Parties unable to agree rent review – Matter referred to arbitrator in accordance with lease – Arbitrator issuing directions – Landlord submitting hearsay evidence – Tenant objecting – Arbitrator making final award – Whether arbitrator misconducting himself – Whether arbitrator relying on hearsay evidence – Appeal dismissed.
Under a lease dated 13 September 1987 the defendant landlord granted to the claimant tenant a 21-year term of a property known as Coed Coch, near Abergele, North Wales. The tenant used the premises as a retreat centre for church groups. The lease provided for a rent of £7,500 pa in the first year of the lease, £13,500 pa in the second year and £15,000 pa for the remainder of the term, subject to review in the seventh and 14th years of the term. The lease further provided that in the event of the parties being unable to agree on the rent payable on review, the matter was to be referred to a sole arbitrator. During the seventh year of the term, the parties were unable to reach agreement on the rent payable on review with effect from 1 September 1995, and, accordingly, an arbitrator was appointed. On 2 May 1996 the arbitrator gave an order for directions, and the arbitration procedure was conducted by written representations only. The tenant, in relation to the method for calculating the property’s rental value, stated that there were no suitable direct comparables to the property and, accordingly, the rental value ought to be calculated on the basis of the “profits or accounts method”. It was submitted that the rental value should be reduced to £13,715, the average yearly rent paid during the first seven years of the term. The landlord submitted that suitable comparables to the lease existed, and submitted a rental value that was supported by such comparables.
Evidence of four comparables was annexed to an expert report and the estimated rental value of the property was put at £27,600 pa. One of the comparables was St Brigid’s School, Denbigh, for which the initial rent was £33,000 pa, revised on 28 August 1993 to £39,000 pa. The source of the information was cited as W, who, by letter to the landlord, gave further information, including details of rent reviews, but made clear that he had not been personally involved in them nor had direct knowledge of the circumstances of those reviews. Throughout the arbitration process, the tenant consistently and robustly objected to the admission of the St Brigid’s School evidence in the report and to W’s letter on the ground that it was hearsay and therefore inadmissible. In his reasoned award dated 31 October 1996, the arbitrator increased the annual rent of the property from £15,000 to £21,500 pa, and, in reaching that decision, he relied upon the disputed school evidence. The tenant appealed. It contended that the arbitrator had misconducted himself in failing to rule as to the admissibility of the evidence relating to the school prior to making the award and in relying on such evidence when its admission was contrary to the order for directions he had made and when such evidence was irrelevant. The judge held that the arbitrator had not misconducted himself or the proceedings in refusing to set aside or remit the award. The tenant appealed.
Held: The appeal was dismissed.
1. The arbitrator’s failure to give reasons as to whether the evidence of St Brigid’s School was admissible prior to making his final award could not be said to amount to a procedural irregularity. He had been entitled to leave the reasons until he made the final award, and, accordingly, it could not be concluded that the arbitrator had failed to follow his directions.
2. It was impossible to say that there was no admissible evidence in relation to St Brigid’s school, since some of it had been agreed. The arbitrator had identified the matters on which he could properly rely, and he had been careful to exclude any other facts. His reference to W’s letter was nothing other than an acknowledgement that it had been submitted. Accordingly, it could not be concluded that his decision was perverse or that he had otherwise acted improperly.
Richard King (instructed by Kingsford Stacey Blackwell, London agents for RGL Dale-Jones, of Disley) appeared for the claimant; Anthony Radevsky (instructed by Lee & Pembertons) appeared for the defendant.
Thomas Elliott, barrister
