Landlord and tenant — Rent review provisions in lease — Arbitration Act 1979 — Application by tenants for order requiring the statement of reasons for an arbitration award — This application arose following the second of five-yearly rent reviews, the first having also resulted in an arbitration but with a reasoned award — Questions had been raised in regard to the effect of a restriction on user clause in the lease — On the present occasion there had been no oral hearing and no request for a reasoned award — Tenants, a building society, sought leave to apply for an order under section 1(5) of the 1979 Act, and, if such leave were given, to apply for an order that the arbitrator do state the reasons for his award in sufficient detail to enable the court, in the event of an appeal, to consider any question of law arising out of the award — The landlords had not consented to the application, so that the tenants were obliged to obtain an order under section 1(6) of the Act — As neither party had given notice to the arbitrator that reasons would be required, the applicants had to satisfy the judge under para (b) of section 1(6) that there was ‘some special reason’ why such a notice had not been given
of law which might arise out of the award was whether the arbitrator should
have discounted the market value of the demised premises by reason of the
restrictions on user contained in the lease — Without knowing the arbitrator’s
reasons, the applicants submitted, it was not possible to know whether that
question of law did actually arise out of the award
before the court were: (1) was there a special reason why notice was not given
before the award that a reasoned award was required, (2) if so, should the
judge exercise his discretion to grant the leave sought by the tenants? — The judge considered two decisions referred
to him in this
noted that in the first case a misunderstanding between a party’s representative
and the secretary of the arbitration panel was held to constitute a special
reason, but in the second case a mere internal misunderstanding on one side
alone did not — In the present case there had been merely a failure by one of
the applicants’ advisers to appreciate that there was a challenge to the view
of the law taken by the arbitrator at the earlier of the two arbitrations —
Held that there was no special reason within section 1(6)(b) of the 1979 Act
and the tenants’ application must therefore fail
The following
cases are referred to in this report.
Gebr Van
Weelde Scheepvaartkantoor BV v Societe
Industrielle d’Acide Phosphorique et d’Engrais (The ‘Dynashinky’) [1986] 1
Lloyd’s Rep 435
Hayn
Roman & Co SA v Cominter (UK) Ltd [1981]
Com LR 168; [1982] 1 Lloyd’s Rep 295, DC
This was an
application by Leeds Permanent Building Society, tenants of a building in
Guildford Street, Chertsey, for leave to apply and for the consequential orders
under section 1(5) and (6) of the Arbitration Act 1979. The respondents were
the landlords, Latchmere Properties Ltd.
Victor Joffe
(instructed by Booth & Co, of Leeds) appeared on behalf of the applicants;
Joanne Moss (instructed by Philip Ross & Co) represented the respondents.
Giving
judgment, WARNER J said: This case arises out of an arbitration that took place
earlier this year under a rent review clause in a lease. The lease is dated
April 28 1980. It was made between Mallard Properties Ltd as lessor and the
Leeds Permanent Building Society as lessee. It is a lease for a term of 33
years from January 1 1980 of a building in Guildford Street, Chertsey,
consisting of a ground floor and first floor.
The rent
reserved by the lease was a peppercorn for the year 1980 and £10,000 per annum
for the years 1981 and 1982. Thereafter there were to be rent reviews at
five-yearly intervals, the first review date being December 31 1982 and the
second December 31 1987.
Clause 11(1)
in Schedule 3 to the lease was a user covenant in these (not entirely
grammatical) terms:
Not without
the previous written consent of the lessor (such consent not to be unreasonably
withheld in case of retail use within Class 1 of the Town and Country Planning
(Use Classes) Order 1972 which is consistent with the principles of good estate
management and which does not in the opinion of the lessor adversely affect the
rental or investment value of the building) to use or suffer or permit to be
used the demised premises except as ground-floor premises as a building society
only and the first-floor premises as offices for the lessee’s or under-lessee’s
purposes.
