Arbitration — Arbitration Act 1996 — Section 68 serious irregularity — Appeal — Landlord and tenant — Rent review — Whether serious irregularity by arbitrator — Whether leave to appeal under section 69
The claimant tenant held a lease of commercial property from the defendant landlord. The lease contained provisions for the review of the rent. The parties disputed the rent required to be reviewed as at May 2000, and the dispute was referred to an arbitrator. The arbitration was conducted by the making of written submissions. In his submissions, the landlord’s surveyor sought a rent at a rate of £10.25 psf. The arbitrator awarded a rent of £440,000 pa based upon £10.25 psf; the award substantially accepted the submissions made by the landlord’s surveyor. The reviewed rent was twice the previous passing rent.
The tenant applied under section 68 of the Arbitration Act 1996 to challenge the award on the grounds of serious irregularity by the arbitrator in: (1) failing to accept the tenant’s surveyor’s submission that a particular transaction was an appropriate comparable; (2) referring to matters of which he had personal knowledge without referring these to the parties; and (3) failing to deal with evidence about the low level of demand in the area. Following that application, the landlord’s solicitor asked the arbitrator to clarify certain matters, which he did, by letter dated 6 August 2001. As a result of that letter, the tenant sought leave to appeal under section 69 of the 1996 Act, out of time, against the arbitrator’s award on the ground that the arbitrator had misapplied the willing lessor/willing lessee concept.
Held: The application under section 68 was dismissed, and the application for leave under section 69 refused. In respect of the section 68 application: (1) the relevance of a comparable was an issue of fact for the arbitrator to decide; (2) having regard to the criteria for the qualifications and appointment of the arbitrator under the rent review clause, the arbitrator was entitled to have regard to his personal knowledge of the market in the locality; and (3) supply and demand in the locality was a subordinate argument in the tenant’s submissions, and there was material upon which the arbitrator had been entitled to reach his conclusion. It was not clear from the post-award letter that the arbitrator had misapplied the willing lessor/willing lessee concept in his award. In the event, the conditions contained in section 69(2) of the Act for granting leave were not satisfied.
The following cases are referred to in this report.
Antaios Compania Naviera SA v Salen Rederierna AB (The Antaios) [1985] AC 191; [1984] 3 WLR 592; [1984] 3 All ER 229; [1984] 2 Lloyd’s Rep 235
Egmatra AG v Marco Trading Corporation [1999] 1 Lloyd’s Rep 862
Mousaka Inc v Golden Seagull Maritime Inc [2002] 1 WLR 395; [2002] 1 All ER 726; [2001] 2 Lloyd’s Rep 657
Top Shop Estates Ltd v Danino; Top Shop Estates Ltd v Tandy Corporation [1985] 1 EGLR 9; (1984) 273 EG 197
This was the hearing of two applications, one under section 68, and the other for leave to appeal under section 69 of the Arbitration Act 1996, by the tenant, Checkpoint Ltd, in proceedings against the landlord, Strathclyde Pension Fund
Guy Fetherstonhaugh (instructed by Macfarlanes) appeared for the tenant; Jonathan Seitler (instructed by Nabarro Nathanson) represented the landlord.
Giving judgment, Park J said:
Overview
1. This case arises from a lease of a property in Bracknell, Berkshire. The parties to the case are the landlord and the tenant. The landlord is Strathclyde Pension Fund, and the tenant is Checkpoint Ltd (originally called Checkpoint Meto Ltd). I will refer to them in this judgment as the landlord and the tenant. The rent fell to be reviewed to the current market rent as at 2 May 2000. The landlord and the tenant did not agree on the new rent, so, under provisions in the lease, it fell to be determined by arbitration. The arbitrator determined the rent at the full level for which the landlord had contended. In this case, the tenant seeks to challenge the determination under sections 68 and 69 of the Arbitration Act 1996. The tenant has been represented before me by Mr Guy Fetherstonhaugh of counsel. The landlord has been represented by Mr Jonathan Seitler of counsel.
2. Section 68 provides that an award by an arbitrator (in any arbitration proceedings, not just in rent review arbitrations) may be challenged on grounds of serious irregularity. Section 69 provides for an appeal to the court on a question of law arising out of the arbitral proceedings. Both sections contain detailed provisions that heavily circumscribe the ability of an unsuccessful party in an arbitration to challenge the award in court, either on the section 68 ground of serious irregularity or on the section 69 ground of an appeal on a question of law. In this case, the arbitration plainly went very badly for the tenant, and I can well understand why the tenant wishes to challenge it. However, I do not think that the tenant can bring any of its grounds of challenge within the rigorous requirements of either section. I shall dismiss this application. Unwelcome though the result of the arbitration no doubt was to the tenant, in my opinion the tenant is bound by it and has no grounds in law for escaping from the outcome.
Facts until the arbitrator’s award
3. The leased premises are a building called Arrow Point, at 43 Weston Road, Bracknell. It is a storage and distribution depot. The internal floor area is 42,973 sq ft, of which 28,059 are warehouse and 14,914 are offices. This is a 34.7% office content, which is a good deal higher than the standard office content for warehouse buildings. As will appear later, this had an impact upon the arguments of the parties in the rent arbitration. The lease was granted in 1995 for 15 years, with upwards-only rent reviews on 2 May 2000 and 2 May 2005. This case arises from the 2000 rent review.
4. The lease contained a rent review clause in fairly standard terms that I need not set out at length. The core concept was:
|page:98| the open market yearly rent for which the Premises could be expected to be let with vacant possession on the Relevant Review Date in the open market by a willing lessor to a willing lessee…
If the landlord and the tenant could not agree upon the open market rent, which they could not in this case, it would be determined by an independent surveyor appointed (failing agreement between the parties upon his identity) by the president of the Royal Institution of Chartered Surveyors. The surveyor so appointed was to act as an arbitrator under the provisions of the Arbitration Acts: clause 15.4 of the lease, which, of course, brought into operation the provisions of the Arbitration Act 1996, especially sections 68 and 69, with which I am concerned in this judgment. I will quote one provision of the lease that described the characteristics required of the arbitrator:
15.2 The Surveyor must be a Chartered Surveyor experienced in the letting and/or valuation of property which is of a similar nature to the Premises, is situated in the same region as the Premises and used for purposes similar to those authorised under this Lease at the date of the Surveyor’s appointment.
5. In this case, all the stages of the arbitration took place in the first half of 2001. On 26 January 2001, the president of the RICS appointed Mr Timothy Bloomfield to be the arbitrator. The parties were represented by chartered surveyors: Mr Michael Garvey represented the landlord, and Mr Kenneth Tapping represented the tenant. The procedure was governed by written directions, which the arbitrator gave on 13 February 2001. The arbitration was to be conducted on the basis of written representations, without an oral hearing. The basic scheme was that there was to be a statement of agreed facts, after which each party was to submit two sets of representations: initial representations and then supplemental representations in response to the initial representations of the other party. Each pair of written representations was to be submitted simultaneously, not sequentially. In fact, there was a slight departure from this, which I will describe below.
