Arbitration Act 1979 — Application for leave to appeal — Point of law — Proper test for granting leave — Whether guidelines laid down by the House of Lords in The Nema and The Antaios in relation to shipping and commercial cases were applicable to disputes concerning rent review clauses in leases — Vice-Chancellor’s criterion of ‘real doubt’ in Lucas Industries plc v Welsh Development Agency and in the present case — Appeal from Vice-Chancellor’s decision in present case — Wrong test applied — Strong prima facie case of error should be shown — Decision of Vice-Chancellor affirmed but on different grounds — Leave to appeal to House of Lords refused
background was briefly as follows — By a 1955 agreement the appellant company,
Fisons plc, as part of an agreement for the construction of an office block,
was granted a lease of a site owned by the respondent council for a term of 99
years at a rent of £530 pa with no provision for a rent review — The agreement
contained an undertaking by the respondent council to let within 21 years a
further site in the vicinity for use as a permanent car park for a term
expiring with the original lease — In 1982, the 21-year limit having expired, a
further agreement extended the time for the offer of a car park lease — Such an
offer was in fact made in 1986 and contained terms which were the cause of
dispute — The proposal by the respondent council was that the car park lease
should expire at the same time as the main lease, should be based on contemporary
(1980s) rental values and should include a provision for rent review — The
appellants, on the other hand, contended that, as the offer was made pursuant
to an obligation in the 1955 agreement, the rent should be based on 1955 values
and that there should be no rent review provision — The dispute was referred to
arbitration and the arbitrator, Mr David R Crome, a solicitor, decided in
favour of 1955 rental values and the exclusion of rent reviews — The
respondents applied under the Arbitration Act 1979 for leave to appeal, which
was granted by Sir Nicolas Browne-Wilkinson V-C — The appellants brought the
present appeal against the Vice-Chancellor’s decision
of Appeal Lord Donaldson of Lymington MR explained that the guidance given by
the House of Lords in The Nema and The Antaios (guidance which Parliament had
not given in the Arbitration Act 1979) was expressed in the context or matrix
of shipping contracts but was intended to have wider import — The general
approach of courts must be in favour of finality in arbitral awards — Subject
to this the House had formulated guidelines as to the way in which discretion
should be exercised — Such guidelines were of general application but subject
to adaptation to meet problems not then foreseen — Lord Donaldson disagreed
with the Vice-Chancellor’s view that there was nothing in rent review cases
which corresponded to standard commercial contract clauses — There is always a
presumption in favour of finality and where there is nothing to rebut it the application
for leave to appeal from an award ‘should be unceremoniously refused’ — In
order to rebut the presumption a prima facie case of error on the part of the
arbitrator must be shown — The strength of this prima facie case may vary,
depending on different factors, such as, for example, widespread reliance on
the clause in dispute or the serious consequences to the parties of an error —
But ‘the bottom line must always . . . be . . . that there is a more or less
strong, but still ‘strong’, prima facie case that the arbitrator has erred in
law’ — Thus the Lucas test, formulated by the Vice-Chancellor and applied in
the present case, that leave should be given if the judge is ‘left in real
doubt’ is now rejected in favour of the stricter test — The court considered
that there was in the present case a strong prima facie case for considering
that the arbitrator had erred in law in concluding that the rent and terms of
the lease offered should be those which the parties would have agreed in 1955 —
As, however, the Vice-Chancellor had decided to give leave to appeal, although
on the basis of a test now rejected by the Court of Appeal, his decision would
be affirmed — Leave to appeal to the House of Lords was refused
The following
cases are referred to in this report.
