Landlord and tenant — Rent review clause in lease of commercial premises — Market rent to be determined, in default of agreement,
This was a
special case stated by the arbitrator under section 21(1)(a) of the Arbitration
Act 1950. The special case stated a number of questions of law for the opinion
of the court (see questions and answers at the end of this report). The
arbitration concerned a rent review clause in an underlease of premises known
as unit 43, The Merrion Centre, Leeds, let by the plaintiffs, Town Centre
Securities Ltd, to the defendants, Wm Morrison Supermarkets Ltd.
David Sullivan
QC and Edward Bailey (instructed by Booth & Co, of Leeds) appeared on
behalf of the plaintiffs; Gavin Lightman QC and Miss J Bazley (instructed by
Sugden & Spencer, of Bradford) represented the defendants.
Giving
judgment, Mr Michael TURNER QC said: By this special case stated four questions
of law were framed for the court’s decision. The arbitrator stated this case at
the request of the defendants’ solicitor at the conclusion of the evidence at
the arbitration. Those questions are related to the admissibility of certain
evidence which was given during the course of the arbitration and what the
consequences should be if that evidence is held to be inadmissible.
The
arbitration agreement was contained in a clause of an underlease dated April 10
1972 whereby the plaintiffs (hereafter called the landlords) subdemised
premises known as unit 43, The Merrion Centre, Leeds, to the defendants
(hereafter called the tenants) for a term of 42 years from April 10 1972. So
far as material the lease provided for a peppercorn rent until October 9 1972
and thereafter a yearly rent of £77,401.48 and any increased rent as
thereinafter provided. The underlease also provided for rent reviews to take
place at intervals, the first of which was after the expiration of the sixth
year and before the expiration of the seventh year of the term, provided that
the appropriate notice was served. If, after service of such a notice, no
agreement was reached in regard to the rent proposed by the landlords, the
underlease made provision for the assessment of the amount of the rent to be
determined by arbitration. Clause 6(c)(ii) of the underlease provided:
Unless the
market rent has been agreed or determined before the expiration of the Notice
referred to in subclause (a) hereof the existing rent then payable shall
continue to be payable until the market rent has been agreed or determined and
the amount of any difference between the existing rent and the market rent
calculated from the expiration of the said Notice shall be added to the next
instalment of rent due after the market rent has been agreed or determined.
It is common
ground between the parties that the arbitrator properly entered upon the
arbitration and heard evidence on July 31 and August 3 and 6 1979; such
evidence consisted in the main (if not entirely) of expert evidence by
qualified and experienced valuers led by each of the parties, which was in its
turn subject to cross-examination by the opposing party. Paragraphs 5 and 6 of
the special case conveniently summarise the nature of some of the evidence that
was led. Paragraph 5 provides:
Valuations
were exchanged on June 21 1979. There was no indication in the particulars of
the transaction submitted by Mr Buckle that he did not have personal knowledge
of the transactions or that the Landlord would not adduce such evidence.
Paragraph 6
provides:
By a letter
dated July 5 1979 the Landlord gave notice to the Tenant of Mr Hepper’s
intention to rely on the two transactions referred to in paragraph 7 below in
terms which indicated that the basis of his knowledge might be information
given to him by others. By a letter dated July 6 1979 the Tenant notified the
Landlord that it would not object to late delivery of these particulars,
assuming that they were to be proved by properly admissible evidence.
It is to be
inferred that whereas the valuation prepared by Mr Hepper expressly indicated
that he either had or had not direct knowledge of the matters referred to in
his valuation, there was nothing in Mr Buckle’s valuation to indicate either
way. From the facts recited in paragraphs 7 and 14 of the case, the true
inference in regard to Mr Hepper’s valuation is probably that he did indicate
that he had first-hand knowledge of the relevant comparables.
