Site of special scientific interest — Management agreement restrictions — Correct test for compensation for loss — Arbitration — Appeal — Whether arbitrator applied correct test — Whether he gave reasons
The appellants
farm 371 acres on the Gower Peninsula and have grazing rights on a further 117
acres of cliff land. In 1986-87 the appellants had a sheep flock of 1,100 ewes
and were planning to expand to 2,000 ewes having built a covered shelter at a
cost of £29,000. The cliff land was designated a site of special scientific
interest and on October 23 1986 the respondent authority notified the
appellants under section 28(1) of the Wildlife and Countryside Act 1981 that
sheep farming must be drastically reduced. Being dissatisfied with the terms of
compensation offered by the respondents for net profits foregone and other
losses for an interim management agreement to control sheep farming on the
cliff land, the appellants referred the issue to arbitration. In assessing the
net profits foregone under the guidelines in Circular 4/83, the arbitrator
first estimated the profit which the appellants would have earned had they been
allowed to continue as before and then assessed what was the maximum income the
farm could produce subject to the restrictions. The appellants appealed under
section 1 of the Arbitration Act 1979 contending that the arbitrator had
applied the wrong formula under para 16 of the guidelines, wrongly rejected
various heads of claim and had failed to give reasons.
The correct test under para 16 to the guidelines is that the question of loss
is to be looked at as a matter of causation in accordance with the principles
of law applicable to damages for tortious acts or breaches of contract.
Accordingly, the loss is the pecuniary loss which directly and naturally flows
from the restriction. Although the appellants owe no duty to mitigate, they
cannot expect the respondents to pay for losses which the respondents might
have avoided had the appellants taken reasonable steps to avoid such losses.
The matter is one of the causation — that is to say, the assessment of the
losses which have naturally flowed as a result of the restrictions. In relation
to the claim for capital losses the arbitrator was erroneous in dismissing such
claims in so far as he had applied the wrong test in assessing loss of profits.
The arbitrator, in rejecting the claim for loss of capital value of the
holding, failed to appreciate that the appellants were claiming for residual
capital loss being diminution of the capital value of the land only after the
management agreement had run its course. The arbitrator had failed to give
reasons for his award.
The following
cases are referred to in this report.
British
Westinghouse Electric & Manufacturing Co Ltd v Underground
Electric Railways Co of London Ltd [1912] AC 673; (1912) 81 LJKB 1132; 107
LT 325
Lloyds
& Scottish Finance Ltd v Modern Cars &
Caravans (Kingston) Ltd [1966] 1 QB 764; [1964] 3 WLR 859; [1964] 2 All ER
732
Sotiros
Shipping Inc v Sameiet Solholt (‘The Solholt’)
[1981] 2 Lloyd’s Rep 574; [1983] 1 Lloyd’s Rep 605, CA
Universal
Petroleum Co v Handels- und
Transportgesellschaft GmbH [1987] 1 WLR 1178; [1987] 2 All ER 737, CA
This was an
appeal under section 1 of the Arbitration Act 1979 by the appellants, Mr and
Mrs Thomas, against an award made by an arbitrator on the appellants’ claim for
compensation against the respondents, Countryside Council for Wales, under the
Wildlife and Countryside Act 1981.
Colin Brodie
QC and Keith Lindblom (instructed by Lawrence Graham, for John Owen & Co of
Llandeilo) appeared for the appellants; Keith Bush (instructed by the Treasury
Solicitor) represented the respondents.
Giving
judgment, ROUGIER J said: This appeal is brought by Mr and Mrs Thomas
with leave of the court against an arbitration award made pursuant to section
50(3) of the Wildlife and Countryside Act 1981. Principally the appeal concerns
the question of the proper measure of compensation to be paid to a landowner
whose use of land is affected by powers exercised by what was originally the
Nature Conservancy Council and which has now been subdivided into various
regional councils, the respondents, as their name suggests, being that
responsible for the principality.
Mr and Mrs
Thomas are farmers, whose main enterprise is sheep farming. They are
experienced and have a good reputation — a factor remarked upon by the
arbitrator in making his award. Their farm is called Paviland Manor Farm,
comprising 371 inland acres, and they have grazing rights over a further 117
acres of cliff land all at Rhossili, which is at the south-west corner of the
Gower Peninsula. Whether one calls the adjoining sea the Bristol Channel or the
Atlantic matters little; the wind and the rain sweep in from the west and
shelter is at a premium. This fact is of importance since strangely enough it
was the cliff land which provided shelter for the Thomases’ flock of sheep and
thereby had particular value in the management of their sheep-farming activity.