Aden
Refinery Co Ltd v Ugland Management Co Ltd
[1987] QB 650; [1986] 3 WLR 949; [1986] 3 All ER 737; [1986] 2 Lloyd’s Rep 336,
CA
Antaios
Compania Naviera SA v Salen Rederierna AB
[1985] AC 191; [1984] 3 WLR 592; [1984] 3 All ER 229, HL
Lucas
Industries plc v Welsh Development Agency
[1986] Ch 500; [1986] 3 WLR 80; [1986] 2 All ER 858; [1986] 1 EGLR 147; (1986)
278 EG 878
Pioneer
Shipping v BTP Tioxide Ltd (‘The Nema’)
[1982] AC 724; [1981] 3 WLR 292; [1981] 2 All ER 1030, HL
This was an
appeal by Fisons plc from the decision of Sir Nicolas Browne-Wilkinson V-C
granting an application by Ispwich Borough Council for leave to appeal from the
decision of an arbitrator on the ground of error of law in the construction of
agreements leading to the offer of a lease of a car park by the council. The
arbitrator was Mr David R Crome, solicitor, and the error alleged was that the
terms and conditions of the proposed lease offered in 1986 were to be on the
basis of the rent and other terms which the parties would have agreed at the
time of a 1955 agreement.
David Grant
(instructed by the solicitors’ department of Fisons plc) appeared on behalf of
the appellants; Kirk Reynolds (instructed by Westhorp Ward & Catchpole)
represented the respondent council.
Giving judgment,
LORD DONALDSON of LYMINGTON MR said: This is an appeal against a
decision of the Vice-Chancellor giving leave to appeal to the High Court from a
decision of an arbitrator. The background facts and the reasons for the
Vice-Chancellor’s decision are reported in [1989] 3 WLR 818 and [1989] 2 All ER
737.
The appeal
raises two issues, the first of which is of general importance:
(i) What criteria should be adopted in deciding
whether or not to
subject-matter of the arbitration is not ‘commercial’ in the sense of being
concerned with contracts of maritime affreightment as was the case in The
Nema [1982] AC 724 and The Antaios [1985] AC 191?
(ii) Did the Vice-Chancellor misdirect himself
when exercising his discretion to grant leave to appeal to the High Court in
this case?
Let it be said
at once, although the contrary was not argued, that in the light of the fact
that this court has not hitherto had any opportunity of considering the first
of these issues, this was a case which abundantly justified the grant of leave
to appeal to this court under section 1(6A) of the 1979 Act.
In enacting
sections 1(3)(b) and 1(4) of the 1979 Act, Parliament gave the courts no
guidance upon how their discretion should be exercised, save that leave to
appeal should not be given unless the determination of the question of law
concerned could substantially affect the rights of one or more of the parties
to the arbitration agreement. In other words, questions of law, however
important, should not be referred to the High Court for decision if, as between
the immediate parties, the matter was largely academic.
It was left to
the House of Lords, in its judicial capacity, to supply the guidance which
Parliament had failed to give. In the nature of things this occurred in
particular factual matrices, both of which happened to be shipping contracts, a
subject-matter which over the decades has contributed more than most to the
development of the law, both of contract and of arbitration. However, it would,
I consider, be a profound error to conclude that their lordships intended their
guidance to be confined to shipping disputes or indeed to the wider category of
disputes in respect of which special provision is made in section 4 of the Act,
ie shipping, insurance and commodity trade disputes.
In Aden
Refinery Co Ltd v Ugland Management Co Ltd [1987] 1 QB 650, to which
the Vice-Chancellor does not appear to have been referred, Mustill LJ at p 667
pointed out that in both The Nema and The Antaios there is a
clear distinction to be drawn between (a) passages in the speeches which
constitute authoritative pronouncements on the spirit in which judges should
approach the exercise of the discretionary power under section 1(3) and (b)
guidelines or illustrations of the way in which, approaching the matter in that
spirit, the discretion would be exercised in certain situations which are
commonly encountered.
The approach
should always be consistent with what Lord Diplock had described in The Nema
(at pp 739-40) as
a
parliamentary intention to give effect to the turn of the tide in favour of
finality in arbitral awards . . . where this does not involve exposing
arbitrators to a temptation to depart from ‘settled principles of law’.
On the other
hand the guidelines, as again Lord Diplock had said, in The Antaios (at
p 200)
are not
intended to be all-embracing or immutable, but subject to adaptation to match
changes in practices when these occur or to refinement to meet problems of
kinds that were not foreseen, and are not covered by what was said by this
House in The Nema.
