Leasehold Reform Act 1967 — Management scheme — Whether arbitrator applied correct test in deciding that managers of scheme unreasonably withheld consent to proposed building
In January
1974 the High Court made an order under section 19 of the Leasehold Reform Act
1967 approving a scheme in respect of the Dulwich Estate, in south-east London,
conferring powers of management on the applicant estate governors. The
management scheme, inter alia, prohibited the erection of any new
structure which is visible at ground level from beyond the boundaries of an
enfranchised property without the prior approval of the applicants. In May 1992
the respondents, the owners of an enfranchised detached house, sought the
estate governors’ consent to the construction of a two-car detached garage, for
which they had planning permission, at the front of their house. On the refusal
of the applicants to give their approval, and pursuant to the provisions for
arbitration in the scheme, the appointed arbitrator held that the proposed
garage would be visible from beyond the boundaries of the property, so that
consent was needed, but that the applicants’ decision was unreasonable. The
applicants contended that the arbitrator applied the wrong test in making his
award.
arbitrator. Under the scheme the applicants must not withhold their consent
arbitrarily; they may withhold consent if reasonable managers of the estate
might do so. Applying principles derived from the authorities relating to the
withholding of consent in landlord and tenant for assignments and subletting to
the applicants’ original decision, the question is whether the conclusion of
the applicants might have been reached by a reasonable man in the
circumstances. If the decision were reviewable by a court, the court cannot
consider the matter afresh and only if the applicants’ decision was shown to be
one which no reasonable body of estate governors could reach would the
disgruntled property owner succeed. The arbitration clause does not enable a
decision of the applicants which a reasonable estate manager might reach to be
overturned by an arbitrator. Accordingly, the arbitration clause does not give
the arbitrator a wider role than the court would have. The arbitrator’s
conclusion, that the applicant’s decision was unreasonable, could not be read
as a conclusion that no reasonable estate managers could, in all the
circumstances, have refused the respondents’ application. It was impossible to
be sure what would have been the arbitrator’s conclusion if he had correctly
directed himself on how he should approach the issue before him.
The following
cases are referred to in this report.
F&G
Sykes (Wessex) Ltd v Fine Fare Ltd [1967] 1
Lloyd’s Rep 53
International
Drilling Fluids Ltd v Louisville Investments
(Uxbridge) Ltd [1986] Ch 513; [1986] 2 WLR 581; [1986] 1 All ER 321; (1985)
51 P&CR 187; [1986] 1 EGLR 39; 277 EG 62, CA
Pimms Ltd v Tallow Chandlers Co [1964] 2 QB 547; [1964] 2 WLR 1129;
[1964] 2 All ER 145, CA
Shanly v Ward (1913) 29 TLR 714
This was an
appeal by consent under section 1 of the Arbitration Act 1979 by the
applicants, the Estates Governors of Alleyn’s College of God’s Gift at Dulwich,
on a question of law arising out of an award by an arbitrator, Mr C R Martin
FRICS, appointed to determine differences arising between the applicants and
the respondents, Mr and Mrs John Williams, following the refusal by the
applicants of approval under a management scheme approved under section 19 of
the Leasehold Reform Act 1967 to a garage.
Terence
Etherton QC and Timothy Dutton (instructed by Lovell White Durrant) appeared
for the applicants; John McDonnell QC (instructed by Compton Carr) represented
the respondents.
Giving
judgment, SIR DONALD NICHOLLS V-C said: On January 21 1974 Walton J made
an order under section 19 of the Leasehold Reform Act 1967 approving a scheme
in respect of the well-known Dulwich College Estate in south-east London. The
scheme conferred on the Estates Governors of Alleyn’s College of God’s Gift at
Dulwich, to give them their full title, powers of management over the estate. A
statutory prerequisite to the making of that scheme was a certificate from the
minister to the effect 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 the
Act, it was in the minister’s opinion likely to be in the general interest that
the landlord should retain powers of management in respect of enfranchised
property. A further prerequisite was that the scheme appeared to the court to
be fair and practicable and not to give the landlord a degree of control out of
proportion to that previously exercised by him or to that required for the
purposes of the scheme. Both those prerequisites were duly satisfied in the
case of the Dulwich Estate.