At the relevant time, which was in 1986-87, Mr and Mrs Thomas had expanded
their flock to some 1,100 ewes and were planning to increase the numbers to
something like 2,000. To cater for the increase they had recently built a bothy
on the inland part of the farm at a cost of some £29,000.
The
respondents may broadly be described as the authority responsible for
conservation and the protection of wildlife in the area. Their powers are
derived from the Wildlife and Countryside Act 1981, a measure passed with the
objective, among others, of preventing undue exploitation and consequent damage
to the flora and fauna of this country. In order to be able to carry out this
objective, the relevant authority is given powers under section 28 to declare
certain areas to be those of special scientific interest and, by appropriate
notification, to ban or limit any operations which appear to them to be likely
to damage the countryside unacceptably. The cliff land at Rhossili had been
declared an area of special scientific interest and it comes as something of a
surprise to learn that the activity which incurred the displeasure of the
respondents was that of pasturing sheep. But so it was; on October 23 1986 they
gave formal notification to the Thomases pursuant to section 28(1) of the Act
that this time-honoured form of husbandry had to be drastically limited. Owing
to the crucial importance of the cliff land, clearly compliance with the
notification would entail drastic alteration to the Thomases’ sheep farming and
their plans for the future.
It is
necessary briefly to describe the various steps which led to the arbitration,
all of which are provided for by the statute. First, any owner or occupier of
land who has been served with notification is prevented from carrying out any
of the operations specified for four months, and then only if he has served a
counternotice that he proposes to carry out the operations proscribed: see
section 28(5). The method whereby the council can enforce any ban or limitation
is described as a management agreement and the Act provides for the parties to
enter into such an agreement by negotiation. Before a long-term management
agreement can be finalised, the parties will enter into short-term management
agreements, and if no long-term agreement is negotiated the council or other
relevant authority next makes a formal offer to enter into a management
agreement by virtue of section 50(1). This offer has to specify the terms
including the terms as to payment which the council are prepared to make in
order to compensate the owner or occupier for the restrictions being imposed on
his land. By subsection (2) the payments are stated to be determined in
accordance with guidelines issued by the ministry. These guidelines are
described as Circular 4/83. If the owner/occupier is dissatisfied with the
terms of payment offered, he can require the matter to be referred to
arbitration by virtue of subsection (3), and that is what happened in this
case.
During the
course of the unsuccessful negotiations the respondents commissioned a report
from a Mr Hollington, which they disclosed to the Thomases. This report is in
the nature of a feasibility study and addresses the problem of how the land
might be farmed subject to the restrictions. In the relevant part of the
report, it will be seen that Mr Hollington considered two possibilities; the
first to reduce the existing flock to some 640 ewes and convert a part of the
land to arable. The second was to reduce the flock to a mere 220 ewes with a
consequently greater conversion to arable. In terms of cost, Mr Hollington gave
it as his opinion that the first alternative would limit the loss to be
sustained by approximately £2,000 more than would the second alternative. It is
necessarily implicit in his report that he considered both options to be
viable.
The relevant
terms of the guidelines are as follows: first, by para 13 it is provided that:
For the
purposes of the long term agreement, owners and owner-occupiers may choose either
lump sum payment or annual payments . . . only annual payments are
available to tenants.
Para 14:
Payment, at
the commencement of the agreement of a single lump sum for the
management agreement over a 20-year period . . . The amount should be equal
to the difference between the restricted and unrestricted value of the owner or
owner-occupier’s interest calculated having regard to the rules for
assessment in respect of the compulsory acquisition of an interest in land as
set out in Section 5 of the Land Compensation Act 1961.
Para 16,
headed ‘Annual Payments (owners or owner-occupiers)’ provides:
Payment of annual
sums for an agreement over a 20-year period, . . . The payments should
reflect net profits foregone because of the agreements.
By para 18 it
is stated that individual assessment will be appropriate in most cases to
calculate the sums payable.
