ellis criticised the lack of specification in relation to the pursuer’s averments of “bad faith”.  It is true to say, as the pursuer did, that the pursuer repeatedly avers throughout his articles of condescendence that the defender was acting in “bad faith”, that he had engaged in “malicious misrepresentations”, “false pretences”, had colluded with the party minuter and had acted in abuse of power.  However, repetition of such serious assertions is not the same thing as providing the defender and the party minuter with fair notice of the factual basis upon which such assertions are made.  I agreed with the submissions made by Mr Manson and Mr Ellis to the effect that the pursuer seemed to be basing such assertions on the fact that the defender as arbiter “got it wrong” when he dismissed the major part of Apollo’s claim.  There was also no basis averred for the defender having alleged knowledge in relation to “what the respondent’s agent would get up to”, as referred to in article 10 of condescendence.  There was no basis averred for that knowledge or what the pursuer proposed to rely on to show any such knowledge.  This was against the background that the defender had made his decerniture on the basis of a report from the Auditor of the Court of Session.  I agreed with the submissions made by both Mr Manson and Mr Ellis to the effect that that there are no averments from which malice or corruption is said to arise on this issue.  There was no attempt by the pursuer to aver other circumstances (other than that the defender had “got it wrong” in his decisions) from which it could be inferred that the defender had acted in bad faith or falsely.  I therefore accepted Mr Ellis’ submission that the pursuer had failed to aver other circumstances from which it could be inferred that the final draft opinion was in bad faith or that the defender had deliberately chosen to give a false decision.

[160]      In my opinion, the allegations made by the pursuer in this case are very serious ones and fall properly to be regarded, and treated, as equivalent to allegations of fraud on the part of the defender as a result of which the facts and circumstances from which the “bad faith actings”, “malicious representations”, “false pretences”, collusion with the party minuter and actings in abuse of power may be inferred must be distinctly stated: see Macphail at paragraph 9.30.  I pause to observe that the pursuer himself maintained, in the course of his submissions about section 6(4) of the 1973 Act in relation to the issue of prescription, that his position was that there had been “fraud” on the part of the defender.  This seemed to me to confirm Mr Manson’s apprehensions about what was being alleged by the pursuer and, therefore, to support his position about the standard of averment required of the pursuer in such circumstances.

[161]      The pursuer’s averments in relation to the Arbitration (Scotland) Act 2010 are irrelevant because the arbitration in the present case started well before the 2010 Act came into force.

[162]      The pursuer’s averments in relation to the European Convention on Human Rights are also irrelevant.  The defender is not a public authority.  In any event, ECHR jurisprudence operates with a presumption against subjective bias on the part of a judge: Kyprianou v Cyprus.

[163]      Mr Ellis reminded me that his argument to the effect that it is incompetent for this court to look at the merits of the defender’s decisions were equally pertinent to the question of the relevancy of the action.  In the light of my conclusions on the question of the competency of the action, I am satisfied that the action is also irrelevant.  That is because the pursuer is inviting the court to undertake an exercise which it cannot competently do unless and until the defender’s decision to dismiss the majority of Apollo’s claims is reduced.  Similarly, the decision by the defender in relation to the award of expenses was a matter reserved to the defender and the merits of his decision in this respect cannot competently be reviewed by the court.  The action as a whole is therefore irrelevant for that reason also.

[164]      In my opinion, a notable feature of the pursuer’s case is that his averments do not disclose any causal connection between the damages sought and the “wrongs” alleged.  I, therefore, accepted counsels’ submissions to the effect that, even if the pursuer were to prove all of his averments, he could not succeed in the action because he would not be able to prove that the sums sought as damages were caused by the wrongs alleged.  It is not immediately apparent that the payments complained of by the pursuer, and in respect of which awards of damages are now sought, would not in any event have been incurred even if the defender’s decisions had not been complained of by the pursuer.

[165]      I was also reminded by Mr Ellis that the pursuer’s sixth crave does not crave a relevant remedy from this court.  There are also no supporting averments.  His submission on this point was, therefore, also well founded in my opinion.

[166]      For all of these reasons, I am satisfied that it is plain that the action is also irrelevant and, therefore, that the defender’s fifth plea-in-law and the party minuter’s fourth plea-in-law fall to be sustained.

[167]      In the result, in view of the fact that I am satisfied that the pursuer’s claims have been extinguished by the operation of the short negative prescriptive period, decree of absolvitor is appropriate rather than just decree of dismissal (which would otherwise have followed by virtue of the other pleas-in-law which I have sustained).

 

Expenses and sanction for the employment of counsel

[168]      Mr Manson submitted that, in the event of the action being dismissed, he would invite the court to find the pursuer liable to the defender in the expenses of the action and to certify the cause as suitable for the instruction of counsel.  Similarly, Mr Ellis submitted that, if the action was dismissed, the expenses of the action should be awarded in favour of the party minuter against the pursuer on the basis that the party minuter should be entitled to their expenses of process.  In the event of mixed success, he invited the court to reserve all questions of expenses and to assign a hearing.  He also invited the court to certify the cause as suitable for the employment of senior counsel.  Difficult questions of law had arisen and the application of that law to the facts of the case had, he submitted, been difficult.

[169]      In view of the fact that the defender and the party minuter have been successful, they are each entitled to an award of the expenses of the action against the pursuer.  I am also satisfied that it would be appropriate to sanction the employment of counsel by the defender and the employment of senior counsel by the party minuter for the purposes of the proceedings.  This motion was not resisted by the pursuer.  I am satisfied that the complexity of the legal issues arising, and that the application of the law to the particular circumstances of this case, was such that the employment of counsel and senior counsel respectively was entirely appropriate and merited.  I, therefore, granted the sanction sought.

 

 

 

EDINBURGH, 6th April 2016