6. The statement of agreed facts was supplied by Mr Garvey and Mr Tapping on 14 March 2001. It described the property (Arrow Point) and the nature of the dispute. Scheduled to it was a list of comparable transactions agreed between the parties, that is to say, other properties of which the agreed rents, or the adjudicated rents, might provide guidance for what the reviewed rent for Arrow Point should be. By describing these “comparables” as “agreed”, Mr Garvey and Mr Tapping were not agreeing with each other that they were sufficiently comparable to be used. How far they were sufficiently comparable was a matter for argument. Mr Garvey and Mr Tapping were merely agreeing on a list that should include those properties that either of them might wish to argue were instructive comparables for the arbitrator to take into account in his award. The initial written representations of Mr Garvey and Mr Tapping were dated 15 March 2001, and their second set of representations (their counter-submissions in reply to each other) were dated 5 April 2001. I said above that there was a slight departure from the pattern of two exchanges of simultaneous written representations. It arose because Mr Garvey knew from prior discussions or correspondence between himself and Mr Tapping that Mr Tapping was intending to rely heavily upon one comparable transaction in his initial written representations, and Mr Garvey was still making inquiries about it at the time of finalising his own initial representations. So he said that he would be submitting a supplemental representation about it. He did that on 21 March 2001, after the exchange of initial submissions, but before the exchange of counter-submissions in reply.
7. I will now attempt to encapsulate the essence of the two parties’ written submissions. In Mr Garvey’s initial submission, he said that he was a partner in a firm in Bracknell, and had extensive personal experience of lettings and rent reviews in the town. He also had a good experience of the broader regional market. In Bracknell, there were three industrial areas, western, eastern and southern. The western was the dominant commercial district. Arrow Point was located on the spine road of the western industrial area. He considered it important that Arrow Point had a high office content, since rents psf for warehouses with high office content were significantly higher than they were for warehouses with standard office content. Rental levels had been fairly constant from 1999 to 2001. Some schemes in Bracknell (he instanced one called the Sterling Centre, of which I shall say a little more later) had struggled to let fully in that period, but all lettings that had been made had been at good rents. He reviewed all the comparables listed in the agreed statement of facts. He knew that Mr Tapping would be relying heavily upon one of them, namely unit 3 Doncastle Road, in Bracknell. This was the property about which he was still making inquiries, and for which he intended to put in a supplemental submission. He considered that the most instructive comparables were not in Bracknell itself, but at Winnersh Triangle, which was about six miles away (quite a lot of it by motorway) towards Reading. The relevance of two lettings at Winnersh Triangle was that they were of buildings with high office contents, comparable in that respect to Arrow Point. He accepted that Winnersh Triangle was a better location than Bracknell, and, on that account, he discounted by 15% the rent that might otherwise have been suggested by the Winnersh Triangle lettings. He made a discount of a further 10% for age; Arrow Point was a few years older than the recently let Winnersh Triangle comparables. His calculations to that point suggested a rent for Arrow Point of between £10 and £11 psf. He adopted as his valuation £10.25 psf, which converted to £440,000 pa for the building.
8. Mr Tapping’s initial submission was dominated by one comparable: unit 3 Doncastle Road. There had been a letting of this property in May 2000, the month in which the review date for Arrow Point fell, at a rent of £6.35 psf. This was “an irrefutable item of evidence setting the trend for the subject building [Arrow Point]”. Doncastle Road was “the premier location for distribution”. He said that, for a “locational” reason, as well as for many other reasons, it was “pointless” comparing Arrow Point to the units at Winnersh Triangle. He said that there was no evidence that, in Bracknell, warehouses with high office content commanded higher rents than warehouses with standard office content. He added that, in Bracknell itself, it was “clear to see” that the level of demand for warehousing units was very low. In his concluding section, he reverted to his “irrefutable evidence” at unit 3 Doncastle Road. He adopted for Arrow Point the rent psf agreed for that unit: £6.35 psf. This converted to a rent of £273,000 pa.
9. The next written representations were Mr Garvey’s supplementary representations about unit 3 Doncastle Road. (He referred to it as Electronics Boutique, Ellesfield Avenue, but it is the same property.) These are dated 21 March 2001. Mr Garvey had made inquiries about unit 3, as a result of which he considered that it was not an acceptable comparable for the purposes of deriving a market rent for Arrow Point. He gave three reasons. First, there was an existing landlord and tenant relationship between the lessee and the lessor. The lessee of unit 3 was already the lessee of other neighbouring buildings, and the lessor of those buildings was the lessor of unit 3. Mr Garvey had been informed that the lessor had recognised this existing relationship in a reduction in the rent for unit 3: there was clearly a management advantage to the landlord in having a single tenant. Second, the warehouse accommodation was overall of “a poorish quality”. Third, and most importantly, the lease of unit 3 contained break clauses under which the lessor could terminate the lease for redevelopment in 2003 and 2008. In relation to that Mr Garvey observed: “These circumstances can only have a very depressing effect on the rent.” His conclusion was that he attached little weight to the evidence about unit 3 Doncastle Road.
10. The next documents were the counter-submissions of the two parties’ representatives, both dated 5 April 2001. On behalf of the landlord, Mr Garvey said that Mr Tapping was “seeking to rely on a single comparable that does not fit a balanced view of the market”. He strongly disagreed that the letting of unit 3 Doncastle Road was the best evidence available. His reasons had already been given in his supplementary representations of 21 March 2001. His comparison with lettings at Winnersh Triangle was not “pointless”, but was appropriate; within his valuation he had made adequate allowance for the location advantage enjoyed by Winnersh Triangle. In several respects, Mr Tapping had displayed a lack of sufficient knowledge of Bracknell, |page:99| for example by suggesting that the Sterling Centre had a location comparable to that of Arrow Point. He reaffirmed his earlier submission, supported by evidence, that buildings with high office content commanded higher rents than buildings with standard office content. I quoted earlier Mr Tapping’s statement that, in Bracknell, “demand for warehousing units is very low”. Mr Garvey commented as follows:
I agree that some units are sticking on the market, and this is why I suggest that market conditions have been fairly static between 1999 and the present day. Nevertheless when deals are concluded they are at high levels of rent and on long lease terms. The evidence clearly demonstrates this.
Mr Garvey summarised the process that, in his original submission, led to him valuing Arrow Point at £10.25 psf. He reaffirmed his rental valuation of £440,000 pa.
11. Mr Tapping, in his counter-submissions, disagreed that high office content units in Bracknell commanded higher rents. He said that Bracknell was a different area from Winnersh Triangle, and was not in an area “characterised by good tenant demand”. The lack of good tenant demand was evidenced by there being unlet units at the Sterling Centre and at three other developments in Bracknell. He maintained his contention that unit 3 Doncastle Road was a good market indicator, and therefore he adhered to his rental valuation for Arrow Point of £273,000 pa.
12. Such were the written submissions before the arbitrator. He read them. He visited Arrow Point and the comparables relied upon. (He visited them unaccompanied. In his initial directions he had stated that, on site visits, he would either be accompanied by both parties or neither.) He then produced his award, which was very much in favour of the landlord and against the tenant. Before I examine the award and the reasons for it, I would like to say this. Although the award appears to have come as a severe shock to the tenant and to its representative, Mr Tapping, I do not think that, if I had read the written submissions before learning what award the arbitrator made, it would have come as a surprise to me. After the hearing of the present application to me, and before preparing this judgment, I read all five written representations in full. I do not pretend to any particular expertise in rental valuations. I cannot subject submissions from specialists in the field, like Mr Garvey and Mr Tapping, to the same sort of informed criticism that it is assumed will be brought to bear by an arbitrator appointed by the president of the RICS. However, I have a more general experience of evaluating written presentations of conflicting arguments in a case. I have to say that, as I read the written submissions that were presented to the arbitrator in this case, Mr Garvey’s submissions were distinctly more convincing than Mr Tapping’s.