I regard it as
settled law that a decision on whether or not to grant leave to appeal to the
High Court should be arrived at after only brief argument. It is not the
function of the judge to hear the putative appeal, before deciding whether or
not to grant leave. But this still leaves open the question of what test he is
to apply.
The
distinguishing feature between arbitration and litigation is that, in the
former case, the parties have chosen to submit their dispute to a tribunal of
their own choice in preference to the courts. In making this choice they may
have been influenced by a number of considerations, such as the expertise of
the chosen tribunal, privacy, speed, wider rights of representation,
flexibility of procedure, improved enforceability in other jurisdictions, cost
and many other matters. But the fundamental point is that it was their choice.
If, in the light of the award, both parties in effect resile from that
choice and wish to seek a decision from the courts on the legal aspects of
their dispute, they are free to do so without leave — see section 1(3)(a).
But if it is only the party aggrieved by the award who seeks to do so, there is
a presumption in favour of finality and thus against granting leave. However,
the presumption is neither irrebuttable nor is it of constant weight. On the
other hand it always has some weight. This is inherent in the parliamentary
intention to give greater weight to finality than had been the case prior to
the passing of the 1979 Act.
I would add
that it is always open to parties to an arbitration agreement, whether made before
or after the dispute arises, to agree that there shall be an appeal to
the court on questions of law, if either party in the event wishes to appeal.
This would either constitute a sufficient consent to satisfy section 1(3) of
the 1979 Act or a very powerful reason for giving leave, subject only to
section 1(4).
In Lucas
Industries plc v Welsh Development Agency [1986] Ch 500,* the
Vice-Chancellor held that the guidelines appropriate to the grant or refusal of
leave to appeal in commercial and shipping contracts would not be directly
applicable in the case of disputes relating to rent review clauses. His reasons
were that (a) in this field there was nothing that corresponded to standard
commercial contract clauses, (b) points could arise which were of general
application under the general law and (c) a decision in relation to one rent
review could create an issue estoppel in relation to later reviews over a very
long period of time. He held that the appropriate guideline was that if, after
hearing submissions, the judge is left in real doubt whether the arbitrator was
right in law, leave should be given. This decision has been applied in a number
of subsequent cases.
*Editor’s
note: Also reported at [1986] 1 EGLR 147.
If the
Vice-Chancellor had been referred, as we have, to the Aden Refinery
case, I think that he would instead have said that in rent review cases, as in
all other applications for leave to appeal from awards of arbitrators, the
court should approach the matter in the frame of mind dictated by The Nema
and The Antaios, namely with a bias towards finality. But he would have
also said that the guidelines might require adaptation if, and in so far as, in
particular cases the problem was not covered by the reasoning and approach
adopted in those decisions.
I turn,
therefore, to consider what adaptations are necessary because, while this is
not a rent review case, it bears some resemblance to one and the
Vice-Chancellor applied the Lucas guidelines.
I yield to the
Vice-Chancellor’s greater experience of rent review cases, but I confess that
it does surprise me to learn that there is nothing which corresponds to
standard commercial contract clauses. Such are the sums involved that each may
well receive individual attention at the stage of negotiation and drafting, but
the sheer numbers suggest that there must be groups of clauses which bear so
strong a family resemblance as not to be readily distinguishable from standard
commercial contract clauses. Again, while I readily accept that in the case of
rent review disputes points of law can arise which are of general application
under the general law, this is equally true of shipping and commodity
contracts. Questions of construction arising under such contracts may have no
general application, but questions of law arising out of the breach of such
contracts have made enormous contributions to the general law of contract in
such fields as anticipatory breach, frustration and the interrelationship between
primary obligations and exceptions. Finally, while it is clearly important to
bear in mind that a decision on an early rent review may cast its shadow
forward over many years, this may not be true of a late or the last one.
Furthermore, similar, if less dramatic, results may flow from decisions on the
rights of the parties under long-term charterparties.
What, as I see
it, underlies the philosophy expounded in The Nema and The Antaios
is that there is always a presumption in favour of finality and that, where
there is nothing to rebut it, the application should be unceremoniously
refused. Rebuttal must always be based upon at least a suspicion that the
arbitrator has gone wrong. Being left in the frame of mind that the arbitrator
may or may not have been right — being left in real doubt in that sense — is
not sufficient. But the degree of suspicion which is requisite may vary
according to the seriousness of the consequences of error to the parties and to
a wider public.