The estate
comprises some 1,500 acres, on which there are about 4,500 privately owned houses.
Of these, some 3,000 have now been enfranchised so that the freeholds belong to
the respective
is a detached house, 33A Alleyn Park, belonging to Mr and Mrs John Williams.
They wish to build a two-car detached garage at the front of their house, for
which they have obtained the appropriate planning permission. Under the scheme
of management, however, they also need the approval of the estates governors.
The effect of clauses 3(a) and 15 of the scheme is to prohibit the erection of
any new structure which is visible at ground level from beyond the boundaries
of an enfranchised property without the prior written approval of the estates
governors, such approval not to be unreasonably withheld.
The Williams
applied for consent on October 21 1990, but that was refused by the estates
governors. They made a further application on May 29 1992, but that also met
with a refusal. The estates governors’ reasons were that the proposed garage
would be in front of the main building line and that to permit this garage
would establish an undesirable precedent. Mr and Mrs Williams were unhappy at
this outcome. They considered that the estates governors were acting
unreasonably. The scheme contains an arbitration clause, clause 17. Pursuant to
this clause Mr C R Martin FRICS was appointed as arbitrator to determine the
dispute between the parties. By a reasoned award dated August 23 1993 the
arbitrator held that the proposed garage would be visible from beyond the
boundaries of the property, so consent was needed. He held further that the
estates governors’ decision was unreasonable.
The estates
governors, in turn, were unhappy with this adverse decision. They contend that
the arbitrator applied the wrong test in deciding the issue before him, that is
whether they had unreasonably refused consent. The matter is of some general
importance to them because this is not the first time this point has arisen. So
they have appealed to this court on this question of law, pursuant to section 1
of the Arbitration Act 1979. The estates governors have agreed that in any
event they will pay the costs of the claimants, Mr and Mrs Williams, and, for
their part, the claimants have consented to this appeal being brought.
Estates
governors’ decision and reasonableness
The first
point to be addressed is the scope of the prohibition in clause 3(a). Clause 3
is one of several clauses which inhibit, in one or other respect, a property
owner’s freedom to exercise the ordinary rights of property owners. For
example, clause 6(a) confines the permitted use to a use which could lawfully
be carried out at the date of enfranchisement. Under clause 6(b) trees may not
be cut down or lopped, caravans or temporary buildings may not be kept on the
property if visible beyond the property’s boundaries, advertisements (other
than ‘For sale’ notices or temporary notices of a forthcoming function) may not
be displayed. In each of these cases the prohibition is against these acts
being done without the written consent of the estates governors.
The scheme
applies to each enfranchised property from the date of enfranchisement and is
enforceable by the estates governors against the owner of the property as
though he had covenanted with the estates governors to be bound by the scheme
(see clause 2(a)). Likewise, the Act gives statutory force to the provisions of
the scheme by making them enforceable by the estates governors against the
property owners and occupants as though they had entered into covenants with
the estates governors to be bound thereby: see section 9(10).
Clause 3(a)
provides:
No material
alteration shall be made to the external appearance of any building or
structure for the time being on an enfranchised property and no new or
additional building or structure shall be built or erected thereon so as to be
visible at ground level from beyond the boundaries of the same without (in any
such case) the prior written approval of the Managers . . .
The managers
are the estates governors or their successors in title.
Standing
alone, subclause 3(a) imposes no express fetters on the circumstances in which,
or the reasons for which, the governors may refuse their consent. That
subclause, however, must be read with clause 15, which provides:
Any
requirement in the Scheme of any approval or consent to be given by the
Managers shall be subject to the proviso that the same shall not be
unreasonably withheld and the Managers shall not serve any notice under the
Scheme except such as shall be reasonable in the circumstances and no premium
or fine should be required for any consent.
The effect of
clause 15 is to set bounds to the estates governors’ freedom to give or
withhold their consent. They must not act arbitrarily. They must not withhold
consent arbitrarily. They may withhold consent only if to do so would, in all
the circumstances, be reasonable. In other words, they may withhold consent if
reasonable managers of the estate might do so, but not otherwise.