13. The arbitrator issued his award on 18 May 2001. After summarising the facts, he discussed the issues and gave his conclusion in between four and five single-spaced pages. On all matters, he preferred the submissions and evidence presented by Mr Garvey, for the landlord, to those presented by Mr Tapping, for the tenant. He did not accept that unit 3 Doncastle Road was a reliable comparable by reference to which to assess the rental value of Arrow Point, and he stated several reasons for his conclusion in that respect. He accepted that units with high office contents attracted higher rents than units with standard office contents, in Bracknell as well as in the Winnersh Triangle. He agreed with Mr Garvey’s approach that properties in the Winnersh Triangle were good comparables for Arrow Point, with a 25% discount for them being new buildings and in a better location. He disagreed with Mr Tapping that the Winnersh Triangle properties should be dismissed altogether because their location was unique and the dates of lettings of them were too distant from the valuation date for Arrow Point. In relation to the Winnersh Triangle, he drew to some extent upon his own personal experience. I shall have to return to this point later, because a submission based upon it is addressed to me.
14. The arbitrator summed up as follows:
I therefore accept Mr Garvey’s submissions that if one adjusts for differences between Arrow Point and the lettings at Winnersh Triangle and the Sterling Centre one arrives correctly at a potential rental of £11 per square foot for the subject property.
I ought to add a brief explanation of the reference to the Sterling Centre. This is a development in Bracknell where there had been some lettings at rents lower than £11 psf. However, the units had standard office contents, whereas Arrow Point had a high office content. Mr Garvey’s use of the Sterling Centre comparables, as I understand it, was that they demonstrated the level of rents in Bracknell for units of their type (a level that was, in any event, higher than the rent at unit 3 Doncastle Road, upon which Mr Tapping relied), but that a unit like Arrow Point would command a higher rent. What Mr Garvey said about the Sterling Centre was not the main point in his submissions. The more important point was that the best comparables were the Winnersh Triangle properties, subject to adjustment for location and the greater age of Arrow Point. That seems to me to have been the key element in Mr Garvey’s case, which the arbitrator accepted.
15. In Mr Garvey’s written submissions, he had arrived at a rent of £11 psf, but he then adjusted it downwards to £10.25 psf. The arbitrator commented that that “appears to be his feel for the market rather than a discount for any particular factor”. The arbitrator followed Mr Garvey. He took the figure of £10.25 psf and awarded a rent, on review, of £440,000 pa.
16. The outcome could not have been worse for the tenant. The previous rent had been £220,000 pa, so the arbitrator’s decision doubled the rent at a time when, although rental levels generally may have increased to some extent, they had not increased by anything like 100%. Further, Mr Fetherstonhaugh told me, and I have no difficulty in accepting, that it is very unusual on a rent review arbitration for the arbitrator to determine the rent at the exact level, high or low, advocated by the representative of one of the parties. In the circumstances, the tenant naturally considered whether there was any way in which it could upset the arbitrator’s decision. The result has been the case heard by me. Before I describe the events leading to the present case, it is convenient to say something about the law.
Law regulating court challenges to arbitrators’ decisions
17. This aspect of the law of arbitration is now governed by sections 68 and 69 of the Arbitration Act 1996. The sections are very restrictive in the scope that they allow for an unsuccessful party to an arbitration to challenge the decision in the courts. I will go into that shortly, but, first, I should say a little by way of historical background. The immediate predecessor of the 1996 Act was the Arbitration Act 1979, which was also restrictive on access to the courts, although not quite as rigorously so as the current Act. Before the 1979 Act, however, the position was very different. One does not need to have had any specialist background in arbitration law and practice (and I certainly have not) to be aware that, when the Arbitration Act 1950 or earlier statutes were in force, it was unacceptably easy for arbitration disputes to find their way into the ordinary courts. Companies engaged in international trade might sign a contract that provided that any dispute between them would be determined by arbitration in accordance with the law of England. It became not uncommon for them to find that what they had believed would be a private and relatively quick system of resolving a dispute ended in the House of Lords — sometimes, indeed, more than once in one case. This was significantly impairing the attractiveness of London as an arbitration centre, and of clauses that provided for arbitrations to be governed by English law.
18. The first reaction to the way in which arbitration practice had developed in this country was the Arbitration Act 1979. I will not examine that Act in this judgment, but it drastically limited the circumstances in which arbitration proceedings could find their way from an arbitrator to the courts. The process was taken a good deal further by the Arbitration Act 1996, which, as I have said, governs the present case. I will set out the two relevant sections. Section 68 provides for an arbitration award to be challenged in the High Court on grounds of “serious irregularity”. Section 69 confers a heavily restricted right of appeal on points of law. The sections read as follows: |page:100|
68 Challenging the award: serious irregularity
(1) A party to arbitral proceedings may (upon notice to the other parties and to the tribunal) apply to the court challenging an award in the proceedings on the ground of serious irregularity affecting the tribunal, the proceedings or the award.
A party may lose the right to object (see section 73) and the right to apply is subject to the restrictions in section 70(2) and (3).
(2) Serious irregularity means an irregularity of one or more of the following kinds which the court considers has caused or will cause substantial injustice to the applicant —
(a) failure by the tribunal to comply with section 33 (general duty of tribunal);
(b) the tribunal exceeding its powers (otherwise than by exceeding its substantive jurisdiction: see section 67);
(c) failure by the tribunal to conduct the proceedings in accordance with the procedure agreed by the parties;
(d) failure by the tribunal to deal with all the issues that were put to it;
(e) any arbitral or other institution or person vested by the parties with powers in relation to the proceedings or the award exceeding its powers;
(f) uncertainty or ambiguity as to the effect of the award;
(g) the award being obtained by fraud or the award or the way in which it was procured being contrary to public policy;
(h) failure to comply with the requirements as to the form of the award; or
(i) any irregularity in the conduct of the proceedings or in the award which is admitted by the tribunal or by any arbitral or other institution or person vested by the parties with powers in relation to the proceedings or the award.
(3) If there is shown to be serious irregularity affecting the tribunal, the proceedings or the award, the court may —
(a) remit the award to the tribunal, in whole or in part, for reconsideration,
(b) set the award aside in whole or in part, or
(c) declare the award to be of no effect, in whole or in part.
The court shall not exercise its power to set aside or to declare an award to be of no effect, in whole or in part, unless it is satisfied that it would be inappropriate to remit the matters in question to the tribunal for reconsideration.
(4) The leave of the court is required for any appeal from a decision of the court under this section.
69 Appeal on point of law
(1) Unless otherwise agreed by the parties, a party to arbitral proceedings may (upon notice to the other parties and to the tribunal) appeal to the court on a question of law arising out of an award made in the proceedings.
