Arbitration — Comparables — Hearsay evidence — Whether misconduct by arbitrator — Whether arbitrator failed to follow his own directions — Whether arbitrator required to give decision on admissibility of evidence before making award — Judicial guidance on meaning and use of comparables
By a lease granted in 1989 the plaintiff tenant
held a term of premises, used for educational purposes, from the defendant
landlord at a rent that was subject to a first review in the seventh year of
the term. In respect of that review an arbitrator was appointed; he issued
directions for the conduct of the arbitration that excluded hearsay evidence.
Following the making of his award, in which he had regard to a comparable
relied on by the landlord, the tenant issued proceedings seeking leave to apply
for an order directing the arbitrator to give reasons, under section 1(5) of
the Arbitration Act 1979, and a notice of motion seeking to set aside or remit
to the arbitrator the award on the ground of misconduct under sections 22(1)
and 23(2) of the Arbitration Act 1950.
The tenant contended that the arbitrator had
treated as admissible evidence of facts relating to the comparables that were
hearsay or not strictly proved by affidavit and so not in compliance with the
arbitrator’s own directions. In the court below the applications were
dismissed; the tenant appealed on the single ground that the judge was wrong in
law to conclude that the arbitrator was entitled to receive and act on the
comparable relied upon by the landlord.
dismissed. For the reasons given by the judge in the court below, the
arbitrator was entitled to have regard to the evidence of the comparable relied
upon by the landlord, and to give it the weight he did. Matters of weight were
an unpromising ground for asserting misconduct by an arbitrator. It was for the
arbitrator to assess the weight to be attached to any agreed facts
notwithstanding that there were other facts, relating to a comparable, of which
there was only hearsay or which were not known. The arbitrator was fully
entitled not to give an advance ruling on the admissibility of the evidence and
to leave his decision on the evidence until his reasoned award. The
observations of the judge in the court below on comparables and how arbitrators
use them were accepted as correct.
The following cases are
referred to in this report.
Bill Biakh v Hyundai
Corp [1988] 1 Lloyd’s Rep 187
Control Securities plc v Spencer [1989] 1 EGLR 136; [1989] 07 EG 82
English Exporters (London) Ltd v Eldonwall Ltd [1973] Ch 415; [1973] 2 WLR 435; [1973] 1
All ER 726; (1972) 25 P&CR 379; [1973] EGD 439; 225 EG 255 & 433
King v Thomas
McKenna Ltd [1991] 2 QB 480; [1991] 2 WLR 1234; [1991] 1 All ER 653, CA
Land Securities plc v Westminster City Council [1993] 1 WLR 286; [1993] 4 All ER 124; [1992] 2 EGLR 15; [1992]
44 EG 153
Moran v Lloyd’s
[1983] QB 542; [1983] 2 WLR 672; [1983] 2 All ER 200; [1983] 1 Lloyd’s Rep 472,
CA
Oakstead Garages Ltd v Leach Pension Scheme (Trustees) Ltd [1996] 1 EGLR 26; [1996]
24 EG 147
Shield Properties & Investments Ltd v Anglo-Overseas Transport Co [1985] 1 EGLR 7; (1985) 273 EG
69
Sokratis Rokopoulos v Esperia SpA ‘The Aros‘ [1978] 1 Lloyd’s Rep 456
This was an appeal from
the decision of Colman J dismissing the applications of the plaintiff, Living
Waters Christian Centres Ltd, under sections 22(1) and 23(2) of the Arbitration
Act 1950 to set aside or remit an arbitrator’s award.
Richard King (instructed by Kingsford Stacey
Blackwell, London agents for RGL Dale-Jones, of Disley) appeared for the
appellant; Anthony Radevsky (instructed by Lee & Pembertons) represented
the respondent.