The ground
floor has at all material times been occupied by the Leeds Permanent Building
Society as offices. The first floor is sublet.
The first rent
review gave rise to an arbitration. The arbitrator on that occasion was Mr R C
Davy FRICS. He made a reasoned award on September 12 1983. The request that he
make a reasoned award had come from the building society’s surveyors. In his
award, Mr Davy said:
In making my
award, I considered there were several special points that I had to take into
account:
(a) Basis of rental valuation.
(b) The effect on rental value of the restricted
user clause and the Runnymede user restriction on the first floor.
‘The Runnymede
user restriction’ was a restriction imposed by the planning authority on the
type of tenant that could occupy the first floor. It had to be, to put it
shortly, a local tenant, not one from outside the area. Dealing with what he
called ‘heading (a)’, Mr Davy said, among other things, this:
I am of the
opinion that the arbitrator must fix the rent on the basis of the strict terms
of the lease and accordingly that the valuation must be on the basis of Class
II office use for the ground floor for building society use only and the first
floor Class II offices, as restricted to a Runnymede user only in accordance
with the planning approval. I am guided by the Plinth case* which came
before the Court of Appeal.
*Editor’s
note: Plinth Property Investments Ltd v Mott, Hay & Anderson
(1978) 38 P&CR 361; (1978) 249 EG 1167, [1979] 1 EGLR 17.
Then, after
quoting the terms of clause II(1) of the lease, he went on:
In my
opinion, consent for Class I user is so qualified that there are many bases on
which the landlord could resist this change of use and in reaching my valuation
I therefore disregard this possibility. In any case, the premises are occupied
as offices and in my opinion they should be so valued for the reasons already
given.
Turning to
‘heading (b)’ he said:
One of the
most important clauses of the lease is the restriction on the tenants not to
use the premises except as ground floor premises as a building society only.
This restriction would affect very seriously any rent which the lessee would
pay for the premises. He would not pay anywhere near the full market rent if
his use of the premises was restricted to the business of a building society
only.
Then, after
two sentences which I need not read, Mr Davy went on:
If the lessees
did wish to assign the lease they could only assign to another building society
or possibly a vague hope that they might get permission under Class I for shop
use, but as I have already said, I largely disregard this possibility.
In the last
two paragraphs of his award, Mr Davy concluded:
Again, I am
supported by the decision in the Plinth case in ruling that a deduction
must be made in the rental to reflect the very restricted user clause. I am
also of the opinion that a deduction must be made to reflect the restricted
market for the first-floor offices, having in mind the Runnymede user
restriction.
I have
considered all the rental evidence submitted by both parties and ignoring the
restrictions as to user and occupation, the valuation of £32,000 per annum
submitted by the landlord’s surveyors is correct. A deduction of 20% must be
made to reflect the restricted user clause and the restriction on occupation,
resulting in my valuation of the annual rack rental value at a figure of
£25,600 per annum, in accordance with the terms and conditions of the lease and
in accordance with my award.
In the case of
this year’s arbitration, the arbitrator was Mr W J Thornton FRICS.
On June 1 1988
he wrote to the surveyors to the parties setting out his proposals for the
conduct of the arbitration. Those surveyors were Mr A S Jones ARICS, for the
building society, and Mr R W Heard FRICS, for the landlord. The landlord is now
Latchmere Properties Ltd, which is the successor in title to Mallard Properties
Ltd. It does not appear that anyone dissented from Mr Thornton’s proposals.
Among those proposals were these, and I quote from his letter:
1 Each of you will forward to me, in writing,
in duplicate, before June 22 1988 your submissions in the matter.
2 I will exchange these submissions calling for
any counter-submissions before June 30 1988. The counter-submissions will
please relate only to the initial submissions of the other party and will not
introduce any new material.
. . .
5 Shortly after receipt of counter-submissions
I will arrange to inspect the property accompanied by both of you and as soon
as possible thereafter I will publish my award following payment of my fees in
the matter.
