by Delyth Williams
Developments in the law of arbitration are of significance not only to landlord and tenant practitioners but also to a wide range of surveyors practising in such fields as building contracts and dilapidations. This article summarises some of the more significant developments, drawing from cases reported in a wide range of law reports.
The arbitration clause
The scope of the arbitration clause was in issue in Ashville Investments Ltd v Elmer Contractors Ltd [8] 2 All ER 577 where one of the clauses in the building contract provided that any dispute or difference between the parties “… as to the construction of this Contract or as to any matter or thing of whatsoever nature arising thereunder or in connection therewith” be referred to arbitration. Some delay occurred in the completion of the contract and the contractor initiated the arbitration procedure. The contractor alleged that there had been misrepresentation and sought relief in the form of rectification of the contract and damages. The Court of Appeal held, inter alia, that the question of a mistake, made by one or both of the parties, at the time of contract or of misrepresentation or misstatement were matters which arose in connection with the contract. The Court of Appeal therefore concluded that the matter fell within the arbitrator’s jurisdiction.
A similar matter was one of the issues raised in Ethiopian Oilseeds & Pulses Export Corporation v Rio Del Mar Foods Inc [0] 1 Lloyd’s Rep 86, where the relevant clause provided that “… Any dispute arising out of or under this contract shall be settled by arbitration …”. One of the issues was whether a dispute as to rectification arose “out of or under [the] contract”. Hirst J held that the parties must be presumed to have intended to refer to arbitration all the disputes arising out of this particular transaction. In the circumstances, the words “arising out of” were to be given a wide interpretation covering disputes other than as to the very existence of the contract itself.
In Fillite (Runcorn) Ltd v Aqua-Lift (a firm) (1989) 45 BLR 27 one of the parties proposed a long-term contract for the various works involved and a heads of agreement was signed which included the following arbitration clause:
Any dispute or difference or question arising under these heads of agreement shall be referred to a single arbitrator.
One of the parties invoked the clause alleging claims based upon express or implied terms of the contract, an express oral guarantee or collateral contract, the Misrepresentation Act 1967 and the tort of negligent misstatement. The Court of Appeal held that the arbitration clause was not wide enough to cover claims for misrepresentation or negligent misstatement, nor for claims under collateral contracts or warranties. The Court of Appeal was of the opinion that a distinction could be drawn between arbitration clauses which allowed arbitration on matters arising under the contract and those allowing arbitration on a wider range of disputes.
In Archital Luxfer Ltd v A J Dunning & Son (Weyhill) Ltd [8] 1 FTLR 372 the Court of Appeal considered the effect of an arbitration clause when a court is considering a point of law. In this case, the plaintiff was the defendant’s nominated subcontractor and sued the defendant for failure to comply with three of the preconditions relating to set off in the subcontract. The Court of Appeal held that an arbitration clause in a contract is irrelevant where a court is considering whether there is substance in the points of law which are claimed to provide an arguable defence.
Almare Societa di Navigazione SpA v Derby & Co Ltd, The “Almare Prima” [9] 2 Lloyd’s Rep 376 raised the interesting question of whether the parties to an arbitration had so conducted themselves as to confer jurisdiction on the arbitrators to make an award. In this case, the owners contended that the arbitrator’s jurisdiction was derived from the arbitration clause incorporated in the bills of lading while Derby & Co argued that the jurisdiction extended to the entirety of the dispute referred by the parties to the arbitrators, which included the validity of the alternative tortious claim. Phillips J was of the opinion that the parties’ conduct conferred on the arbitrator a jurisdiction which went beyond the arbitration clause in the bills of lading.
Abandonment of arbitration?
In Food Corporation of India v Antclizo Shipping Corporation, The “Antclizo” [8] 2 All ER 513 the House of Lords was of the opinion that to hold that arbitration had been abandoned would require an unequivocal statement by one party entitling the other party to treat the arbitration as being at an end. In their lordships’ view, the idea of “abandoning” an arbitration was not easy to reconcile with the duty of the parties to the arbitration to co-operate in the arbitration proceedings. The House was of the opinion that legislation was required to give the courts power to dismiss arbitration claims on the ground of inordinate delay in their prosecution.
