Dulwich Estate v Baptiste

There are three applications under the Arbitration Act 1996 before the court. The first is for an extension of time in which to appeal, the second for leave to appeal, and the third the substantive application for relief on the appeal.

The claimant, Dulwich Estate, appeared by counsel, Mr. Dutton, who, in written and oral submissions, provided a very helpful and balanced presentation of the case. The defendant, Mr. Baptiste, has not appeared, although he has provided a courteous and well judged letter setting out his position. Quite understandably, he would wish the arbitrator’s award to stand since it is currently in his favour, but he does not want to incur the risk of an exposure to costs in actively opposing this appeal. If I may say so, I do not think his absence has disadvantaged his position and certainly no discourtesy is taken by his absence.

Mr. Baptiste is the freehold owner of property at 189 Rosendale Road, which is an end of terrace house in Dulwich. As such, it is subject to a scheme that was originally approved by the High Court in 1974 pursuant to s.19 of the Leasehold Reform Act 1967. Sections 19(1) reads:

“Where, in the case of any area which is occupied directly or indirectly under tenancies held from one landlord (apart from property occupied by him or his licensees or for the time being unoccupied), the Minister on an application made within the two years beginning with the commencement of this Part of this Act grants a certificate that, in order to maintain adequate standards of appearance and amenity and regulate redevelopment in the area in the event of tenants acquiring the landlord’s interest in their house and premises under this Part of this Act, it is in the Minister’s opinion likely to be in the general interest that the landlord should retain powers of management in respect of the house and premises or have rights against the house and premises in respect of the benefits arising from the exercise elsewhere of his powers of management, then the High Court may, on an application made within one year of the giving of the certificate, approve a scheme giving the landlord such powers and rights as are contemplated by this subsection.

For purposes of this section ‘the Minister’ means as regards areas within Wales and Monmouthshire the Secretary of State, and as regards other areas the Minister of Housing and Local Government.

……….

(3)

The Minister in considering whether to grant a certificate authorising a scheme for any area, and the High Court in considering whether to approve a scheme shall have regard primarily to the benefit likely to result from the scheme to the area as a whole (including houses likely to be acquired from the landlord under this Part of this Act), and the extent to which it is reasonable to impose, for the benefit of the area, obligations on tenants so acquiring their freeholds; but regard may also be had to the past development and present character of the area and to architectural or historical considerations, to neighbouring areas and to the circumstances generally.”

Pursuant to the scheme, under clause 3(a), no material alteration to the external appearance of the property is allowed without prior written approval of the manager. Under clause 15 there is then a control mechanism providing that such approval shall not be unreasonably withheld, and under clause 17 there is an arbitration provision.

Dulwich Estate are the managers of the Dulwich College Estates. In I believe 2005 Mr. Baptiste applied for planning permission for a loft conversion to create a spare bedroom in his house. By a letter dated the 24^th May 2005 he was notified by the local authority that planning permission had been granted, but by a letter dated the 23^rd January 2006 Dulwich Estate notified Mr. Baptiste that approval under clause 3(a) of the scheme was refused on the grounds that the proposed side dormer window did not comply with the guidelines for loft conversions. I should add, by way of explanation, that because of the location of the staircase in the property on the floors below the conversion of the loft cannot conveniently be proceeded with without a dormer window on the side, but the evidence does not demonstrate that it would be actually impossible to effect a conversion without the side dormer window. The arbitrator’s award says simply that the viability of the conversion without a side dormer “would be significantly affected”.

Faced with the decision of Dulwich Estate Mr. Baptiste referred the matter to arbitration on the 27^th January 2006. The directions issued by the arbitrator were regrettably not received by Dulwich Estate so they were not well prepared for the hearing when it occurred because they did not know it was going to happen, but the relevant personnel happened to be available on the due date and the hearing did proceed.

On the 30^th May 2006 the arbitrator notified the parties that his award was ready and that he would release it when his fees were paid. That did not happen until late June when Mr. Baptiste paid his fees, and in due course Dulwich Estate received the award on the 27^th June 2006. The claim form in this application was issued three weeks later, on the 19^th July 2006. Mr. Justice Pumfrey considered the application on paper and ordered an oral hearing, which is how the matter comes before me.

