Arbitration Act 1979 — Application for leave to appeal on a question of law arising out of an arbitrator’s award — Application made by tenants of business premises alleging errors of law in award — Arbitration arose out of rent review clause in lease — Applicants criticised award on the ground that arbitrator had had regard to matters, facts or events subsequent to the review date — Criticism rejected in so far as it related to figures per sq ft in respect of lettings taking place after review date which merely confirmed his findings — Criticism accepted in so far as it related to consideration by the arbitrator of the trading results for a period subsequent to review date — Held, however, applying section 1(4) of the Act of 1979, that this particular question of law (concerning the taking into account of the subsequent trading results) did not ‘substantially affect the rights of one or more of the parties to the arbitration agreement’ — It was a marginal point — Application for leave to appeal dismissed
By this
application Rossette Sunshine Savouries Ltd, tenants of premises at Pontypridd,
Mid Glamorgan, sought leave under section 1(3)(b) of the Arbitration Act 1979
to appeal from an arbitrator’s award in respect of the rent review clause in
the lease. The respondents to the present application were the landlords, Duvan
Estates Ltd. The lease, dated April 30 1974, was for a term of 21 years and
contained provision for rent reviews after seven and 14 years.
D E Neuberger
(instructed by Kanter, Jules & Co, agents for Cyril Goldstone & Co, of
Swansea) appeared on behalf of the applicants for leave; L F R Cohen
(instructed by Kennedys, agents for Peter Hughes & Co, of Swansea)
represented the respondents.
Giving
judgment, ROBERT GOFF J said: There is before the court an application for
leave to appeal under the Arbitration Act 1979 against an award made by Mr J R
Probyn in respect of a rent review under a lease between the parties. The award
in question was made on October 15 1980.
The lease
which is before the court, is of premises in Pontypridd, in the county of
Glamorgan, of which the applicants, Rossette Sunshine Savouries Ltd, are the
tenants and the respondents, Duvan Estates Ltd, are the landlords. The lease is
dated April 30 1974 and is for a term of 21 years. It provides for reviews of
rent. The first review is to take place after a period of seven years and the
second review after 14 years. The yearly rent for the first seven years of the
lease was £2,100. The lease then provides:
(A)(ii) For the next seven years of the said term a
yearly rent (not being less than that first above reserved) to be agreed by the
parties or in default of agreement to be determined in accordance with the
provisions in that behalf hereinafter contained;
There is a
similar provision in respect of the last seven years.
Clause 2 of
the lease provides for what is to happen if the parties do not agree on the
rent for the second, or the third, seven-year period. Clause 2 provides as
follows:
2. THE Lessee
shall in default of agreement between the parties pay during the second and
third period of seven years of the total period of 21 years hereinbefore
granted a yearly rent which shall be determined in accordance with the
following formula that is to say such rent shall be the rent (but not less than
the rent reserved in the period of seven years immediately before expired) at
which the demised premises might reasonably be expected to be let in the open
market by a willing landlord by a lease for a term equal to the residue of the
term unexpired at the end of the period of seven years immediately before
expired with vacant possession on the same terms and subject to the same
incidents in all other respects as this present demise . . .
and there are
various other assumptions which I need not mention.
There is also
the proviso:
. . . that if
no agreement is reached between the parties by the date six calendar months
prior to the commencement of the second or third period of seven years
respectively as to the rent at which the demised premises might reasonably be
expected to be let in the open market on the basis hereinbefore described then
the question shall be referred to the decision of a single arbitrator to be
appointed . . .
in accordance
with the provisions of the clause. Mr Probyn was the arbitrator appointed
pursuant to the provisions of the clause to decide that particular question.
The only other
provision to which I must refer is clause 3(15) under which the lessee
covenants:
(15) Not to carry on or permit to be carried on
upon the demised premises or any part thereof any offensive noisome noxious
noisy or dangerous trade business or manufacture and without prejudice to the
foregoing not to use suffer or permit the demised premises or any part thereof
to be used for any purpose other than for making meat pies-and pasties.
which indeed,
as their name indicates, was the nature of the tenants’ business.