The question of whether the right to arbitration had been waived was raised in the Scottish case of Inverclyde (Mearns) Housing Society Ltd v Lawrence Construction Co Ltd, Outer House, 1989 SLT 815. In this case, a housing association commenced an action against the construction company and the firm of architects alleging breach of contract. The contract contained a provision that any disputes between the parties were to be referred to arbitration. After a lapse of seven and a half years, the construction company sought to invoke the arbitration clause, but the housing association argued that the company had waived its right to arbitration. Apart from the delay of seven and a half years, the company had commenced proceedings to recover certain documents and had sought to bring into the process certain third parties. The court held that, considered objectively, the whole of the company’s conduct was inconsistent with an intention to exercise its contractual right and it had waived its right to insist upon arbitration.
Misconduct
A challenge to an arbitrator’s order on the grounds of alleged misconduct or procedural mishap was successful in Control Securities plc v Spencer [9] 1 EGLR 136; [1989] 07 EG 82 where an arbitrator was appointed to determine the rental value of the last seven years of a 21-year lease of a sports shop. On his appointment, the arbitrator proposed certain rules of procedure which included the following, namely, that the parties had to submit their respective opinions of rental value and comparables; and that the general rules of evidence applied to the comparables, which had to be within the direct knowledge of the surveyor concerned, supported by documentary evidence or agreed between the parties. An opportunity was given for counter-submissions, following which the arbitrator was of the opinion that “I will allow no further correspondence but I will make contact with the parties to discuss whether the matter should proceed by hearing or written submission”. All communications were to be through the arbitrator.
Submissions made by the tenant’s surveyor contained details of a number of shops, but gave no indication whether the surveyor had direct knowledge of the transactions.
The arbitrator wrote to the surveyor on September 22 1987 drawing attention to this omission, and the landlord’s surveyor, in his counter-submissions of October 5 1987, made the same point. The tenant’s surveyor dealt with these points in his counter-submissions of October 6 1987, saying “we have been involved directly in the majority of the rent review negotiations and we believe that these more accurately represent true rental values in the area” and he also referred to a letter he enclosed written by his client commenting on the property. Although the arbitrator sent the tenant’s counter-submissions to the landlord’s surveyor, he failed to send the tenant’s letter. The arbitrator did not contact either party to discuss whether an oral hearing should be held and published his award on November 18 1987.
Hoffmann J held that there was misconduct of the proceedings or a procedural mishap. Although the landlord’s surveyor might have objected at the time to the receipt of inadmissible evidence and to the failure to send a copy of the tenant’s letter, the arbitrator had proceeded to an award without an oral hearing and this was contrary to the indication that he would discuss with the parties whether an oral hearing was required. The landlord’s surveyor was entitled to assume that he should wait for the arbitrator to contact him about that matter.
In Harrison v Thompson [9] 1 WLR 1325 one of the issues which Knox J had to consider was whether there had been a procedural mishap leading to injustice. In this case, the parties’ respective solicitors wrote to the other side letters on a “without prejudice save as to costs” basis, but subject to the right to refer to the letters on the matter of costs. At the arbitration, neither side made any submission as to costs and, when the arbitrator made his decision, he had already determined the issue of costs. Knox J remitted the award on the issue of costs for the arbitrator to reconsider and held that the ability to make submissions on the issue of costs was a valuable right to which the parties were entitled to attach importance.
In the Scottish case of Fountain Forestry Holdings Ltd v Sparkes, Outer House, 1989 SLT 853, an arbiter at rent review had written to the parties inviting the submission of statements. The landlord’s advisers submitted comparables showing a revised rent at £1,916 with the passing rent being £1,266. The arbiter concluded that the parties had not produced comparable evidence from which a revised rent could be determined and proceeded to determine a revised rent of £1,228 which was based on his own information.
The court held that, in attempting to challenge the arbiter’s award, the landlords had to show that, in determining the figure for the revised rent, the arbiter had relied on specific values as opposed to general knowledge of market values. Further, on a proper construction of the arbiter’s proposed finding and final award, he had relied upon specific “comparable sales” within his own knowledge. The arbiter considered it unnecessary to produce details of these comparables in his final award and, in withholding these, had acted contrary to natural justice.
A case from Hong Kong illustrates a possible course of action where one party to the arbitration loses confidence in the arbitrator. In Asia Construction Co v Crown Pacific Ltd (1989) 5 Const LJ 133 an arbitrator, who was appointed in a building dispute, was requested by one of the parties to determine that certain matters be dealt with as preliminary issues. This course of action was opposed by the other party to the dispute. The arbitrator failed to give an interlocutory ruling and purported to make an interim award determining the merits of the matters raised. Deputy Judge Bokhary QC held that the interim award had to be set aside and the arbitrator removed in the light of the claimant’s loss of confidence in the arbitrator and the latter’s failure to recognise his error.
