Bond v Mackay & Ors

By a claim form issued on 22^nd February 2018 [1/113] the Claimant applied under Section 67 of the Arbitration Act 1996 for an Order that Answer (a) under paragraph 3(a) of the second Award dated 2^nd February 2018 of Mr Roderick Mackay, the Arbitrator appointed by letter dated 27^th August 2013 of the President of the Royal Institute of Chartered Surveyors pursuant to the terms of the Deed to Grant (the BG deed) dated 1^st June 1994 between the Claimant and the Defendant’s predecessor in title British Gas plc be varied so as to provide that the dispute as to whether the Third Defendant is in breach of Clause 2(i) of the BG Deed is within the scope of the matters already referred to the Arbitrator for determination: and that Answer (b) under paragraph 3(b) of the said Award be set aside (so that the Third Defendant will remain a party to the Arbitrationand that paragraph 4 of the Second Award be set aside alternatively be varied so as to provide that there be no order as to costs.

By letter dated 5^th March 2018 [1/122] Mr Mackay, the Arbitrator, said that he did not wish to make any representations to the Court.

Both Second and Third Defendants filed acknowledgements of service [1/123] and [1/125] making clear that they intended to contest the claim but their solicitor Ms Ingham said in a witness statement dated 29^th March 2018 at paragraph 1 [1/138] that her statement was on behalf of the Third Defendant (although her firm acts also for the Second Defendant) but because the claim relates only to the Award obtained by the Third Defendant she made the statement only on behalf of the Third Defendant.

The claim form was supported by a witness statement made by Mr Minhinick dated 22^nd February 2018 [1/130]. In his witness statement Mr Minhinick explains that the issue that is the subject matter of this claim is that it is claimed by the Claimant that the Third Defendant is in breach of Clause 2(i) of the BG Deed dated 1^st June 1994 between the Claimant and British Gas plc (the Third Defendant’s predecessor in title) and that determination of that issue was within the ambit of the matters referred to the Arbitrator.

The BG Deed was entered into so as to permit the Third Defendant to run its gas pipeline under the land of the Claimant at Dorey’s Pit. On 23^rd September 1994 the Claimant entered into a lease with BP Exploration Operating Company Limited (now Perenco UK Limited) in relation to the placement of oil pipes under the same land of the Claimant. The principal pipelines are around 3.8 metres apart.

On 12^th October 2011 the Claimant obtained planning permission to “ extract Ball Clay and Sand and Gravel as an extension of Dorey’s Pit…”

A dispute arose as to the compensation payable to the Claimant in respect of the sterilization of the minerals at Dorey’s Pit occasioned by the presence of the various pipelines. Both the BG Deed and Lease provide that if there was such a dispute, the matter was to be referred to arbitration. The area of Ball Clay and Sand and Gravel, the subject of the 2011 planning permission referred to above was also the area which was the subject of the Claimant’s claim against the Third Defendant of 30^th November 2011. The Claimant also made a claim against the Second Defendant under a second contractual instrument, a Deed of Lease with British Petroleum in respect of the same area. It is said that those 2 disputes relating to liability for, and compensation payable in respect of, common mineral sterilization comprise the subject matter of the disputes referred to the Arbitrator.

On 10th November 2016, the Claimant provided the Second and Third Defendants with a method statement outlining the manner in which he intended to extract mineral from the eastern side of the pipelines and up to within 3 metres of the Third Defendant’s pipeline. Those Works subsequently commenced, and on 30^th November 2016 the Second Defendant’s solicitors sought an urgent undertaking from the Claimant to cease those Works on account of the dangers those Works were alleged to pose to the Third Defendant’s pipeline. It became clear in subsequent correspondence that the Second Defendant would seek an injunction against further works being carried out in the immediate vicinity of the Third Defendant’s pipeline, due to possible consequential impacts on the Second Defendant’s pipeline.

At no time since those Works were proposed has the Third Defendant offered any direct comment or correspondence on the mineral extraction works proposed, and carried out, in the vicinity of its gas pipeline.