Turning first to the extension of time, under the Arbitration Act 1996, s.69(1), appeals on points of law are permitted. Under s.70(3) they must be brought within 28 days of the award, and it is clear that the date of the award in this case means the date on which it was available, which is the 30^th May, not the date on which it was actually received by Dulwich Estates, the 27^th June. Under s.88(5) of the Arbitration Act the court can extend time. The criteria that the court should apply in deciding whether to extend time has been explained in the decision of Mr. Justice Colman in the case of Kalmneft JFC v. Glencore International Asku Gida [2002] 1 All E.R.76 at para.59. So far as this application is concerned, there are six relevant criteria. The first is the length of the delay. In this case it was 21 days. Mr. Justice Pumfrey, when he considered the matter on paper, said that it was “badly out of time” but he appears to have thought that it was 31 days late, not 21 days late. Be that as it may, in my judgment the delay is not insignificant but nor is it inordinate, and the period of delay accordingly is not of itself going to be determinative.

Turning to the second element within this second criterion, namely whether or not it was reasonable to allow time to elapse after the 28 day period had expired, that covers the 21 day period between the receipt of the award and the issue of these proceedings. In my judgment, that is not an unreasonable period. Lawyers had not previously been involved on behalf of the Estate and getting them up to speed from a standing start within 21 days to the issue of proceedings is, in my judgment, reasonable. So, applying the second criterion from Kalmneft, it cannot be said that Dulwich Estate was acting unreasonably.

The third relevant criterion is whether the respondent to the application or the arbitrator caused or contributed to the delay. It cannot be said that the arbitrator contributed to the delay in any real sense. He was entitled to withhold his award until payment. It can perhaps be suggested that Mr. Baptiste contributed to the delay by not paying sooner, he having agreed on the RICS form that he would ensure payment of the fees, so it cannot be suggested that he is entirely blameless.

The fourth relevant criterion is whether Mr. Baptiste would, by reason of the delay, suffer irremediable prejudice in addition to the mere loss of time if the application were permitted to proceed. That must mean prejudice above and beyond the mere risk of losing the advantage of having so far won the arbitration. On the evidence it is apparent that Mr. Baptiste has not started any works in reliance on the arbitration award and no other prejudice is invoked on his behalf and, in the circumstances, it seems to me that there is not any irremediable prejudice to him.

The fifth relevant criterion from Kalmneft is the strength of the application. That goes to the merits of the substantive case, which I will defer and deal with later because its relevance comes in at a number of different stages and it is more convenient to deal with it in one go.

The sixth relevant criterion is whether in the broadest sense it would be unfair to Dulwich Estate for it to be denied the opportunity of having the application determined, and that is a judgment that requires stepping back and considering all the relevant matters, including, among other things, the merits, and also the potential wider impact of the case, which is itself also a relevant consideration on leave, and so I will defer those considerations again and deal with merits all in one go and the potential wider impact of the case in one go.

That enables us to proceed immediately to the second element in the application, leave to appeal. Leave is required by virtue of s.69(2)(b) of the Arbitration Act 1996, there being no agreement of the parties. The conditions that need to be satisfied in order for leave to be granted are set out in s.69(3). As to the first two, there is no real dispute. Paragraph (a) requires that the determination of the question will substantially affect the rights of one or more of the parties, and that cannot be in doubt. Paragraph (b) provides that the question is one which the tribunal was asked to determine, and again there is no doubt about that. The third condition, para.(c) is:

“that, on the basis of the findings of fact in the award –

(i)

the decision of the tribunal on the question is obviously wrong, or

(ii)

the question is one of general public importance and the decision of the tribunal is at least open to serious doubt …”

So far as (c)(i) is concerned, again that goes to the merits, and I will deal with that separately in a moment. So far as (c)(ii) is concerned, the question whether or not the decision of the tribunal is at least open to serious doubt again goes to the merits, and I will come back to that. The other element in paragraph (c)(ii) is whether the question is one of general public importance. So far as that is concerned, in my judgment it does not require the point to be one of national importance. It is sufficient, if it is at least of some significant local importance. What is required is that the issue is not one, for instance, of a one-off kind in relation to a private interest commercial dispute between private parties.

In my judgment, this is an issue that raises a question of general public importance within the meaning of s.69(3)(c)(ii), given, first, the size of this Estate (there are 3,700-odd properties subject to the scheme); secondly the inevitable impact on future applications that might flow from allowing a side dormer in this case; and, thirdly, the potential impact in future arbitrations of allowing this decision to stand if it is, on analysis, wrong. So, in my judgment, the general public importance test in s.69(3)(c)(ii) is satisfied, which means that both for the extension of time and for the question of leave to appeal the decisive factor is likely to be the merits of the claim.