When the
landlords gave notice to the tenants on July 5 that it was Mr Hepper’s
intention to rely upon two additional transactions, the tenants responded to
the effect that they would raise no objection to late delivery of the particulars
relating to those transactions if properly proved. One of the principal reasons
for exchanging valuations prior to a hearing is that each party has the
opportunity of inquiring into the transactions affecting the properties
referred to therein, with a view to obtaining confirmatory evidence, evidence
which may show that it is not a comparable at all or that the weight to be
attached to that comparable for various reasons is less than the other party
suggests.
When Mr Hepper
came to give evidence-in-chief it became apparent that in so far as his
evidence affected those last two properties it was based upon hearsay, but it
was directed nevertheless to establishing those properties as comparables. When
Mr Buckle came to give his evidence-in-chief it was given in proof form to
which was annexed a bundle of documents (‘AJB’), which was placed before me,
and again it became apparent that in respect of every property which he sought
to establish as a comparable, the evidence upon which he relied was hearsay; further,
the nature of that evidence was itself, in some cases at least, based upon
hearsay. At no stage during the course of the evidence of either of these
witnesses was objection taken to any of it on the grounds that it was
inadmissible. As the economical and helpful summary of the cross-examination of
both these witnesses in paragraphs 7 and 10(b) of the case demonstrates, it was
directed not to the hearsay point because that had already been established by
their evidence-in-chief, rather was it directed to matters concerned with the
weight which should attach to their evidence. It is unnecessary to burden this
judgment with examples from the case for they speak for themselves.
As can be seen
from the case the tenants were ultimately to take the point that all the
evidence, save possibly for that dealt with in Mr Hepper’s valuation, led on
behalf of the landlords — what I may call ‘comparable fact’ evidence — was
hearsay and therefore inadmissible, and they supported that submission by
reference to the judgment of Megarry J (as he then was) in the case of English
Exporters (London) Ltd v Eldonwall Ltd [1973] Ch 415. Both parties
have referred to, and sought to rely upon, passages from the judgment in that
case during the course of the argument before me. It may be helpful at this
stage if I endeavour to summarise the arguments, as they have finally emerged,
on the main points for determination on this special case.
For the
landlords it was submitted that (1) the evidence to which the objection refers
was hearsay. (2) Comparable fact evidence was not admissible in chief, unless
it was evidence of fact of which the witness knew at first hand. (3) Hearsay
evidence of comparables was inadmissible in chief even if sought to be given in
support of an opinion on values. (4) The tenants’ solicitor not having objected
to the admission of hearsay evidence at the proper time, videlicet, at
the stage at which it was tendered, could not or ought not to be allowed to
raise it after both parties had closed their case.
For the
tenants it was submitted that (1) the decision in the Eldonwall case was
well known to all practising in this field. (2) There is a clear distinction
between expert evidence of opinion on the one hand, and expert evidence of
comparable fact on the other. In regard to both categories of evidence it is
permissible to lead evidence-in-chief of particular transactions. (3) The
failure of the tenants to object to the hearsay evidence was justified because
it was admissible in support of opinion evidence although not on comparable
fact evidence. (4) Consequently, the failure to take the
admission of hearsay as comparable fact evidence. (5) If inadmissible evidence
is nevertheless allowed in, it remains inadmissible and therefore of no
probative effect.
Before
expressing my conclusions it is helpful to refer to certain passages in the
judgment in the Eldonwall case. Although both parties in that case
adduced evidence from experts, only the expert called by the landlords sought
to give evidence of comparables. At p 419 G of the judgment Megarry J said:
As is also
far from unknown, some of the comparables were less comparable than others, and
some turned out to be supported only by hearsay evidence, or by evidence that
was in other respects less than cogent. There was no formal process of a ruling
being made to exclude those comparables which were supported only by hearsay
evidence; but I was discouraging, and in the event Mr Ibbotson, though rueful,
did not seriously argue the point, or press it.
From which it
would appear that counsel for the tenant in that case had taken the objection
in regard to inadmissibility of hearsay evidence as supporting comparables,
although the judge made no ruling on that objection when it was taken.