The Claimant provided notice of his intention to resume the Works on 10^th May 2017. Those Works will take place at a lateral distance in excess of 10 metres from the Third Defendant’s gas pipeline, which the Second Defendant has indicated is an appropriate safety stand-off stop.

By letter dated 22^nd May 2017, the Claimant set out the dispute with the Third Defendant in relation to Clause 2(i) of the BG Deed. The Claimant’s case is that the Third Defendant is in breach of that clause. The Third Defendant denies any such breach. It is the Claimant’s case that the Clause 2(i) dispute is within the ambit of the current arbitration. That is denied by the Third Defendant.

In his second Award, the Arbitrator found that the Clause 2(i) is not within his reference. That is the decision which is challenged by the Claimant. The Claimant says that the Arbitrator does have the jurisdiction to determine the Clause 2(i) issues. Thus the Claimant seeks a review of the second Award under Section 67 of the Arbitration Act 1996.

Ms. Ingham’s witness statement [1/138] argues that the Claimant has refused to plead out the dispute under Clause 2(i) of the BG Deed and that the first time the claim was raised was in Burges Salmon’s letter of 10^th May 2017 [2/249-251].

The Arbitrator’s second Award (that being the one under challenge in this application) was delivered to the Parties on 2^nd February 2018 [1/88]. Burges Salmon for Mr Bond, pointed out on 22^nd February 2018 [1/110] that the first question which the Arbitrator purported to determine was not the one which was asked of him. The Arbitrator amended the Award by letter dated 12^th March 2018 [1/112] under cover of which he enclosed an amended Award.

In his Award the Arbitrator drew on entirely on advice which he had received from Counsel (see paragraphs 7.11-8) of the Award. I have been provided with a copy of that Advice. Its reasoning is difficult, if not impossible, to follow. It contains little recognisable punctuation which compounds the difficulties in reading it.

Pointing out, correctly, that this application is a re-hearing Mr Wonnacott QC for the Defendant placed no reliance on the Arbitrator’s reasoning or that of Counsel.

The issue for consideration on this application under Section 67 of the Arbitration Act 1996 was whether a dispute under Clause 2(i) of the BG Deed dated 1^st June 1994 was referred to arbitration.

The factual context is that Imerys Minerals Limited occupies land affected by the BG Deed and BP Lease under terms of a lease between themselves and William Henry Bond dated 18^th July 2002. That lease is subject to the rights affecting the land reserved in the BG Deed and BP Lease and is made following the grant of planning permission for winning and working of Ball Clay at Dorey’s Clay Pit near Wareham.Planning permission was given for the extraction of Ball Clay, Sand and Gravel and erection of the building by Dorset County Council on 12^th October 2011.

Dorey’s Pit produces a range of grades of clay which are used in a range of products including electro porcelain, tableware, sanitary ware and tiles. The principal clays sterilized by the presence of pipelines owned and operated by BP and BG are known as DLB (light blue) DDB (Dark Blue) and Iron Stained. I was told that the clays are a mineral of national importance and that products made of Dorey’s clays are sold all over the world. The total extraction of clay from Dorey’s Pit each year is in the order of 65,000 tonnes (extracted mineral sent for processing).

The Deed is headed “This Deed is in the form agreed with the National Farmers’ Union and the Country Landowners’ Association for the gas pipeline between Wytch Farm Dorset and Sopley, Hampshire.” It is dated 1^st June 1994 between Mr Bond and British Gas plc both to include their successors and assigns.

Clause 2(i) provides:

“British Gas (to the intent and so as to bind the easements hereby granted into whosoever hands the same may come and to benefit and protect the said land and every part thereof) hereby covenants with the Grantor as follows:-

i)

In exercising the easements hereby granted British Gas shall take all reasonable precautions to avoid obstruction to or interference with the user of the said land and damage and injury thereto.”