Now the matter
proceeded as follows. The parties failed to agree on the rental for the second
seven years. I was told that the rival figures advanced, at least in the
arbitration, for an appropriate annual rent were £7,500 by the landlord and
£4,100 by the tenants. At all events, Mr Probyn must have been appointed in due
course by the president of the [Royal] Institution [of Chartered Surveyors].
Written submissions were placed before him in September 1980, some time after
the relevant review date which was July 17 1978; then it appears that oral
submissions were addressed to him, and he made an award in October 1980, which
must have been very shortly after he heard these oral submissions. The rent
which he awarded was a figure of £6,750 per annum.
It is plain
from the reasons which he produced in his award how he reached that rental. He
came to the conclusion that, as at the review date, July 17 1978, an
appropriate figure for that type of premises was £1.25 per sq ft. On that
basis, he took the view that £7,500 was the appropriate annual rental; but that
was ignoring the restrictive user clause, and it appears that, on account of
the restrictive user clause, he made a deduction of £750, thereby reaching his
figure of £6,750.
Today, Mr
Neuberger, on behalf of the tenants, asks for leave to appeal from this award.
He does so on the basis that the arbitrator erred in two respects in his award.
At one time he advanced three
pursue. The point, in broad terms, Mr Neuberger says, is that in considering a
valuation of this kind it is proper to have regard to the relevant facts
existing as at the review date, which is July 17 1978, and not to have regard
to facts and events existing after that date. In support of that proposition he
relied upon a passage at the end of the judgment of Whitford J in Ponsford
v HMS Aerosols Ltd, a case which went on appeal [1979] AC 63; (1978) 247
EG 1171, [1978] 2 EGLR 81; but I was provided with a transcript of Whitford J’s
judgment because on this point apparently the appeal was not pursued. As a
general principle, I entirely accept that. Indeed, I do not understand that Mr
Cohen, on behalf of the landlords, contested the principle as such. Now Mr
Neuberger said, first of all, that the arbitrator erred in reaching a figure of
£1.25 per sq ft. He referred me to a passage in paragraph 2 of the arbitrator’s
reasons where, at the end of that paragraph, he said:
It is evident
to me that a rate of £1.25 per square foot has been established for the
standard 6,000 square foot unit and generally applied for the rent reviews from
September 1978-February 1979, and which confirms the valuation basis adopted at
the July 1978 review date. On the evidence presented the rental value, as at
July 17 1978 and in accordance with the terms of the Lease but without a very
restrictive user clause, would be £1.25 per square foot, ie £7,500.
There, said Mr
Neuberger, was the arbitrator doing the very thing which he ought not to be
doing; because what he was doing was looking at figures resulting from rent
reviews after the review date. Mr Cohen was able to rebut Mr Neuberger’s
assertion to some extent on this point; but it turned out that the evidence
placed by both parties before the arbitrator did in part infringe this
particular principle. However, I put that on one side. I have to ask myself the
simple question: did the arbitrator err in law having regard to these figures
in respect of reviews made between September 1978 and February 1979? In considering that question, I have to
consider what the arbitrator was doing in the light of the evidence before him
and also consider the way he expressed his reasons in his award.
It appears
that what happened was this. The landlords called evidence relating to premises
let on this particular estate. They called evidence of a particular
arbitrator’s award in respect of a review as at a review date in July 1978. The
figure which that particular award produced was indeed the figure of £1.25 per
sq ft. They also produced a schedule showing other figures (I think largely
settlements) which had been fixed in respect of reviews of rent in the
succeeding nine months or so after that date. This showed a consistent picture
of £1.25 per sq ft except in the case of one set of premises which was
considerably smaller in size and, not surprisingly, the figure was somewhat
larger, namely, £1.50 per sq ft.
The tenants,
on the other hand, called evidence of premises not on this particular estate,
but I assume not far away, where the premises were put on the market in July
1978 but as to which agreement was not reached on the rent until December 1978.