This strikes a
fair balance for the benefit of all those who have interests in the estate,
including the estates governors, their tenants, and enfranchised property
owners. Restrictions against building are desirable for the general benefit of
the estate and all who are interested in it. It is for this reason they exist.
Clause 16(a) underlines this by providing that the rights and powers conferred
on the estates governors by the scheme are conferred on them for the purpose of
enabling them to preserve the amenities of the estate for the common benefit.
But these building restrictions, in all fairness, should be confined to
circumstances where, acting reasonably, the estates governors consider there
should be no new building. The governors do not have unfettered control,
exercisable arbitrarily or capriciously or oppressively.
The most
cursory consideration of these provisions reminds one immediately of similar,
commonplace provisions in leases precluding assignment, subletting or the
making of alterations without the lessor’s consent. Such provisions normally go
on to state that such consent shall not be unreasonably withheld, but even if
they do not include these words such words are written in by statute, by
section 19 of the Landlord and Tenant Act 1927.
Thus, what
this scheme has done is to incorporate a control regime regarding new building
and user, and in certain other respects, corresponding to that commonly found
in many leases. Provisions to this effect in leases have been before the courts
on many occasions. It is now well established that, in relation to covenants
against assignment, the effect of the common-form provision regarding consent
not being unreasonably withheld is the same as I have already stated regarding
clauses 3(a), and 15 of this scheme. Before me it was common ground, and in my
view rightly so, that in this respect no distinction is to be drawn between
covenants against assignment and covenants against alterations or improvements.
I need refer only to two cases. First, Shanly v Ward (1913) 29
TLR 714, which was a decision of the Court of Appeal. There the plaintiff
tenant was challenging the defendant landlord’s refusal to permit assignment of
a lease. The Master of the Rolls said, at p715:
The first
point was that the plaintiff coming to the Court and asking for declaration
that the defendants had unreasonably withheld their consent, the burden was
thrown on him to prove his case. It was not for the defendants to prove that
they were justified in withholding their consent but for the plaintiff to prove
that it was unreasonably withheld. What did unreasonableness mean? It was not enough to show that other lessors
might have accepted the proposed assignees: the lessors were not to be held to
have withheld the licence unreasonably if in the action they took they acted as
a reasonable man might have done in the circumstances.
The second
authority I mention is also a decision of the Court of Appeal Pimms Ltd
v Tallow Chandlers Co [1964] 2 QB 547. At p564, delivering the judgment
of the court, Danckwerts LJ referred to Shanly v Ward and other
authorities and said:
There is no
doubt that the onus of proving that consent has been unreasonably withheld is
on the tenant . . . Further, it is not necessary for the landlords to prove
that the conclusions which led them to refuse consent were justified, if they
were conclusions which might be reached by a reasonable man in the
circumstances . . .
Mr John
McDonnell QC, submitted that a gloss has now been placed on these authorities
by observations made by Balcombe LJ in the decision of International
Drilling Fluids Ltd v Louisville
Balcombe LJ’s summary of the state of the law in his seven propositions, and in
particular his proposition (7) at p521, as departing in any way from the
authorities I have mentioned. His proposition (7) was expressly subject to his
earlier propositions, and in his propositions (3) and (4) he set out the effect
of the two cases I have already mentioned. In his proposition (7) Balcombe LJ
stated that the issue whether consent was being unreasonably withheld was one
of fact. That is so, but the touchstone to be applied when seeking an answer to
that question is whether the conclusion might have been reached by a reasonable
man in the circumstances.
*Editor’s
note: Also reported at [1986] EGLR 39.
There is
nothing surprising or exceptional about that result in this case. Under the
scheme decisions on the future development of the estate remain with the
estates governors. This conforms to the statutory prerequisites for a scheme of
management under section 19(1). But the powers of management retained by the
estates governors are circumscribed by an overriding requirement of
reasonableness. There will be instances where different minds, quite reasonably,
may reach different conclusions on whether a particular type of development is
or is not desirable, or on whether it would or would not be likely to damage
desirable amenities. On these matters the decision is entrusted to the estates
governors, so long as they keep within the bounds of reasonableness. That gives
them a degree of control over the estate not out of proportion to that required
for the purpose of preserving the estate amenities for the common benefit, in
accordance with section 19(5).
