Telia Sonera AB v Hilcourt (Docklands) Ltd

MR JUSTICE ETHERTON: This is an appeal by Telia Sonera AB (“Telia”) from the second interim award of John Martin QC (“the Arbitrator”) in arbitration proceedings between Telia and Hilcourt (Docklands) Limited (“Hilcourt”) under the Arbitration Act 1996 (“the 1996 Act”).

By a lease agreement dated 25^th August 2000 made between Hilcourt and Telia (“the Lease Agreement”), Hilcourt agreed to grant Telia a lease of land and buildings at 443-451 Westferry Road, London E14 (“the Property”) for a term of 35 years. The terms of the Lease Agreement included an obligation on the part of Telia to carry out works for the refurbishment and refitting of the Property. Those works were defined in the Lease Agreement (and are referred to in this judgment) as “the Refurbishment Works”.

In clause 4.1 of the Lease Agreement Telia agreed, so far as material, as follows:

“Within ten (10) working days after the Lease Completion Date [Telia] shall procure the commencement of the construction of the Refurbishment Works and shall use all reasonable endeavours to procure that the Practical Completion Date occurs within the Construction Period…”

The “Refurbishment Works” were described by reference to a specification annexed to the Lease Agreement. Although described as “Refurbishment Works” the relevant works involved the substantial demolition of a building and effectively the construction of a new building.

“The Lease Completion Date” was defined in the Lease Agreement as being 15^th September 2000.

“The Construction Period” was defined in the Lease Agreement as being “12 months from and including the date of commencement of the Refurbishment Works as extended by Extensions of Time”.

On 15^th September 2000 Hilcourt granted a lease of the Property to Telia pursuant to the Lease Agreement (“the Lease”).

It appears that Telia commenced the Refurbishment Works in about September 2001 but has not completed those works. It is alleged by Hilcourt that Telia has done no more than undertake the removal of asbestos and stripping out work. Hilcourt claims that Telia has accordingly failed to carry out the Refurbishment Works timeously or at all, and it claims a mandatory injunction requiring Telia to carry out and complete the Refurbishment Works.

The Lease Agreement contained an arbitration clause providing for any disputes or differences between Hilcourt and Telia as to their respective rights, duties or obligations, or as to any other matter or thing in any way arising out of or in connection with the subject matter of the Lease Agreement, to be referred, in accordance with the provisions of the 1996 Act, to the determination of a single arbitrator, to be agreed upon by the parties or, failing agreement, nominated by the President of the Royal Institution of Chartered Surveyors.

The dispute between the parties was in due course referred to the Arbitrator pursuant to that arbitration provision.

An issue arose before the Arbitrator as to whether he had power to order specific performance of Telia’s obligation to carry out the Refurbishment Works in view of the limitation of his powers contained in section 48(5)(b) of the 1996 Act. Section 48 provides, so far as relevant, as follows:

“48(1) The parties are free to agree on the powers exercisable by the arbitral tribunal as regards remedies.

(2)

Unless otherwise agreed by the parties, the tribunal has the following powers.

(5)

The tribunal has the same powers as the court-

(a)

to order a party to do or refrain from doing anything

(b)

to order specific performance of a contract (other than a contract relating to land).”

The Arbitrator ordered that there be tried as a preliminary issue the question whether, in the light of the limitation of his powers contained in section 48(5)(b) of the 1996 Act, he had the power to grant the relief sought by Hilcourt, which, as I have said, is expressed in the Points of Claim in the arbitration as a mandatory injunction requiring Telia to carry out and complete the Refurbishment Works.

The Arbitrator’s determination of that preliminary issue was contained in his second interim award dated 31^st March 2003 (“the Award”) and his written reasons which accompanied it (“the Reasons”).