6 In the event that either party requires an
oral hearing before publication of my award then I will arrange such a hearing
requiring both of you to attend together with such witnesses and advocates as
you wish to appear, the other party being given prior notice of such
appearances.
7 In the event that a point of law arises during
the reference, I reserve the right to seek legal advice in the matter at the
expense of the parties to the dispute.
. . .
9 In the absence of a request to the contrary,
I will assume that a simple award is required and my charges are currently
estimated on that basis. In the event that either of the parties requires a
reasoned award then I am to be told as soon as possible when I will advise you
of the estimated increase in my charges.
Written
submissions were exchanged, as were written counter-submissions. The demised
premises were inspected internally and externally by Mr Thornton in the
presence of the parties’ surveyors, and the comparables cited by them were
inspected by him externally. No one asked for an oral hearing and no one asked
for a reasoned award. Mr Thornton signed his award on August 1 1988 and it was
published to the parties on or about that date.
Mr Jones, in
his submissions, had argued that the new rent should be £30,000 per annum. Mr
Heard, in his, had argued that it should be £55,000 per annum. Mr Thornton’s
award was £52,254 per annum. He did not, of course, give reasons for that
award.
The building
society now applies to this court for leave to apply for an order under section
1(5) of the Arbitration Act 1979 and, if that leave is granted, for an order
that Mr Thornton do state his reasons for his award in sufficient detail to
enable this court, should an appeal be brought under section 1 of the Act, to
consider any question of law arising out of the award.
Subsections
(5) and (6) of section 1 of the Arbitration Act 1979 are in these terms:
(5) Subject
to subsection (6) below, if an award is made and, on an application made by any
of the parties to the reference —
(a) with the consent of all the other parties to
the reference, or
(b) subject to section 3 below, with the leave of
the court,
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.
(6) In any case where an award is made without
any reason being given, the High Court shall not make an order under subsection
(5) above unless it is satisfied —
(a) that before the award was made one of the
parties to the reference gave notice to the arbitrator or umpire concerned that
a reasoned award would be required; or
(b) that there is some special reason why such a
notice was not given.
It is common
ground, first, that section 3 does not apply in this case; second, that the
landlord does not consent to this application so that the building society
needs the leave of the court under para (b) of subsection (5) of section
1; and, third, that para (a) of subsection (6) does not apply, so that,
before I can give that leave I have to be satisfied that there is some special
reason why the arbitrator was not given notice, before the award was made, that
a reasoned award would be required.
Two questions
thus arise or may arise: (i) Was there such a special reason? (ii) If so, should I in the exercise of the
court’s discretion grant the leave sought by the building society?
I have so far
heard full argument only on the first of those questions, it being conceded by
Mr Joffe, on behalf of the building society, that, if I should decide that
question against his client, the second question does not arise.
On behalf of
the building society it is said that the question of law which may arise out of
Mr Thornton’s award is whether he should have discounted what would otherwise
have been the open market rental value of the demised premises at the review
date by reason of the restrictions on user contained in clause 11(1).
Obviously, without knowing Mr Thornton’s reasons for his award, no one can tell
whether that question of law actually arises out of his award, nor could any
court before which an appeal was brought against his award consider it.
In his
original submissions to Mr Thornton, Mr Jones on behalf of the building society
referred to clause 11(1) and said that it remained unaltered and that ‘the
rental must be calculated having specific regard’ to it. He drew attention to
the terms of Mr Davy’s award in 1983 and annexed a copy of that award to his
submissions. He put forward two possible bases of valuation, each of which took
into account what he said was the effect of clause 11(1).
Mr Heard, when
he wrote his original submissions, does not appear to have been aware of the
contents of Mr Davy’s award. Nor did he attach any particular importance to
clause 11(1). He made only a brief reference to it.
