Arbitration — Rent review — Determination of rent above figure spoken to by the landlord’s surveyor — Whether arbitrator had made error of law in handling comparables — Whether misconduct in disregarding evidence
Following a
reference to determine the rent at review of Chart House, 16 Chart Street,
London N1, on July 15 1992 the arbitrator made his award in the sum of £32,700
pa based upon a rental value in relation to the net internal floor area of
£12.07. The tenant applied for leave to appeal under section 1 of the
Arbitration Act 1979 and to set aside the award under section 23 of the
Arbitration Act 1950 on the ground that the conclusion at which the arbitrator
arrived is contradicted by the only true and reasonable conclusion that can be
drawn from the findings of fact that the arbitrator made. The arbitrator stated
that he relied on a comparable in respect of which the landlord’s surveyor had
concluded that the rental value was £10.40. Further, the arbitrator stated that
he was disrgarding certain improvements he had been advised by counsel to
disregard, but that such disregard did not affect the rental value he had
already determined.
error of law on the part of the arbitrator within the principles of Edwards
v Bairstow [1956] AC 14 even if he fell into error in the handling of
the comparables.
award was set aside and the arbitrator removed. The arbitrator had misconducted
the proceedings in rejecting a piece of evidence put forward by the tenant
notwithstanding that the evidence could have been objected to by the landlord,
and was not, as inadmissible evidence.
The following
cases are referred to in this report.
Edwards v Bairstow [1956] AC 14; [1955] 3 WLR 410; [1955] 3 All ER
48, HL
Ipswich
Borough Council v Fisons plc [1990] Ch 709;
[1990] 2 WLR 108; [1990] 1 All ER 730; [1990] 1 EGLR 17; [1990] 04 EG 127, CA
Land
Securities plc v Westminster City Council
[1993] 1 WLR 286; [1993] 4 All ER 124
Trayfoot v Lock [1957] 1 WLR 351; [1957] 1 All ER 423, CA
This was an
application for leave to appeal under section 1 of the Arbitration Act 1979 and
to set aside an arbitrator’s award under section 23 of the Arbitration Act 1950
made by the plaintiff, Amego Litho Ltd, as tenant under a lease held from the
defendant landlord, Scanway Ltd.
Thomas
Jefferies (instructed by Burstows, of Crawley) appeared for the plaintiff; Kirk
Reynolds QC (instructed by Max Bitel Greene) represented the defendant.
Giving
judgment, JUDGE RICH QC said: This is an application on behalf of a
tenant for leave to appeal under the Arbitration Act 1979 and an application
under section 23 of the Arbitration Act 1950 to set aside the award of an
arbitrator made on July 15 1992. The award was made by a surveyor, Mr Alistair
Voaden [FRICS], who was appointed as arbitrator to determine the rent under a
rent review clause in a lease of premises at Chart House, 16 Chart Street,
London N1. He gave the reasons for his award in a supplementary document dated
July 30 1992. His award was in the sum of £32,700 a year as the review rent
from September 29 1990. The supplementary document, in which he set out his
reasons, explained that this was based, as to a significant element in that
valuation, on a rental value assessed by him as £12.07 per sq ft for the agreed
net internal floor area of the premises.
The
application for leave to appeal has, of course, to be founded on an allegation
of an error of law, and the nature of the error of law which is put forward by
Mr Jefferies, on behalf of the applicant tenant, is that the conclusion that
the arbitrator arrived at is contradicted by the only true and reasonable
conclusion that can be drawn from the findings of fact that the arbitrator
made, and that therefore the determination involved an error of law such as was
identified by the House of Lords in the case of Edwards v Bairstow
[1956] AC 14.
I assume, for
the purposes of the consideration of this submission, that there is indeed such
a category of error of law, relevant to the granting of leave to appeal and to
the successful appealing against an award under the Arbitration Act of 1979,
notwithstanding the provisions of section 1 of the 1979 Act which were, as I
accept, clearly directed to restricting the previous jurisdiction of the High
Court to set aside or remit awards on the ground of error of fact on the face
of the award. I make that point specifically because I have been referred to
some observations of Steyn LJ in a case which is available only in an
transcript dated November 5 1992, the name of the case being Geogas SA v
Trammo Gas, where Steyn LJ set out some highly persuasive reasons why
the courts should not interfere in matters of fact presented, however
attractively (and nothing can be more attractive than the presentation of Mr
Jefferies) as matters of law.
I approach the
question under the 1979 Act, therefore, with some caution. But, nevertheless,
if I were persuaded that there was indeed an obvious error here in the sense
identified in the case of Edwards v Bairstow, I would certainly
grant leave. I put the test in terms of obvious error because this particular
case of a rent review appears to me to be a one-off case, notwithstanding the
distinctions which were made by the Court of Appeal in the case of Ipswich
Borough Council v Fisons plc [1990] 1 EGLR 17, where it was pointed
out that a determination of law which would be determinative of the position on
subsequent reviews is more than a one-off case.