An agreement to dispense with reasons for the tribunal’s award shall be considered an agreement to exclude the court’s jurisdiction under this section.
(2) An appeal shall not be brought under this section except —
(a) with the agreement of all the other parties to the proceedings, or
(b) with the leave of the court.
The right to appeal is also subject to the restrictions in section 70(2) and (3).
(3) Leave to appeal shall be given only if the court is satisfied —
(a) that the determination of the question will substantially affect the rights of one or more of the parties,
(b) that the question is one which the tribunal was asked to determine,
(c) that, on the basis of the findings of fact in the award —
(i) the decision of the tribunal on the question is obviously wrong, or
(ii) the question is one of general public importance and the decision of the tribunal is at least open to serious doubt, and
(d) that, despite the agreement of the parties to resolve the matter by arbitration, it is just and proper in all the circumstances for the court to determine the question.
(4) An application for leave to appeal under this section shall identify the question of law to be determined and state the grounds on which it is alleged that leave to appeal should be granted.
(5) The court shall determine an application for leave to appeal under this section without a hearing unless it appears to the court that a hearing is required.
(6) The leave of the court is required for any appeal from a decision of the court under this section to grant or refuse leave to appeal.
(7) On an appeal under this section the court may by order —
(a) confirm the award,
(b) vary the award,
(c) remit the award to the tribunal, in whole or in part, for reconsideration in the light of the court’s determination, or
(d) set aside the award in whole or in part. The court shall not exercise its power to set aside an award, in whole or in part, unless it is satisfied that it would be inappropriate to remit the matters in question to the tribunal for reconsideration.
(8) The decision of the court on an appeal under this section shall be treated as a judgment of the court for the purposes of a further appeal.
But no such appeal lies without the leave of the court which shall not be given unless the court considers that the question is one of general importance or is one which for some other special reason should be considered by the Court of Appeal.
19. It is apparent, even on a cursory reading, that these sections allow an unsuccessful party to an arbitration only a limited scope to bring the matter before the High Court. As regards section 68, the right of complaint to the courts is limited to the kinds of irregularity set out in the subparagraphs of subsection (2), and, in my view, they presuppose irregularities affecting the arbitration process, rather than substantive questions that the arbitration was to determine. A complaint that an arbitrator got something wrong, for example by evaluating the evidence in a way that the complainant says that he ought not to have done, is not within subsection (2). Complaints of that sort may, in some cases, be capable of being made the subject of appeals under section 69, but if that section does not permit the particular complaint to be raised on appeal, it cannot be raised instead under section 68, on the theory that it is a complaint of a serious irregularity. In this connection, I refer also to the citations that I set out in paras 24 to 26 below from a decision of Tuckey J.
20. Still in connection with section 68, it is not everything that might be described as an irregularity and that might be brought within one of the subparagraphs of subsection (2) that will permit the court to intervene. The court must also consider that the particular irregularity complained of “has caused or will cause substantial injustice to the applicant”: see the second line of subsection (2). It should be particularly noted that the statute uses the expression “has caused or will cause substantial injustice”. A possibility that some irregularity might cause injustice is not enough. This is a marked change from the nearest equivalent in the previous law, which was section 23(2) of the Arbitration Act 1950: “Where an arbitrator… has misconducted himself or the proceedings… the High Court may set the award aside.” In the 2001 companion volume to Mustill and Boyd on Commercial Arbitration, the authors comment as follows:
Subsection 68(2) has now shifted the burden to the applicant to show that the irregularity has caused or will cause substantial injustice to him. This represents a real and significant shift towards finality despite procedural or other irregularities, and away from a presumption in favour of intervention where an irregularity has occurred.
21. Moving to section 69, there are many restrictions on the right of appeal. It can be exercised only on a question of law: there is no right of appeal on a question of fact. In this connection, the proposition that I set out, in the previous paragraph, about section 68, that a complaint that the arbitrator made incorrect findings based upon the evidence is not a complaint of an irregularity within that section, acquires an added importance. If an unsuccessful party’s complaint is that the arbitrator came to an incorrect finding on some matter that was disputed in the evidence, the party is most unlikely to be able to appeal against the finding under section 69 (because the alleged error, save in the rare case where the finding is one to which no reasonable arbitrator could properly have come, is one of fact, not of law), and the unsuccessful party is equally unlikely to be able to challenge the finding under section 68 (because an allegedly mistaken evaluation of evidence is not an irregularity within section 68(2)). He will, to put it bluntly, be stuck with the finding, however much he may be dissatisfied with it.
22. That is, in my view, entirely in accordance with the general policy behind the 1996 Act. The policy is that the parties, by their contract, bound themselves to have their disputes resolved by arbitration, not by conventional court proceedings. There are many advantages of arbitration as compared with court proceedings. It is likely to be quicker and cheaper, and it is also confidential. But, with the advantages, the parties also have to accept the potential disadvantages. A particular disadvantage is that an arbitrator may come to a finding on some factual issue that the unsuccessful party has to put up with, and that he cannot take to appeal in a way that might have been open to him if the dispute had been conducted in court, not in an arbitration.
|page:101| 23. Reverting to section 69, the limitation of the right of appeal to questions of law is by no means the only restriction on the section’s scope. An appeal can be brought only with the leave of the court, and subsection (3) lists four tightly drawn conditions, each of which must be satisfied before the court can grant leave. Condition (a) is that the determination on appeal of the question of law will (not “could”, which was the word in the corresponding provision in the 1979 Act) substantially affect the rights of one or more of the parties. Condition (c)(i) (which is the one to be considered in the present case, since the arbitrator’s decision upon what the reviewed rent for Arrow Point was to be was not a question of general public importance) is that the decision of the arbitrator on the question of law was “obviously wrong”. That sets a very stringent standard. Condition (d), that, despite the agreement of the parties to resolve the matter by arbitration, it is just and proper, in all the circumstances, for the court to consider the question, reflects the point that I made in the previous paragraph, to the effect that parties who have agreed to arbitration, with some advantages over conventional court procedures, must ordinarily accept the disadvantages as well.
24. Before I return to the facts of the present case, I must refer more fully to the decision of Tuckey J, which I briefly mentioned a few paragraphs ago. This was Egmatra AG v Marco Trading Corporation [1999] 1 Lloyd’s Rep 862. The parties had been seller and buyer under a contract for the sale of aluminium blocks. There was an arbitration clause in the contract. A dispute arose and it was referred to arbitration. The arbitrator made an award in favour of the buyer. The seller applied for leave to appeal under section 69, and also complained of substantial irregularities under section 68. The seller failed on both points. As regards section 69, I quote two short passages from the judgment of Tuckey J:
The test to be applied is clear. It is not enough to say maybe they were wrong or even that there is only a possibility that they were right. The Court has to be satisfied that the arbitrators were obviously wrong on a question of law… Finally before leave is given under s69 the Court must be satisfied that it would be just and proper in all the circumstances to do so. This is a long stop provision which underlines again the need for the Court to respect the decision of the tribunal of the parties.
