Arbitration Appeal no.3 of 2024 (Court of Session)

Factual and Procedural Background

The petitioners sought to appeal a partial arbitration award dated 7 November 2024 concerning a dispute arising from a section 75 agreement under the Town and Country Planning (Scotland) Act 1997. The agreement concerned the regulation of land use on a Development Site and included provisions relating to affordable housing and road construction. The arbitration was conducted under the Arbitration (Scotland) Act 2010 and Scottish Arbitration Rules. The respondent, a planning authority, did not consent to the appeal, so the petitioners applied for leave of the Outer House to bring a legal error appeal.

The dispute centered on whether the petitioners, as successors in title to part of the Development Site, had enforceable rights under the section 75 agreement, particularly regarding the maximum number of affordable housing units, the size of housing blocks, and requirements for planning permission and road construction consent. The arbitrator ruled that the petitioners only had title to enforce obligations relating to land they owned, construed the affordable housing provisions as setting minimum rather than maximum requirements, and found certain clauses unenforceable as contrary to statutory provisions. The petitioners challenged the arbitrator's legal conclusions on eight grounds.

Legal Issues Presented

1. Whether the petitioners, as successors in title to parts of the Development Site, had title and interest to enforce obligations under the section 75 agreement beyond the land they owned.
2. Whether the section 75 agreement imposed a maximum or minimum requirement for affordable housing units on the Development Site.
3. Whether the respondent was obliged to limit planning permissions for affordable housing, including restrictions on block size, and whether the petitioners’ consent was required for such permissions.
4. Whether the petitioners were exempt from seeking planning permission and roads authority consent for roads within the Site under clause 5.3.
5. Whether the arbitrator erred in his interpretation of the enforceability of the section 75 agreement provisions in light of statutory limitations, particularly section 75(5)(a) of the 1997 Act.
6. Whether the arbitrator’s decision raised points of general importance sufficient to grant leave for a legal error appeal.

Arguments of the Parties

Appellants' Arguments

• The arbitrator erred in limiting the petitioners’ enforceable rights to only those obligations pertaining to land they owned, contrary to the principle that contractual obligations are reciprocal unless clearly indicated otherwise.
• The enforceability of the section 75 agreement as a real burden should not be confined to the land owned by each successor, as this interpretation undermines the statutory scheme and academic commentary supporting broader enforcement rights.
• The petitioners should be regarded as beneficiaries under a jus quaesitum tertio, entitling them to enforce the agreement despite not being original parties.
• The agreement imposes a cap (maximum) on affordable housing units, contrary to the arbitrator’s finding of a minimum requirement.
• The arbitrator wrongly concluded that variations to clauses 2.5 and 2.6 could be made without the petitioners’ consent, effectively stripping these provisions of meaning.
• The arbitrator incorrectly relied on section 75(5)(a) to find certain restrictions unenforceable, misunderstanding the distinction between statutory powers and contractual obligations.
• The arbitrator erred in finding clause 5.3 unenforceable on the same statutory basis.
• The points raised are of general importance given the prevalence of section 75 agreements and the scale of the Development Site.

Respondent's Arguments

• The petitioners lack title to sue except in respect of obligations related to land they own; the arbitrator correctly applied the statutory framework limiting enforceability to those with an interest in the land.
• The principle of mutuality does not apply as the petitioners are not parties or assignees of the original agreement; their rights arise solely under the statutory scheme.
• The academic commentary cited does not demonstrate a legal mechanism for successors to enforce obligations beyond their own land.
• Third parties do not have title to enforce section 75 agreements, supported by existing Outer House authority.
• The arbitrator’s construction of the affordable housing provisions as setting a minimum, not a maximum, was reasonable and not open to serious doubt.
• The requirement for agreement to vary clauses 2.5 and 2.6 must be with the owner of the relevant land; requiring unanimity among all owners would make section 75 obligations impractical.
• The arbitrator’s interpretation of section 75(5)(a) aligns with binding Scottish and English appellate authority, confirming that statutory powers are not fettered by the agreement.
• The construction of clause 5.3 is not a matter of general importance and the arbitrator’s decision is sound.
• The petitioners fail to satisfy the high threshold for leave to appeal, as none of the grounds raise serious doubt or points of general importance beyond the bespoke agreement.

Table of Precedents Cited

Court's Reasoning and Analysis

The court applied the statutory test for granting leave to appeal a legal error under the Arbitration (Scotland) Act 2010, requiring that the point of law substantially affects a party's rights, was decided by the arbitrator, and that the arbitrator’s decision was either obviously wrong or open to serious doubt if the point is of general importance.

It was undisputed that the first two limbs of the test were met, and the petitioners did not assert that the arbitrator’s decision was obviously wrong, focusing instead on whether the decision was open to serious doubt and raised points of general importance.

The court thoroughly examined the petitioners’ eight grounds of appeal, finding that the arbitrator’s interpretation of the section 75 agreement and statutory framework was legally sound. The court emphasized that enforceability of obligations under section 75 agreements is limited to those with an interest in the relevant land, consistent with statutory language and established case law.

The court noted that the petitioners’ arguments regarding reciprocal obligations and jus quaesitum tertio status lacked legal foundation in the statutory context and relevant authority. It further held that the arbitrator’s construction of the affordable housing provisions as setting a minimum requirement was reasonable and not open to serious doubt.

Regarding statutory limitations under section 75(5)(a), the court found the arbitrator’s reasoning aligned with binding authority and that the statutory powers of the planning authority were not fettered by the agreement’s provisions.

The court concluded that the points raised were either too closely tied to the specific agreement to be of general importance or did not raise serious doubt as to the correctness of the arbitrator’s decision. The size and scale of the development did not elevate the legal questions to general importance.

Holding and Implications

The court REFUSED LEAVE TO APPEAL the arbitrator’s partial award.

This decision means the arbitrator’s findings stand, confirming that successors in title may only enforce section 75 agreement obligations insofar as they relate to land they own, and that the affordable housing provisions are minimum requirements rather than caps. The ruling affirms the limited scope of enforceability under section 75 agreements and the importance of statutory constraints on planning authorities’ powers.

No new precedent was established, and the ruling maintains the status quo regarding legal error appeals and the interpretation of section 75 agreements in the Scottish planning context.