This is, in my
judgment, a one-off case because the nature of the error of law arises from the
particular handling of the evidence of a particular arbitrator and is therefore
not determinative upon the construction of the rent review clause on subsequent
reviews. The fact that it is determinative of the rent for a period which will,
at least as the minimum rent, extend beyond the immediate review does not make
it any the less a one-off determination for the residue of the lease.
I do not think
that there is an obvious error of law within the Edwards v Bairstow
principle, although I do think that there is an extreme probability that there
has been an error of fact by the arbitrator in the handling of the evidence in
this case.
I say that for
this reason: the arbitrator indicated in his reasons for his decision that he
had had the greatest regard to the open market letting six months prior to the
review date of some premises on the third floor of 2-4 Vestry Street, London
N1. The analysis of that transaction by the landlord’s surveyor derived a
rental value of those premises of £10.40 per sq ft and it is not immediately
obvious how, without error of fact, the arbitrator could have placed greatest
reliance upon that transaction and concluded that the appropriate rental value
of the subject premises was £12.07.
The next
comparable transaction to which the arbitrator purported to have regard was a
rent review of premises at New Roman House, 10 East Road, which on analysis by
the landlord’s surveyor showed a rental value of those premises of £11.98. This
might more nearly have supported the valuation at which the arbitrator arrived
of the subject premises, because the landlord’s surveyor was able to say on the
basis of those two comparable properties that his, the landlord’s, surveyor’s
valuation of the subject premises was £13 per sq ft.
That being the
position, I strongly suspect that the arbitrator has, as I indicated, fallen
into some error in the handling of the comparable transactions on which he
placed reliance, because he placed greatest reliance, on the less highly priced
of the two, but I cannot go so far as to say, as is effectively necessary, in
order to bring the case within the principles of Edwards v Bairstow,
that no reasonable valuer could, on the evidence, have arrived at a conclusion
which was, after all, 93p per sq ft less than that to which the landlord’s
surveyor had spoken without his reasonableness being impugned.
Mr Jefferies
urges, however, that a discount of that sort from the figure put forward by the
landlord’s surveyor is unsupportable, and therefore an error amounting to an
error of law must have crept in because the landlord’s surveyor had not in his
computation disregarded certain improvements which, as a matter of law, the
arbitrator was advised by counsel he had to disregard and which the arbitrator
purported to disregard. The arbitrator set out the list of relevant
improvements that he was proposing thus to disregard in a letter which he
addressed to the parties dated June 30 1992. It referred back to an earlier
letter of his of May 26 in which he had indicated, before advice by counsel, an
intention not to disregard any improvements undertaken by the tenant. But,
having had the advice to disregard certain of them, the arbitrator wrote that
he would:
advise that
counsel’s opinion and the consequences in ‘regards’ and ‘disregards’ referred
to above do not affect the rental value referred to in [his] letters of 26th
May, nor [his] previous award on the head lease review.
It is
difficult to understand how the arbitrator was rightly applying the principles
of law, to which he paid at least lip service, in that letter saying that he
proposed to disregard the value of the improvements set out in that letter, and
yet did not think it appropriate in any way to adjust a valuation prepared on a
different basis which did not disregard such improvements.
Nevertheless,
I cannot go so far as to say either that he has in those letters indicated any
error of law, nor can I say that it is obvious that he could not have reached a
conclusion, that disregarding certain improvements, or the effect of certain
improvements upon rental value in fact had no effect upon the rental value at
which he had arrived without doing so, because it is perfectly possible
logically, although the arbitrator has not spelled this out, for a tenant to
make improvements which none the less do not affect the rental value. I am
prepared moreover to accept that that is at least more probable, with regard to
improvements whose nature is tenants’ fixtures, than in respect of other
improvements, and I note that the improvements which the arbitrator was advised
to disregard were improvements whose nature was tenants’ fixtures.
I have
therefore come to the conclusion that I am not entitled and therefore do not
grant leave to appeal against this award under the Arbitration Act 1979. But my
examination of the grounds do leave me with the unhappy feeling that an
injustice has in fact been introduced into the determination of the rent of
this case. I mean that, by reason of error, a conclusion has been arrived at
which is almost certainly unfair to the tenant.
That is not,
of itself, a ground upon which the court can interfere. Indeed, on the
contrary, the nature of arbitration is that the parties submit to the
determination of the arbitrator, certainly so far as matters of fact are
concerned, be it right or wrong. They sacrifice perhaps the perfection, as we
might hope, that arises out of the court system subject to the safeguard of a
fuller system of appeal, for the finality which arises in the submission to
arbitration by an agreed arbitrator.
That finality,
however, is subject to the control of the courts under the provisions of the
Arbitration Act 1950, which include the provision of section 23 of that Act by
which the court is given power to set aside the award where an arbitrator has
misconducted the proceedings. I am satisfied that in this case, in a technical
sense, the arbitrator has indeed misconducted the proceedings, albeit in a
manner which I suspect did not, and indeed I would be prepared to find ‘could
not’, on the approach that he adopted have had any effect upon his actual
determination.
The reasons
which he gave for his decision recited the way in which he had dealt with
comparable properties. I have already indicated that he has said that he had
the greatest regard to the transaction of 2-4 Vestry Street. He went on to say
that he had also had regard to the transaction at New Roman House. His third
sentence under the head of ‘Valuation’ observed:
The parties
did not provide other open market letting or rent review comparables.