The next issue is what factors a reasonable estate manager is required to take into account. Is it entitled to have regard only to the general interests of the estate or does it have also to take into account the impact of its decision on the individual applicant? The answer is again supplied by the Estates Governors decision at p.113J to p.114E. The approach is taken by way of analogy to the position of a landlord who is considering an application by a tenant for consent to an assignment, the approach to which is explained by the Court of Appeal in the case of International Drilling Fluids Ltd. v. Louisville Investments (Uxbridge) Ltd. [1986] 1 Ch.513, the relevant passages being at p.519G to p.521E, and the critical passage being at p.521C to D.

Applying that analogy to the present context the result is this. An estate manager is acting reasonably in having regard only to the interests of the estate unless there is such a disproportion between the benefit to the estate and the detriment to the applicant that it is unreasonable for approval to be withheld. So the question in this case is whether that was the test that the arbitrator applied. Before answering that I should also just add that Mr. Justice Pumfrey indicated that it might be appropriate to hear argument on whether there is a difference between the test in the Estates Governors case and that in the case of Mosley v. Cooper [1991] E.G.L.R.124. I propose to deal with that extremely briefly for two reasons: (1) because I do not think there is a difference between the two cases; and (2) because even if there were I would be bound to follow the decision in Estates Governors in any event, it being the more recent decision of concurrent jurisdiction, unless I was persuaded that it was plainly wrong, which I am not.

In Mosley v. Cooper at p.126G to H the Deputy Judge considered three questions: whether, in principle, the trustees’ decision fell within the band of reasonableness; secondly, if so, whether there was anything about the particular facts of that case to render unreasonable a decision that would otherwise be reasonable; and, thirdly, the defendants’ knowledge of the scheme. However, reading the judgment as a whole, it is entirely clear that the learned Deputy Judge was not propounding three separate tests. Item 3, the defendants’ knowledge of the scheme, was not in fact regarded by him as a relevant consideration at all, and items 1 and 2 were merely different ways of asking the same question, namely whether the decision was one which a reasonable decision-maker could have reached. For those reasons, as I say, I do not regard there to be a difference between the test applied in Mosley v. Cooper and the test applied in the Estates Governors case.

So is that the test that this arbitrator applied? In answering that question it is appropriate to give him some latitude. I do not say that in any patronising sense at all. It is simply a reflection of the fact that this is a court of law and the arbitrator himself is not a lawyer and cannot be expected to have expressed himself with the sort of language that a lawyer might expect.

22 In para.2.5 of his award the arbitrator correctly identified his jurisdiction when he said:

“It is accepted that the jurisdiction of the Arbitrator only extends to determining whether the Managers acted reasonably as required in Paragraph 15, and not as to whether consent should or should not have been given.”

Since the arbitrator correctly set out his own jurisdiction there is a presumption that he did what he said he ought to do unless it is apparent from what followed that he did not.

23 The problem begins in s.9 of the award:

“TEST OF REASONABLENESS

9.1.

Mr. Baptiste contends that this requires me to have regard to his circumstances as applicant whereas Mr. Major contends that the Managers only have to have regard to the interests of the Estate as a whole.

9.2.

The Managers relied on the court case of Estate Governors of Alleyn’s God’s Gift at Dulwich v. Williams [1994] 1 E.G.L.R.112. This applied the test as to ‘whether the conclusion of the Estate Managers might have been reached by a reasonable man in the circumstances’ and referred the case back to the Arbitrator.

9.3.

Mosley v. Cooper [1990] 1 E.G.L.R.124 applied three tests of reasonableness:

1.

Whether the landlord’s decision came within a general band of reasonableness.

2.

Whether the circumstances of the owner’s application for consent rendered unreasonable what would otherwise have been a reasonable decision.

3.

The owner’s state of knowledge about the Scheme and its provisions.”

It is apparent from para.9.1 that at least one of the arguments that the arbitrator was dealing with was the question whether or not Dulwich Estate had to take into account the applicant’s circumstances or whether it was entitled to have regard only to the interests of the Estate as a whole, but even at that early stage of his consideration of the issues there are the beginnings of the signs that he, with respect, took his eye off the issue as he stated it in para.2.5 because he recites the proposition of Mr. Baptiste as being that the test requires “me” (i.e. the arbitrator) to have regard to his circumstances.