25. In relation to section 68, Tuckey J referred to a report of a departmental advisory committee, which had recommended the enactment of what became the 1996 Act. The committee was presided over by Saville LJ (now Lord Saville of Newdigate), and it is, I think, generally known that he was primarily responsible for the drafting of the Act. Tuckey J quoted in full para 280 of the report, and I will follow his example, since the paragraph underlines how specialised are the circumstances in which section 68 was intended to apply.
Irregularities stand on a different footing. Here we consider that it is appropriate, indeed essential, that these have to pass the test of causing “substantial injustice” before the Court can act. The Court does not have a general supervisory jurisdiction over arbitrations. We have listed the specific cases where a challenge can be made under this Clause. The test of “substantial injustice” is intended to be applied by way of support for the arbitral process, not by way of interference with that process. Thus it is only in those cases where it can be said that what has happened is so far removed from what could reasonably be expected of the arbitral process that we would expect the Court to take action. The test is not what would have happened had the matter been litigated. To apply such a test would be to ignore the fact that the parties have agreed to arbitrate, not litigate. Having chosen arbitration, the parties cannot validly complain of substantial injustice unless what has happened simply cannot on any view be defended as an acceptable consequence of that choice. In short, Clause 68… is really only designed as a long stop, only available in extreme cases where the tribunal has gone so wrong in its conduct of the arbitration that justice calls out for it to be corrected.
26. Tuckey J pithily added: “So this is no soft option clause as an alternative to a failed application for leave to appeal. Substantial injustice has to be shown before the court will interfere.”
Steps in this case from the arbitrator’s award to the present hearing
27. In this case, the arbitrator’s award was made on 18 May 2001. I have no doubt that the tenant regarded the award as a disaster, and considered with care whether it could do anything about it. The only avenues open to it were an application under section 68 to challenge the award on grounds of serious irregularity or an appeal under section 69. An appeal required leave, whereas a section 68 application did not. Whether for that reason I do not know, but the tenant decided to make an application under section 68. The application was commenced by a claim form dated 28 June 2001. The claim form identified three aspects of the arbitrator’s award that the tenant said were serious irregularities. I will examine them in detail later, but, in outline, they were: (1) a complaint about a reason given by the arbitrator for not accepting Mr Tapping’s case that unit 3 Doncastle Road was an appropriate comparable transaction; (2) a complaint that the arbitrator unacceptably referred to matters of which he had personal knowledge without first giving the parties details of them; and (3) a complaint that the arbitrator did not deal with evidence submitted by Mr Tapping about the low level of demand in Bracknell. The claim form was supported by a witness statement of Mr Tapping, in which he set out the background facts, exhibited the relevant documents, and gave some particulars of the tenant’s arguments. The landlord, through its solicitor, filed an acknowledgement of service, and proposed to put in evidence of its own in the form of a statement by Mr Garvey (which, in due course, it did).
28. One might have expected the next significant event to be the hearing of the tenant’s application in this court. But it was not. On 31 July 2001, the solicitor for the landlord (the successful party) wrote to the arbitrator. The arbitrator had already been served with a copy of the tenant’s application. I am not sure whether that was strictly required by the rules, but I understand that it is customarily done. It would, nevertheless, be most unusual for the arbitrator to play any part in the court proceedings. He, by issuing his award, appeared to have fulfilled his role and to have no further function to perform. However, the landlord’s solicitor, by its letter of 31 July 2001, asked him to “clarify some matters”. They then, in a letter of some three pages, referred the arbitrator to points that the tenant was proposing to make to the court on its section 68 application, and asked the arbitrator a number of questions about them.
29. I was surprised to read this letter. I am not familiar with what customarily happens in this sort of case, and, if it is common practice for letters of this sort to be written to an arbitrator when his award is about to be challenged under section 68, or appealed against under section 69, it would not be right for me to say anything about it. If, however, it is not common practice, I am prepared to say what my own reaction is. My reaction is that it is undesirable for a party to a forthcoming challenge to an arbitrator’s decision to correspond with the arbitrator, at least without securing the prior consent of the other party or (better, in my opinion) of the court.
30. However that may be, the landlord’s solicitor wrote its letter to the arbitrator. He politely replied in a letter of 6 August 2001, giving quite full answers to the questions that had been asked of him. He concluded his letter: “I hope this statement is of assistance to the parties.” I do not wish to be understood as faulting the arbitrator for replying as he did. He had been asked some questions, and he answered them. It would have been possible for him to reply to the effect that, while he did not wish to be unhelpful, his functions had been completed. In the circumstances, he did not think it appropriate for him to add to the reasons that he had stated in his award, except perhaps to the extent that he might be asked by the court to do so. In retrospect, it might have been better if he had replied along those lines.
31. However, he did not, and further surprising developments followed (surprising to me at least). The two parties and their legal advisers obviously read the arbitrator’s letter of 6 August 2001 with care. The tenant’s solicitor (not the solicitor that had written to the arbitrator in the first place) says that it detected in his letter indications of an error of law on his part — an error, which is more, that had not been apparent from the terms of the award itself. The result of this perceived discovery was the filing and service of an application notice on behalf of the tenant. |page:102| The notice was dated 23 October 2001. The tenant’s solicitor applied to add to the section 68 proceedings (which did not need permission) an application for leave to appeal out of time against the arbitrator’s award, relying upon the alleged error of law disclosed in the arbitrator’s letter. I do not think that the tenant’s solicitor can be criticised in any way for doing that. It had not asked the arbitrator to enlarge on his original award, and when he did enlarge upon it, it was fully entitled to take advantage of what he said if it considered that to do so could be to the benefit of its client, the tenant.
32. The matter was still not over. On 8 January 2002, a few weeks in advance of the hearing before me, the landlord’s solicitor wrote a second time to the arbitrator. It informed him of the tenant’s application notice, and outlined the tenant’s case that the arbitrator’s earlier letter had disclosed an error of law. The thrust of this second letter from the landlord’s solicitor was to suggest to the arbitrator that, in his letter of 6 August 2001, he did not at all mean what the tenant’s solicitor was saying that he meant, and that what he actually meant was something altogether different, which the letter proceeded to describe. The arbitrator wrote a short reply on 16 January, confirming that the landlord’s solicitor’s letter of 8 January stated the position correctly.
33. I have to say that I am unhappy about all of this, particularly the letters from the successful landlord’s solicitor. Its letters have the flavour, to me, of jockeying for position to line up post-award statements from the arbitrator to assist in refuting the arguments that the tenant was going to address to the court. As it happens, I agree with the landlord’s case that the tenant’s challenges to the award should fail, but I am not assisted to that conclusion by the correspondence that the landlord’s solicitor initiated with the arbitrator. When considering the terms of the arbitrator’s award of 18 May 2001, I shall not refer to the recent correspondence with him. However, given the way in which the matter developed, and the application notice that the tenant has lodged in reliance upon the arbitrator’s letter of 6 August 2001, I shall have to refer to that letter. I shall not refer to the more recent letters, initiated by the landlord’s solicitor writing to the arbitrator and suggesting to him what he did and what he did not mean by his letter of 6 August.
Tenant’s section 68 application: analysis and discussion
34. I said earlier that the tenant’s claim form identified three respects in which it was contended that the arbitrator’s award was affected by a serious irregularity. I will examine them one by one in the following paragraphs.
Alleged serious irregularity 1: Reason for rejecting unit 3 Doncastle Road as a comparable.