Clause 3 provides:

“The Grantor (to the intent and so as to bind the said land and land of the Grantor adjoining thereto and every part thereof into whosoever hands the same may come and to benefit and protect the easements hereby granted) hereby covenants with British Gas as follows:-

i)

The Grantor shall not do or cause or permit to be done on the said land or land of the Grantor adjoining thereto anything calculated or likely to cause damage or injury to the said Works and will take all reasonable precautions to prevent such damage or injury.

ii)

The Grantor shall not without the prior consent in writing of British Gas make or cause or permit to be made any material alteration to or any deposit of anything upon any part of the said strip of land so as to interfere with or obstruct the access thereto or to the said Works by British Gas or so as to lessen or in any way interfere with the support afforded to the said Works by the surrounding soil including the minerals also as materially to reduce the depth of soil above the said Works.

iii)

The Grantor shall not erect or install or cause or permit to be erected or installed any building or structure or permanent apparatus in, through, upon, or over the said strip of land.

….

Clause 4 provides:

“Any dispute arising under Clauses 2 and 3 hereof shall be determined in default of agreement by a single arbitrator to be agreed upon between the parties hereto or failing agreement to be appointed on the application of either party after notice in writing to the other party by the President of the Royal Institution of Chartered Surveyors and save as aforesaid the provisions of the Arbitration Acts 1950 and 1979 and of any statutory modification or re-enactment thereof for the time being in force shall apply to any such reference and determination.”

Clause 5 of the Deed provides:

“(iv)

Any dispute arising out of the provisions of this Clause shall be referred to a single Arbitrator to be agreed upon between the parties in dispute and in default of such agreement to the Lands Tribunal.”

Clause 6 provides:

“6(i) the provisions of Clauses 2 and 3 hereof shall have effect subject to this Clause.

(ii)

Subject to the provisions of this Clause the provisions (in this Clause called “the said provisions”) substituted by part II of and the first, second and third schedules to the Mines (Working Facilities and Support) Act 1923 for Sections 78 to 85 of the Railway’s Clauses Consolidation Act 1845 shall be deemed to be incorporated here.

(iii)

The said provisions shall be construed as if references to the Mine Owner were references to the Grantor….

(iv)

Any arbitration under the said provisions shall be by a single Arbitrator to be agreed upon between the parties in dispute and in default of agreement by the Lands Tribunal and Section 85(D)(iii) of the said provisions shall be of no effect.

Clause 7 provides:

“INASMUCH as the Grantor has prior to the date hereto agreed to grant BP Petroleum Development Limited…a Lease of Land and Rights (which Lease is hereafter in this clause referred to as “the DPB”) in respect of a pipeline intended to be laid within the said strip of land approximately at the same time as and along a route parallel with that of the said Works.

NOW IT IS HEREBY AGREED AND DECLARED as follows:-

(i)

In relation to any dispute or difference between the Grantor and British Gas, which under one or other of the provisions of this Deed falls to be determined by Arbitration and the subject matter of which dispute or difference is or may also be the subject matter of a dispute or difference between the Grantor and BP the Grantor hereby covenants with British Gas to take all steps reasonably necessary to ensure that any such dispute or difference between the Grantor and British Gas shall be made the subject of the same arbitration proceedings as are instituted in respect of the dispute or difference between the Grantor and BP to the intent that any dispute or difference which does or may involve the Grantor on the one hand and both British Gas and BP on the other shall be the subject of one and the same arbitration proceedings…”

The Deed thus provides for 3 arbitral regimes:

“(i)

a dispute arising under Clauses 2 and 3 is determined by a single Arbitrator to be agreed or appointed by the President of the RICS;

(ii)

a dispute under Clause 5 of the Deed is referred to a single Arbitrator to be agreed or in default of such agreement by the Lands Tribunal (now the Upper Tribunal);

(iii)

a dispute under Clause 6(ii) and (iii) of the Deed are referred to a single Arbitrator to be agreed and in default of agreement by the Lands Tribunal (now the Upper Tribunal).