Giving the judgment of the court, PETER GIBSON LJ said: The
plaintiff, Living Waters Christian Centres Ltd (the tenant), appeals from the dismissal
on 6 August 1997 by Colman J of its application under sections 22(1) and 23(2)
of the Arbitration Act 1950 to set aside or remit to the arbitrator, on the
grounds of misconduct, an award dated 31
arbitration, relating to a lease of premises at Coed Coch, Dolwen, Abergele in
North Wales (the premises). Leave to appeal was refused by the single lord
justice (Evans LJ) on paper, but, on the tenant’s renewed application, allowed
by Nourse and Potter LJJ. But leave was limited to the issue of whether there
was misconduct by the arbitrator in that in entertaining evidence of one
particular comparable (St Brigid’s School), and, in the words of Potter LJ,
‘allowing it to regulate the decision to which he came’, the arbitrator was
acting in breach of principles to be derived from the decision of Hoffmann J in
Land Securities plc v Westminster City Council [1993] 1 WLR 286*
and contrary to earlier directions that the arbitrator had himself given.
*Editor’s note: Also reported at [1992] 2 EGLR 15
The facts can be summarised as follows. By a lease
dated 13
granted the tenant a tenancy of the premises for a term of 21 years for
educational purposes only. The tenant used the premises as a retreat centre for
groups from churches. The rent reserved by the lease was £7,500 in the first
year, £13,500 in the second year and £15,000 for the remainder of the term subject
to review at the end of the seventh and fourteenth years. The review provision
provided that if the landlord in the six months before the expiration of the
seventh year of the term served a notice on the tenant providing for a rent
increase, then in default of agreement the matter would be referred to the
arbitration of a single arbitrator for him to determine the rent at which the
premises might reasonably be expected to be let in the open market as between a
willing lessor and a willing lessee as at the date of the rent notice,
subject to certain disregards that it is unnecessary to set out. On
31
the rent to £22,500. The parties were unable to agree and Mr Simon Simcox, a
chartered surveyor who practised in North Wales, was appointed as sole
arbitrator.
On 2 May 1996 the arbitrator gave the following,
among other, directions:
1.2. I remind both parties/surveyors that the
Reference is to be conducted in accordance with the Arbitration Acts 1950-1979,
and the Civil Evidence Acts 1968 and 1972.
1.3. The normal rules of natural justice and
evidence will apply unless the parties expressly or tacitly agree otherwise.
3.1. The case will be dealt with by way of
Written Representations (ie a documents-only arbitration) without recourse to a
Preliminary Meeting or Hearing. This involves a Statement of Case and the
absence of formal pleadings.
5.2. I will only admit written evidence of fact
if supported by a sworn affidavit.
9.1. As there is no Preliminary Meeting or
Hearing I direct that the parties’ experts are to meet on a ‘without prejudice’
basis to define and narrow the issues in dispute. Both experts are to then
prepare a Statement of Agreed Facts insofar as they are able.
13.1.4. Comparable evidence.
13.1.4.1. Consideration of details of any other
comparable property and transactions. Such information should ideally be set
out in the form of a schedule and reference made to any inducements not
apparent.
13.1.4.2 Please state if any of the adduced
evidence of transactions were negotiated and agreed by the parties or their
surveyor direct.
13.1.4.3. If there is no direct involvement in
the transaction then the particulars must be prior agreed in writing between
the parties and preferably reaffirmed by written confirmation from those
involved in the transaction.
13.1.4.4. Failure to comply with this requirement
may render the particulars inadmissible under the law of evidence. It will then
be necessary for the particulars to be strictly proved by the parties to the
transaction.
The tenant was represented by its director, the
Rev David Philpott, although a surveyor, Mr Furbur, produced a letter dated 20
June 1996 that constituted the tenant’s expert report, and a certified
accountant, Mr
The defendant was represented by a surveyor, Mr Godsal. Unhappily, despite the
arbitrator’s direction, para 9.1, there was no meeting of experts and very
little had been agreed prior to the parties submitting their respective
representations to the arbitrator in July 1996. The tenant, in its
representations, which were accompanied by numerous documents, submitted that
there was no relevant comparable at all, that the rent ought to be assessed on
the ‘Profit or Accounts Method’, and that the rent should be reduced to £13,715
pa, which, it said, was the average rent paid over the seven years. The
tenant’s submission included the following:
13.1.3. COMPARABLE EVIDENCE
I refer here to the letter of my Expert Witness,
Mr David Furbur FRICS… who states that in his researches he has been unable to
find a comparable property for lease throughout North Wales and in the Border
Area bearing in mind not only the size and situation of the premises but also
the terms of the lease with regard to repairing obligations and the limited
user clause.