Leave to appeal from arbitrator’s decision
In Ipswich Borough Council v Fisons plc [0] 04 EG 127, the Court of Appeal considered the proper test to apply in granting leave to appeal under section 1(4) of the Arbitration Act 1979 which provides that:
The High Court shall not grant leave … unless it considers that, having regard to all the circumstances, 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 this case, the appellant company, under an agreement of 1955, constructed an office block on land owned by the respondent and, as part of that agreement, was granted a lease for 99 years without provision for rent review. However, the agreement of 1955 contained an undertaking, in clause 25, by the respondents to offer certain land for car parking for a term expiring at the date of expiry of the main lease but, by 1982, the provisions of clause 25 had expired and the parties entered into a further agreement whereby the time to offer a lease of the car park was extended.
A lease of the car park land was offered in October 1986 containing a three-year rent review clause and was to expire at the same time as the main lease. The appellant contended that the new lease should be on the same terms as the 1955 lease and, therefore, should not contain rent reviews. In accordance with the arbitration clause in the 1982 agreement, the dispute was referred to an arbitrator, who decided that, as the agreements of 1955 and 1982 were both enforceable, the car park lease should not contain rent reviews.
The Court of Appeal was of the opinion that the decision whether to grant leave to appeal from an arbitrator’s award to the High Court should be arrived at after only brief argument and the court should approach the question with a bias towards finality. The guidelines from The Nema [2] AC 724 and The Antaios [1985] AC 191 might require adaptation if, in particular cases, the problem was not covered by the reasoning and approach adopted in those decisions. The Court of Appeal was of the opinion that the guidelines could be applied to rent review cases, as some such clauses bore a close resemblance to each other as to be similar to standard contract clauses.
The court concluded that, in applying the test of real doubt in Lucas Industries plc v Welsh Development Agency [6] 1 EGLR 147; [1986] 278 EG 878, the Vice-Chancellor applied the wrong test. A strong prima facie case that the arbitrator had made an error of law had to be made out and the analysis of the arbitrator’s award showed that such was the case.
The practitioner should note that the decisions in Manders Property (Estates) Ltd v Magnet House Properties Ltd [9] 2 EGLR 126; [1989] 42 EG 111 and Railstore Ltd v Playdale Ltd [1988] 2 EGLR 153; [1988] 35 EG 87 should be read in the light of the Fisons decision.
In Leeds Permanent Building Society v Latchmere Properties Ltd [9] 1 EGLR 140; [1989] 20 EG 128, the tenants sought leave to apply for an order under section 1(5) of the Arbitration Act 1979 and, if leave were given, to apply for an order that the arbitrator determining the rent review dispute state the reasons for his award in sufficient detail to enable a court, in the event of an appeal, to consider any question arising out of the award. The landlords had not consented to the application, so that the tenants had to seek an order under section 1(6) and, as neither party had given notice to the arbitrator that reasons would be required, the tenants had to persuade the learned judge that there was some special reason why such a notice had not been given. Warner J held that, in the instant case, there was no special reason within section 1(6)(b) of the Arbitration Act 1979 so that the tenants’ application failed.
In the recent case of Granges Aluminum AB v Cleveland Bridge & Engineering Co Ltd, The Times May 15 1990, Granges Aluminium appealed from the decision of Steyn J in which he dismissed an application requiring the arbitrator to state further reasons for making an interim award. The Court of Appeal held that it was impracticable to require arbitrators to make a finding on every point that is put before them. The jurisdiction to order further detailed reasons under section 1(5)(b) of the Arbitration Act 1979 was to be used sparingly.
Leave to appeal under section 1(2) of the Arbitration Act 1979 or, alternatively, for the arbitrator’s award to be set aside under section 22 of the Arbitration Act 1979 was sought in Fine Fare Ltd v Kenmore Investments Ltd [9] 1 EGLR 143; [1989] 21 EG 81. In this case, the demised premises were a superstore in Luton and the arbitration in question was of the first rent review in a lease for a term of 35 years. In the instant case, there was a dispute as to whether a particular comparable (which had been related to a superstore at Swindon) had been valued on a shell or fitted-out basis by the expert who undertook the valuation. The arbitrator requested a clarification, but this resulted in more confusion and, in his award, he said he was satisfied that the Swindon store had been valued on a shell basis at £8.50 per sq ft.