Later in the
document under a heading entitled ‘Other Factors determining Payment’, para 29
provides:
Fees — on
completion of a management agreement the offeror should pay the reasonable
costs of the offeree incurred in retaining professional advisors to assist him
in connection with the agreement.
Para 30 —
‘Other Costs’:
A management
agreement may also provide for payment:
(a) For expenditure reasonably incurred within
the previous 12 months of the date of notification which has been rendered
abortive or in undertaking work rendered abortive by the agreement (subject to
minimising loss — see paragraph 11 above);
(b) For any loss or damage directly attributable
to the agreement
insofar as .
. . no relevant payment is available under other provisions of these
guidelines.
Under the
heading ‘Minimising Costs’, para 11 states:
From the date
of initial notification of his proposed operation, an owner or occupier should
not take any action which may increase the sum eventually payable to him under
these guidelines eg entering into any contract or commitment with third parties
relating to the proposed work.
This paragraph
earns few prizes for drafting.
The appeal of
Mr and Mrs Thomas is brought pursuant to section 1 of the Arbitration Act 1979
and is advanced on two basic grounds:
1. That in
determining the measure of net profits foregone because of the agreements
within the terms of para 16 of the guidelines, the arbitrator, as a matter of law,
applied the wrong
the appellants could have earned had they continued with the proposed expansion
of their sheep farming activity compared with what they could earn by switching
to a farming policy which would maximise profits, without taking into account
any considerations other than those which were purely financial. It is
contended that this is an incorrect interpretation of the combined effect of
para 11 and para 16 of the guidelines.
2. That the
arbitrator erred in rejecting various heads of claim for lost capital
expenditure on the basis that, the appellants having opted for annual payments,
they were not entitled to payments under paras 29 and 30 of the guidelines.
Contained in
the appeal is also an application pursuant to subsection (5) of section 1 of
the Arbitration Act 1979 that the matter be remitted to the arbitrator for him
to make further primary findings of fact which are necessary and to give
reasons which both parties had asked him to do. To apply to remit in this
fashion at the same time as appealing the findings seems to me to be putting
the cart, if not in front of, at least beside the horse, but the appellants
were given leave, so I am told, under both subsections, and Mr Keith Bush for
the respondents, after some initial hesitation, does not seek to argue that I
should not deal with both aspects at the same time.
I now turn to
consider the relevant terms of the arbitrator’s award. At the outset it should
be mentioned that, although this is an award made in relation to a proposed
long-term agreement, it is referable only to the three years from September 1
1987 to August 1990. As a further background fact it should be recorded that Mr
and Mrs Thomas, faced with the restrictions which were being imposed upon their
use of the cliff land, made a considered judgment that any substantial
sheep-farming operation would not be viable, and therefore altered their
farming policy radically and in essence adopted the second possibility which
had been described by Mr Hollington in his report. Nobody has suggested that Mr
and Mrs Thomas took their decision other than in good faith and backed by their
own not inconsiderable experience of farming in the area. More important, the
respondents accepted that this decision was not to be regarded as an action
which might ‘increase the sum eventually payable to them’ within the terms of
para 11. The parties appeared to have agreed that the wording of para 11 was
intended solely to deal with actions taken in bad faith with the deliberate
intention of increasing the eventual compensation. Whether that is the correct
interpretation must abide some later dispute. Fortunately, for present
purposes, it is not necessary for me to construe the proper meaning of para 11.
I content myself with the prophecy that it is likely to give trouble in the
future.
The formula
adopted by the arbitrator for assessing the net profits foregone can be deduced
from the following passages in the award:
First, para
12, where he states:
In reaching
my decision I first considered whether the farming policy adopted by the
claimants was the optimum in the circumstances and secondly what might the
claimants have achieved from the sheep unit had the restrictions not been
imposed.
Later, in para
15, we find the following:
It must be
assumed that any farmer managing his holding properly will be looking to a
farming policy that will maximise profits. The farmer can, and is free to, farm
the holding as he wishes provided he can afford the losses that may result but
the respondents are not obliged to work out the profits foregone on other than
their view properly established as to the optimum farming system resulting from
the imposition of the restrictions. The accounts for the years 1989 and 1990
show very large losses which I consider show that the policy adopted was not
the optimum.
And finally in
the second of the paras numbered 17:
The claimants
are free to adopt any farming policy they wish to choose but the respondents
are required only to consider under the heading ‘Profit Foregone’ the effect on
those profits arising from the restrictions imposed . . . I consider that a
viable, although reduced, flock could have been maintained using the inland
areas after the imposition of the restrictions.
