Sections 68 and 69 of Arbitration Act 1996 — Arbitrator fixing rent at double the passing rent — Arbitrator accepting comparables located six miles from demised warehouse — Tenant appealing award — Whether award affected by serious irregularity or obvious mistake of law — Appeal dismissed
The disputed rent level related to a 15-year lease, granted in 1995, of a warehouse building in Bracknell, Surrey, one-third of which provided office accommodation. The first of two upwards-only reviews fell in May 2000, at which time the passing rent was £220,000 pa. The parties had failed to agree upon a revised rent, and a surveyor (the arbitrator) was appointed to determine the same by process of arbitration upon written submissions. The lease required the arbitrator to be “a chartered surveyor experienced in the letting and/or valuation of property that is of a similar nature to the premises, and is situated in the same region as the premises and used for purposes similar to those authorised under this lease”.
The defendant landlord’s expert witness argued for a rent of £440,000 (£10.25 psf) on the basis that premises with a high office to warehouse space ratio (high-ratio premises), could command a significantly higher rent than the usual premises on offer. Since high-ratio premises were rare in Bracknell, the landlord’s expert relied upon two lettings of high-ratio premises within the Winnersh Triangle (the Winnersh comparables), located some six miles from the demised warehouse. The claimant tenant’s expert, arguing for £273,000, pointed to a recent letting of high-ratio premises in Doncaster Road, Bracknell, at £6.35 psf (the Bracknell comparable). Writing in reply, the landlord’s expert challenged the usefulness of the Bracknell comparable on the grounds that: (a) the lessee occupied several other buildings belonging to the same lessor; (b) the quality of the accommodation was poor; and (c) the terms of the lease gave the lessor two opportunities to break the lease.
The arbitrator fixed the rent at the precise figure proposed by the landlord, having accepted the Winnersh comparables as the best available, an opinion partly founded on his personal experience. The tenant complained that the general increase in relevant rent levels over the previous five years had fallen far short of 100%, and made two applications by way of appeal to the High Court. The first alleged that the award was “affected by a serious irregularity” within the meaning of section 68 of the Arbitration Act 1996. The second sought leave, under section 69 of the 1996 Act, to appeal on a point of law, namely that the arbitrator had wrongly applied the willing lessor/lessee principle when considering the number of warehouse properties in Bracknell that were unoccupied at the relevant time.
Held: Both applications were dismissed.
The general policy of the 1996 Act went significantly further than the Arbitration Act 1979 in limiting the ability of an unsuccessful party to an arbitration from bringing the matter before the High Court. For the purpose of section 68, the alleged irregularity had to affect the arbitration process rather than the substantive questions in issue. Thus, the section could not apply to a complaint that the arbitrator had wrongly evaluated the evidence: see Egmatra AG v Marco Trading Corporation [1999] 1 Lloyd’s Rep 862. Moreover, even if established, the irregularity had to be one that, in the words of subsection (2), “has caused or will cause”, not, “may cause” substantial injustice to the applicant. On the evidence before the court, section 68 afforded no means of complaining that the arbitrator had dealt inadequately with the Bracknell comparable, or that he had referred to matters within his personal knowledge without first giving details of them to the parties, or that he had not expressly referred to evidence of the low level of demand in Bracknell. Given that the lease required the arbitrator to have relevant experience “in the same region”, there was no misuse of personal experience in reaching the conclusion that the Winnersh lettings afforded useful comparables.
To obtain leave under section 69, the tenant had to establish, inter alia, that the arbitrator’s decision was “obviously wrong”. It was not obvious from the text of his decision that the arbitrator had misapplied the willing lessor/lessee principle. The only evidence suggesting that such an error had been made was a short and somewhat ambiguous observation made by the arbitrator in the course of correspondence entered into after the award*. That did not suffice for the purpose of section 69. In any event, the court was not required to give reasons for refusing leave: see Mousaka Inc v Golden Seagull Maritime Inc [2002] 1 WLR 395.
* Editor’s note: On the footing that this was not common practice, the judge thought it undesirable for a party to a forthcoming appeal to correspond with the arbitrator without at least securing the prior consent of the other party, or, better still, the consent of the court.
Guy Fetherstonhaugh (instructed by Macfarlanes) appeared for the claimant; Jonathan Seitler (instructed by Nabarro Nathanson) appeared for the defendant.
Alan Cooklin, barrister