However, in
his counter-submissions to Mr Jones’ submissions, Mr Heard adverted to the
point. He said: ‘I was interested to read the reasoned award of the previous
arbitrator, Mr R C Davy. I would take issue with the following comments made by
Mr Davy.’ One would expect a quotation
then from Mr Davy’s award, but there is none, possibly because of a failure on
the part of Mr Heard’s secretary to take in a passage that he had told her to
insert at that point. Be that as it may, Mr Heard went on: ‘I believe that we
should not disregard the possibility of landlord’s consent being granted for
retail use, nor indeed any other use within Class A2.’ That mention of ‘Class A2’ was a reference to
the Town and Country Planning (Use Classes) Order 1987, which superseded the
1972 order which is referred to in clause 11(1). Class A2 in the 1987 order
covers ‘use for the provision of financial and professional services to
visiting members of the public’. Mr Heard went on: ‘May I quote from Part 5 of
the Handbook of Rent Review by R Bernstein and K Reynolds, pp 501 and
502, para 5-13 headed ‘Forms of User Clause’.’
That was a long quotation and I will not take up time reading it.
Suffice it to say two things. First, Mr Heard omitted from his quotation a
crucial passage. The omission of that passage had the effect of radically
altering the meaning of the extract from Mr Bernstein’s and Mr Reynold’s work.
It is possible that that omission was due to the fact that Mr Heard was using
an out-of-date version of that work, which is, as we all know, in loose-leaf
form. Second, the impression conveyed by that extract with that omission was
that in law words such as ‘without the previous written consent of the lessor’
in a user clause in a lease in themselves imply that such consent should not
unreasonably be withheld. Mr Heard in his counter-submissions concluded:
It is clear
that the words ‘without consent’ and ‘without consent not unreasonably to be
withheld’ sufficiently widen the scope of user so as not to bear any
relationship between this matter and the ‘Plinth’ case where there was
an absolute prohibition.
Mr Jones in
his counter-submissions drew attention again to the ‘very restricted nature of
the user clause’ and to his point that ‘the property has to be valued as per
the terms of the lease’.
Mr Barker, the
building society’s senior estate manager, in an affidavit which he swore in
support of this application, said:
I am
conscious that the claimant
— that is the
building society —
is required
to show some special reason why notice was not given to the arbitrator that such
an award
— that is a
reasoned award —
would be
required. I am informed by the claimant’s surveyor and verily believe that he
did not request such an award for the following reasons. There had already been
a rent review arbitration on this lease conducted in September 1983. On that
occasion Mr Davy’s reasoned award clearly set out his view of the law as it
related to this lease and in particular the restricted user clause. Mr Davy’s
award was not challenged for erring in law, and as the Plinth case
applied thereby remained good, there was no reason to suspect the arbitrator
would take a different view of the law to that expressed in the previous award.
Mr Joffe,
enlarging on that paragraph, emphasised to me that there had been no appeal
against Mr Davy’s award, that there had been no variation of clause 11(1)
between the two arbitrations, and that the decision of the Court of Appeal in
the Plinth case was still good law. He submitted that in those
circumstances it was reasonable for Mr Jones to take the view that, as between
the parties to the arbitration, the matter of the significance of clause 11(1)
was concluded.
Mr Joffe had,
however, no answer to the question why Mr Jones was not alerted by the
counter-submissions of Mr Heard to the fact that the assumption on which Mr
Davy’s award had been based was being challenged. The assertion in Mr Barker’s
affidavit that there was no reason to suspect that the arbitrator would take a
different view of the law to that expressed in the previous award was plainly
wrong. Mr Heard had, in his counter-submissions, challenged that view. It seems
to me plain that, if Mr Jones had read Mr Heard’s counter-submissions
carefully, he would inevitably have spotted that they did indeed challenge the
view previously expressed by Mr Davy. The fact that he did not spot that can, I
regret to say, be attributed only to carelessness on his part.