From these
passages it is clear that in order to assess the net profits foregone, the
arbitrator first estimated the profit which the Thomases would have earned had
they been allowed to continue as before and as the second half of the equation
he assessed what was the maximum income the farm could produce, the sole
criterion being that of finance; no other considerations entered the picture.
In my
judgment, that approach is wrong in law. It would have appealed to Mr
Gradgrind, but it does not appeal to me. There are several reasons which can be
advanced for this, but the following will suffice:
1. Para 16
makes it clear that the question of loss is to be looked at as a matter of
causation; this is in accordance with the general principles of law applicable
to damages for tortious acts or breaches of contract and the equation adopted
by the arbitrator goes far beyond any principle of damages applicable to such
cases.
2. Farming
activities can vary in profitability from year to year, one of the principal
variables being the level of subsidies on particular activities. Bearing in
mind that this was a calculation designed to fix the level of annual payments,
it might well be that one particular strategy would be the commercial optimum
one year, but not the next.
3. In
determining the proper meaning to be ascribed to the words of para 16 I
consider it permissible to look at the entire compensation structure provided
for. That which is found in the short-term agreement is: ‘to pay the owner for
any reasonable financial loss arising as a consequence of this agreement’; it
would, in my judgment, be strange indeed if compensation under the long-term
agreement was computed on a formula which was likely to be more disadvantageous
to the owner/occupier.
4. Para 18 of
the guidelines makes it clear that individual assessment will be appropriate in
most cases. This seems to me to be incompatible with any proposition that the
only yardstick is purely commercial. Even the respondents, albeit in an
alternative proposition, were prepared to concede that they must take their
farmer as they found him with his preferences and perhaps in some cases his
lack of competence. A basis of computation of loss which involves the notional
transmutation of perhaps a somewhat inefficient farmer to one of maximum
competence would obviously work great injustice. I must not lose sight of the
fact that this is a situation where a statutory body is given arbitrary power
to interfere with the manner in which the ordinary citizen is going about a
perfectly lawful occupation on his own land. Such interference, while doubtless
well-intentioned, is always susceptible to somewhat overzealous application,
even, at times, to abuse.
Take the case
of a farmer who farms sheep and nothing else because that is what he wishes to
do. Restrictions are placed upon him which will entail a very considerable
diminution of the number of sheep he is able to farm; bowing to the inevitable
he takes advice and is told that rather than continue with a limited herd he
will make more money if he converts his entire farm to turnips and
mangoldwurzels. Is he not to be allowed to say: ‘I don’t like turnips and
mangoldwurzels; I don’t like their smell, I don’t like the mud that they
produce, and I fail to see why this intrusive body, drest in a little brief
authority, should come and radically alter the amenities and tenor of the life
that I have led for many years.’ Are not
such arguments to be heard? If the
answer is ‘No’ then the world will have grown grey indeed. For these reasons
the matter must be remitted to the arbitrator for him to apply the correct
test.
This naturally
leads to the question: What is the correct test?
The
appellants’ first contention was that any obligation on the part of an
owner/occupier was limited to and exhaustively defined by the terms of para 11
of the guidelines. Freed from the necessity of determining just what para 11
meant, Mr Colin Brodie QC boldly submitted that his clients were entitled to be
compensated in full, whatever altered farming policy they chose to adopt,
provided they did not fall foul of the restriction imposed by para 11. As an
alternative, he submitted that the whole question was to be equated pari
passu with the standard law governing damages for breach of contract or for
tort, and mitigation.
I have to
reject his first submission; I think that the wording of the guidelines,
although far short of ideal, was intended to equate the manner of assessing
compensation with the normal law applicable to cases of contractual or tortious
liability. To that extent, para 11 is in fact surplusage. A further
consideration that has influenced me is that, whereas the parties during the course
of the arbitration adopted an interpretation of para 11 which was extremely
sensible, I am far from persuaded that in the face of the actual wording it was
correct. It seems to me that on a somewhat less sympathetic construction of the
words any course of action by a farmer which subsequently turned out to be
uneconomic might well fall foul of the paragraph, in which case the farmer
would be worse off than he would be under the ordinary law.