I have also conducted my own exhaustive enquiries
by reference to numerous local Agents and been informed that there is no true
Comparable that exists and that the Living Waters arrangement is very unique.
My enquiries have been made by Mr James Jackson, FRICS, Llandudno, Mr Colin
Flannagan, (St David’s Commercial), Colwyn Bay, and Mr Gareth Williams, FRICS,
Rhyl, among many others. Mr Gareth Williams has been to Living Waters to advise
us and although he has been involved in a rent settlement on St Brigid’s School
near Denbigh, the circumstances surrounding the purchase and subsequent letting
of the premises were unique and could not be construed as reflecting a true
Open Market transaction. The school was apparently facing financial difficulty
and I understand was purchased by a parent/Governor and then let back to the
school at a rentalisation of the purchase price. Additionally, although a rent
was set about five years ago with an upwards only rent review clause, at the
review date the Governors beseeched the landlord for a rent reduction which was
granted.
Furthermore, St Brigid’s was eliminated as a
Comparable since this particular property bore no resemblance to the Coed Coch
Mansion, being situated in an urban location on the edges of Denbigh Town which
was the catchment area for about 80% of its pupil enrolment. With only 35
boarders I understand that from September 1996 this school will be Grant
Maintained by the Government who will pay all tuition fees. Since Living Waters
occupies an isolated location well away from any centres of population, it was
considered that it could never serve as a Day School and was therefore
discounted as a possible Comparable.
I have also made enquiries with the Estates
Gazette to see if similar properties had been let recently but there was no
knowledge of such a transaction.
Two matters should be noted from this passage. The
first is that the tenant was free in its reliance on hearsay evidence. The
second is that such evidence included what was said about St Brigid’s School to
distinguish it as a possible comparable, the source being Mr Gareth Williams.
Mr Godsal, for the landlord, in his submission
produced a valuation of £27,600. This was based on a figure of £2 per sq ft for
ground-floor space. He relied on a letter dated 4 July 1996 from Mr Fifield,
which constituted the landlord’s expert report. Mr Fifield said that he had
inspected four comparables, including St Brigid’s School, and that they showed
that the going rate for a property similar to the premises in use for
educational premises was based on £3 per sq ft for the ground-floor space, with
appropriate downwards adjustment for other areas. (One of the comparables in
fact showed a higher figure than £3 per sq ft for ground-floor space.) Mr
Fifield also arrived at a figure of £27,600. In giving details of St Brigid’s
School, he said that his source was also Mr
However, on 11 July 1996 Mr Philpott wrote to the
arbitrator and Mr
inadmissible hearsay evidence relating to all four comparables, and he asked
for the arbitrator’s ‘urgent directions’. The arbitrator replied that day that
it was for him to decide on the admissibility of evidence. Mr Williams, on 15
July, wrote a letter addressed to both Mr Philpott and Mr Fifield about St
Brigid’s School. He said that he had been asked by each of them to provide
information with regard to the school, which, he understood, each wished to put
forward as a comparable. He explained that he was not a party to the granting
of the original lease of the school, nor to any subsequent rent reviews, that
his own knowledge was derived from him having been instructed to carry out a
probate valuation on which he reported in August 1994, and he supplied a copy
of a lease dated 6 June 1991 of the school for 21 years from 28 August 1990 at
£33,000 pa. In one paragraph he recounted the circumstances in which the school
was leased and the rent reviews had taken place. But he was careful to state
that the paragraph was entirely hearsay. He recorded that there were memoranda
(copies of which he also supplied) that on a renewal the rent was agreed to be
increased to £39,000 pa from 28 August 1993, but was agreed to be reduced to
£33,000 pa. He confirmed that the information given in his letter was limited
to fact.
That letter was among the very substantial number
of further documents that, in July 1996, accompanied the lengthy
cross-representations submitted by Mr Philpott to the arbitrator. He said of
St
It is clear from Mr Williams’ letter that the
information which he provided to Mr Fifield was hearsay evidence and as Mr
Williams himself says, he has no personal knowledge of the transaction
at the time the lease was signed. Since it is clear that this was not an arm’s
length open market transaction, it is incumbent upon the claimants to prove
otherwise and since the burden of proof is upon them, seeing as it is apparent
that no such evidence exists this evidence cannot be admitted.