Thus far there
was a large measure of agreement between the parties. At this point I pause to
observe that if a householder and the estates governors unfortunately are at
loggerheads over whether consent for a new building should or should not be
given, and if proceedings are instituted in court to resolve this dispute, the
issue before the court is not an issue at large as to whether consent should or
should not be given. The issue before the court is whether the estates
governors acted unreasonably in refusing consent. If, having heard the parties,
the court finds that the estates governors’ decision falls within the band of
possible decisions a reasonable body of estate governors could reach, then the
estates governors’ decision stands. The judge would not consider the matter
afresh as though the estates governors had not reached a decision. He would not
stand in the shoes of the estates governors for all purposes. He would stand in
their shoes only in the sense that he would be concerned to decide whether they,
acting reasonably, could have refused the application. Only if the decision by
the estates governors was shown to be one which no reasonable body of estates
governors could reach would the disgruntled property owner succeed.
Clause 17
That is the
position if an application were made to the court. As already noted, this
scheme contains an arbitration clause. Clause 17 provides that:
Any dispute
or difference between the Managers and any owner
(a) under clauses 3(a) and (b) . . .
— or under
various other specified clauses or regarding certain other specified matters —
shall be
referred to a single arbitrator to be appointed in default of agreement by the
President for the time being of the Royal Institution of Chartered Surveyors .
. .
Mr McDonnell
submitted that the combined effect of clauses 3(a) and 15 and this clause is to
confer on the arbitrator much wider powers than the court would have in a case
such as the present. He submitted that while that might not be so if the
arbitration clause applied only to any ‘dispute’, the additional words ‘or
difference’ went wider than this and went beyond justifiable disputes. Those
words were apt to include a difference of opinion which might exist between
reasonable men over whether consent should be given. The arbitrator would be an
experienced surveyor, and the intention was that he should step into the shoes
of the estates governors for all purposes when deciding such a case and not be
confined to deciding whether a reasonable estate manager could have withheld consent.
I do not
accept this. I am unable to attach to the word ‘difference’ the far-reaching
effect for which Mr McDonnell contended. His contention would effectually
rewrite clauses 3(a) and 15 so as to provide that a householder who wished to
build needs either the consent of the estates governors, such consent not to be
unreasonably withheld, or the approval of the arbitrator. It would mean that,
even if the estates governors had reached a conclusion which a reasonable
estate manager might reach, their conclusion could nevertheless still be
overturned by an arbitrator. I can see no justification for reading clause 17
in this way.
Mr McDonnell
prayed in aid the observations of Danckwerts LJ in F&G Sykes (Wessex)
Ltd v Fine Fare Ltd [1967] 1 Lloyd’s Rep 53. In that case there was
a lacuna in an agreement concerning the supply of chickens for processing.
Danckwerts LJ, at p60, noted that the word ‘differences’ in that arbitration
clause was particularly apt for a case where the parties had not agreed. In
other words, submitted Mr McDonnell, Danckwerts LJ considered that the
arbitrator could fill a gap in the contractual provisions, even though the
court could not. In my view, the observation of Danckwerts LJ in that case must
be read in the context of that particular agreement and the nature of the issue
which had arisen. In the present case there is no question of a lacuna. I do
not think the arbitration provision in this agreement can be taken to have been
intended to affect the substance of the parties’ rights and obligations under
the scheme provisions to which it relates. Clause 17 provided a method for
resolving disputes or differences about those rights and obligations.
Mr McDonnell
sought to place reliance on the fact that the arbitration provision does not
apply to every dispute, or even to every dispute in which the reasonableness of
the estates governors’ decision was in issue. I consider that this fact is
neutral. Consideration of which matters fall within the arbitration provision,
such as clause 3(a), and those which do not, such as clause 7 relating to
causing an obstruction by parking a car on the road, or clause 8 relating to
the estates governors giving notice of entry to inspect and carry out works,
does not point to the arbitration clause being given a wider or a narrower
interpretation.