Under the
normal law of contract and tort the fundamental basis for the measure of
damages is compensation for pecuniary loss which directly and naturally flows
from the breach. The authority, so far as breach of contract is concerned, is
to be found in British Westinghouse Electric & Manufacturing Co Ltd
v Underground Electric Railways Co of London Ltd [1912] AC 673 at p689.
There is, however, a qualification that a plaintiff suing for breach of
contract or for that matter for tort cannot call upon a defendant to pay the
full direct consequences unless he himself has acted reasonably to mitigate the
loss. It is sometimes loosely described as a plaintiff’s duty to mitigate. In MacGregor
on Damages 15th ed, para 275, it is stated that:
the first and
most important rule is that the plaintiff must take all reasonable steps to
mitigate the loss to him consequent upon the defendant’s wrong and cannot
recover damages for any such loss which he could thus have avoided but has
failed, through unreasonable action or inaction, to avoid. Put shortly, the
plaintiff cannot recover for avoidable loss.
With respect
to the learned author, the word ‘must’, implying some sort of duty, may not be
strictly accurate. If he wishes to claim the full measure of his loss, a
plaintiff must act reasonably, but as was recently pointed out in the case of The
Solholt [1983] 1 Lloyd’s Rep 605*, a plaintiff is under no duty to mitigate
his loss. He is completely free to act as he judges to be in his best
interests. The significance of his failure to act in a reasonable manner is
merely that he cannot then call upon the defendant to pay for losses which he
might have avoided had he taken reasonable steps to do so. For the purposes of
the present remission to the arbitrator I would stress that fundamentally the
matter is one of causation — that is to say the assessment of the loss which
has naturally flowed as a result of the restrictions.
*Editor’s
note: Sotiros Shipping Inc v Sameiet Solholt (‘The Solholt’).
The questions
to be asked are:
1. What could
the appellants have achieved? — this is
one which the arbitrator has already determined.
2. What have
the appellants achieved?
3. In between
those two poles, has any act or omission of the appellants been unreasonable
and of such a nature as to leave one to say that the difference between 1 and 2
can no longer be said to be caused by the restrictions? Put another way, was the appellants’ decision
to adopt the farming system which they did a reasonable one? That question is not to be answered solely in
terms of the commercial optimum. Obviously profitability is a factor, and an
important one, but in an occupation such as farming any test of reasonableness
should take some account of other circumstances including individual personal
factors of amenity, even of aesthetic preference. The question of what is
reasonable is entirely one of fact for the arbitrator. However, in view of the
contents of the report by Mr Hollington, some assistance as a matter of law may
be derived from the concluding remarks of the judgment in Lloyds &
Scottish Finance v Modern Cars & Caravans (Kingston) [1966] 1 QB
764 at p782 where, without stating a definite proposition of law, the court
expressed grave doubt whether, if a plaintiff acted upon the suggestion of the
defendant, he could ever be said to have acted unreasonably. Whether or not the
two possibilities described by Mr Hollington amounted to a suggestion made by
the respondents will again be a matter of fact for the arbitrator.
I next turn to
deal with the appellants’ second ground of appeal concerning the capital costs
disallowed by the arbitrator. These are to be found, together with such reasons
as the arbitrator gave, at para 18 of the award.
Herein the
appellants’ primary submission was that the award demonstrated on its face
that, in disallowing the various items listed under para 18, the arbitrator had
done so on the basis that lump sums could not be claimed if the claimants had
exercised the option open to them to select annual payments rather than a lump
sum payment.
Had this been
the basis of the arbitrator’s reasoning, I should have had no hesitation in
holding that he was in error, paras 29 and 30 of the guidelines seem to me to
be a clear indication that, over and above the annual payments, or for that
matter the limited basis of the lump sum recoverable under para 14, certain
further items of capital expenditure are recoverable. But I think that Mr Bush
is correct when he submits that para 18 of the award, taken as a whole, does
not indicate that the arbitrator was at fault in that regard; it was only item
(c), described as ‘Loss in Capital value of the Holding’, which he disallowed
on that basis. It is nevertheless necessary to consider the various items
listed under para 18 of the award to see if, as the plaintiffs contend, there
are errors of law on their face. I will deal with them in turn, leaving item
(c) until last.
Subpara (a) —
this is in a separate category.