He asked the arbitrator to disallow the evidence
of St Brigid’s School as a comparable on the ground that it was hearsay and not
an open market settlement. He added:
the cost of the freehold being rentalised in
order to keep the school functioning with a daughter of the owner being a
Governor.
That appears to be derived from that part of Mr
Williams’ letter that he had expressly described as hearsay. Mr Philpott went on
to make some more statements on St Brigid’s School, which were obviously
hearsay as well. Another document relied on by Mr Philpott was a letter dated
16 July 1996 from Mr Furbur considering the comparables by reference to various
tests that he set out, but concluding that none of the evidence of the
comparables was admissible.
The landlord, by Mr Fifield, also put in
cross-representations in July 1996, and on 7 August made further comments on
the lack, which Mr
said of St
over the lease could be construed as artificial, that the rent was agreed by
the occupational tenant, who had the benefit of knowing precisely the viability
of the operation, and that the evidence had been verified by Mr
who had inspected the property and seen the lease and other documents and was
admissible.
On 16 August the arbitrator, by a letter to the
tenant and the landlord, raised 28 questions, which included:
25. Do you intend to submit evidence on the
admissibility or otherwise of rental comparables? If so, please do so.
27. Do you intend to make legal submissions on
the provisions of the Civil Evidence Act 1968?
28. Do you intend to refute/discuss/comment or
otherwise act in respect of any documents made available to me which are not
agreed? If so, please do so.
The landlord’s solicitors, on 4 September 1996,
answered questions 25 and 27. Their answer made the point that, although the
tenant complained that the evidence was hearsay, it was not clear with regard
to all the facts relied on by Mr Fifield as to whether the tenant actually
disputed the truth of the facts.
On 6 September Mr Philpott wrote to the arbitrator
saying that one of the fundamental points that had arisen in the arbitration
was the admissibility of the landlord’s comparables. He repeated his request
that the arbitrator make a determination on this as a preliminary point of law
and that request was repeated on 12
that request was refused by the arbitrator. On 4 October Mr Philpott responded
to the arbitrator’s 28 questions. He enclosed a legal submission from the
tenant’s solicitors to show why the arbitrator should not place any weight on
the defendant’s comparables, and he criticised Mr Fifield for not sending the
arbitrator Mr Williams’ letter of 15 July 1996, which, he said, ‘proves without
doubt that St Brigid’s was not an Open Market Rent settlement’. The tenant’s
solicitor submitted that all the comparables were inadmissible because they
constituted hearsay evidence. He said, in relation to St Brigid’s School, that
Mr Williams’ letter was inadmissible, Mr Williams not having been a party to
the grant of the lease or the subsequent rent reviews, and said it was not
known whether there were any special circumstances involved in the rent
agreement, and in particular whether it was an arm’s length transaction. On 16
October Mr Godsal wrote to the arbitrator complaining of the absence of an
agreed schedule of facts relating to the comparables, and asked for the
arbitrator’s direction as to whether he would accept Mr Fifield’s report and
valuation and counter submissions as they stood, or whether he required further
corroborative evidence or information in relation to the comparables. The
arbitrator replied the same day to both parties:
I advise the parties that as things stand at
present I have no problem with the issue of admissibility. I will simply weight
the evidence.
Nothing daunted, Mr Philpott wrote again on
21
evidence and challenging how it was possible for the evidence to be weighted in
the absence of ‘so much basic information’. He asked for alternative awards if
any comparable evidence was treated as admissible and he asked for a reasoned
award. The arbitrator promptly replied that he had not yet made a ruling on
admissibility. But on two further requests from Mr Philpott for an alternative
award, the arbitrator said that he would not make alternative awards, although
he agreed to give a reasoned award.
On 31 October 1996 the arbitrator gave his award.
He carefully set out the evidence and the submissions that were made to him.
His award included the following:
6.1. I am asked to deal with the issue of
comparables.
6.2. The arbitration process, including Questions
and comment has produced some improvement on what would otherwise be
considerable problems with comparables.
6.4. Mr Gareth Williams has provided information
to both parties concerning St Brigid’s and neither party has disputed it. Will
both parties please note I know Mr Gareth Williams and have done so for many
years.