35. In the grounds of application in the claim form, the tenant expressed this complaint as follows:
In the award the arbitrator:
(a) relied upon a perceived trading relationship between the landlord and tenant of the chief comparable transaction relied upon by the Applicant, when:
(i) there was no evidence of such a trading relationship between those parties; and
(ii) to the extent that there was any relationship at all, the effect of that relationship was stated by the tenant’s property manager to be “slight”.
36. Mr Tapping, in the witness statement that he made in support of the application to this court, made quite a lot of this argument. In the argument before me, Mr Fetherstonhaugh placed very little reliance upon it. In my judgment, there is no basis upon which the arbitrator’s treatment of the matter referred to in ground (a) (quoted at the end of the previous paragraph) could be regarded as an “iregularity” at all, still less as the sort of serious irregularity upon the basis of which the court can intervene under section 68. Despite subpara (i) quoted above, there was evidence that the lessor and lessee of unit 3 Doncastle Road were already lessor and lessee of other neighbouring premises. In any case, the pre-existing relationship was only one of three reasons given by the arbitrator for his view that unit 3 Doncastle Road was not a reliable comparable. More importantly, the question of whether that unit was a reliable comparable or not was a question of fact for the arbitrator. He might, I imagine, have decided the question differently from the way he did, and I have no doubt that Mr Tapping thinks he ought to have done so. But the fact that he decided this particular point (which had been raised in the written submissions) in favour of the landlord cannot begin to rank as a serious irregularity within any of the subparagraphs of section 68(2). It was just one of several questions that arose from the written submissions, and which it was the arbitrator’s function to decide. The tenant has not sought leave to appeal under section 69 against the arbitrator’s decision on this particular point — rightly so, since it was a decision of fact and no appeal is available on questions of fact. There is no justifiable basis upon which the tenant can characterise a non-appealable decision of fact as a serious irregularity within section 68. If the tenant could do that, section 68 would indeed be what Tuckey J, in Egmatra, said that it was not: a soft-option clause as an alternative to a failed application for leave to appeal.
37. I reject the tenant’s argument based upon this first alleged serious irregularity.
Alleged serious irregularity 2: Reference by the arbitrator to his own personal experience
38. The grounds of application express this point as follows:
In the Award, the Arbitrator:
(b) referred on two occasions to evidence obtained through his own experience in an area known as Winnersh Triangle (from which the Respondent primarily drew its comparables). Specifically, the Arbitrator referred to the demand for properties in that area, contrasted with demands for properties in the location of the Premises, which was not before him in evidence in such terms.
39. I will also quote the two passages in the award to which ground (b) refers.
Secondly the parties know that I was instructed and personally involved with Winnersh Triangle for some years including the period within which these two lettings were achieved. My experience as letting agent confirms that companies considering Winnersh Triangle would consider similar type buildings in other locations such as Bracknell, Wokingham, Reading, and Camberley, and indeed potential lettings were sometimes lost to locations such as those mentioned, which were possibly inferior but cheaper than Winnersh Triangle.
…
Mr Tapping submits that there is no demand for high office content buildings in Bracknell and therefore the higher office content of the subject property will not be reflected in a better rent than say, the Sterling Centre. As I have already stated my own experience in the market at Winnersh Triangle does not support that contention. The 600 phase on that scheme proved more popular with tenants than the later 400 phase because of the fact that the office contents constructed were higher…
40. Mr Fetherstonhaugh submits that the arbitrator ought not (at least he ought not without advance notice to the parties) to have taken into account his own personal experience of specific transactions, as opposed to his general familiarity with the area, and that for him to have taken account of personal knowledge of the Winnersh Triangle development was a serious irregularity within section 68(2). More specifically, he says that it came within section 68(2)(a): “failure by the tribunal to comply with section 33 (general duty of the tribunal)”. Section 33 reads, so far as relevant, as follows:
(1) The tribunal shall —
(a) act fairly and impartially as between the parties, giving each party a reasonable opportunity of putting his case and dealing with that of his opponent…
41. Mr Fetherstonhaugh referred to the judgment of Leggatt J in Top Shop Estates Ltd v Danino [1985] 1 EGLR 9, in which an arbitrator had made use of special personal knowledge that he had, without informing the parties about it and giving them an opportunity to comment. Leggatt J held that the arbitrator ought not to have done that, and removed the arbitrator under section 23(1) of the Arbitration Act 1950 on the ground that the arbitrator had misconducted himself or the proceedings. Mr Fetherstonhaugh accepts that that case was decided|page:103| under the old law, and that the present section 68 is different from section 23 of the 1950 Act. He nevertheless submits that the case is still instructive.
42. I accept that the matter complained about in this respect did go to the process of the arbitration rather than to the substantive issues of fact or law involved. Thus, it is appropriate to be evaluated against the criteria set out in section 68. However, I do not accept that the complaint satisfies the conditions in the section that identify where the court can interfere. There are a number of points to be made. First, I do not accept that it was inappropriate in the circumstances of this particular arbitration for the arbitrator to some extent to draw on his personal knowledge. I repeat the wording of the relevant provision in the lease:
15.2 The Surveyor must be a Chartered Surveyor experienced in the letting and/or valuation of property which is of a similar nature to the Premises, is situated in the same region as the Premises and used for purposes similar to those authorised under this Lease at the date of the Surveyor’s appointment.
Thus, the person appointed to be the arbitrator was meant to have relevant local knowledge. Mr Bloomfield, the arbitrator appointed in this case, had relevant local knowledge, and, in my opinion, he was entitled to bring it to bear in his evaluation of the respective arguments of Mr Garvey and Mr Tapping.
43. Mr Fetherstonhaugh distinguished in this respect between the general and the specific. The arbitrator could, and should, take into account his general surveyor’s knowledge of the area and the market, but he should not take into account specific matters of which he had personal knowledge, or at least he should not take such matters into account without disclosing them to the parties and giving them the opportunity to comment on them. In my judgment, it would certainly have been open to the arbitrator to do that, but I do not accept that he was obliged to do it to such an extent that, because he did not do it, his award was in some way invalidated. In any case, the distinction between the general and the specific is easy to state in a broad way, but it tends to break down when it is analysed with care. A surveyor’s general experience of lettings of a particular kind of property in a particular area results from the cumulation of many specific matters in which he has been involved, or of which he has had direct knowledge, in his professional career. In Mr Bloomfield’s award there are several other respects in which he has been influenced by the personal knowledge that he has acquired as a surveyor with considerable experience of lettings of properties in Bracknell, Winnersh Triangle, and other areas in the vicinity. For example, he clearly agreed with Mr Garvey that, in Bracknell, the Western Industrial Area (where Arrow Point was situated) was the best area for buildings of the type, and that the Southern Industrial Area (where unit 3 Doncastle Road was situated) was not. As it seems to me, that was not something that he found on the basis of the evidence in this particular arbitration; it was something that he knew already. Mr Fetherstonhaugh has not criticised the award on that ground, and I do not think that it could sensibly be so criticised.