The House of
Lords’ guidelines with regard to one-off contracts — that an obvious case of
error should be shown — I think assumed that the effect would also be one-off.
This might well be true of the last rent review, particularly if the remainder
of the lease were relatively short. It would not, however, be true of earlier
rent reviews. There the long-term effect on subsequent reviews would be
analogous to the effect of decisions on standard terms, the only difference
being that the same, rather than different, parties might be affected.
Accordingly,
it may well be that in most rent review disputes the ‘standard terms’ approach
will be justified — a strong prima facie case of error should be shown.
But ‘strong’ is an imprecise term and I do not think that the House of Lords
intended that the same degree of strength should be called for in every case.
This is, after all, a matter which Parliament has left to the exercise of
judicial discretion.
based upon the facts of individual cases.
So how strong
is strong? No meter can be applied or
indeed devised. It is a matter of relative values. If the chosen arbitrator is
a lawyer and the problem is purely one of construction, the parties must be
assumed to have had good reason for relying upon his expertise and the
presumption in favour of finality or, to put it the other way round, the
strength needed to rebut it will be greater. So, too, if the dispute really
centres upon an issue calling for non-legal expertise, albeit with some
underlying question of law, and the chosen arbitrator has that expertise. But
if the chosen arbitrator is not a lawyer and the whole dispute centres upon a
difficult question of law, less strength may be required.
Similarly, the
degree of strength will be affected by whether the clause in question is one of
a class commonly encountered, so that others would benefit from an
authoritative decision on its meaning or application, and I see no reason why
some account should not be taken of the seriousness of the consequences to the
parties of the arbitrator’s error, if error there be. But the bottom line must
always, I think, be that the judge concludes that there is a more or less
strong, but still ‘strong’, prima facie case that the arbitrator has
erred in law. To adopt any other approach would be to fly in the face of the
legislative preference for finality.
I now come
back to the present case. Disputes arose as to whether the 1982 contract read
with the 1955 contract gave rise to enforceable legal rights and obligations.
This was clearly capable of being referred to arbitration and was. Mr Crome
[the arbitrator]’s decision that it had this effect is plainly right.
But once this
had been decided, I do not see what other dispute was capable of arising and
being submitted to arbitration. By clause 1 of the 1982 agreement, Ipswich was
bound to offer a lease to Fisons and they did. Fisons refused to accept it
because the terms included provision for rent reviews and other matters to
which they strongly objected. Clause 2 provided in unambiguous terms what was
to happen in such an event. An independent expert had to be appointed either by
agreement between the parties or by the president for the time being of the
Royal Institution of Chartered Surveyors. This independent expert was to
consider the representations from the parties and was to determine the terms of
a lease. A lease on those terms, whatever they might be, was to be open to
acceptance or rejection by Fisons, in their absolute discretion.
Of course this
bargain is not as one-sided as it might at first appear, because Fisons need
this car-parking space and would no doubt accept if possible. But the fact
remains that this is what the parties agreed. They did not agree that the lease
should be on any particular terms or that the terms should be ‘usual’ or
‘customary’ or ‘reasonable’ or that they should be what the parties would or
should have agreed between themselves in 1955 or any other year. In other
words, the independent expert was indeed an expert and not an arbitrator. He
was not determining the rights and obligations of the parties. They were not in
dispute. He was fixing terms in the exercise of his professional skill and
judgment which he, in his discretion, thought appropriate. Ipswich had agreed in
advance that they would accept these terms and offer them to Fisons.
Undoubtedly
the parties did not see it like this. They seem to have concluded that the
independent expert would be acting as an arbitrator and would determine what
terms for such a lease had, expressly or impliedly, been agreed by the parties
under the 1982 agreement. They then appointed Mr Crome, a solicitor, as this
arbitrator. He, very naturally, declined to become involved in matters which
called for a surveyor’s expertise, but by this interim award purported to
decide all other matters. He left it to a surveyor to determine the appropriate
rent, having laid down the criteria to be applied, including in particular that
the rent was to be such as would or should have been agreed between the parties
in 1955 for a lease which made no provision for rent review. His award was of
an interim nature because he contemplated that when he had been advised by the
surveyor on what was the appropriate rent, he would make a final award setting
out the full terms of the lease including the rent reserved thereby.
