Landlord and tenant — Rent review — Arbitration — Arbitrator’s award challenged by tenants — Preliminary question as to extension of time for bringing present proceedings — Leave sought to appeal under section 1(2) of Arbitration Act 1979 on a question of law — Alternatively, order sought under section 22 of Arbitration Act 1950 for remission of award on ground of procedural mishap — Extension of time would not be granted unless there was merit in the points of substance
arbitration was as to the rent payable on the first rent review relating to a
term of 35 years from 1981 of a Gateway superstore at Luton, of which the
plaintiffs were the tenants and the defendants were the landlords — Rents for
superstores were normally assessed on either a ‘shell’ or a ‘fitted-out’ basis,
the rents of the latter being by convention some 10% higher than the former, to
reflect the time and expense of fitting out — The unfortunate difficulty which
arose in the present case was a dispute as to whether a particular ‘comparable’
(a superstore at Swindon) placed before the arbitrator had been valued on a
shell or fitted-out basis by the expert who carried out the valuation — The
landlords’ surveyor asserted that the Swindon store had been valued on a shell
basis, whereas the tenants’ surveyor said that it had been valued on a
fitted-out basis; each surveyor produced some supporting correspondence — The
arbitrator
result was confusion rather than enlightenment — In his award the arbitrator
said that he was satisfied that the Swindon store had been valued on a shell
basis at £8.50 per sq ft and he assessed the Luton store on the same basis,
adding 10% for fitting out; the rent awarded was £637,000 per annum — It should
be mentioned that there were six comparables suggested by the landlords and
nine suggested by the tenants
challenged before the judge was the arbitrator’s conclusion that the expert’s
award of £8.50 per sq ft had been on a shell basis — The tenants attacked this
conclusion, which was a finding of fact, as erroneous — In reply to the
objection that a finding of fact could not give rise to a question of law, the
tenants argued, and the judge agreed, that it could do so if it passed the
Edwards v Bairstow test — This would require it to be shown that the true and
only reasonable conclusion contradicted the finding of the arbitrator — Even
then there would still be the question whether leave to appeal should be given,
having regard to the policy of the 1979 Act and the provisions of section 1(4)
thereof — On the question of law the judge had to be satisfied that the
evidence before the arbitrator was bound to lead to the conclusion that the
Swindon award was on a fitted-out basis — There was, however, evidence before
the arbitrator for and against that conclusion — It was impossible to say that
the Edwards v Bairstow test was satisfied
alternative ground for relief put forward by the tenants was procedural mishap,
exemplified in the case of Shield Properties & Investments Ltd v Anglo-Overseas
Transport Co Ltd — It was suggested that when the arbitrator asked the parties
for clarification he indicated his inability to reach a decision as to the
basis of the Swindon award without further evidence, but three days later,
without real evidence, he concluded that the valuation had been on a shell
basis — The judge was not satisfied that any procedural mishap had occurred
tenants’ case would fail on the merits the judge refused to extend time for
serving the originating notice of motion and entering the appeal — In
dismissing the application he emphasised how important it was for arbitrators
and experts to state clearly in their decisions whether they were valuing
premises on a shell or fitted-out basis
The following
cases are referred to in this report.
Edwards v Bairstow [1956] AC 14; [1955] 3 WLR 410; [1955] 3 All ER
48; (1955) 48 R&IT, HL
Pioneer
Shipping v BTP Tioxide Ltd (‘The Nema’)
[1982] AC 724; [1981] 3 WLR 292; [1981] 2 All ER 1030, HL
Shield
Properties & Investments Ltd v Anglo-Overseas
Transport Co [1985] 1 EGLR 7; (1985) 273 EG 69
The
plaintiffs, Fine Fair Ltd, asked for an extension of time (as they had failed
to comply with Ord 73, r5) to serve an originating notice of motion seeking
leave to appeal under section 1(2) of the Arbitration Act 1979 on a question of
law arising out of the award of Mr P J Heard FRICS in relation to a rent review
affecting the Gateway superstore in Luton. Alternatively, the plaintiffs sought
a remission of the arbitrator’s award under section 22 of the Arbitration Act
1950. The defendants were the landlords, Kenmore Investments Ltd. If leave to
appeal under the 1979 Act was given, the plaintiffs asked the court to
determine the appeal.
David Neuberger
QC (instructed by Cannons) appeared on behalf of the plaintiffs; Kirk Reynolds
(instructed by Stephenson Harwood) represented the defendant landlords.