In paragraph 12 of the skeleton argument for Telia on this appeal the findings of the Arbitrator in the Award and his Reasons, so far as relevant, are summarised as follows. First, Hilcourt’s claim is properly to be characterised as specific performance of clause 4.1 of the Lease Agreement. Second, the Lease Agreement as a whole is a contract ‘relating to land’ within section 48(5)(b) of the 1996 Act. Third, the Lease Agreement as a whole remains a contract ‘relating to land’ notwithstanding the fact that the Lease has been granted; the contract has not become solely a contract for building works. Fourth, it is not right to apply section 48(5)(b) of the 1996 Act to the Lease Agreement as a whole but only to clause 4.1 of it, considered separately. Fifth, where a contract as a whole relates to land, but one is considering separately a provision in that contract, some provisions (like the purchaser’s obligation to pay the purchase price) should be considered as relating to land even though they involve something other than an obligation to transfer property. Sixth, in the present case the obligation to construct the building is ‘separate’ from the obligation to grant and take the Lease. Seventh, the obligation in clause 4.1 of the Lease Agreement does not ‘relate to land’. The phrase ‘relating to land’ should be confined to contracts for the creation or transfer of an interest in land. Eighth, accordingly, the Arbitrator had jurisdiction to order specific performance of the obligation in clause 4.1 of the Lease Agreement.

Telia claims that the Arbitrator was wrong on the fourth, fifth, sixth and seventh of those points.

Neuberger J gave Telia permission to appeal on 29^th May 2003. That permission was granted on terms that Hilcourt could raise on the appeal its claims that the Arbitrator was wrong on the first and third of those points, and that the Arbitrator’s decision on jurisdiction should therefore be upheld in any event on other grounds.

Before me, Telia was represented by Mr Paul Morgan QC and Mr Christopher Heather. Mr Simon Berry QC appeared for Hilcourt.

In relation to the fifth, sixth and seventh points, the Arbitrator’s reasoning is set out in paragraphs 16, 17 and 18 of his Reasons. They are as follows:

“16.

The first task is to identify the relevant contract. As to that, I do not accept the Respondent’s contention that the key is to identify the essential character of the whole contract. To do so is likely to lead to arbitrary results. This may be demonstrated by the example of the sale of a small business, discussed in the course of argument. In such circumstances, there is likely to be one document which governs the sale of things like stock, book debts, machinery, and goodwill; deals with the assignment of the lease of the business premises; and contains provisions as to employees, pensions and competition. If the document is treated as giving rise to a single contract, it is probably to be characterised as a contract for the sale of the business. Assuming for the moment that such a contract viewed as a whole does not relate to land, an arbitrator would have power to grant specific performance of any obligation contained in it - including the obligation to assign the 1ease, which viewed in isolation plainly does relate to land. If, on the other hand, the contract is characterised as one for the sale of the business premises together with the business carried on there, the whole contract would relate to land. That would have the consequence that an arbitrator could not order performance of any positive obligation in the contract and so could not, for example, order the vendor to transfer the stock, even though the obligation to do so does not itself relate to land.

17.

It seems to me that the way to avoid the difficulties revealed by that example is to take a more restricted view, and to characterise not the whole contract but the obligation of which specific performance is sought. Care must be taken when conducting this exercise: it would, for example, be wrong to treat an obligation to pay purchase money as entirely separate from the corresponding obligation to transfer property. But in the present case there is no difficulty in treating the building obligation in clause 4.1 as a separate obligation from the obligation to grant and take the lease - not least because the time for performance of the building obligation does not begin until the lease has been granted.

18.

If the relevant contract is the obligation to carry out the refurbishment works, is it a contract “relating to land”? In one sense, it may be said to be so: the works involve refurbishment of buildings, and those buildings are themselves land. But it seems to me impossible to suppose that the legislature, when enacting section 48(5)(b), intended the expression “relating to land” to be construed as meaning “having anything to do with land” or “in any way touching or concerning land”. To construe the subsection in that way would mean that an arbitrator could not withoutconsent enforce a free-standing contract for works of construction if they were to be carried out on land. Although the words in parenthesis in section 48(5)(b)were intended to restrict an arbitrator’s powers, I do not believe they were meant to do so to that extent. In my view, the proper way to construe the expression “a contract relating to land’ in this subsection isto treat it as confined to contracts for the creation or transfer of an interest of land. Clause 4.1 of the agreement is not such a contract.”