Likewise
neutral is the fact that the arbitrator will normally be a surveyor. Even with
what I may call the narrower interpretation of clause 17 there is need, and
ample scope, for the expertise of a surveyor. Whether the estates governors
have acted in a way no reasonable body of estates managers could act is an
issue calling for a surveyor’s professional expertise just as much as would be
the case if the issue were whether the arbitrator himself would, in all the
circumstances, consider it desirable for the relevant permission to be granted.
Nor am I
impressed by the argument that fairness requires or suggests that the
arbitrator should have the wider role. True it is that the scheme makes no
provision for the estates governors to follow any particular procedure when
considering applications for consent. There is no express requirement, for
instance, that any representations made to the estates governors by the
advisory committee should be shown to the applicant for his comment. However, I
cannot see that that provides any support for a construction of the scheme
which would give the arbitrator, under this unexceptionally worded arbitration
clause, a wider role than the court. As to the procedure to be followed by the
estates governors, that must be a matter for them. I have heard no argument on
what they ought to do, nor have I seen any evidence on what in practice they
do. So I note only that it cannot be in the interests of the estate as a whole
that the estates governors should adopt any procedure which is open to
criticism as being unfair or unreasonable.
I recognise
that the consequence of rejecting Mr McDonnell’s arguments is to draw a
distinction between instances where the
particular point and instances where his decision does not. An example of the
former category will be a decision on whether a proposed structure would be
visible from outside the property boundary. On that the arbitrator would reach
his own conclusion. In the latter category are cases where the issue is whether
the estates governors’ view was reasonable or whether they have acted
reasonably. In these cases it is only if the estates governors’ view is
unreasonable or if they acted unreasonably that the arbitrator’s intervention
would avail the dissatisfied householder. This distinction, however, follows
from an essential difference between the two categories. In the first category
the relevant issue is the existence or not of a stated fact: whether the
proposed house extension would be visible outside the boundaries. The second
category stands differently. In the second category are cases where a decision,
on a point on which minds may differ, has been entrusted to the managers so
long as they act reasonably. It is only if they acted unreasonably that they
have erred and thus it is only in that circumstance that the independent
arbitrator can step in and correct their error.
Arbitrator’s
approach
Mr McDonnell’s
alternative argument was that, even so, this award should not be disturbed
because, fairly read, the award shows that the arbitrator did approach the
issue before him correctly. He did apply the test enunciated in the landlord
and tenant cases which, for convenience, I shall call ‘the reasonable estate
manager approach’.
The arbitrator
made his award on the basis of written representations and a site visit. In
their written representations the parties’ solicitors disagreed on how the
arbitrator should approach his task. In para 9.1 of their initial submissions
the estates governors contended:
By clause 3
of the Scheme, it is the managers’ consent that is required. Similarly, by
clause 16(a) the powers conferred by the Scheme are conferred on the Managers.
The only question to be decided on arbitration is therefore whether their
consent was reasonably withheld. In this context, it is important to remember
that people acting reasonably may still disagree. The question is therefore not
whether the arbitrator would have come to the same view as the Estates
Governors, but whether he is satisfied that they acted unreasonably in reaching
their decision. The test that has been applied in other cases where bodies have
been exercising powers derived from statute is whether it is correct to say
that no reasonable person, properly instructed in the relevant law could have
come to the decision under review. The burden is on the Claimants to show that
the answer to that question is ‘yes’.
In their
response the solicitors acting for the claimants, Mr and Mrs Williams,
submitted:
Your
functions as arbitrator are first to test the reasonableness of the decision of
the Estates Governors, and secondly to consider the rival merits of the
propositions put before you and arrive at a balanced judgment . . . The issue
in this case is not, as suggested by the solicitors acting for the Estates
Governors, whether you are satisfied that the Estates Governors have acted
unreasonably in reaching their decision. The solicitors state that that test
has been applied ‘in other cases where bodies have been exercising powers
derived from statute’. That is correct but the facts of those cases were
different . . .