In this
situation the Vice-Chancellor, having read the award, including the very
detailed reasoning which accompanied it, and having heard submissions from the
parties, said:
The question
which arises, therefore, is whether the test in The Antaios and The
Nema is the appropriate test to apply in considering whether I should give
leave to appeal in this case. If that test does apply then, on any footing,
leave must be refused. The questions which arise in this case and which were
remitted to the arbitrator are difficult questions of construction arising in
unusual circumstances. Neither the construction of the agreements nor the
events will ever recur. I am very far from satisfied that the arbitrator was
clearly wrong, or even that there is a strong prima facie case that he
was wrong. In my judgment the case is one where different minds could form
different views. However, the question is one on which, in my judgment, the
arbitrator may well have reached the wrong conclusion. Applying the test I
adopted in the Lucas case, I am left in real doubt whether the
arbitrator was right; I am not altogether happy about some of the reasoning
which led him to his conclusion.
The
Vice-Chancellor then decided that, bearing in mind the competing claims of
finality and of the potential burden on the corporation of having a leaseholder
with rights which perhaps it should never have obtained, but which would extend
until the year 2054, the Lucas test was appropriate and that, applying
that test, he should grant leave. He added a word of warning that:
that should
not be taken as a charter for ingenious lawyers to think up ingenious points of
law with no real merit; I emphasise that what has to exist is a real, not an
imaginary or remote, doubt.
For the
reasons which I have already given, I think that the Vice-Chancellor applied
the wrong test. It is not sufficient that he should have been left in real
doubt whether the arbitrator was right. Nor, I would add, does it matter
whether the arbitrator’s reasons may have been faulty, unless this casts doubt
upon his conclusions — it is always possible to arrive at the right answer for
the wrong reasons and in such a case leave should never be given. If he was to
give leave, he had, at least, to be satisfied that there was a more or less
strong prima facie case for thinking that the arbitrator had erred on a
question of law.
It follows
from this that we have to exercise a fresh discretion. Normally I would say
little more than that I considered that there were or were not strong prima
facie grounds for thinking that the arbitrator had erred, but the course
which this case has taken justifies a little more precision. In doing so I wish
to make it clear that I am not expressing any view as to whether any
appeal should or should not succeed. That does not arise unless leave is given
and, if such leave is given, is a matter for the trial judge and not for this
court at this stage.
I think that
there is a strong prima facie case for considering that the arbitrator
has erred in law in the following respects:
(i) Mr Crome approached the matter on the footing
that in relation to determining the terms of the lease he was an arbitrator
jointly appointed by the parties and not an independent expert. Of course it
may be that the parties by their conduct have impliedly modified the 1982
contract to substitute for an obligation on the part of the corporation to
offer a lease on terms to be settled by an independent expert an obligation to
offer a lease on ‘reasonable’ terms, but I can see no sign of any such
intention. A more compelling inference is that there was mutual
misunderstanding as to what the parties had agreed in 1982.
(ii) If Mr Crome was an arbitrator, I can see no
real justification for his conclusion that the terms of the lease had to be
what was appropriate in 1955. Under the 1955 agreement, the corporation had 21
years in which to offer Fisons a lease of land for permanent car parking and I
can think of no reason why the terms of that lease should not have been those
appropriate at the time of the offer, whenever that might be. I see no reason
why the 1982 agreement, which was designed to get over the fact that the 1955
agreement was unenforceable, should also have, in effect, varied the 1955
agreement by providing that the lease should have been granted in 1955.
Accordingly I
would affirm the Vice-Chancellor’s decision to grant leave to appeal, but on
quite different grounds.
WOOLF and BELDAM LJJ agreed and did not add anything.
The appeal
was dismissed; costs to be costs in the appeal to the High Court; application
for leave to appeal to the House of Lords was refused.