Telia’s case may be briefly summarised on those issues as follows. Giving the words in section 48(5)(b) of the 1996 Act their natural and ordinary meaning, Hilcourt is seeking in the arbitration to enforce a “contract relating to land” even though the Lease has been granted and the relief sought is in relation only to the Refurbishment Work. There is, Mr Morgan submitted, only one contract. The obligations under clause 4.1 of the Lease Agreement are an inseparable part of the consideration for the grant of the Lease. The words “relating to land” are very wide. They certainly embrace the Lease Agreement and, Mr Morgan submitted, even if considered separately, the obligations under clause 4.1 form, as I have said, part of the consideration for the grant of the Lease. In short, he submitted, there is no justification for the Arbitrator’s decision to interpret the expression “a contract relating to land” in the subsection as confined to contracts for the creation or transfer of an interest in land. Nor, he submitted, is there any justification for isolating the obligation of which specific performance is sought rather than characterising the entire contract.

In my judgment, the decision of the Arbitrator was correct on this point. It is convenient to begin with the legislative background.

The 1996 Act was the consequence of the work of the Departmental Advisory Committee on Arbitration Law established under the chairmanship of Saville LJ. The Committee reported in February 1996. In paragraph 234 of their report they said, in relation to the provisions now contained in section 48 of the 1996 Act:

“We have excluded specific performance of land contracts, so as not to change the law in this regard, but clarified the power of arbitrators to award injunctive relief.”

The then existing law on this aspect was contained in section 15 of the Arbitration Act 1950, which provided as follows:

“Unless a contrary intention is expressed therein, every arbitration agreement shall, where such a provision is applicable to the reference, be deemed to contain a provision that the arbitrator or umpire shall have the same power as the High Court to order specific performance of any contract other than a contract relating to land or any interest in land.”

The provisions in that section were themselves derived from section 7 of the Arbitration Act 1934, which added the following to the end of the First Schedule to the Arbitration Act 1889:

“(j)

the arbitrators or umpire shall have the same power as the Court to order specific performance of any contract other than a contract relating to land or any interest in land…”

That provision was derived, it would appear, from the report dated 10 January 1927 of the Committee on the Law of Arbitration chaired by MacKinnon J. Paragraph 28 of that report was as follows:

“28.

At present it is at least doubtful whether an arbitrator or umpire can make an award ordering any sort of specific performance. We think that he should at any rate be given the power to order the delivery of specific goods under section 52 of the Sale of Goods Act, 1893, against payment of their price. It is perhaps a matter of policy but we see no reason why he should not also be given power to order specific performance of a contract by the delivery of any property other than land or money in any case in which the court might lawfully do so.”

That paragraph appears to indicate that what the Committee intended to exclude was a narrow area of activity, namely the specific performance of an obligation to deliver land or money. In the absence of any other explanation, it would appear that the most likely reason for the recommended exclusion was the complexity of conveyancing law including, in particular, issues of title relating to land associated with orders for specific performance of contracts for the sale or grant of land or interests in land.

In 1934 there was assigned to the Chancery Division of the High Court of Justice by section 56(1) of the Supreme Court of Judicature (Consolidation) Act 1925:

“the specific performance of contracts between vendors and purchasers of real estate, including contracts for leases”.

It seems likely that the exclusion introduced by section 7 of the Arbitration Act 1934 was intended to reflect that category of work specifically assigned to the Chancery Division, which had particular expertise in relation to conveyancing matters, and contracts for the sale of land in particular.

Under the Supreme Court Act 1981 Schedule 1 there is assigned to the Chancery Division, among other things, “all causes and matters relating to … (a) the sale, exchange or partition of land, or the raising of charges on land”. Although the wording is different from that of the Supreme Court of Judicature (Consolidation) Act 1925, to which I have referred, the spirit is the same.

Against that legislative background, the following points may be made. First, the expression “contract relating to land” is an expression of ambiguous extent. It plainly cannot be taken at its most literal, that is to say, as being treated as referring to any contract which has any connection, however tenuous, with land. Accordingly, on any footing it is necessary to confine to some extent that expression in order to give it some sensible meaning.

In that context, I agree with the analysis of the Arbitrator in paragraph 18 of his Reasons that the expression “a contract relating to land” in subsection 48(5)(b) of the 1996 Act is to be treated as confined to contracts for the creation or transfer of an interest in land. That accords with, and mirrors, the jurisdiction of the Chancery Division and the likely historical reason for the exclusion in section 48(5)(b).