44. In this case, Mr Bloomfield, although his firm was based in Central London, clearly had considerable experience of the market for lettings of properties like Arrow Point in, among other places, Bracknell and Winnersh Triangle. I may be wrong, but my impression is that Mr Tapping’s experience of those locations was much less. His firm is based in Windsor, and his main area of professional activity has been in the area between Maidenhead and Heathrow Airport. Bracknell and Winnersh Triangle are outside that area. Mr Garvey submitted to the arbitrator that the Bracknell and Winnersh Triangle markets were sufficiently close and connected with each other for lettings at Winnersh Triangle to be acceptable comparables for a rent review at Bracknell. Mr Tapping submitted to the arbitrator that they were not. The arbitrator was of the opinion that they were. Plainly, that was an opinion that was very strongly influenced by his personal experience. He was entitled to take his personal experience into account, and I do not accept that, when he mentioned in his award a specific component of that personal experience, he thereby infringed the general duty of fairness and impartiality required of him by section 33.
45. There is another point. Even if the use by the arbitrator of his personal experience at Winnersh Triangle was a serious irregularity within section 68(2)(a) (which, in my opinion, it was not), the tenant would be able to challenge the arbitrator’s award only if the irregularity “has caused… substantial injustice” to the tenant: see the opening lines of subsection (2). In my opinion, it has not. Mr Fetherstonhaugh says that the award doubled the rent payable by the tenant, and that that is a substantial injustice. I accept that the doubling of the rent is a substantial and heavy burden for the tenant. It does not follow that it is a substantial injustice. But more importantly, I consider that Mr Fetherstonhaugh’s argument about what constitutes the alleged substantial injustice fails to address the question of causation that subsection (2) raises. A crucial question is whether, even assuming that the doubling of the rent is a substantial injustice, the doubling of the rent has been caused by the alleged irregularity on the part of the arbitrator. I have to ask this question: if the arbitrator had not taken into account his own personal experience of lettings at Winnersh Triangle, or if he had but told the parties about it first so that they could comment, do I consider (see “the court considers” in the opening part of section 68(2)) that the arbitrator’s award would have been different? Only if my answer is yes could I intervene under the section. I cannot say that the answer is yes. I think it probable that the arbitrator’s award would have been exactly the same. Even if I took the view that his award might have been different, but I could not be sure either way, I could not intervene. That is because the words in subsection (2) are “has caused or will cause”. They are not “might have caused or may cause”: see, also, the citation from Tuckey J in Egmatra at the end of para 24 above. Further, it is, in my view, clear from the 1996 report of the departmental advisory committee (to which I referred in para 25 above) that this is not an accident of drafting. It is a deliberate policy choice of those who drafted the Bill (now the Act) that, even in cases of serious irregularity, the court should be able to intervene only if it considers that the irregularity has made a difference. I cannot form that view in this case, and that is a further reason why I decline to intervene on the ground that the arbitrator took account of his own experience of lettings at Winnersh Triangle.
46. There are two other matters that I wish to mention before I leave this aspect of the case. In the last few paragraphs, I have concentrated upon section 68(2)(a). Another category of serious irregularity is specified in section 68(2)(c): “failure by the tribunal to conduct the proceedings in accordance with the procedure agreed between the parties”. In the arbitrator’s initial directions, to which the parties agreed, he stated in para 9:
If I use Inquisitorial Powers conferred on me under the Arbitration Act I will inform the parties of my findings and ask them to comment on the same.
Mr Fetherstonhaugh has suggested, although I think only faintly, that the arbitrator, by drawing on his personal experience of lettings at Winnersh Triangle, but failing to ask the parties to comment upon it, failed to do what he had undertaken to do by para 9. I do not agree. For the arbitrator to draw on his personal experience was not to use inquisitorial powers. Mr Seitler has submitted, and I accept, that the reference in the directions to inquisitorial powers was a reference to some of the powers that an arbitrator has under section 34 of the Arbitration Act 1996.
47. Second, I refer again to the second of the two passages from the award that I quoted in para 39 above — the second passage in which the arbitrator referred to his personal experience of lettings at Winnersh Triangle. He referred to it as part of his reasons for not accepting Mr Tapping’s submission that, in Bracknell, there was no difference between rents for buildings with high office content and rents for buildings with standard office content. The arbitrator’s treatment of that point could perhaps be faulted on the ground that what he says about his personal experience at Winnersh Triangle, even if wholly correct, does not really answer Mr Tapping’s submission. However, that is irrelevant so far as concerns the particular point that I am considering now. Mr Fetherstonhaugh’s submission is not that the |page:104| arbitrator, having referred to his own personal experience at Winnersh Triangle, drew from it a conclusion about Bracknell which did not follow. The submission is rather that the arbitrator ought not to have referred to his own personal experience at all.
48. For the foregoing reasons, I do not accept the second ground upon which it is contended on behalf of the tenant that the arbitrator’s award was affected by serious irregularity within section 68.
Alleged serious irregularity 3: Not dealing with a submission about lack of demand at Bracknell
49. This submission is expressed as follows in the grounds of application:
In the award the Arbitrator:
4. did not deal with an important part of the evidence set out in the submission and counter-submission of the Applicant’s surveyor concerning the over-supply of and poor demand for comparable premises in the immediate locality of the Premises.
50. It is correct that the arbitrator said very little in his award about assertions by Mr Tapping in his two submissions that there was little demand in Bracknell for premises like Arrow Point. However, I do not think that he can be seriously criticised for not doing so, particularly when the criticism is that his decision in this respect exhibited a serious irregularity. My principal reason is that all the references by Mr Tapping to lack of demand for comparable premises in Bracknell were subservient to the ultimate submission that there was one decisive comparable, namely unit 3 Doncastle Road, and that the rental value for Arrow Point should be the same as the rent that had been agreed for unit 3. There is no argument in either of Mr Tapping’s submissions that even if unit 3 was not a decisive comparable, the arbitrator should adopt a low rent for other reasons — in particular, for the reason that there were unlet properties in Bracknell, which would drive rents downwards. Mr Tapping argued for £6.35 psf, and for no other figure. And he justified the £6.35 psf on the basis that it was the agreed rent for unit 3 Doncastle Road, and on no other basis. The criticism of the arbitrator that is being put forward now amounts to this: when the arbitrator rejected Mr Tapping’s reliance upon unit 3 as a comparable, he ought, on his own initiative, to have noticed from passages in Mr Tapping’s submissions that there was no shortage of warehouse-type premises in Bracknell. He ought to have gone on from there to have worked out a rental value for himself, disregarding the unit 3 rent, but deducing a rental level from the existence of unlet premises and the alleged absence of demand. I do not accept that the fact that the arbitrator did not do that was a serious irregularity within any of the subparagraphs of section 68(2).
51. I am not going to analyse in detail the written submissions of Mr Garvey and Mr Tapping on this issue. I do say, however, that if one reads them all in full, as I have done, it is clear that the level of supply and demand of warehouse premises in Bracknell was a subordinate part of the submissions and counter-submissions. It is also clear that, in so far as the matter was addressed in the submissions, there was material before the arbitrator on the basis of which he could take the view that even if supply was running ahead of demand, that was not having the effect of depressing rental levels. I repeat a passage from Mr Garvey’s counter-submissions that I have already quoted in para 10 above:
I agree that some units are sticking on the market, and this is why I suggest that market conditions have been fairly static between 1999 and the present day. Nevertheless when deals are concluded they are at high levels of rent and on long lease terms. The evidence clearly demonstrates this.