At p 420A of
the judgment the learned judge continued:
For all I
know, that misunderstanding may in recent years have been fostered by a passage
in Woodfall’s Landlord and Tenant 27th Ed (1968) p 1350 to which Mr
Lightman very properly referred me. There, the editors take the view that when
a valuer is giving his opinion on rental value under the Act of 1954:
‘. . . he
should state his reasons for holding that opinion even if this involves
reference to comparisons of which he only knows at second-hand, that surely
going to weight rather than admissibility.’
There are
further passages amplifying that view, but I think that this is a sufficient
indication of the general import of a paragraph which seems to contend that
valuers are entitled to give hearsay evidence of comparables.
The learned
judge continued:
In such
circumstances, two of the heads under which the valuers’ evidence may be ranged
are opinion evidence and factual evidence. As an expert witness, the valuer is
entitled to express his opinion about matters within his field of competence.
In building up his opinions about values, he will no doubt have learned much
from transactions in which he has himself been engaged, and of which he could
give first-hand evidence. But he will also have learned much from many other
sources, including much of which he could give no first-hand evidence.
At p 421A the
learned judge continued:
On the other
hand, quite apart from merely expressing his opinion, the expert often is able
to give factual evidence as well. If he has first-hand knowledge of a
transaction, he can speak of that. He may himself have measured the premises
and conducted the negotiations which led to a letting of them at £X, which
comes to £Y per square foot; and he himself may have read the lease and seen
that it contains no provisions, other than some particular clause, which would
have any material effect on the valuation; and then he may express his opinion
on the value. So far as the expert gives factual evidence, he is doing what any
other witness of fact may do, namely, speaking of that which he has perceived
for himself.
Lower down the
page at letter D the learned judge continued:
But basically,
the expert’s factual evidence on matters of fact is in the same position as the
factual evidence of any other witness. Further factual evidence that he cannot
give himself is sometimes adduced in some other way, as by the testimony of
some other witness who was himself concerned in the transaction in question, or
by proving some document which carried the transaction through, or recorded it;
and to the transaction thus established, like the transactions which the expert
himself has proved, the expert may apply his experience and opinions, as
tending to support or qualify his views.
That being
so, it seems to me quite another matter when it is asserted that a valuer may
give factual evidence of transactions of which he has no direct knowledge,
whether per se or whether in the guise of giving reasons for his opinion as to
value.
At p 442B the
learned judge continued:
It therefore
seems to me that details of comparable transactions upon which a valuer intends
to rely in his evidence must, if they are to be put before the court, be
confined to those details which have been, or will be, proved by admissible
evidence, given either by the valuer himself or in some other way.
Then at letter
E the learned judge continued:
On principle,
therefore, I would not accept the proposition in Woodfall, p 1350 and in
this I do not think I would be alone. To the end of the passage in question, Woodfall
very properly appends a footnote which reads: ‘See, however, Wright v Sydney
Municipal Council . . .’ The case cited seems to me to provide much support
for the views that I have expressed; and Woodfall does not attempt to
discuss or refute the decision. In Wright v Sydney Municipal Council much
the same sort of point came before Sly J, Gordon J and Ferguson J. The case
concerned a sale and not a tenancy, but that seems immaterial. It was contended
. . . that an expert valuer
‘was entitled
to state what sales he had knowledge of, even from hearsay, and to give the
details of such sales, including price, etc, in evidence . . .’ but this
contention was rejected. Sly J said that the expert could, in addition to
giving direct evidence of sales of other comparable land, provided there was
legal evidence of these, testify that, inter alia, he had kept in touch with
sales not made by himself in the district, to show that he was competent to
give evidence of values in the district. Sly J added . . .:
‘But he has no
privilege beyond any other witness to speak in detail of the prices realised
for other lands unless he can give legal evidence of such sales, or that
evidence has already been given by the witnesses. It would be a most dangerous
thing to allow an expert to speak of the details of sales of which he really
knows nothing, and see the difficulty a plaintiff in a case like this would be
in if he had to answer such evidence not knowing whether the sales were really
existent or not. I think the same principle applies whether the evidence is
given in chief or in reply.’