The tenants contended that this conclusion, as a finding of fact, was erroneous and, on the authority of Edwards v Bairstow [6] AC 14, that the only reasonable conclusion contradicted the finding of the arbitrator. Peter Gibson J was of the opinion that, on the question of law, he had to be satisfied that the evidence before the arbitrator was bound to lead to the conclusion that there was evidence both for and against the arbitrator’s view; the judge was not satisfied that any procedural mishap had occurred.
Whether an official referee can exercise the jurisdiction to grant level to appeal under section 1(2) of the Arbitration Act 1979 was the matter in issue in Tate & Lyle Industries Ltd v Davy McKee (London) Ltd [0] 2 WLR 203. The Court of Appeal held that the jurisdiction of the High Court to grant leave to appeal or to determine an appeal under section 1 of the Arbitration Act 1979 could be exercised by an official referee.
In Petraco (Bermuda) Ltd v Petromed International SA [8] 1 WLR 896, the Court of Appeal considered the issue of granting leave to appeal against the arbitrator’s award. In this case, one of the parties to the arbitration had failed to argue a matter before the arbitrator which was the point on which the appeal was formed and the Court of Appeal held that this was a strong, but not necessarily conclusive, factor to take into account.
Extension of time under section 27
The operation of section 27 of the Arbitration Act 1950 was considered by the Court of Appeal in Pittalis v Sherefettin [6] 1 EGLR 130; (1986) 278 EG 153, namely whether the tenant could invoke section 27 to obtain an extension of time to give notice of election under a rent review clause in a lease to have the open market rent determined by arbitration. The rent review clause provided for the lessors to give notice to the lessee of the amount of the open market rent, but with the right in the lessee not later than three months after notification (time to be deemed of the essence) to require the open market rent to be determined by arbitration. The lessee did not serve notice of election and applied for an extension of time under section 27.
After giving judgment for the lessors, the county court judge had second thoughts, recalled his first judgment and gave in favour of the lessee and extended the time. The Court of Appeal held, inter alia, (i) the parties were entitled to confer a unilateral right to require arbitration and the court had jurisdiction to extend the time and, (ii) in the exceptional circumstances of the case, where the judge decided almost immediately that his first thoughts were wrong (and there was no detriment to the plaintiffs), that he had acted correctly.
It is to be noted that the decision in Tote Bookmakers Ltd v Development & Property Holding Co Ltd [5] 1 EGLR 94; (1984) EG 585 is overruled.
In Comdel Commodities Ltd v Siporex Trade SA [0] FTLR 37 the House of Lords was of the opinion that the High Court’s power under section 27 of the Arbitration Act 1950 applies whether an arbitrator has a discretion to extend time and is not restricted to cases where the limitation is absolute and immutable. The house expressly approved the formulation of Brandon LJ in Libra Shipping & Trading Corporation Ltd v Northern Sales Ltd, The “Aspen Trader” [1981] 1 Lloyd’s Rep 273 of the principles to apply in this context, namely:
(1) The words “undue hardship” in s27 should not be construed too narrowly. (2) “Undue hardship” means excessive hardship and, where the hardship is due to the fault of the claimant, it means hardship the consequences of which are out of proportion to such fault. (3) In deciding whether to extend time or not, the Court should look at all the relevant circumstances of the particular case. (4) In particular, the following matters should be considered: (a) the length of the delay; (b) the amount at stake; (c) whether the delay was due to the fault of the claimant or to circumstances outside his control; (d) if it was due to the fault of the claimant, the degree of such fault; (e) whether the claimant was misled by the other party; (f) whether the other party has been prejudiced by the delay, and, if so, the degree of such prejudice.
Miscellaneous matters
The exercise by an arbitrator of powers under either section 12(1) or (2) of the Arbitration Act 1950 was considered by Saville J in Kirkawa Corporation v Gatoil Overseas Inc [0] 1 Lloyd’s Rep 154. Saville J was of the opinion that, under these provisions, the arbitrator must proceed on the basis of determining whether, in his judgment, the exercise of those powers was necessary for the proper determination of the disputes referred to him.
In Sunderland Steamship P & I Association v Gatoil International Inc “The Lorenzo Halcoussi” [8] 1 Lloyd’s Rep 180 — Steyn J held that a court might refuse to order discovery to the extent that the discovery was not necessary for fairly disposing of the matter and to the extent that it would be oppressive to order it. Finally, Steyn J was of the opinion that, in considering a subpoena duces tecum under section 12(4) of the Arbitration Act 1950, the court would be vigilant to ensure that it was issued for a legitimate purpose and not cast too widely.