6.5.1. Mr Fifield improves on the comparable
evidence in general by way of his letter to me dated 12 August 1996.
6.5.5. I find the situation on comparables very
unsatisfactory. I consider the parties should have done the best they could
with the information that was available, however deficient.
6.5.6. I am forced to discount comparables and
apply less weight to them than could have been the case had the parties
co-operated.
Then in another paragraph, also numbered 6.5.6:
For all its deficiencies I find the St Brigid’s
information addressed by Mr Gareth Williams to both parties the most useful as
it is nearby in geographical terms and subject to some but by no means all of
the same economic and geographical factors as have been ably brought to my
attention by the respondent. I note all the respondent says about the
differences in various categories between Living Waters and St Brigid’s. I am
familiar with the exterior and location of St
inspected it externally for the purposes of this arbitration or internally on
any occasion. I note in particular the remark by Mr
was agreed by the occupational tenant who had the benefit of knowing precisely
the viability of the operation.’ I also note that the rent was reduced to
£33,000 and the claimant has not disputed that statement made for the
respondent. Other statements made by either or both parties have not been
disputed or are the same. I deduce I have some agreed facts concerning St
Brigid’s, regardless of the admissibility issue. I consider I am as arbitrator
entitled to that deduction.
The arbitrator said that in the absence of
valuations from the tenant and the difficulties with the comparables brought
forward by Mr
evidence. He commented on each of Mr Godsal and Mr Fifield, both of whom, he
noted, had produced full rental valuations in a standard form. He also
commented on Mr Philpott, Mr Furbur and Mr Scofield, none of whom, he noted,
had produced a valuation in a standard form. He used Mr
as his starting point for his valuation for his own award. He continued:
The adjustments I make are taken as best I can
from the evidence placed before me from the various sources. I note that Mr
Fifield’s base valuation before allowances is considerably higher than
Mr
That is, of course, a reference to the £3 per sq
ft used by Mr Fifield for ground-floor space, as distinct from the £2 per sq ft
used by Mr
figures taken by Mr Godsal, from which he deducted a number of items in order
to arrive at a figure of just over £21,500, and he made an award of £21,500 as
the rent. That, as the judge was to observe, was £6,100 less than the
landlord’s figure and £6,500 more than the passing rent.
I would observe that although I have drawn
attention to what was said of relevance to the point in issue in the present
appeal, it must be appreciated that the admissibility of the evidence relating
to St Brigid’s School was but one of the numerous points addressed in this
protracted arbitration, the course of which was not assisted by the somewhat
unconventional and uncooperative approach of the tenant. Further, the evidence
of the rent of St Brigid’s School was but one part of the total evidence before
the arbitrator on which he based his award. Although the arbitrator found it
the most helpful of the comparables, it is plain that he was dissatisfied with
the evidence of the comparables, that the rent award arrived at was not based
on the rent for St
ground-floor space), but that it was based more on Mr Godsal’s lower figure of
£2 per sq ft for that space. Mr
comparables and made a substantial discount from them. But Mr Godsal was
looking at all the comparables, from which he was entitled to form the view
that they supported a valuation of at least £3 per sq ft, but that
nevertheless, because of the particular circumstances of the premises, a large
discount
Brigid’s School rent, for the reasons that I have already given.
The tenant issued two applications on 22 November
1996: an originating summons seeking leave to apply for an order directing the
arbitrator to give reasons, under section 1(5) of the Arbitration Act 1979; and
a notice of motion seeking to set aside or remit to the arbitrator the award on
the ground of misconduct under sections 22(1) and 23(2) of the Arbitration Act
1950. Those applications came before the judge. He noted that, in view of the
basis for the allegations of misconduct, the tenant accepted that if those
criticisms were not sustained the application under section 1(5) could not
succeed. The misconduct alleged was said to have been that the arbitrator
treated as admissible evidence of facts relating to the comparables that was
hearsay or not strictly proved by the evidence on affidavit, and so not in
compliance with the arbitrator’s own directions.