By a document dated 30^th November 2011 1/24] entitled “Claim for Compensation in Respect of Sterilized Minerals at Dorey’s Ball Clay Pit, Wareham’ on behalf of the Mineral Tenant” Matthews & Son LLP, Chartered Surveyors, made a “claim for compensation…under compensation provisions contained in a Deed of Grant dated 1 June 1994 between William Henry Bond and British Gas plc (BGDeed)” and a Lease dated 21^st September 1994 between W H Bond Esq., and BP Exploration Operating Company Limited (“BPLease”).” Imerys are the tenant, Mr Bond is the landlord. The claim was “submitted in concert with the claim on behalf of William Henry Bond”. (See paragraph 5 of that document).

By letter dated 30^th November 2011 [2/142] Burges Salmon on behalf of the Claimant wrote to British Gas (with an identical letter to Southern Gas Networks [2/146] saying

“You are hereby on notice under Clause 5(ii) of the Deed that … (in the alternative the other option for settling compensation is set out in Clause 6 of the Deed…”

On 6 January 2012 [2/151] Field Fisher Waterhouse informed Burges Salmon that they had been instructed by Southern Gas Network.

By letter dated 24^th February 2012 [2/153] Field Fisher Waterhouse informed Burges Salmon that their client Imerys Minerals Limited was not a party to the Deed of Grant thus the letter dated 2^nd December 2011

“Cannot therefore constitute notice… under either Clause 5 or 6 of the Deed of Grant.”

On 11^th March 2013 [2/157] Gerald Eve (on behalf of Perenco/Southern Gas) made plain that they were not instructed to consider Imerys’s claim but said that they were in negotiations concerning Mr Bond’s claims.

By letter dated 14^th May 2013 [2/158] Mr Salmon on behalf of Imerys and Mr Bond gave notice of their intention to appoint an Arbitrator and said

“My instructions are to apply to the President of the RICS to make the appointment.”

On 14^th May 2013 [2/162] Burges Salmon on behalf of the Claimant wrote to Field Fisher Waterhouse on behalf of the Defendants referring to the letter dated 2^nd December 2011: saying “Under (a) Clause 5(ii) of the Deed… and (b) Clause 6 of the Deed…”

By email dated 15^th July 2013 [1/38] Mr Crawford (on behalf of Imerys Minerals) and Mr Salmon (on behalf of Mr Bond) invited the President of the RICS to appoint an Arbitrator in respect of “a dispute as to valuation and compensation.”

On 31^st July 2013 [2/170] Field Fisher Waterhouse on behalf of Southern Gas Networks and Perenco wrote to the RICS Dispute Resolution Services saying:

“With regard to the Deed, we wholly dispute the RICS’s jurisdiction to deal with this matter. Clauses 5 and 6 of the Deed expressly provide that any dispute arising out of these provisions shall be referred to a single Arbitrator to be agreed between the parties in dispute and in default of such agreement to the Lands Tribunal (now the Property Chamber). Given that the parties have failed to agree a single Arbitrator, the correct form for the resolution of this dispute is the Property Chamber and not the RICS.”

Thus through that letter they expressly distinguish between the Clause 2 dispute resolution procedure and that in Clauses 5 and 6.

However, the RICS appointed Mr. Mackay on 7^th August 2013. Thereafter the Defendants took part in the Arbitration without any reservation of their position, despite their letter to Mr Macay on 14^th August 2013 [2/178] in which they said “We do not consider that the Arbitrator has jurisdiction to hear this dispute and that his appointment has been made invalidly.”

On 8^th August 2013 [2/172] Mr Mackay identified “the Terms of the Reference are to determine the dispute between the parties. I understand this concerns the compensation payable to the Landlord and Tenant in respect of the sterilization of Ball Clay, Sand and Gravel minerals at Dorey’s Pit, Wareham. Following the sterilization of those minerals by the presence of oil and gas pipelines owned and operated by the joint Respondents.”

On 4^th August 2014 Mr Bond served his Statement of Case [1/43] which referred at paragraph 3.1 to “a single sum of compensation…” and in respect of the claim under the BG Deed referred to “Clauses 5 and 6 of the BG Deed.”