Giving
judgment, PETER GIBSON J said: By an originating notice of motion dated March 4
1988 the plaintiff, Fine Fare Ltd (‘the tenant’) seeks to challenge the
correctness of one finding in the award made on January 29 1988 by an
arbitrator determining a disputed rent review. The tenant thereby failed to
comply with the time-limit laid down by Ord 73, r5 of 21 days from the making
and publication of the award to the parties. Accordingly, it seeks an extension
of time for serving the originating notice of motion and entering the appeal.
If that is allowed then it seeks leave under section 1(3)(b) of the
Arbitration Act 1979 to appeal under section 1(2) on a question of law arising
out of the award and if leave is given it asks that the court should determine
the appeal. Alternatively, but again conditionally on obtaining an extension of
time, it seeks an order under section 22 of the Arbitration Act 1950 for the
remission of the award to the arbitrator on the ground that a procedural mishap
has occurred.
The failure by
the tenant to observe the time-limits has been explained as arising from the
fact that the tenant’s solicitors fell into the trap of believing that the
21-day period ran from the date when the tenant received the award. The only
prejudice to the defendant landlord from that delay of a few days which has
been drawn to my attention lies in the fact that the tenant has withheld paying
the full rent awarded on the ground that it was disputed. But that could be
dealt with for the future by the imposition of suitable conditions for prompt
payment and, in any event, under the lease high rates of interest are payable
on outstanding rent. The main question, as Mr Neuberger (appearing for the
tenant) recognised, is whether there is merit in the tenant’s arguments on the
points of substance, as, if the court is not so satisfied, leave to extend time
will not be given.
The background
facts are these. The tenant has the lease of a superstore known as the Gateway
Superstore in Luton. The defendant, Kenmore Investments Ltd, is the present
landlord, another company having been the landlord until quite recently; but it
is unnecessary to distinguish between them. The lease is one for a term of 35
years from January 26 1981, with rent reviews every five years. The parties
were unable to agree the rent at the first review date on January 26 1986 and
the matter went to arbitration. Mr P J Heard FRICS, was appointed as arbitrator
and the arbitration proceeded by way of written submissions and
counter-submissions from the chartered surveyors acting for the landlord and
the tenant respectively. As is customary, reliance was placed by each side on
comparables. Rents for superstores may be agreed or awarded on one of two
different bases: a shell basis or a fitted-out basis, the latter basis
conventionally being some 10% higher than the shell basis, to reflect the time
and expense of fitting out.
The landlord’s
chartered surveyor, Mr Duncan J Thompson, in his written submission, relied on
the award made on November 12 1987 by an independent expert (‘the expert’) in
respect of the Carrefour superstore at West Swindon (I shall call the store
‘Swindon’) as a comparable and he asserted that Swindon had been valued on a
shell basis. That assertion was backed by a signed statement from J Turner
& Sons (‘Turners’), the agents of the Swindon landlord. The tenant’s
chartered surveyor, Mr N S Nichols, did not refer to Swindon in his written
submission, but in his counter-submission he disagreed with Mr Thompson as to
the basis on which Swindon had been valued. He asserted that it was on a
fitted-out basis and he attached correspondence between him and Donaldsons, the
agents of the Swindon tenant, and a statement signed by Donaldsons backing that
assertion.
On January 18
1988 the arbitrator exchanged the rival counter-submissions. On January 22 Mr
Nichols wrote to the arbitrator saying that although a number of comments made
by Mr Thompson were either untrue or an incorrect interpretation of Mr Nichols’
view, he was happy for the arbitrator to draw his own conclusion from the
submissions and counter-representations. On January 26 the arbitrator wrote to
both sides, expressing his concern that on Swindon there was a direct conflict
of evidence. He pointed out that he had not seen the expert’s award on Swindon
but said he would appreciate clarification from both surveyors to the dispute
as to whether the award was for a fitted-out store or a shell unit. He said
that he was not asking for an interpretation of whether the expert was right or
wrong but merely what was awarded. He said it would be appreciated if the
parties could clarify the point by noon on Thursday January 28, that he was
departing for three weeks’ leave from that weekend and, if the contents of his
letter could be resolved, he hoped to be able to advise the parties that his
reasoned award was ready before the end of the week.