It was from
this that he derived his conclusion that the agreed net internal floor area is
2,648 sq ft, to which he said he had attributed a rental value of £12.07 — that
is to say, of course, per square foot.
The assertion
that the parties did not provide other open market letting or rent review
comparables is true only if a somewhat specialised meaning is given to rent
review comparables because there had been submitted, other than the two to
which the arbitrator had referred, evidence in regard to a rent review
determination in fact undertaken by Mr Voaden himself in respect of premises at
53-55 East Road, where he had determined a rental value which was significantly
out of line with the rental value which he ultimately attributed to the subject
premises. I confess that I am not quite clear at which figure it was analysed,
but I think it is a figure of £6.50 per sq ft in respect of one floor and of
£7.39 per sq ft in respect of another floor of those premises. No doubt
adjustments would have been appropriate to be made if that comparable had been
treated as being appropriate to be relied upon, but there is no sign of how it
was considered or how it was relied upon.
It may be
that, had the arbitrator considered that evidence, he would have come to the
conclusion that it was of little weight as it represented only a record of his
previous opinion on some other premises and was not a market transaction.
Indeed, it is in this sense that it might be said, although I suspect that it
was only my suggestion that led to this way of interpreting the phrase, that it
was not strictly a rent review comparable at all. But I do not think that that
is the sense in which the arbitrator was using the language at this stage in
his account of his reasons. No doubt because he did indeed place weight only on
the two premises or two transactions to which he made reference, he was at that
stage overlooking that there was indeed relied upon by the tenants’ surveyor
another comparable transaction, which the tenants’ surveyor was at least at
that time entitled to have considered because it had been introduced to the
proceedings and had not been challenged or objected to as being inadmissible.
There is now
authority that the mere opinion of the arbitrator is to be treated only as an
expert’s opinion and is not to be treated therefore as evidence of a market
rent and therefore would be inadmissible, as
City Council [1993] 1 WLR 286.
Nevertheless,
as I have indicated, it appears to me that there is a technical misconduct in
the rejection in effect of a piece of evidence which had been admitted and not
objected to when put forward on behalf of the tenant. That is, as it appears to
me, to be a technical misconduct such as was identified by the Court of Appeal
in the case of Trayfoot v Lock [1957] 1 All ER 423, where a
document was looked at by the arbitrator but was then excluded from
consideration so that, in effect, he rejected it and excluded material
evidence. In this case also it appears to me that, in his reasoning, the
arbitrator has shown that he has, probably inadvertently, rejected evidence
which was technically material evidence for the purposes of this arbitration.
Having so found
it would not seem to me that this would be a sensible reason for setting aside
the award if the effect of setting it aside was no more than to require the
arbitrator to look at a piece of evidence, whose value he would be well able to
appraise himself, and which he apparently from his determination has not valued
highly and to which, on remission of the matter to the arbitrator, the landlord
might now pertinently and properly object to being considered by reason of the
decision to which I have just made reference. Therefore, if the sole effect of
my setting the arbitration aside was merely to enable the present arbitrator to
reconsider that particular piece of evidence, I would not exercise such
discretion as I think I have under section 23 to set the award aside.
I do, however,
think that it is fair and proper in the circumstances of this case to take
advantage — and I use those words advisedly as I am conscious that that is what
I am doing — of the technical misconduct of the arbitrator to allow what I hope
may be nearer to fairness to be achieved between the parties by a renewed
arbitration.
In those
circumstances I would not only set aside this award, but would remove the
arbitrator but only upon these terms, which were submitted to by Mr Jefferies
on behalf of the applicant tenant, that the costs thrown away in the
arbitration so far should be treated as costs of any renewed arbitration so
that they may be in the discretion of the newly appointed arbitrator, who may
then have the opportunity to ensure that the opportunity which this decision
gives to the tenant to reopen proceedings, which appear to me have gone wrong,
although through no fault at all of the landlord, should not impose upon the
landlord any unfair burden in costs. I will make orders accordingly, if they
can be agreed by counsel. I will hear argument as to whether I should put the
tenant upon any terms in respect of the existing awarded rent.
The order to
remove the arbitrator is conditional upon there being paid to the landlord
within 28 days of today, or such longer period as may be agreed between the
parties, or determined on application by the court, the difference between the
rent which has been paid since the review date and rent at the rate of £24,000
a year and upon rent at the rate of £24,000 a year being paid on the usual
quarter days to the landlord on account of liability for rent to be awarded
under the renewed arbitration. Such rent be accepted by the landlord subject to
the landlord’s undertaking to the court that in the event of an award for rent
making a less sum than has been paid due from the tenant to the landlord the
surplus will forthwith become repayable to the tenant.
I make no
provision for payment of interest upon these sums which are paid on account of
the rent being advanced because in the calculation of the total sums will be
due from the tenant to the landlord it will be possible for the landlord to
bring into calculation interest that is due under the lease.
Application
for leave dismissed; application to set aside the award allowed.