The first Award was not in the bundle but I was told that on 16^th July 2015 Mr Mackay dismissed the claims under Clauses 5 and 6 of the BG Deed. His first Award held that there was a to be a term implied that a counter notice was deemed to have been served by Southern Gas Networks under Clause 6 of the BG Deed.

Next there was an appeal to this Court, which was heard by Nerys Jefford Q.C. (sitting as a Deputy High Court Judge) as she then was, which was allowed on 29^th June 2016. Neither party have referred to or rely upon the terms of that Judgment in the present dispute.

On 28^th March 2017 [2/237] Field Fisher invited Mr Mackay to make an award dismissing the claim against Southern Gas Network in the light of the Court’s order.

On 10^th May 2017 [2/249] Burges Salmon wrote to Field Fisher saying:

“Your client’s rights to operate a pipeline in the BG Deed of easement are subject to covenants in Clause 2….”.

The letter sets out the wording of Clause 2(i) sets out what SGN is required to do under Clause 2.1 and promises to refer the matter to arbitration under Clause 4 in the event that SGN do not do what is required of them. The matter is described as a ‘potential dispute…under Clause 2(i) involving “the same subject matter as the present arbitration between Bond and Perenco under the BP Lease…’ ”

Having had no response, on 22^nd May 2017 [2/253] Burges Salmon wrote:

“It is now appropriate that Mr Mackay is contacted directly to be informed of our request that he accept an appointment as Arbitrator to resolve the dispute in respect of SGN’s obligations under Clause 2(i) of the BG Deed.”

In that letter Burges Salmon say it is “our request …that this Arbitration in relation to Clause 2(i) is joined with the existing Arbitration…all these matters arise from the same underlying dispute that has been in existence since the service of the Notices….”

By letter dated 30^th May 2017 [2/256] Field Fisher rejected that approach.

On 1^st June 2017 [2/259] Burges Salmon invited the Arbitrator “to join the Clause 2(i) dispute into the extant arbitration…” saying that “there is in effect only one dispute, the failure of both Perenco and SGN either to move their pipelines or pay compensation as provided for in the respective Deeds.”

On 5^th July 2017 in its letter to the Arbitrator [2/280] Burges Salmon enclosed a Summary of the application that “SGN is in breach of Clause 2(i) of the Deed and easement and that the scope of the existing arbitration extends to that issue.”

Mr. Kingston QC referred me to 5–028 of Russell on Arbitration (24^th Edition) In particular, he relied upon the following passage “whether a particular matter is within the reference will be determined as a matter of construction of the notice of arbitration, giving the words used their natural meaning in the context in which they were used and applying an objective test…. The factual background to the giving of the notice and any previous communications between the parties concerning the issues between them will also be relevant in construing the scope of the reference to arbitration….the reference may also include claims arising subsequent to the commencement of the arbitration if the notice of arbitration demonstrates the parties’ intention to do so. Provided they are within the scope of the reference the Tribunal has a discretion whether to permit new claims to be introduced in the course of the Arbitration, but if they are outside the scope of the reference new claims cannot be entertained without agreement of the parties.”

Mr Kingston also referred to paragraph 5 – 003 where the well-known principles are set out concerning the existence of a dispute summarised by Jackson J. (as he then was) in Amex Civil Engineering Ltd v Secretary of State for Transport [2004] EWHC 2339 at [68].

Both Counsel referred to Edmund Nuttal Ltd v R G Carter Ltd [2002] EWHC 400 (TCC) 82 Con LR 24. Mr Wonnacott QC emphasised paragraphs 20 and 32. Mr Kingston relied upon paragraphs 25, 26 and 29. In particular Mr Kingston relied upon the citation in that Judgment from the principles of construction enunciated by Lord Hoffman in Investors Compensation Scheme Ltd v West Bromwich Building Society and Others [1998] 1 WLR 896 at 912:

“the principles may be summarised as follows:

..(2) the background was famously referred to by Lord Wilberforce as “the matrix of fact” but this phrase is, if anything, an under stated description of what the background may include. Subject to the requirement that it should have been reasonably available to the parties and to the exception to be mentioned next, it includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man….”