Mr Joffe
sought to excuse that carelessness in two ways. First, he pointed to the fact
that what he called ‘the directions’ embodied in Mr Thornton’s letter of June 1
1988 did not envisage counter-counter-submissions. That is so, but those
‘directions’, if that be the right word to describe them, did leave it open to
either party to ask for an oral hearing. Mr Jones could have asked for such a
hearing. He did not do so.
Second, Mr
Joffe pointed to para 7 of the ‘directions’. He suggested that Mr Jones might
have been lulled into thinking that he need do nothing by Mr Thornton’s
omission to take legal advice on the question. That appears to me to be pure
speculation on Mr Joffe’s part. There is no evidence to support it.
Miss Moss, who
appears for the landlord, has referred me to The ‘Dynashinky’ [1986] 1
Lloyd’s Rep 435, a decision of Hobhouse J. I have also looked at the case
referred to by Hobhouse J there, namely Hayn Roman & Co SA v Cominter
(UK) Ltd [1982] 1 Lloyd’s Rep 295, a decision of Robert Goff J as he then
was.
In Hayn
Roman & Co SA v Cominter (UK) Ltd, a dispute arose between the
buyers and the sellers under a contract for the sale of Bolivian coffee on the
terms and conditions of the European Contract for Coffee. The dispute related
principally to the question whether the contract goods were shipped within the
contract period, and whether in all the circumstances of the case the buyers
were obliged to accept the documents and the goods. The dispute was referred to
arbitration in London in accordance with the arbitration clause in the
contract. The arbitrator found in favour of the sellers and the buyers appealed
to the Committee of Appeal of the Coffee Trade Federation.
In his
judgment, Robert Goff J found the relevant facts as follows:
. . . before
the appeal was heard, certain communications passed between Mr Wiseman, who was
then acting as solicitor for the buyers, and Mr Webster, the secretary of the
Coffee Federation. There have been placed before the Court affidavits sworn by
both Mr Wiseman and Mr Webster. From this affidavit evidence it is clear that,
as a result of the communications which so passed, which consisted partly of
letters and partly of telephone conversations, a perfectly bona fide
misunderstanding arose between Mr Wiseman and Mr Webster, for which no fault is
to be attributed to either. As a result Mr Wiseman was under the impression
that the Committee of Appeal would publish a reasoned award after the hearing,
whereas Mr Webster was not under the impression that the buyer had asked for
the award to be a reasoned award.
Later in his
judgment, Robert Goff J said:
. . . having
regard to this misunderstanding which arose between Mr Wiseman and Mr Webster,
I am not prepared to hold that a notice was given in sufficiently clear terms
to constitute a notice within section 1(6)(a). Accordingly, the question arises
whether there is in the present case some special reason why such a notice was
not given.
Mr Hooper
— counsel for
the seller —
submitted
that section 1(6)(b) should be narrowly construed and that the only
circumstances which should give rise to a special reason under that subsection
were circumstances in which the applicant had been misled in some way and in
consequence failed to give the requisite notice. I am unable to accept this
submission. In my judgment the subsection must be construed sensibly in its
context. The purpose of the prior notice to the arbitrator, as it seems to me,
is to prevent arbitrators from being required to give reasons after the award,
by which time their memories may have become dimmed and it may become difficult
for them to recall the case in sufficient detail to give a reasoned award. For
my part I can see no good reason why an event which does not derive from any
misleading of the applicant should not constitute a special reason within
section 1(6)(b). For example, if a notice went astray by accident, that
could well be a special reason why the notice was not given for the purposes of
the subsection. Similarly, I can see no good reason why a bona fide
misunderstanding between a solicitor acting for the applicants and the
secretary of a trade federation, as a result of which there arose a belief in
all good faith that a request for a reasoned award had been made before the
award should not constitute a special reason why a notice was not given.
He then went on
to exercise the court’s discretion in favour of the buyer.