At p 365
Gordon J took a similar view, and at p 366 Ferguson J rejected the contention
that the witness could ‘give hearsay evidence of the particulars of the
transactions in question’: see also Phipson . . . Bramwell B, I may say,
apparently would have put matters on an even narrower basis, saying that a
valuer may state his opinion of the value of land, but that he must not in
chief add that he says this because some other land sold for such-and-such a
price, although he may say this in cross-examination: see Sheen v Bumpstead
. . . However, this, I think, was an obiter remark in a dissenting judgment
(although Phipson . . . does not reveal this), and for many years now
such evidence has not been rejected in chief when the witness has been speaking
from his first-hand knowledge.
Putting
matters shortly, and leaving on one side the matters that I have mentioned,
such as the Civil Evidence Act 1968 and anything made admissible by questions
in cross-examination, in my judgment a valuer giving expert evidence-in-chief
(or in re-examination): (a) may express the opinions that he has formed as to
values even though substantial contributions to the formation of those opinions
have been made by matters of which he has no first-hand knowledge; (b) may give
evidence as to the details of any transactions within his personal knowledge,
in order to establish them as matters of fact; and (c) may express his opinion
as to the significance of any transactions which are or will be proved by
admissible evidence (whether or not given by him) in relation to the valuation
with which he is concerned; but (d) may not give hearsay evidence stating the
details of any transactions not within his personal knowledge in order to
establish them as matters of fact. To those propositions I would add that for
counsel to put in a list of comparables ought to amount to a warranty by him of
his intention to tender admissible evidence of all that is shown on the list.
What these
passages clearly establish, in my judgment, is that at common law it is not
permissible in evidence-in-chief to adduce in support of opinion evidence
particular examples. It follows, therefore, that I am unable to accept Mr
Lightman’s primary submissions as to the admissibility of such evidence as
affording any justification for the failure to take the objection at the time
such evidence was tendered. But I have still to deal with his final submission
on this aspect of the case, that even though no objection was taken, that which
was and, arguably, remained inadmissible was of no probative effect. It is here
not merely permissible but relevant to have regard to the provisions of section
1 of the Civil Evidence Act 1968, subsection (1) of which provides:
In any civil
proceedings a statement other than one made by a person while giving oral
evidence in those proceedings shall be admissible as evidence of any fact
stated therein to the extent that it is so admissible by virtue of any
provision of this Part of the Act or by virtue of any other statutory provision
or by agreement of the parties, but not otherwise.
From the fact
that parties may agree to the admissibility of hearsay evidence, which had long
been the practice in many civil cases, it follows that such a statement,
subject to the provisions of section 6(3), is admissible as evidence of the
facts contained in it. It may be noticed in passing that the Civil Evidence Act
1972 extended the provisions of Part I of the 1968 Act to statements of
opinion. It may be deduced that whatever may have been the jurisprudential
arguments in the past seeking to rationalise the basis for the rejection of
hearsay evidence, now that its admission depends on procedure and discretion on
the one hand or agreement of the parties on the
bald terms in which it is couched.
So I remind
myself of what transpired in the Eldonwall case (see the judgment at p
419 H) and the reference by Mr Lightman to two further cases, namely, Gilbey
v Great Western Railway (1910) 102 LT 202 and Beare v Garrod
(1915) 113 LT 673. In all three cases it is apparent that objection to the
admissibility of the relevant hearsay statement was, or must have been, taken
during the course of the hearing; albeit in Garrod‘s case that it may
not have been taken until the witness giving that evidence had concluded it.
