Layngross
T: +44(0) 1932 856463
E: derek@layngross.com
W: layngross.com

Dr Derek Ross is a Past Master of the Worshipful Company of Arbitrators.  He is listed on to the FIDIC President’s List of Adjudicators, and more recently on the Irish Minister of State for Business and Employment's newly formed Panel of Construction Contract Adjudicators.  He is a Chartered Arbitrator, Accredited Mediator, Conciliator, Adjudicator and Dispute Board Member, who accepts UK domestic and international appointments as the neutral person in each of these construction dispute resolution disciplines.  Being also a Chartered Civil Engineer, he also accepts appointments as a Civil Engineering Expert Witness.  

If you feel Dr Ross can assist you, please call him for a no obligation discussion on +44 1932 856463, or simply reply to this email with your details.

Below is an article he has written, which he hopes you will find of interest.

TALES OF HOFFMANN

Reading the UK Supreme Court's judgment in Arnold v. Britton & Others [2015] UKSC 36 recently put me in mind of the fable of the rice grains and the chessboard.  You will recall the story of an Indian ruler offering the inventor of chess a gift of his own choosing, and the inventor choosing a grain of rice on the first square of the chessboard, two on the second, and so on for 64 squares.  The ruler initially thought this a modest request, until it was pointed out to him that the heap of rice to be put on the last square would be larger than Mount Everest.  This is around 1,000 times the global production of rice in 2010, which I understand was 464 million tonnes, and would thus take a millennium to produce at that rate of production.  Thus I think it is safe to say the inventor never got paid in full, and being too clever by half with his ruler, would have been lucky to escape with his life.

 

This connection between judgment and fable was provoked by the consequences of their Lordships' interpretation, by a majority of 4-1, of a clause relating to service charges within 99 year leases concerning seaside chalets situated in Oxwich Leisure Park on the Gower Peninsula in South Wales.  Their Lordships' interpretation endorsed 10% increases in annual service charges compounded annually, even in present low inflation.  The consequence in relation to a lease granted in 1980 was a service charge of over £2,500 in the current year, projected to increase to a staggering £550,000 per annum by 2072.  Whatever the rate of inflation over the next 57 years, it is hard to believe the services to be paid for by the service charge in 2072 could cost the landlord anything like £550,000.  Nevertheless, for the majority of the court, this consequence did not justify reaching a different interpretation.      

 

In coming to this judgment, the majority followed the process of interpretation laid out by Lord Hoffmann in Investors Compensation Scheme Limited v. West Bromwich Building Society (No. 1) [1998] 1 WLR 896 under which the court is required to identify the intention of the parties by reference to 'what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language in the contract to mean'.   However foolish it may have been for the tenants to agree to a 10% increase in service charge compounded annually, the majority of the court were of the opinion that that was the bargain the parties had struck, and it was not for the court to interfere with that.  In his dissenting judgment, Lord Carnwarth considered the consequences of this interpretation were so commercially improbable that only the clearest words would justify adopting it.   That in itself confirms that if the meaning of the words used in a contract are clear, courts, arbitrators and adjudicators cannot be expected to provide relief to a party that has made a bad bargain.  Where this will end for the landlord and tenants of Oxwich Leisure Park remains to be seen, but on a practical level, their present 'agreement' regarding service charges seems unsustainable.  

Merry Christmas everyone.

Dr Derek Ross

14 December 2015

Please Note: The foregoing article has been prepared by Dr Derek Ross for the general interest and benefit of readers.  It is not intended to be a definitive analysis of the law or of other matters discussed.  Neither does it create a client relationship between the recipient and Dr Ross.  Thus no liability is accepted in respect of any reliance placed on any statements made in the foregoing article.  Proper advice ought always to be taken before deciding to take, or not to take, action in respect of a specific issue. 

© 2015 Dr Derek Ross & Layng Ross Construction Disputes Resolution.

VIEW NEWSLETTER ONLINE | COMMENT
The contents of an attachment to this e-mail may contain viruses which could damage your own computer system. Whilst we have taken every reasonable precaution to minimise this risk, we cannot accept liability for any damage which you sustain as a result of software viruses. You should carry out your own virus checks before opening the attachment.