The judge made certain general observations about
the issues in the arbitration and the ambit of misconduct or procedural
irregularity in relation to the reception of evidence in such arbitrations. He
said:
First, to describe a particular property as a
‘comparable’ in the context of a rent review arbitration, as in relation to any
other property valuation issue, is to refer to another property that can be
used as a reference point to give some indication of the value of the property
in question. The closer the other property stands on the scale of
characteristic proximity to the property in question the more helpful indicator
it will be of the value of the property. Thus, if all material characteristics
going to value are the same, one would expect the value of the property in
question to be very close to that of the other property. In such a case much
weight would be attached to it as ‘a comparable’. There might, however, be
other cases where a number of properties of similar characteristics had one or
more characteristics materially different from the property in issue, but could
still be used as the basis for a general indication of the value of that
property because an experienced valuer would know what adjustment to make to
the value of that property by reference to the material differences in
characteristics in order to obtain a general indication of the value of the
property in question. In such a case it would no doubt be appropriate to
describe the other properties as imperfect or even poor comparables. That would
simply mean that their value could not be transposed to that of the property in
question, but it would not mean that they were evidentially irrelevant to that
value. At the extreme end of the scale would be properties that were so
different in material characteristics from the property to be valued that they
had no evidential contribution to make and could therefore be treated as
irrelevant. Accordingly, the term ‘comparable’ has to be treated as wide enough
to cover any other property that has any evidential contribution to make to the
assessment of the value of the property in question, whether that contribution
is substantial or only relatively small because of differences in material
characteristics.
Second, information as to the material
characteristics of the other properties, said to be comparables, may be
complete or relatively incomplete, The less complete it is, the less weight can
be given to that property as a comparable. Special circumstances relating to
the negotiation of the rent at a particular property may render it a poor
comparable or not a comparable at all, whereas, if there were no knowledge of
those circumstances, that property might appear to be the perfect comparable.
Third, the fact that one arbitrator has attached
to a particular comparable or comparables weight that would not have been
accorded to them by a court is not misconduct. It may be at its highest an
error of fact but as such is not to be treated as within the appeal regime of
the Arbitration Act 1979. Consistently with that approach it is not of itself
to be treated as misconduct unless it is the product of procedural irregularity
or unfairness in the course of the arbitration or unless it leads to the consequence
that the conclusion arrived at is one that no reasonable arbitrator could reach
on that evidence.
Fourth, to describe a comparable as inadmissible
is only if the evidence of the material characteristics is inadmissible, for
example, because it is hearsay, but not merely because the comparable is a poor
comparable or one that is arguably off the scale of comparability.
Fifth, for an arbitrator to rely on inadmissible
evidence may be misconduct or error of law. Whether in any particular case the
conduct is admissible or inadmissible depends on whether the parties have
expressly or impliedly agreed to the relaxation of the strict rules of
evidence.
The judge pointed out that although the arbitrator
had directed on 2
fact if supported by a sworn affidavit, both parties, as well as the
arbitrator, proceeded throughout on the basis that it was open to them to
adduce any amount of written evidence otherwise than on affidavit. The judge
found that the parties’ common position was that the written evidence of
unagreed facts was admissible even if not on affidavit. The judge then turned
to the allegation that the arbitrator permitted hearsay evidence to be given on
St Brigid’s School and had relied on it. The judge said that the evidence from
Mr Williams’ letter and the documents annexed to it went to the dimensions of
the property and the rents in the lease and in subsequent rent review
agreements. He pointed to the fact that Mr Williams had been careful to specify
what was hearsay. The judge said that the arbitrator, in referring to St
Brigid’s School in para 6.5.6, had confined himself to the facts to be found in
Mr
which the arbitrator expressed himself, he had been careful to exclude facts
that were not agreed. He said of the arbitrator’s comment on the rent reduction
for St Brigid’s School, that he was merely taking information as to the
identity of the parties to the 1994 memorandum and drawing the inference that
the occupational tenant knew what could normally be expected of one in that
position. The judge concluded that the evidence in Mr Williams’ report, other
than what was acknowledged to be hearsay, was properly admitted in the form in
which it was tendered, and was to a large extent not disputed by the tenant.