Mr Kingston also relied upon the extract from the decision of His Honour Judge Thornton Q.C in Fastrack Contractors Ltd v Morrison Construction Ltd. (2000) 75 Con.LR at paragraph 27 that “dispute …has a wide meaning. The term includes any claim for which the opposing party has been notified of which that party has refused to admit or has not been paid, whether or not there is any answer to that claim or in law”. Mr Kingston described that as being the “broad approach.”

Both Counsel also referred to Lesser Design and Build Ltd v University of Surrey 56 BLR 61. Mr Wonnacott in particular relied upon pages 71 and 73 and explained that the reference to Counsel having “accepted and that there were at the date of the Notice, disputes him being over and above the three specified headings…” was important in the context because the issue was whether the disputes were referred at the date of the Notices. The decision of Hirst J. (see the last sentence at page 73) was that only those disputes in existence at the time of referral were referred.

Mr Kingston took me to the heading on pages 67, which reads “The Background or Matrix” and he conclusion at page 72 that “the opening paragraph of the letter in my judgment, shows that the reference to arbitration is one of one composite “dispute or difference” inter alia including the three numbered items.”

Drawing those themes together, in the circumstances of this case, in my judgment the Court is required to take a broad view of the factual matrix as shown by in the correspondence leading up to the appointment of the Arbitrator and his acceptance of the appointment. This is not a case where there were Terms of Reference as required in a number of the Rules which govern international arbitrations.

It is plain that in none of the correspondence prior to Mr Mackay’s appointment on or shortly after 7^th August 2013 is there any reference to a dispute under Clause 2 of the Deed. Mr Wonnacott argues that it must follow that any dispute under Clause 2(i) was not referred to arbitration by Mr Mackay.

Mr Kingston urges me to look at what he describes as the “big picture”. He says the dispute concerned the liability to pay compensation. He adopts the language of the letter from Burges Salmon on 1^st June 2017 [2/259] “There is in effect only one dispute, the failure of both Perenco and SGN either to move their pipelines or pay compensation as provided for in the respective Deeds.” He recognises that the letter of 30^th November 2011 [2/142] claims compensation under Clause 6 of the Deed but says Clause 6 is not in a silo. He says that the claim is for compensation whether that be under Clause 2(i), 5 or 6.

The letter of 14^th May 2013 [2/162] refers to “the ability to claim compensation under the Deed.”

In my judgment, Mr Kingston is correct. Taking a broad view of the factual matrix, the dispute under Clause 2(i) of the Deed did fall within the substantive jurisdiction of the Arbitrator. Whilst the Statement of Case at [1/43] refers only to Clauses 5 and 6 of the BG Deed, it is plain from paragraph 2(i) of that document that the claim is for compensation. That must include a claim under clause 2(i) of the BG Deed. The failure, to date, to serve a pleading setting out a breach of clause 2 (i) of the BG Deed is an irrelevance. If the claim is part of the matrix, as it was, the scope of the Reference to Arbitration cannot be reduced by the pleadings.

Thus, under Section 67 of the Arbitration Act 1992 I would vary the second Award so as to make plain that the claim for compensation under Clause 2.1 of the Deed was within the Arbitrator’s jurisdiction.

When I prepared this Judgment and circulated the draft to the parties, I had reached the view that the order for costs under paragraph 4 of the Second Award was not susceptible to a challenge under section 67 of the Act of 1996 because it is not a challenge to the jurisdiction to make that Award. Subsequently I received a letter from Counsel to the Claimant in which my attention was drawn to Egan v Motor Services (Bath) Limited [2008] 1 WLR 1589 and the suggestion made that I may have misunderstood what the Claimant was seeking in relation to the costs order in the Second Award. I indicated through my Clerk that I would consider that issue and hear argument before handing down this Judgment. I accept that I had misunderstood. The Arbitrator ordered that costs follow the event. On my findings as his jurisdiction, the event should have been decided in favour of the Claimant. Therefore, the Court has power under section 67(3) to set aside the award in whole or in part. I therefore I set aside the costs order also.