On January 27
Mr Thompson wrote to the arbitrator about Swindon as follows:
I have spoken
again to the landlord’s agents, J Trevor & Sons, and they re-assure me that
this superstore was valued on review on a ‘shell’ basis.
The lease does
not provide for the premises to be valued with the benefits of
Arbitrator’s semi-reasoned Award.
I understand
that the tenant’s agents, Donaldsons made it quite clear in their counter
submission and explicitly stated that the ‘premises are valued to a shell
finish’. I am therefore surprised at Messrs Donaldsons confirmation that the
store was valued on a fitted out basis and assume that this was an error which
will no doubt be confirmed by Mr Nichols.
On January 28
Mr Nichols wrote to the arbitrator that he had telephoned Mr Thompson to try to
agree the basis of the expert’s award in respect of Swindon but that was not
possible. He provided a copy of the expert’s award and also a copy of an award
made by an arbitrator in 1986 in respect of a superstore at Taunton, which was
relied on by the expert as a comparable. He continued: ‘With regard to the
Taunton comparable Mr Thompson accepts that the Taunton determination was based
on a fitted out store . . .’ Mr
Thompson, in his affidavit, has stated that it is not correct for Mr Nichols to
say that he did so accept. However, that refutation was not made to the
arbitrator and I must ignore it. Mr Nichols expressed his opinion that the
expert considered that the Taunton comparable provided helpful evidence in
arriving at the value of Swindon and that both reviews fell to be determined on
a similar basis as fitted-out stores. He also expressed his view on the basis
of the relevant lease extracts that the true basis of valuation of Swindon was
as a fitted-out store and that, since the expert was acting as such, it was a
proper assumption that he also came to that conclusion and Mr Nichols said that
that view had been confirmed by the tenant’s solicitors and counsel.
The letters of
January 27 and 28 were exchanged by the arbitrator and on January 29 the
arbitrator made his award. He stated that it was common ground that he was to
add 10% to the shell value to reflect the benefit of the fitting-out works. He
referred to the six comparables suggested by the landlord and the nine
comparables suggested by the tenant. He said that four of them were the most
useful comparables and from which he drew most assistance, but he commented
that none of the comparables was in Luton and he found none to be ideal. He
considered each of the four comparables and said of Swindon that he was
satisfied that the expert had arrived at a figure of £8.50 per sq ft and, from
the information put in on the question of whether the award was on a shell or
fitted-out basis, it appeared to him that the award was for a shell unit. He
valued the Luton superstore at £8.50 on a shell basis, to which he added 10%
for fitting out, and made an award that the rent was £637,000 per annum.
The one point
challenged by the tenant is the arbitrator’s conclusion that the expert’s award
of £8.50 in respect of Swindon was on a shell basis. Mr Neuberger submits that
it was erroneous. He accepts that it is impossible for the court to say what
effect the correction of the error would have had on the award and that it
would have been anything from no effect at all to being excessive by 10% (on
the figures given, some £56,000 per annum). Accordingly, he submits that the
court should remit the award to the arbitrator to determine the matter.
The point that
is challenged is a finding of fact. Mr Reynolds submitted that, in the light of
the changes effected by the Arbitration Act 1979 and in particular the removal
of the jurisdiction to set aside or remit an award on the ground of error of
fact or law on the face of the award (section 1(1)), the arbitrator’s finding
of fact cannot be said to give rise to a question of law so as to be a proper
subject of appeal under section 1(2).
Mr Neuberger’s
riposte was that there could be an error of law even in relation to a finding
of fact, provided that the matter sought to be impugned fell within the
well-known principles of Edwards v Bairstow [1956] AC 14, to
which approving reference was made by the House of Lords in Pioneer Shipping
Ltd v BTP Tioxide Ltd [1982] AC 724. He accepted that he would have
to go so far as to show that the true and only reasonable conclusion
contradicted the finding of the arbitrator. I accept that if Mr Neuberger can
make good that submission he would have shown that a question of law did arise,
but that would still leave extant the question whether leave to appeal should
be given, having regard to the policy of the 1979 Act and the provisions of
section 1(4) thereof.