The judge similarly rejected the attack on the
other evidence of comparables and came to the firm conclusion that the
arbitrator did not admit or rely upon inadmissible evidence. He said that the
task of the arbitrator was made difficult by the failure of the experts to
agree a schedule of comparables, and that he was therefore obliged to
investigate with care what facts, in relation to each comparable, had been
proved by admissible evidence, and on the basis of those facts, whether he
derived any assistance from those comparables in fixing the rent. The judge
said that the arbitrator was entitled to review the admissible evidence and
give it such weight as he considered appropriate. He described as unsustainable
the assertion by the tenant that there was insufficient material to form any
view as to the rent, and that no reasonable arbitrator could have derived his
conclusion from the evidence referred to by the arbitrator. The judge said that
the arbitrator was a valuer working within the geographical area of his
profession and doing his best with a somewhat limited body of evidence. The
judge considered that there were no grounds for holding the arbitrator guilty
of procedural misconduct in admitting inadmissible evidence and arriving at a
perverse conclusion. He therefore dismissed both applications.
The tenant now appeals on the single ground that
the judge was wrong in law to conclude that the arbitrator was entitled to
receive and act upon the landlord’s comparable, St Brigid’s School. Mr Richard
King, who appears for the tenant before us, although he did not do so below,
submits that the court should exercise its power to set aside or remit an award
when something has gone wrong with the procedure in an arbitration, which has
caused injustice to one of the parties or may well have done so, for which he
cited the remarks of Brandon J in Sokratis Rokopoulos v Esperia SpA
‘The Aros’ [1978] 1 Lloyd’s Rep 456 at p463, Bingham J in Shield
Properties & Investments Ltd v Anglo-Overseas Transport Co
[1985] 1 EGLR 7 at p9 and Lord Donaldson MR in King v Thomas McKenna
Ltd [1991] 2 QB 480 at p491. Mr King says that the arbitrator failed to
apply his own directions for the conduct of the proceedings, and that that was
a procedural mishap as was found to have occurred in Control Securities plc
v Spencer [1989] 07 EG 82* and Oakstead Garages Ltd v Leach
Pension Scheme (Trustees) Ltd [1996] 1 EGLR 26. Mr King relies on the
direction of the arbitrator on 2 May 1996 that the normal rules of evidence
were to apply, unless the parties expressly or tacitly agreed otherwise. He
pointed to English Exporters (London) Ltd v Eldonwall Ltd [1973]
Ch 415 at pp421-423, as establishing that a valuer may not give evidence
stating the details of any transaction not within his personal knowledge to
establish them as a matter of fact, and that if the
evidence or it must be omitted as a comparable. Thus far in his submissions on
the law, Mr King has stated what is uncontroversial.
*Editor’s note: Also reported at [1989] 1 EGLR
136
Mr King submits that the procedural mishap or misunderstanding
occurred in the following respects:
1. Despite numerous requests by the tenant, the
arbitrator failed to rule upon whether statements as to the rent payable in
respect of St
The parties, he said, were entitled to expect that the arbitrator would make a
ruling and consider the evidence in the light of that ruling, and the failure
to rule meant that the arbitrator did not apply paras 13.1.4.3 and 13.1.4.4 of
the order of 2 May 1996.
2. Neither Mr Fifield nor Mr Williams had direct
personal involvement in the negotiations of the rental values of St Brigid’s
School and their written statements were not corroborated in writing by those
involved in the transaction. He said that there was no admissible evidence of
the circumstances in which the rent was agreed and, in the absence of
agreement, the admission of incomplete statements relating to the rent of St
Brigid’s School was contrary to paras 13.1.4.1, 13.1.4.3 and 13.1.4.4 of the
arbitrator’s directions.
3. The statements relating to the rent of St
Brigid’s School were of no probative value, in that they did not prove or
render probable any particular level of open market rent and so were irrelevant
to the issue that the arbitrator had to determine. He referred us to Land
Securities plc v Westminster City Council [1993] 1 WLR 286, where
Hoffmann J (as he then was) had said at p288 that evidence of the rents at
which comparable properties were actually let in the open market at about the same
time as the rent review date is relevant if properly proved, and admissible
because the fact that someone was willing to pay a certain rent for a property
can justify an inference that he or someone else would have been willing to pay
a similar rent for a comparable property. Hoffmann J had also said that a rent
agreed at a rent review is admissible on similar grounds, although such
agreement was not a transaction in the open market. Mr
in the absence of evidence of the circumstances in which the rent was
negotiated, the rent payable could not be treated as an example of rent
negotiated between a willing lessor and a willing lessee.