The solicitors
then submitted that the Wednesbury judicial review test alluded to, or
hinted at, by the estates governors’ solicitors was not in point because here,
unlike in those cases, the scheme provided for a right of appeal.
In para 15.1
of their further submissions, the estates governors’ solicitors returned to the
point. Omitting immaterial words they said:
Paragraph 5
of the claimants’ written submissions suggests that the arbitrator should put
himself in the position of the respondents [that is, the estates governors] and
decide whether consent should have been granted. That is not the correct way
for the arbitration to be conducted. There is only one question for the
arbitrator and that is . . . whether the respondents acted unreasonably when
considering the claimants’ application for consent. The question is therefore
not whether the arbitrator is of the view that the claimants’ submissions are
reasonable, nor whether they are correct, but whether the views of the
respondents were unreasonable, ie whether they were ‘so wrong that no
reasonable person could sensibly take that view’ . . . Accordingly, while it is
of course hoped that the arbitrator will take the view that the respondents
were not only ‘not unreasonable’ but also right, it is necessary only for the
arbitrator to make a finding on whether the respondent was unreasonable or not.
In his award
the arbitrator referred to the rival submissions. Then, in para 36, he
expressed his conclusion succinctly:
On the matter
of whether the refusal is unreasonable I have considered the comments made by
the parties. The President of the Royal Institution of Chartered Surveyors
appoints arbitrators in property disputes having regard to their background
experience of property matters. It is my conclusion that the interpretation put
upon the matter by the [estates governors] in paragraph 9.1 of their
submissions and 15.1 of the counter-submissions is too exacting and from my
experience and the submissions I have considered I conclude that in this case
the decision was an unreasonable one.
Thus the
arbitrator rejected the estates governors’ contention as too exacting, without
going on to state expressly what was the approach he himself was adopting. In
my view, the fair and natural reading of para 36 is that the arbitrator,
rejecting the estates governors’ approach, by implication must have accepted the
claimants’ rival submission. He is to be taken to have done that, because he
does not state or suggest otherwise. Thus his conclusion, that the estates
governors’ decision was unreasonable, cannot be read as a conclusion by him
that no reasonable estate manager could, in all the circumstances, have refused
the claimants’ application.
Mr McDonnell
submitted that what the arbitrator rejected was the estates governors’
invocation of the Wednesbury test and that the test requires more than
mere unreasonableness before the court will intervene. I need not examine
whether that analysis of the Wednesbury test is correct. What matters in
this case is what was submitted to the arbitrator regarding the alternative
approaches. Here, in the rival submissions, the reference to the circumstances
in which the court exercises its supervisory powers over bodies exercising
discretions conferred by statute was unhelpful. It was unhelpful, because it
was irrelevant. In my view, however, this does not assist Mr McDonnell because,
as adumbrated in the rival submissions, the test said to be derived from the
judicial review line of cases did not differ materially from the reasonable
estate manager approach. In para 15.1 the estates governors did interpret
‘unreasonable’ as meaning ‘so wrong that no reasonable person could sensibly
take that view’, but that is to be read with para 9.1 of the initial
submission. In his conclusion in para 36 of the award the arbitrator put those
two submissions together and rejected this interpretation of his role as ‘too
exacting’, by which I understand him to have meant that it placed upon Mr and
Mrs Williams too heavy a burden.
Mr McDonnell
finally submitted that even if the approach adopted by the arbitrator when
making his award is not clear, still the matter should not be remitted to him
for further consideration, because his conclusions on the underlying facts,
about the building line and so forth, would mean that, inevitably, whatever
approach is adopted, the claimants would succeed. I do not agree. It is
impossible to be sure what would be the arbitrator’s conclusion if he had
correctly directed himself on how he should approach the issue before him.
Accordingly, the matter must be remitted to him for further consideration. In
so directing I ought, in fairness to him, to note that he, a surveyor, was
confronted with a point of law on which he had to make a decision on the basis
only of written submissions. Those written submissions did not develop the
rival arguments as fully as they have been developed before me, nor did they
refer the arbitrator to any of the most relevant authorities, namely those
relating to the landlord and tenant cases.