Further, I agree with the analysis of the Arbitrator in paragraph 17 of his Reasons. It is true, as Mr Morgan submitted, that the interpretation of the Arbitrator in paragraph 17, by which he determined that the proper approach is “to characterise not the whole contract but the obligation of which specific performance is sought”, involves the introduction of the words “if and so far as relates to land” in the parenthesis in section 48(5)(b). As I have said, however, it is necessary in any event to introduce some sensible restriction on the ambit of the ambiguously wide expression contained in that subsection, and I regard the approach of the Arbitrator in paragraph 17 of his Reasons as a legitimate part of that process. Again, this seems to me to reflect the practice by which certain cases concerning the sale of land or an interest in land were assigned to the Chancery Division with its special expertise. The claim before the Arbitrator is not one which would be compulsorily assigned to the Chancery Division under Schedule 1 of the Supreme Court Act 1981 or under the legislation in force in 1934. It does not involve any special expertise in relation to conveyancing or, in particular, title.

Mr Morgan referred me to the 13^th edition of Russell on The Power and Duty of an Arbitrator 1935, which, in relation to section 7 of the Arbitration Act 1934, invited the reader to cross-refer to Chitty’s Statutes Vol 23 pages 249 to 252. That was a reference to Chitty’s Statutes 6^th Ed 1925. The reference appears to be a reference to section 40 of the Law of Property Act 1925. It is not altogether easy to understand the reason for the cross-reference or the point that the learned author was seeking to make. The side note to section 40 at page 249 of Chitty’s Statutes was “contracts relating to land to be in writing”. The actual text of section 40(1) was concerned, however, with contracts “for the sale or other disposition of land or any interest in land”. Accordingly, if the intention was to refer to the subject matter of section 40, that too would support the conclusion to which the Arbitrator has come on this aspect, namely that the expression “contract relating to land” should be restricted to contracts for the sale or the creation or a transfer of an interest in land.

Mr Morgan also referred me to a series of cases on section 40 of the Law of Property Act 1925. They included Mechelen v Wallace (1837) 7 A & E 49; Vaughan v Hancock (1846) 3CB 766; Gray v Smith [1890] 43 Ch D 208; and Steadman v Steadman [1974] 1QB 161. I do not, however, find those cases to be of assistance. The legislative purpose behind section 40 had nothing to do with the legislative purpose behind what is now section 48(5)(b) of the 1996 Act. The provisions have a different historical background and date from different periods of time.

Similarly, I do not find helpful a comparison with the provisions in Schedule 1 to the Unfair Contract Terms Act 1977, to which Mr Morgan referred me, and the cases relevant to those provisions. Those cases include Electricity Supply Nominees Limited v IAF Group Limited [1993] 1 WLR 1059; Star Rider Limited v Inntrepreneur Pub Co. [1998] 1 EGLR 53; and Unchained Growth III plc v Granby Village [2000] 1 WLR 739. Again, the policy rationale for those provisions and their legislative background and context are quite different from those with which the Arbitrator was, and I am, concerned.

Mr Morgan also referred me to two other cases concerning statutory provisions referring to a covenant or contract “relating to land” in which, Mr Morgan submitted, the courts have given those words their ordinary wide meaning. In this context he referred me to Blatherwick (Services) Ltd v King [1991] Ch 218 at 226A and Newport Borough Council v Khan [1990] 1 WLR 1185 at 1190E. Again those decisions turned upon the particular wording and legislative context of the relevant statutory provisions. In Newport Borough Council v Khan, for example, the Court of Appeal was concerned with the provisions of section 22(1) of County Courts Act 1984, which provides:

“Subject to the provisions of this section, a county court shall have the same jurisdiction as the High Court to grant an injunction or declaration in respect of, or relating to, any land, or the possession, occupation, use or enjoyment of any land.”

Those legislative provisions are a far cry from those with which I am concerned.

Mr Morgan, as I have indicated already, submitted that, even if one applies the narrow test favoured by the Arbitrator of asking whether the individual term, that is to say clause 4.1 of the Lease Agreement, related to the creation or transfer of an interest in land, the answer would be that the individual term did so relate as it was part of the consideration for the creation of the Lease. Mr Morgan is undoubtedly correct in describing the provisions in clause 4.1 as part of the consideration for the grant of the Lease. On the other hand, as I have indicated, since the relief sought by Hilcourt does not involve the enforcement of any executory obligation related to the transfer of land, that is to say transfer of the land itself or money that must be paid in order to obtain it, or any other obligation which it is necessary to fulfil prior to and as a condition of obtaining the land, then the words in parenthesis in section 48(5)(b) of the 1996 Act do not apply.