These cases were cited in support of Mr Lightman’s submission, but in my
judgment they do not help his case, for either by implied agreement or waiver,
by not taking the objection when the evidence was tendered, and bearing in mind
Mr Lightman’s statement that the Eldonwall case was well known in this
class of litigation, the tenants in the present case gave up their right to
insist upon compliance with the strict rules of evidence. I am fortified in
this conclusion in that under the provisions of the Civil Evidence Act the
admissibility of such evidence is, as I have stated, now a matter of
procedural, rather than substantive, law. In the event, such evidence became
admissible and it is for the arbitrator to assess its weight in accordance with
the provisions of section 6(3) of the Act.
After the
tenants had taken the point on the admissibility of the evidence of both Mr
Hepper and Mr Buckle (as appears from the case), the landlords in their turn
sought to take similar objection to the evidence of the tenants’ valuer, Mr
Lund. The landlords’ solicitor had not availed himself of the opportunity to do
so as the evidence was tendered. Mr Lightman sought to persuade me that Mr
Lund’s evidence was not in any material respect based on hearsay. From the
summary of the evidence of this witness in the case, the inference is that much
of it was based on hearsay and what could not be deduced as inference (for
example, the purported executed leases) manifestly was not the best evidence.
Further, if in truth Mr Lund did have personal knowledge of the various
comparables produced by him as evidence, the terms in which the summary of his
evidence in the case are cast tend strongly to the contrary effect, for if it
were otherwise it was an elliptical way of giving evidence of facts of which
the witness did have first-hand knowledge. As summarised in the case there is
no obviously sound reason for supposing that Mr Lund’s evidence stood on a
significantly different footing from the evidence of Mr Hepper and Mr Buckle
discussed above. It, too, was hearsay or depended on secondary evidence of
documents. The landlords by their conduct are to be taken as either having
agreed to the admissibility of hearsay evidence or, alternatively, to have
waived their right to object to it.
Except in
regard to matters of formality the courts do not encourage a party to reopen
its case after it has been closed. The classic statement on this topic is to be
found in Phipson on Evidence, 12th ed, para 1616, which reads:
Evidence in
reply, whether oral or by affidavit, must, as a general rule, be strictly
confined to rebutting the defendant’s case, and must not merely confirm that of
the plaintiff. Thus, where the latter had closed his case without calling a
defendant who did not appear, the plaintiff was not allowed to call him in
reply.
Having regard
to the view expressed above in regard to the hearsay question, no detailed
consideration of this topic is now called for; were it still to have been a
live issue I would have held that the arbitrator had no discretion on the facts
of this case to permit the landlords to reopen their case.
The final
point to call for consideration is whether or not the arbitrator had any
discretion or power to make an interim award. The arbitration agreement does
not expressly confer any such power. Section 14 of the Arbitration Act 1950
reads as follows:
Unless a
contrary intention is expressed therein, every arbitration agreement shall,
where such a provision is applicable to the reference, be deemed to contain a
provision that the arbitrator or umpire may, if he thinks fit, make an interim
award, and any reference in this Part of this Act to an award includes a
reference to an interim award.
Mr Sullivan’s
primary submission was that the word ‘expressed’ in this section meant just
that, and that it was not enough that the proper construction of the
arbitration agreement should lead to that result unless it expressly so stated.
I am quite unable to accept this submission. In its context the section
requires that the arbitration agreement should be construed as a whole, and if
that leads to the conclusion that it did not intend to provide for the
inclusion of the right to make an interim award then there is no such power.
Mr Lightman
drew attention to the phrase ‘where such a provision is applicable to the
reference’, and submitted that under the arbitration agreement embodied in
clause 6(c)(ii) of the underlease the arbitrator’s sole function was to
determine the market rent for the premises. That power expressly did not empower
him to determine anything but the market rent, so that any determination other
than that of the market rent would constitute an assumption of powers not
contained in the agreement. Moreover, as can be seen, this clause in the
underlease provides machinery for what is to happen in regard to the back
payment of the difference between the rent provided for by the underlease and
the market rent when it has been determined or agreed. Although not decisive of
the point, there are obvious difficulties in the way of applying this
machinery, first, to an interim award and, subsequently, to a final award. In
my judgment the language of clause 6(c)(ii) points strongly to the conclusion
that the arbitrator has, and is intended to have only, the power to determine what
is the market rent once and for all, and that the suggested provision that the
arbitrator has any power to make an interim award is inconsistent with the
language of this clause.