It is then apparent when one looks at s.10 of the award that the arbitrator avowedly applied the three “tests” that he had identified from Mosley v. Cooper.

“DISCUSSION

10.1.

The first test to be applied in accordance with Mosley v. Cooper is similar to the single test applied in Estates Governors of Alleyn’s God’s Gift at Dulwich v. Williams.

10.2.

The planning application was properly and fully considered and cogent reasons given for granting consent. On the other hand I FIND that the Managers did follow proper procedures and their decision was consistent with their guidelines. I accept the evidence why an exception was made in the case of 3 and 5 Dulwich Village. That decision does however demonstrate that exceptions can be made. Mr. Major and Mr. Senter however stated that they were only concerned with the estate as a whole and the street scene and not the particular circumstances of the applicant.

10.3.

In respect of the third test I FIND that the applicant was fully aware of the Scheme and its provisions.

10.4.

The only issue therefore is whether the circumstances of the owner’s application for consent rendered unreasonable what would otherwise be a reasonable decision. There has therefore to be a balance between the interests of the applicant and the interests of those benefiting fro the scheme.

10.5.A. The report of the planning officer attached to the decision of the Planning Authority fully considered the design implications of the side dormer and concluded that it would not be an incongruous feature. I have examined the plans and inspected the property and do not disagree with that opinion. That on its own however is not sufficient to override the other tests of reasonableness.

10.5.B. Mr. Senter conceded that the fact that number 189 was an end terrace house with a dormer made it difficult to extend into the roof without a side dormer. I FIND that the validity of a roof extension without a side dormer in the circumstances of this particular case would be significantly affected.

10.6.

The balance therefore is that on one side the beneficiaries of the Management Scheme would not be significantly disadvantaged if the proposals were allowed, whereas the applicant would be significantly disadvantaged by the refusal.

10.7.

I therefore HOLD that on the facts of this particular case that the circumstances of the owner’s application for consent rendered unreasonable what would otherwise have been a reasonable decision.

10.8.

I therefore FIND for the applicant.”

In paras.10.1 to 10.6 the arbitrator applied three tests when, in my judgment, he should have applied the single test from the Estates Governors case, as I have described it. He applied the first test in paras.10.1 and 10.2 and from those and from the opening sentence of para.10.4 it is apparent that he held that Dulwich Estate’s decision satisfied the first “test”; in other words, it came within, in his words, “a general band of reasonableness”. (That is wording taken from para.9.3.1 of the award.) It is then apparent from para.10.3 that he considered that the applicant was fully aware of the scheme and its provisions, which was the third “test” that he derived from Mosley v. Cooper. However, it is not apparent what impact, if any, that finding had on his award. That must remain a matter of uncertainty.

Turning then to the critical passages in paras.10.4 through to 10.7, which deal with the second “test”, the question he posed in para.10.4 was, in principle, unobjectionable, namely “whether the circumstances of the owner’s application for consent rendered unreasonable what would otherwise have been a reasonable decision”. That question is capable of being consistent with the Estates Governors approach so long as the answer is supplied by reference to the International Drilling test, as I have described it above. But with respect to the arbitrator, his answer to that question is flawed in three closely related respects. First, he conducted a balancing exercise in the course of which he reached his own decision about the relative disadvantages that would be suffered by the beneficiaries of the scheme and by the applicants respectively. In other words, he forgot that the true question was whether Dulwich Estate’s refusal fell outside the range of possible reasonable decisions and not whether he thought approval should be given. Secondly, he conducted his balancing exercise on the basis that “the beneficiaries of the management scheme would not be significantly disadvantaged if the proposals were allowed”. In my judgment, that was not a legitimate basis for his decision because he had already reached the conclusion that Dulwich Estate’s refusal of consent fell within a “general band of reasonableness”. In other words, he had already accepted that a reasonable estate manager could come to the conclusion that grant of approval would cause more than trivial prejudice to the interests of the Estate. Thirdly, on the face of the award he conducted the balance in circumstances where none was justified. The International Drilling case demonstrates that the impact of refusal on an applicant only becomes relevant for the arbitrator’s purposes if it can be said that there is a such disproportion between the benefit to the estate manager and the detriment to the applicant that it is unreasonable for consent to be withheld. That is not the basis on which he expressed his opinion in para.10.6 of the award and it is uncertain from the material I have seen whether there was any basis on which he could have reached such a conclusion. I say that for two reasons: first, because on the evidence it is apparent that there is no necessity for the loft conversion: it was a matter of convenience, albeit significant convenience, for the applicants; and, secondly, the evidence did not, as I have already noted, suggest that the loft conversion would be impossible without the side dormer window, merely that the viability of the conversion without the side dormer window would be significantly affected.