4. No reasonable arbitrator could have placed any
weight on the evidence of the rent of St Brigid’s School.
Mr King further submitted that the tenant was, or
may well have been, caused injustice by the arbitrator’s reliance on the rent
of St
aside the award.
Forcefully though those submissions were made, for
my part I am not able to accept them. It seems to me quite impossible to say
that there was no admissible evidence in relation to St Brigid’s School. In my
judgment, the judge was correct, for the reasons that he gave, to identify the
matters on which the arbitrator could properly rely in treating that school as
a comparable. I would also accept as correct the general observations of the
judge that I have cited. Both sides had relied on Mr
that had been supplied to them both, and the arbitrator had, as I have already
noted, commented that neither party had disputed that evidence. Mr Williams in
turn had been meticulous in distinguishing what was hearsay from fact, of which
he was able to give admissible evidence. Ironically it is the tenant that is
seeking to rely on hearsay in suggesting that what was agreed as the rent for
St Brigid’s School was not an open market rent. That, it will be recalled, is
asserted because of the alleged rentalisation of the purchase price of the
freehold, and because the purchaser who became the landlord had a daughter who
became a school governor. But that, as I have already noted, appears to come
from a paragraph in Mr Williams’ letter that he specifically said was purely
hearsay. I can well understand Mr King’s submission that without knowing the
circumstances of the rental agreements, an arbitrator is not justified in
attaching weight to the rent agreed for St Brigid’s School. But matters of
weight are an unpromising ground for asserting misconduct by an arbitrator. It
is for the arbitrator to assess the weight to be attached to any agreed facts,
and that is so notwithstanding, as in this case, that the tenant was insistent
that St
from consideration because the evidence relating to it was hearsay or because
significant facts were not known about it. I am unable to say that the
arbitrator, in taking into account the admissible facts, which he concluded
were agreed between the parties, was perverse or otherwise acted improperly.
As for the suggestion that the arbitrator did not
follow his own directions, I am unpersuaded that that is correct. The
arbitrator was fully entitled not to give an advance ruling on the
admissibility of the evidence and to leave his decision on the evidence until
his reasoned award. The parties had no ground for thinking otherwise. The
arbitrator, in para 6.5.6, appears to me to have reached the conclusion that
St
which he draws attention in that paragraph, even though he was fully aware of
the limits of those agreed facts. I do not read the paragraphs of the
arbitrator’s own directions as precluding him from adopting that particular course.
He was able, pursuant to para 13.1.4.3, to reach a conclusion on what was
agreed in writing between the parties. True it is that he indicated a
preference that those matters should be reaffirmed by written confirmation from
those involved in the transaction. But he did not say that he would not
consider any agreed facts if some other facts that might have been the subject
of agreement and were relevant to a particular rent had not been agreed. I have
already referred to the fact that both the tenant and the landlord placed
reliance on Mr Williams’ letter. It is to be noted that when Mr Furbur, on 16
July 1996, commented on St Brigid’s School as a comparable, he did so in a way
suggesting that the basic facts of the letting were not in dispute. What was in
dispute was whether St Brigid’s School could properly be taken as a comparable.
I am therefore unable to accept Mr King’s
submission that the arbitrator failed to follow his own directions in any way,
given that he was entitled to find that there had been agreement on particular
facts relating to St Brigid’s School. I would add that if I were wrong in my
conclusion as to the admissibility of evidence relating to St Brigid’s School,
the error by the arbitrator would seem to me to fall within the rule recognised
by Steyn J in Bill Biakh v Hyundai Corp [1988] 1 Lloyd’s Rep 187
at p189, where that judge referred to Moran v Lloyd’s [1983] QB
542 as the clearest authority for the proposition that an error of law cannot
by itself amount to misconduct.
In all the circumstances, in my judgment, the
arbitrator was able properly to reach the conclusion that he did. For these
reasons, which largely echo the judge’s reasoning, and notwithstanding Mr
King’s careful and able submissions, I would dismiss this appeal.
POTTER LJ and BLOFELD J
agreed and did not add anything.
Appeal dismissed.