In coming to
this conclusion I have regard to the judgment of Lord Denning MR in Fidelitas
Shipping Co Ltd v V/O Exportchleb [1966] QB 630 at p 638 E, where he
said:
A special
case can now be stated with respect to an interim award, just as with a final
award: see sections 7(4) and 9(2) of the Arbitration Act, 1934, now replaced by
sections 14 and 21(2) of the Arbitration Act, 1950. Nowhere is an ‘interim
award’ defined. But it seems to me that an interim award may be of two kinds.
It may be an interim order made pending the final determination of the case;
such as an award that an instalment under a building contract be paid pending
final determination of the amount due. Or it may be an interim decision given
on a particular issue or issues between the parties, pending final
determination of the whole case; such as a decision that a contract was
concluded, but leaving over the question of damages. Such an award is not a
final award because the arbitrator has not exhausted his duties. It is,
however, an award because it is an order or decision on an issue calling for
determination. It is, therefore, an interim award: and it can be stated in the
form of a special case for the decision of the High Court.
and also to
the judgment of Goff J in SL Sethia Liners Ltd v Naviagro Maritime
Corporation [1981] 1 Lloyd’s Rep 18 at 25, col 2, where the learned judge
said:
There are
however two aspects of this power to which I must refer.
First, since
the jurisdiction of an arbitrator is a jurisdiction to decide disputes, it
follows that the power to make an award is a power to decide matters in dispute
between the parties. An award, interim or final, can only be an award in
respect of matters referred to the arbitrators for decision. It follows,
therefore, that (in the absence of some special agreement between the parties)
a submission of disputes to arbitration will not generally give the arbitrators
the power to order that one party shall pay a sum to the other, unless the
arbitrators decide that that sum is due and owing. Arbitrators can decide, by
way of interim award, that a minimum sum is payable by one party to the other,
if they decide that that sum at least is due and owing; but they cannot
generally order that one party should pay a minimum to another on account of
claims, simply because on a rough look at the case it looks as though such a
sum at least will prove to be payable, without actually deciding that that sum
is due and owing. So to order would result in a change in the parties’
respective economic positions, without deciding any matter in dispute;
generally speaking, arbitrators have no power to order such a change. The
second point is this. An interim award can relate to any issue in the matters
in dispute referred to the arbitrators; it may relate to an issue affecting the
whole claim (eg the issue of liability, reserving the issue of quantum for a
final award), or may relate to a part only of the claims or cross-claims
submitted to them for decision. It follows that arbitrators, when making an
interim award, must specify the issue, or the claim or part of a claim, which
is the subject matter of the interim award.
The answers to
the questions for the decision of the court are as follows: (1)(a) Yes; (b)
Yes; (2) Yes; (3) Does not arise; (4) No.
Editor’s
note. The questions of law submitted to the court
were the following:
1 (a) Whether
the evidence as to comparables tendered by Mr Hepper and Mr Buckle was hearsay;
(b) Whether the evidence as to comparables
tendered by Mr Lund was hearsay.
2 If the answer to either 1(a) or (b) is in
the affirmative, whether such evidence nevertheless is admissible.
3 If the answer to 2 is in the negative
whether
(a) it was too late for either the tenant or the
landlord to object to the admission of evidence after the conclusion of the
case, if no objection were taken to its admission during the course of the
evidence, or
(b) the arbitrator has a discretion to admit
such evidence;
(c) in the circumstances the arbitrator has a
discretion to permit the landlord to reopen its case and to grant an
adjournment for it to call further evidence.
4 Whether the arbitrator has a discretion to
make an interim award notwithstanding the provisions of paragraph 6(c)(ii) of
the underlease.