In The
‘Dynashinky’, there was a dispute between the owners and the charterers of
a vessel. The material facts are summarised in the headnote as follows:
At the
hearing before the arbitrators the parties were represented by Counsel and
solicitors. The owners’ practice was to ask for reasons for an award but
neither the assistant solicitor nor Counsel was aware of it. The solicitor
partner had no recollection of giving any specific instructions to Counsel
about the question whether reasons should be asked for nor had he any
recollection of even discussing the matter with Counsel. The position, so far
as Counsel was concerned, was that he understood he had been instructed during
a conversation with the solicitor partner not to ask for reasons. Therefore
when the arbitrators raised the question whether there should be a reasoned
award, both Counsel told the arbitrators that such an award was not required.
The award was
in favour of the charterers. In his judgment, Hobhouse J said:
First of all
I have to consider whether or not there is some ‘special reason’ here why no
notice was given. The only previously decided case to which I have been referred
is Hayn Roman & Co SA v Cominter (UK) Ltd [1982] 1 Lloyd’s
Rep 295, where there was a misunderstanding between the party’s representative
and the secretary of the arbitration panel. There is nothing of that kind here.
It is purely an internal misunderstanding on one side alone, which does not
involve the tribunal at all, still less the other side, and I think this is a
case which is right at the threshold of providing some special reason. There is
a reason but it is very doubtful whether it merits the epithet ‘special’. It is
the sort of situation of forgetfulness or lack of efficiency on one side which
is a reason but is likely to be the only situation in which such a reason would
arise beyond a case where there is no reason whatsoever. So it is really at the
threshold of the type of situation that one has to consider. But I do not think
it is appropriate to decide this case on a strict evaluation of whether the
circumstances justify the word ‘special’ or not because before I can accede to
the owners’ application I have also to exercise a discretion in their favour. I
consider the right approach is to take into account the very marginal character
of the allegedly special reason that is disclosed in conjunction with the other
factors that would influence the exercise of my discretion.
He then went
on to exercise the discretion of the court against the owners, mainly on the
ground that there was no realistic prospect that there was going to be an
appealable point of law in that case if the arbitrators were asked to state
reasons.
There are two
other paragraphs in his judgment which I find helpful. One is in these terms:
The policy of
this part of the Act has at least two discernible strands. One is that
arbitrators must not be oppressed by being asked, many months or weeks after
they have prepared their award, to give reasons for that award. They ought to
be asked to deal with it at the time when the matter is fresh in their memory.
That is one of the factors that is mentioned in the Cominter case.
Later he says:
The other
strand of policy is that there must be finality in arbitrations and parties
should not be allowed to wait and see how the award comes out before they
decide whether or not it should be a reasoned award. They should ask for their
reasons before the award is made. Reasons when given are available to both
sides and they can each consider whether or not they should seek leave to
appeal. What I would regard as clearly unacceptable is that one party should
try and have it both ways and wait and see — finality if he wins, an appeal if
he loses.
Miss Moss
submitted that, if The ‘Dynashinky’ was a marginal case, the present
case did not even reach the margin. It was understandable enough that a
misunderstanding between the professional adviser of one of the parties and the
arbitrator or his staff should constitute a special reason within the meaning
of the Act. It was understandable that the court should take the view that a
misunderstanding between the professional advisers of one of the parties might constitute
such a special reason. But pure carelessness on the part of the professional
adviser of one of the parties could not, Miss Moss submitted, constitute a
special reason within the meaning of section 1(6)(b).
I agree. It
seems to me that a special reason within the meaning of that provision must
mean a reason why it would be unjust to deny to the applicant an opportunity of
appealing to the court despite the fact that he failed to require the
arbitrator, before the award was made, to give reasons for his award. To my
mind it cannot be a special reason in that sense that the failure was due to
carelessness on the part of a professional adviser of the applicant.
I conclude
that there is no special reason within the meaning of the Act in this case and
that this application must therefore fail.
The
application was dismissed with costs.