Does a
question of law arise on the facts? Mr
Neuberger suggested that an appropriate starting point was the letter of
January 26 from the arbitrator to the two surveyors which, he said, showed that
the arbitrator was unable to determine the basis of the Swindon award on what
had been put before him up to that time. He submitted that the only admissible
further evidence received thereafter by the arbitrator was that from Mr
Nichols, which supported the view that the award at Swindon was on a fitted-out
basis. I cannot accept that assessment of the arbitrator’s position on January
26. His letter simply shows that he had observed that there was a conflict of
evidence which he hoped the parties would be able to clarify. It does not mean
that he had made any further evaluation of the evidence at that stage and
indeed it would have been unnecessary to attempt to do so had agreement, which
it was not unreasonable to expect, been forthcoming. The relevant question for
me to determine is whether the evidence before the arbitrator when he made the
award was bound to lead to the conclusion that the Swindon award by the expert
was on a fitted-out basis. Mr Neuberger criticised the contents of Mr
Thompson’s letter of January 27 as being secondhand hearsay. Let me accept that
it was strictly inadmissible and to be disregarded, though I do not think it
possible to say whether any, and if so what, weight was placed by the
arbitrator on the contents of that letter. Nevertheless, whatever my own views
would have been if I myself were determining the question, I cannot say that on
the admissible material before him the arbitrator must have been wrong in
concluding that Swindon was valued on a shell basis. There was evidence for and
against that conclusion. In the correspondence exhibited by the tenant to its
counter-submission, a letter from Mr Nichols to Mr J A Nettleton, the chartered
surveyor in Donaldsons who dealt with the Swindon award, revealed that Mr
Nettleton had taken the view that Swindon should be valued on a shell basis.
That was in accord with the evidence of Turners as to the actual basis on which
Swindon was valued. The letter further reveals that there was even the
possibility of legal action concerning the basis of the Swindon valuation. The
award of the expert shows that he relied on the Taunton comparable in reaching
his conclusion of £8.50 per sq ft and the evidence before the arbitrator
suggests that Taunton was valued on a fitted-out basis. But, as Mr Neuberger
accepted, it is not possible to show therefrom mathematically that Swindon must
have been valued by the expert on a fitted-out basis. While I see force in Mr
Neuberger’s submission that one would naturally expect the expert, when he
referred to Taunton and then gave his decision on Swindon, to be dealing with
both on the same basis in the absence of any comment to the contrary, all that
the expert said was that he had valued Swindon higher, and Swindon was valued
higher whether it was on a shell basis or a fitted-out basis.
Mr Neuberger
further submitted that the court should take account of the true construction
of the Swindon lease, which showed that the valuation should have been on a
fitted-out basis. But the question for the arbitrator, as he himself pointed
out in his letter of January 26, was what the expert did, not whether he was
right in doing what he did. In my judgment, therefore, the Edwards v Bairstow
test is not satisfied and no question of law arises. That being so, I shall not
explore the further difficulties which the tenant would have to surmount before
leave to appeal could be given.
The
alternative relief of a remission on the ground of a procedural mishap was
based on Shield Properties & Investments Ltd v Anglo-Overseas
Transport Co Ltd [1985] 1 EGLR 7. Bingham J in that case had ordered a
remission in circumstances in which one party had a justified sense of
grievance that he might have been prejudiced by the procedural course taken by
an arbitrator, hearsay evidence from one side having been admitted and a letter
not being disclosed to the other side.
Mr Neuberger
again relied on the letter of January 26 from the arbitrator as indicating the
arbitrator’s inability to reach a decision as to the true basis of the Swindon
award, without further evidence, and yet, three days later, having received
only admissible hearsay evidence in favour of a shell basis, concluding that
Swindon was valued on a shell basis.
For the
reasons which I have already given, I do not accept that interpretation of the
arbitrator’s letter and there is nothing to indicate what, if any, weight was
placed by the arbitrator on Mr Thompson’s letter of January 27. I am therefore
not satisfied that any procedural mishap did occur and I would not regard the
mere possibility of hearsay evidence having been incorrectly admitted as a
sufficient ground for making a remission. In this context I bear in mind the
comments of the Court of Appeal in Moran v Lloyd’s [1983] QB 542
to the effect that the power under section 22 to remit cannot be used as a
back-door method of circumventing the restrictions, created by the Act of 1979,
upon the court’s power to intervene in arbitral proceedings.
Accordingly,
despite Mr Neuberger’s attractively presented submissions, in my judgment, on
the merits, the tenant’s case would fail and I shall not extend time. I
therefore dismiss the application.
I would only
add that this case has demonstrated how important it is that arbitrators and
experts should expressly state in their awards whether they are valuing
premises on a shell or a fitted-out basis.