In the light of that evidence the arbitrator was plainly entitled to hold, as
indeed he did hold, that the evidence as at July 1978 pointed to a rental of
£1.25. But he went on to say that that was, in effect, the evidence before him
of the particular letting as at July 1978, but so as to put beyond doubt any
question as to his conclusion he recorded the fact that he was comforted to
find that subsequent lettings in the succeeding few months confirmed that
figure. I do not think that the arbitrator was relying upon this latter
evidence to reach his conclusion. He was simply saying: ‘I am thankful to see
this evidence does not cause me to depart from the conclusion which I have
formed on the basis of the relevant evidence, as at the review date.’ In those circumstances I do not think the
arbitrator, although one quite understands why he referred to this particular
schedule which the landlord placed before him, was basing his conclusion upon
evidence other than evidence as to the position as at the review date. In those
circumstances, I do not think, on a fair reading of the reasons of the award,
that the arbitrator was infringing the principle which both parties accept
should be applicable. Therefore, I reject Mr Neuberger’s first submission.
Then I come to
his next submission, which is based on paragraph 3 of the award. It appears
that before the arbitrator reliance was placed upon Plinth Property
Investments Ltd v Mott, Hay & Anderson (1978) 249 EG 1167 for
the proposition that there should be a rent reduction where there is a
restrictive user clause, and it is plain that that authority does indeed
support that proposition — the point being, quite simply, that where there is a
restrictive user clause then the market would be reduced and that could have a
depressing effect on the rent. But, as Mr Neuberger was constrained to admit,
and I am sure he was right in this, what the arbitrator did was to accept that
principle and to apply it, because when he refers to the case he says: ‘I
accept this principle’. Then it becomes plain from the figure which he chose,
in paragraph 4, that he did indeed accept it and made a reduction in respect of
it. Of course, the reduction which he made was a matter purely for his own
judgment and one with which this court could not possibly interfere. So there
is no error of law by the arbitrator in so far as he applied that principle.,
[1979] 1 EGLR 17
But then
another point was made by Mr Neuberger, which he did pursue before me, and that
was as follows. In paragraph 3 the arbitrator went on to say:
However, I do
not agree with the suggestion of Mr Staddon, the lessee’s consultant, that the
manufacture of meat pies and pasties and the like was not a viable operation.
and then came
the sentence of which Mr Neuberger complains:
The 1978
results were not supported by those for 1979, which I am entitled to take into
account to verify whether or not the misgivings expressed at the review date
were justified.
Mr Neuberger
said: ‘There we have yet another example of the arbitrator taking into account
events and facts after the review date and that he ought not to have done.
Therefore he erred in law and the court should give leave to appeal and remit
the matter to the arbitrator to reconsider his valuation.’
Now first of
all, Mr Cohen said that, in fact, the only basis upon which trading results
could be relevant was simply and solely for the purpose of showing that the
site or location was not a good place for the business in question. I have no
doubt that there are cases, indeed one was cited to me, where this may be so,
and evidence can be called to this effect: ‘Now this is the way my business has
gone over the last few years and that really shows that this is not a good spot
for the business which is the subject of the restrictive user clause and, for
that reason, the rent ought to be reduced.’
A case concerning hotels was cited to me which showed that this is so.
But I am bound to say that I do not accept Mr Cohen’s submission that that is
the only purpose for which you can look at trading results. It could be that,
quite apart from the location of the business, the particular business which is
the subject of the restrictive user clause could be so depressed that
applicants for leases, under the lease containing that clause, would be less
ready or willing to pay a high rent; and therefore a general depression in that
business, or a general depression in that business in that area, might be
relevant in a particular case as having a bearing upon the rent which is
payable as at the review date.
Now it seems
to me that this was basically the argument which was being advanced in this
case. If one looks at the written submissions put in on behalf of the
plaintiffs I find the sentence:
We propose
calling a director of our client company to give further evidence to the
arbitration as to the nature of the user and his personal knowledge of
competitors and the state of the industry as at July 1978.
So this does
seem to be the point being made on behalf of the tenants here. They are saying
that the state of the industry as at the review date was very bad and that that
must be taken into account in considering the rent as at the review date. It
seems to me to be quite a legitimate argument to advance but, of course, it
would have to be supported by evidence.