52. I do not suggest that the arbitrator was bound to accept what Mr Garvey said in that passage. My point is that whether to accept it or not was a matter for the arbitrator, and there was no serious irregularity if, given that the evidence did contain what Mr Garvey had written, the arbitrator did not feel impelled to start on a whole new line of reasoning about what ought to have been the impact on the rental value of Arrow Point of the existence of unlet warehouse buildings in Bracknell.
53. I do not accept the third and last of the grounds upon which it is said that the arbitrator’s decision is susceptible to challenge under section 68 by reason of one or more serious irregularities within subsection (2).
Tenant’s application for leave to appeal under section 69: Analysis and discussion
54. On this aspect of the case, I must refer again to the post-award correspondence, which I described in outline earlier, between the landlord’s solicitor and the arbitrator. I need now to give a little more detail about the content of the first exchange of letters. The landlord’s solicitor, in its letter of 31 July 2001, invited the arbitrator to comment upon (among other matters) the allegation by the tenant that the arbitrator had failed to deal with evidence produced by Mr Tapping about the oversupply of, and lack of demand for, buildings comparable to Arrow Point in Bracknell. In the arbitrator’s reply, he said in relation to one of the buildings: “I did not accept that the availability of the space within the Western Centre was relevant, particularly given the concept of the willing lessor/willing lessee.” In relation to three other buildings, he made essentially the same point, again referrring explicitly in each case to the concept of the willing lessor and willing lessee.
55. The concept is familiar in valuation law and practice, and is expressly referred to in the rent review provisions in the lease of Arrow Point. I have already quoted the relevant words, but I will repeat them here. They come from the definition of “Open Market Rent”:
The open market yearly rent for which the Premises could be expected to be let with vacant possession on the Relevant Review Date in the open market by a willing lessor to a willing lessee…
The concept clearly falls to be applied by reference to the subject premises themselves, in this case Arrow Point. It has to be assumed that an open market rent will be successfully negotiated between: (1) a hypothetical prospective lessor of Arrow Point who is willing to grant a lease of the property; and (2) a hypothetical prospective lessee of Arrow Point who is willing to take a lease of the property.
56. However, the tenant’s legal advisers contend that, on a reading of the arbitrator’s letter to the landlord’s solicitor, it becomes apparent that the arbitrator misapplied the willing lessor/willing lessee concept by assuming that it applied also to other properties in Bracknell that were unlet at the time. In oral submissions, Mr Fetherstonhaugh seemed reluctant to accept that this is the point that the tenant has said that it now seeks to raise on the basis of the arbitrator’s letter, but, in my opinion, it quite definitely is, as I shall now demonstrate. On 23 October 2001, the tenant filed an application notice, seeking permission to amend the claim form and an extension of time for doing so. There are three critical paragraphs of the proposed amended claim form. They are as follows:
11. Since the making of his Award, the Arbitrator has written to the Respondent, adding that, in making his Award, he had not considered that the fact that certain properties were available for letting in the market at the review date (as to which there was no dispute between the parties) was a relevant factor “given the concept of willing lessor and lessee”.
12. In making that decision, the Arbitrator departed from the terms of the rent review clause, and committed an error of law.
13. The Applicant contends that the decision of the Arbitrator on this question is obviously wrong, for the reasons set out in the First Witness Statement of JHR Manners dated… October 2001.
57. Mr Manners is the partner in the tenant’s solicitor with responsibility for the matter. In his witness statement dated 23 October 2001, the critical passage is as follows:
Far from understanding that principle [the willing lessor/willing lessee principle] the arbitrator misunderstood and misapplied it. Instead of assuming merely that the parties to the proposed hypothetical lease for the subject premises should be willing, he also assumed that there should be assumed to be willing lessees for the vacant properties to which Mr Tapping had drawn attention in order to illustrate his point that there was a superabundance of available property in the neighbourhood.
|page:105| In that way the arbitrator was able, quite wrongly, to dispose of Mr Tapping’s evidence regarding lack of demand for properties such as the subject premises.
58. For reasons to which I will come shortly, it is inappropriate for me to go into detail into the rights and wrongs of what Mr Manners says the arbitrator meant. I will merely say that it is not obvious to me that the arbitrator was saying that, in his award, he made a counter-factual assumption that there were willing lessees for other properties in Bracknell that were vacant at the time of the rent review. It is at least equally possible that, by his short, and admittedly rather cryptic, allusion to the willing lessor/willing lessee concept, he was simply saying that, even if there were other vacant properties in Bracknell, he still had to assume that there would have been a lease negotiated of Arrow Point, and that it would have been negotiated between willing parties. This may not have been a full answer to the tenant’s argument that, because there were other unlet properties on the market at the time, the rent for Arrow Point would have been expected to be lower than it might otherwise have been. However, the arbitrator cannot be expected to have re-examined the whole case in a post-award letter. On the substantive argument that the tenant wishes to raise, I refer to the earlier section in this judgment, in which I considered the third alleged ground of serious irregularity. One of the matters that I mentioned there was that the arbitrator had before him evidence from Mr Garvey, which it was surely open to him to accept, that although some properties were slow to let at the time, nevertheless when lettings were made they were at good rental levels.
59. Given the tenant’s application notice, I now have to decide whether I will grant leave for an appeal against the arbitrator’s decision on the ground set out in the draft amended claim form and in Mr Manners’ witness statement. Leave is required by section 69(2). I have referred earlier to the tight conditions that have to be present before the court can grant leave. There is a further point: before the tenant could advance the argument on appeal, I would also have to grant an extension of the normal time limit for appealing. I am not sure that I would be willing to grant an extension of time, but I will base my decision upon the need for leave.
60. I refuse leave. I will give no reasons beyond what I have said already. That is because of two authorities. The first is Antaios Compania SA v Naviera SA (The Antaios) [1985] AC 191, a decision of the House of Lords on the Arbitration Act 1979, which, like the present Act (the 1996 Act), provided that an appeal on a question of law from an arbitrator’s decision required the leave of the court. Lord Diplock said that a judge ought not normally to give reasons for a grant or refusal of leave. The second case is Mousaka Inc v Golden Seagull Maritime Inc [2002] 1 WLR 395. David Steel J reconsidered whether reasons for a grant or refusal of leave should be given. He did so in the light of the Human Rights Act 1998 and developments in United Kingdom law and practice since The Antaios, including the replacement of the Arbitration Act 1979 by the Arbitration Act 1996. He concluded, for reasons that I will not repeat or summarise, but which appear to me to be entirely convincing, that the principle stated by Lord Diplock should still be observed. In the case before him, he declined to give reasons for a refusal of leave to appeal from an arbitrator’s decision in a commercial arbitration. In the case before me, I decline to give any reasons, beyond such reasons as may be capable of being inferred from what I have said already, for my refusal of leave to appeal from the arbitrator’s decision on this rent review arbitration.
Conclusion
61. I believe that I have now dealt with all of the points that arise. For the reasons that I have given, the tenant’s application under section 68, challenging the arbitrator’s award on grounds of serious irregularity, is dismissed. The tenant’s application to appeal under section 69 is refused.
Claim dismissed.