Finally, on this aspect, Mr Morgan submitted that the proper approach to the interpretation of section 48(5)(b) should take account of the fact that it is, in the words of Mr Morgan, a “default provision”. By that, he meant that it is always open to the parties (as stated in section 48(1) of the 1996 Act) to agree to confer on the arbitral tribunal such powers as regards remedies as they choose. There is, therefore, he submitted, no hardship or impracticality in giving the exclusion in section 48(5)(b) the wide ambit inherent in the ordinary and natural meaning of the words used.

I do not agree that the fact that the parties are free to confer whatever powers as regards remedies they wish on the arbitral tribunal should lead to the court adopting either a wide or a narrow approach to s.48(5)(b). It is impossible to discern any intent on the part of the draftsman that the provisions of section 48(1) should in any way colour the approach to the proper meaning and effect of section 48(5)(b).

That is enough to dispose of this appeal. I ought, however, in view of the arguments that were addressed to me by counsel, to comment briefly on the submissions of Hilcourt on the aspects of the Award on which, it submits, the Arbitrator erred.

Mr Berry’s first point in this regard was that what was sought from the Arbitrator was a mandatory injunction and not specific performance. Accordingly, he submitted, there was no need to trouble with the provisions of section 48(5)(b) since there is expressly conferred on an arbitral body under section 48(5)(a) the power to order a party to refrain from doing anything. He submitted that an injunction, whether a prohibitive or mandatory injunction, is a quite different creature of equity from specific performance.

I agree with Mr Morgan that the Arbitrator’s analysis of looking at the relief as a matter of substance was the correct approach.

In paragraph 10 of his Reasons the Arbitrator said as follows:

“Although the relief is described as a mandatory injunction, it seems to me plain that, in substance, what is sought is specific performance of the obligation contained in clause 4.1 of the agreement. The Applicant’s only right to require the Respondent to do the work derives from the contract contained in clause 4.1, and what it wants is that the Respondent perform its contractual obligation. That seems to me to bring the claim within paragraph (b) of section 48(5).”

I agree with that approach.

It is clear that one of the purposes of section 48(5)(b) was to qualify and cut down, where appropriate, the provisions of section 48(5)(a). Mr Berry relied significantly on this aspect on the case of Bourne v McDonald [1950] 2 KB 422. That case concerned an agreement in settlement of a previous action between the parties under which the defendant agreed, among other things, to erect a fence between his property and that of the plaintiff. The defendant subsequently repudiated that agreement, and the plaintiff thereupon brought an action claiming specific performance of the agreement and ten shillings damages for breach of contract. The county court judge did not consider that he had jurisdiction to grant specific performance.

On appeal the Court of Appeal, allowing the appeal, drew attention to the following provisions governing the jurisdiction of the county court. First, they drew attention to the County Courts Act 1934 section 40, which conferred on the County Court “jurisdiction to hear and determine any action founded on contract or tort when the debt, demand or damage claimed is not more than one hundred pounds”. Second, under section 52(1) of the County Courts Act 1934 the county court had all the jurisdiction of the High Court to hear and determine “proceedings for the specific performance, or for the rectification, delivery up or cancellation, of any agreement for the sale, purchase or lease of any property, where, in the case of a sale or purchase, the purchase money or, in the case of a lease, the value of the property, does not exceed the sum of £500”. Finally, the Court of Appeal drew attention to section 71 of the County Courts Act 1934, which provided that:

“Every county court, as regards any cause of action for the time being within its jurisdiction, shall in any proceedings before it - (a) grant such relief, redress or remedy or combination of remedies either absolute or conditional .... as ought to be granted or given in the like case by the High Court and in as full and ample a manner.”

Mr Berry analysed that case as being one in which the Court of Appeal determined that, although the county court had no jurisdiction to grant specific performance of the agreement for the erection of the fence since the proceedings were not proceedings for the specific performance or the rectification, delivery up or cancellation of any agreement for the sale, purchase or lease of any property, the county court nevertheless had power to grant the same injunctive relief as could have been granted in the High Court; and, accordingly, the Court of Appeal allowed the appeal on the basis that the county court could and therefore the Court of Appeal would grant mandatory injunctive relief equivalent to specific performance.