Subpara (b) —
the capital costs resulting from the need to purchase machinery and
improvements have been disallowed on the basis that these costs would not have
arisen if the appellants had retained sheep on the inland areas, that is to say
had adopted the first of the two possibilities mentioned by Mr Hollington in
his report. Since I have held that the arbitrator applied the wrong test in
deciding that the appellants could not claim any losses over and above those
which would have been sustained had they adopted that suggestion, it
necessarily follows that his approach to this item was erroneous also. If, on
the remission, the arbitrator comes to the conclusion that the appellants acted
reasonably, it will be necessary for him to examine this item of claim afresh.
Further, contrary to what is set out in the last sentence under subpara (b), it
is not necessary to incorporate any award under this head in the annual
calculation of profit foregone since, as I have already tried to indicate,
paras 29 and 30 of the guidelines allow for capital costs of this nature as
separate items.
Subpara (d) —
here again the arbitrator seems to give two reasons; the first, namely that
reflected by the words ‘this building would be essential if a flock of sheep
was retained’, reflects the same error of approach as that described under
subpara (b). The arbitrator continues, however, by saying: ‘even without the
flock the building is of such a construction that it adds value to the holding
as it could be adopted for other uses of value to the farm’. Again, the wrong
test has been applied; the arbitrator should ask himself whether the appellants
would be unreasonable if they did not use the building for other uses of value;
this distinction, however, may well turn out to be more academic than real.
Subpara (e) —
the forced sheep sale. The arbitrator states:
in a letter
dated 22nd July 1987 from Mr DJ Harry Thomas to Mr Thompson, land agent to the
NCC, it is made quite clear that the advice of their auctioneer was that
because of the number of ewes involved a sale on the farm was likely to produce
better prices.
The arbitrator
continues that he considers that the advice was understandable because of the
quality of the stock and the reputation of the appellants. But that again is a
wholly incorrect reason for disallowing the claim. This matter too must be
considered in the light of whether the appellants acted reasonably in changing
to the farming policy which they did. It is implicit in the arbitrator’s
remarks under this subparagraph that he considers that the appellants acted
reasonably in selling on their farm rather than at auction, so that if, on
remission, he comes to the conclusion that the appellants did act reasonably in
their selection of an alternative farming strategy, this too is a claim which
must be entertained.
Subpara (f) —
this has not been pursued in this appeal.
Subpara (g) —
here the arbitrator does not deal with this on the basis that it is a claim
which does not fall within his remit. In view of the terms of para 29 of the
guidelines, this again must be classed as an error.
Subpara (h) —
this has not been contended for.
I return
therefore to subpara (c) which, in the way in which it has been dealt with,
gives rise to some difficulty. It is necessary to set out the arbitrator’s
findings verbatim, as follows:
Loss in
capital value of the holding — no evidence to substantiate the valuations put
forward on behalf of the claimants was put forward. The valuation was therefore
not tested before me and in any case the guidelines are quite explicit about
the claim to be either profit foregone or lump sum payment.
Two criticisms
are made of this, both, as it seems to me valid. To start with, I am told, and
there is no dispute about this, that in fact evidence was put before the
arbitrator in the form of a report from a Mr John Jeremy [FRICS], whom the appellants
did not call. Granted that the respondents objected to the report being put in
evidence, nevertheless the arbitrator allowed it. A reading of it reveals that
the arbitrator appears to have been under a misapprehension. What was being
claimed was not the loss in capital value of the land by reason of the
restrictions from the very moment the restrictions were imposed — that indeed
would be attempting to claim both annual payments and lump sum payments, and
would be impermissible. On the contrary, what was being claimed was the
diminution of the capital value of the land after the management agreement had
run its course. For the sake of convenience this has been referred to as
residual capital loss. The report of Mr Jeremy places this at £55,000, which
was the figure claimed in the appellants’ original notice of claim.