For these three related reasons, I am satisfied that the arbitrator did depart from the course he had set himself in para.2.5 and made an error of law.

I should also add this. I considered whether in fairness to Mr. Baptiste I should adjourn this matter and invite further argument on the question whether or not the decision of Dulwich Estate could be impugned by reference to the Human Rights Act 1998 on the grounds that it involved an interference with the peaceful enjoyment of his possessions under Article 1 of the First Protocol to the European Convention on Human Rights. However, having considered that matter, in fairness to Dulwich Estate I have decided not to take that course because it seems to me that it is unlikely to affect the outcome, and I say that for two reasons. First, because although it is arguable that Dulwich Estate is a public authority for the purposes of s.6 of the Human Rights Act, which I leave entirely open without deciding, Article 1 of the First Protocol merely protects the peaceful enjoyment of possessions. In this case Mr. Baptiste acquired the freehold subject to the scheme. If Dulwich Estate operated the scheme according to its tenor any restriction on his ability to convert the loft is an incident of his property rights, not an interference with it. On the other hand, if Dulwich Estate did not operate the scheme according to its tenor the arbitrator’s award would stand and Mr. Baptiste would not need to rely on the Human Rights Act in any event. The second reason I have reached the view that it would not advance matters to adjourn for further argument on Article 1 of the First Protocol is that, even if that first analysis were incorrect, Article 1 of the First Protocol allows interference with private property rights if three conditions are satisfied. The first is that the interference is in accordance with the law, and that test would be satisfied by the scheme which has received court approval. The second test is that there must be a legitimate objective, and that is satisfied by the provisions of s.19 of the Leasehold Reform Act 1967. And the third requirement is that the interference must be proportionate, which is essentially the question posed by the combined effect of the Estates Governors case and the International Drilling case.

So albeit without the benefit of argument, in my view any consideration under Article 1 of the First Protocol would produce the same result as under the scheme and the Arbitration Act 1996, and there is no need to seek further argument in relation to that.

Those being my conclusions on the merits of the case, one can return then to the question of the extension of time. The strength of the claim is plainly a powerful factor in favour of granting an extension of time and the wider impact of the arbitrator’s decision is also relevant in determining whether it would be unfair to the Estate to refuse an extension and, for these reasons, I grant an extension of time.

Reverting then to the question of leave to appeal, again the decision on the merits that I have reached means that the conditions in s.69(3)(c)(i) and (ii) are both satisfied.

There is then finally the separate question under s.69(d), whether it is just and proper in all circumstances for the court to determine the question, despite the agreement of the parties to resolve the matter by arbitration. I have not been taken to any authority directly on the point providing guidance as to the exercise of that assessment, and, in the absence of authority, I take into account four considerations. The first is that, in my judgment, for the reasons given, there has been a significant error of law. Secondly, allowing the award to stand would frustrate the management decision of Dulwich Estate in this case. Thirdly, for the reasons also considered above, allowing the award to stand would have a potentially wide-ranging impact in relation to future applications of a similar nature and in relation to future arbitrations under the scheme. And the fourth factor, which has not specifically arisen so far in the particular issues that have been considered so far under the statute and which, in my view, is a significant factor under 69(3)(d), is that this is not purely private interest litigation. This is not a situation in which a trading corporation is seeking to avoid the consequences of having submitted a commercial dispute to the hazards of arbitration but, rather, it is litigation with a public interest element. Mr. Baptiste might not agree where the public interest lies but he must agree that there is a public interest at stake, and for that reason also it seems to me that it is just and proper to grant leave, and I do so.

Having done that, also for the reasons given, I will allow the appeal.

That leaves the question of relief. Dulwich Estate asks for the award to be varied so as to determine that approval was reasonably withheld. Mr. Dutton accepts that it would only be appropriate to make that order if I am satisfied from the face of the award that it is clear what the arbitrator’s decision would have been had he applied the right test. If there are further findings of fact that would need to be made or any discretionary judgment to be exercised it would not be appropriate, Mr. Dutton accepts, for the court to determine that Dulwich Estate’s consent was reasonably withheld.

So although I may regrettably be doing Mr. Baptiste more of a disservice in doing so, I see no alternative but to remit the matter to the arbitrator, and I so order.