Mr Morgan interpreted the case in a diametrically opposite way, pointing to the following conclusion of Evershed MR at p.49, with which the other members of the Court of Appeal agreed:

“I think the county court judge had jurisdiction to make an order for specific performance. The appeal should therefore succeed and the necessary order be made.”

That appears plainly to indicate that the order that the Court of Appeal was granting was one for specific performance.

It is not necessary or appropriate for me to analyse the judgments in detail. I am quite clear that the proper interpretation of the judgment is not that put forward by Mr Berry, but rather it is that, because the proceedings fell within the jurisdiction of the county court under section 40 of the County Courts Act 1934, the county court had all the jurisdiction to grant specific performance that could have been granted by the High Court by virtue of the provisions of section 71 of the 1934 Act. In effect, the court determined that section 52 of the County Courts Act 1934 was irrelevant and, accordingly, the power of the court to award specific performance was not governed by that provision. It therefore seems to me that Bourne v McDonald does not assist Hilcourt on this point.

The next matter that was raised by Mr Berry was that, following the grant of the Lease, the relevant contract for the purpose of the exclusion in section 48(5)(b) of the 1996 Act was no longer a contract relating to land. In his skeleton argument he put the point as follows:

“4.2

Given the fact that the Lease was completed on 15^th September 2000 (being the Lease Completion Date which triggered the obligation to carry out the Refurbishment Works) the Agreement for Lease thereafter was no longer (on any view of the matter) a ‘contract relating to land’. Such element of the Agreement had become performed and spent. The Agreement was thereafter no more than a building contract.”

The Arbitrator dealt with this point shortly as follows in paragraph 19 of his Reasons:

“19.

I should add that, had I thought it was right to look at the contract as a whole, I would have regarded it as, in substance, a contract for the creation of an interest in land - just as if the obligation to do the refurbishment works had been contained in a building lease rather than in the agreement. Moreover, I would not have accepted the Applicant’s argument that following the grant of the lease the agreement had become solely a contract for the building works; it seems to me that the character of the contract would have to be determined as at the date of its conclusion, and could not change thereafter.”

I agree with that analysis and conclusion of the Arbitrator. In my judgment, the cases under section 40 of the Law of Property Act 1925 do provide an analogy on this aspect. All the provisions of a contract falling within section 40 of the 1925 Act were governed by that section, whether or not the relevant land had been sold or transferred by the date of the proceedings. In other words, if a contract fell within section 40, the necessity for a memorandum in writing as required by that section continued to apply at all times in relation to the enforceability of the contract, regardless of whether or not the actual part of the contract which was sought to be enforced in court post-dated and was unrelated to the actual transfer of the land, unless, of course, that provision could be regarded as wholly separate and severable. That is not the case here, where, as Mr Morgan pointed out, clause 4.1 is part of the consideration for the grant of the Lease.

Finally, in the same vein, Mr Berry relied upon the law relating to the merger of contracts for the sale of land on completion, that is to say the merger of the contract in the conveyance. On this aspect he referred me to a number of cases, including, in particular, Lawrence v Cassel [1930] 2 KB 83. That case concerned an agreement which provided for the vendor not only to make a disposition of the land but also to complete the erection of a house on the land. The Court of Appeal held that the former obligation merged in the conveyance which did take place, but the outstanding obligation to complete the house had not merged and remained in place. It was further said by the Court of Appeal that the contract to do the work was “collateral”. That holding, that the works contract was collateral, was followed in International Press Centre v Norwich Union [1986] 2 FTLR 229.

Again, I agree with Mr Morgan, in relation to this point, that the principles of, and cases on, merger in conveyancing transactions do not assist the interpretation of section 48(5)(b) of the 1996 Act. That doctrine and those cases are concerned to identify which provisions of a contract will survive completion and remain enforceable. It seems to me that they provide no assistance in interpreting a particular statutory provision dealing with arbitrations or assist me to identify the intention of the draftsman of that legislation.

For those reasons, I dismiss this appeal.