This gives
rise to the following problem: as expressed, there is no discernable error of
law or for that matter of approach in the way in which the arbitrator has dealt
with the loss in capital value under para 18 subpara (c). Am I entitled to go
behind the curtain as it were in order to satisfy myself that the arbitrator’s
finding was based on a misapprehension as to the nature of the claim being
made? Mr Bush has drawn my attention to
the judgment of the Court of Appeal in Universal Petroleum Co v Handels-und
Transportgesellschaft GmbH [1987] 2 All ER 737. This report contains a
definitive statement of the limitations of the right to challenge an
arbitrator’s award imposed by section 1 of the 1979 Arbitration Act. In
particular, the court stressed that primary findings in an award could not be
challenged unless there was misconduct by the arbitrator, or a lack of
jurisdiction or he had failed to accede to the request of the parties on a
specific matter. It was stressed that the arbitrator’s primary findings of fact
were immune from review apart from those circumstances and in particular that
evidence could not be introduced in order to challenge those findings. Any
error open to challenge had to be visible in the award itself rather than arise
from the arbitration. Having considered the entirety of the judgment, however,
I have reached the conclusion that the case is not strictly in point where the
present issue is concerned. The Court of Appeal were dealing with the strict
limitations on the power to challenge findings of primary fact by an
arbitrator. Subpara (c) of para 18 of the award makes no primary findings of
fact other than the incorrect one that no evidence was put forward in support
of the claim. For my part, I do not consider that looking at the way in which
the original claim was framed comes under the heading of taking account of
matters which are extrinsic to the award. The claim is, in essence, the
progenitor of the award itself.
In my
judgment, it surely must be permissible to consider precisely what was being
claimed in order to go one further and consider whether the arbitrator in fact
dealt with that particular claim. To put it another way, though one cannot
query whether the arbitrator got his facts right, it must surely be open to a
party to contend that he failed to perform his task. In this instance, although
the claim was rather baldly stated in its pleaded form as a claim for the
capital value of the land, nevertheless the sum of £55,000 was specifically
mentioned and reference was made to Mr Jeremy’s report. This, I consider, was
sufficient to bring that report within the ambit of the claim, and once that
position is arrived at, it is quite clear that the appellants were claiming
only for the residual capital loss. This is a matter which the arbitrator
failed to appreciate and accordingly this again must be submitted to him for
reconsideration.
Finally, I
come to the third issue raised in the appeal, namely the contention that the
matter should be remitted to the arbitrator for him to make further findings of
fact and to give his reasons for arriving at the award which he did. I can deal
with this fairly shortly. It should be said at once that, since the arbitrator
was specifically asked to state his reasons, sadly, it is apparent that he has
not done so. Apart from the bare statement that he has considered this, that or
the other factor, he has merely given figures for the three years in question.
It has been quite impossible for either party to determine just how the
arbitrator has arrived at those three figures. While accepting Mr Bush’s
submission that an arbitrator cannot be expected to make every single minute
finding of fact involved in a fairly complex award, yet where the whole purpose
of the arbitration is to calculate and arrive at a specific sum or sums of
money payable by way of compensation, then the steps and calculations by which
those sums are arrived at, in my judgment, must amount either to primary findings
of fact or at least to reasons. In the present award virtually no reasons have
been given: Mr Bush himself, when asked point blank how one could determine the
method whereby the arbitrator had arrived at the three figures referred to, was
unable to supply an answer, nor could anyone else.
But that is by
no means conclusive. Section 1(5) of the Arbitration Act 1979 has also
drastically limited the circumstances in which an award can be remitted for
further findings. The subsection states, in its relevant terms:
If an award
is made and, on an application made by any of the parties to the reference it
appears to the High Court that the award does not or does not sufficiently set
out the reasons for the award, the court may order the arbitrator or umpire concerned
to state the reasons for his award in sufficient detail to enable the court,
should an appeal be brought under this section, to consider any question of law
arising out of the award.
The foregoing
words envisage a two-stage process; first, the court has to determine whether
the reasons given for the award are sufficient. That I have already done and
held them insufficient. But, second, the court cannot order the matter to be
remitted for further findings or reasons unless satisfied that these would enable
it to determine whether an error of law had been committed. Despite Mr Brodie’s
submissions on the point, I remain quite unconvinced that even if the
arbitrator gave the precise reasons for the award at which he arrived, which
principally would be a matter of mathematics, any question of law would be
likely to arise.
For these
reasons I do not think that the application under subsection (5) can succeed.
But, for the reasons which I have endeavoured to express, I take the view that
this appeal must succeed, and the matter must be remitted to the arbitrator for
his further consideration after applying what I have stated to be the correct
test when interpreting the meaning of the words ‘profits foregone because of
the restrictions’ in para 16 of the guidelines.
Appeal
allowed and award remitted.