If one looks
at the arbitrator’s award and the sentence of which
In the
context of this argument being advanced by the tenant, the 1978 results (which
I read to be the trading results for the tenant’s business for the calendar
year 1978 which are obviously being relied upon in support of this argument)
were not supported by those for 1979, which I am entitled to take into account
to verify whether or not the misgivings expressed at the review date were
justified.
As I read it,
the tenants were saying to the arbitrator: ‘Look at our 1978 results. They were
bad. Therefore, as at the review date, we had misgivings as to the state of the
pie and pasty manufacturing industry in this area.’ Now it seems to me that in relation to that
submission and in relation to the weight, if any, to be attached to the 1978
accounts, it was not right for the arbitrator to look at the 1979 results,
because there he was doing what Mr Neuberger complains of, namely, he was
looking at subsequent events to discover not whether it was justifiable to have
misgivings as at 1978 but whether those misgivings were proved in the result to
have had a sound basis, which, of course, was not the point that he had to
consider. Therefore it can be said that the arbitrator did, on the basis of
these reasons, err in law in having regard to 1979 accounts for that purpose.
But the
question arises whether or not, in those circumstances, I should give leave to
appeal on this particular point. I must have regard to the provisions of the
1979 Arbitration Act and it is, I think, clear under the Act that the applicant
for leave has to point to, first, a question of law arising out of the award,
and I think they have done that. But that is not enough. They have to go
further, because section 1(4) provides:
The High
Court shall not grant leave . . . unless it considers that, having regard to
all the circumstances, the determination of the question of law . . . could
substantially affect the rights of one or more of the parties to the
arbitration agreement.
and the
question arises whether this particular point of law is one which could
substantially affect the rights of the parties.
Mr Neuberger
says that I cannot tell, looking at this award, how far the 1979 results had an
influence upon the arbitrator’s conclusion as to the sum he should knock off
the £7,500 by virtue of the restrictive user clause. Now I look at the
arbitrator’s reasons and I see that the arbitrator rejected the submission
being advanced by a consultant, Mr Staddon, on behalf of the lessee, that the
manufacture of meat pies and pasties was not a viable operation. I look at it
this way. If the 1978 trading results of one company were the only hard
evidence placed before the arbitrator as to manufacturing meat pies generally,
it seems to me that that was the most fragile basis upon which to advance a
submission as to the general viability of manufacturing meat pies and pasties.
By itself it could carry very little weight indeed. If, on the other hand,
there was other evidence upon which the arbitrator could proceed, then he must
look at the 1978 results in the context of the other evidence; but, once again,
the 1978 results of one company must be of marginal importance to the wider
question whether or not there was a general depression in the manufacturing
industry in meat pies and pasties. It seems to me that given the nature of the
submission being advanced and the particular item, namely the 1978 results of
one company, in respect of which the arbitrator took a matter wrongly into
account, it is impossible for me to say that taking into account an
illegitimate matter as undermining this one particular factor — the 1978
results — is something that could substantially affect the rights of the
parties. It seems to me that the 1978 results, taken by themselves, must be
something of very minor importance indeed. The only way in which this
arbitrator could have been persuaded that the whole manufacture of meat pies
and pasties, even limiting it to the particular area in question, was not
viable would be to look at a far wider range of evidence before he could reach
any such conclusion.
For that
reason I am not prepared to hold that this particular question of law, namely,
a question of law relating to the taking into account of the 1979 accounts, is
a question of law which could substantially affect the rights of one or more of
the parties to this arbitration agreement. It seems to me, in truth, that the
present case is precisely the sort of case which the Arbitration Act 1979 is
designed to exclude from reconsideration by the courts. This is a marginal
point in fact, and only a marginal point, and because it is marginal it is just
the sort of question for which the court ought not to invoke the process of
review. I therefore conclude that this is a case in which I should not grant
leave to appeal for the reason I have given, namely, that I do not consider
that, having regard to all the circumstances, the determination of the question
of law could substantially affect the rights of one or more of the parties to
the arbitration agreement. It follows that the application for leave to appeal
is dismissed.
The
application was dismissed with costs.
