Arbitration — Rent review — Whether arbitrator bound to hold oral hearing when requested by one party
referred a dispute arising out of a rent review clause in a commercial lease to
arbitration — On June 10 1991 the arbitrator issued directions that the arbitration
would proceed by written representations although he reserved to his discretion
the right to adjourn the reference to an oral hearing if he deemed it necessary
or desirable — On August 8 1991 the tenant’s surveyor, considering that some of
the arguments and information being advanced from the landlord’s surveyor were
unsound, incomplete or misinformed, formally requested that the matter be dealt
with by way of a formal hearing — By a letter of August 9 1991, the landlord’s
surveyor said that he believed an oral hearing was neither necessary nor
justifiable — In September 1991 the arbitrator directed that an oral hearing
may take place at the written request of either party within seven days from
the receipt of the initial written submissions — After further correspondence
the time-limit was extended to seven days after the cross-representations — By
a letter dated October 18 1991 the tenant’s surveyor requested an oral hearing
— On November 4 1991 the parties and the arbitrator inspected the comparable
premises — On January 2 1992 the arbitrator informed the parties that he had
made his award — The plaintiff tenant sought to have the award set aside on the
ground that the arbitrator had misconducted himself
the duty of an arbitrator to act judicially and to receive submissions from
both parties whether he considers they are merely going to assist him or not —
Each party is entitled to present his case to the arbitrator and comment upon
the case of the other side — Where a party legitimately believes that he is
entitled to an oral hearing, the arbitrator must, at the least, offer him such
an oral hearing before he publishes his award — The award could not be remitted
to the same arbitrator for a further hearing and had to be remitted to a
further arbitrator
No cases are
referred to in this report.
This was an
application by the plaintiff, Henry Sotheran Ltd, to set aside an award of an
arbitrator, Mr P R Hargreaves FRICS, appointed in accordance with the terms of
a lease by which the plaintiff held a term from the defendant landlord, Norwich
Union Life Insurance Society.
Jonathan Gaunt
QC (instructed by Lee Lane Smith) appeared for the plaintiff; Nicholas Hamblen
(instructed by the solicitor of the Norwich Union Life Insurance Society)
represented the defendant.
Giving
judgment, HOBHOUSE J said: This matter arises out of a rent-review
clause in a lease and I accept fully that the vast majority of disputes on rent
reviews can be dealt with entirely on documents, maybe with inspections of
premises and short informal hearings. But the basic principle in arbitration is
that parties are entitled to make oral representations and have an oral hearing
before an arbitrator unless there is some agreement to the contrary.
In this case
there clearly was an agreement to the contrary at the earlier stages of the
arbitration. This was confirmed in directions that were given by the arbitrator
[Mr P R Hargreaves FRICS] following consultation with the parties on June 10
1991:
By mutual
agreement between the parties this arbitration will proceed by means of written
representations, although I reserve as a matter within my entire discretion the
right to adjourn the reference to an oral hearing if I deem this necessary or
desirable.
So that is how
matters stood at that stage. The tenant then had a new surveyor [Mr Francis
Fryman ARICS] to act for them, but he confirmed that the position remained the
same. He was expressly invited to say whether he wanted to change anything and
he declined that invitation.
However,
matters progressed thereafter in a rather more complicated fashion. The
tenant’s surveyor considered that some of the arguments and information that
were being advanced from the landlord’s surveyor [Mr Ian Wilson FSVA] were
unsound or misinformed or incomplete. So there came a stage on August 8 1991
when Mr Fryman formally requested that the matter be dealt with by way of a
formal hearing. He reinforced that by saying to his opposite number: ‘As I am sure
you are well aware any party to an arbitration is at liberty to request that it
may be dealt with by way of oral hearing’ and then he sought to justify his
request. But it was made quite clear at that stage that the tenant’s surveyor
was requesting an oral hearing and he even prepared some draft further
directions which would direct such a hearing.
The landlord’s
surveyor commented upon this in a letter of August 9 1991. He said that the
tenant’s surveyor was, at this late stage, requesting an oral hearing. He then
went on:
I do not
believe an oral hearing is either necessary or in any way justifiable. This
reference is a straightforward matter of valuation and there are no legal
points at issue that will need to be heard or presented to you for your consideration.
As a consequence of this turn of events I consider that the costs of the oral
hearing should be the responsibility of the tenants, including the full costs
of any and all legal representation that my clients may need to consider.
Accordingly,
I reserve an absolute right to refer to these delays occasioned by Mr Fryman on
the question of costs.
Therefore, the
matter appears to have gone forward on the basis that the landlord’s surveyors
were saying it was unnecessary but recognising that there would have to be a
hearing if the tenant insisted, but fully reserving the position and saying
that the costs of an unnecessary hearing should be entirely borne by the
tenants.
On August 20
the arbitrator responded to this. He expressed disappointment that certain
agreements had not been reached, and then he further said:
Mr Fryman, in
his letter of 8th August, has requested that this matter be dealt with by way
of an oral hearing. The parties will be aware that either party is at liberty
to request an oral hearing at any time if they so require. Whilst I am prepared
to accede to Mr Fryman’s request I will point out that a substantial amount of
work has already been put into the preparation of written submissions,
presumably by both parties, and it would seem that an oral hearing to discuss
all matters would not be necessary. If Mr Fryman is requesting that an oral
hearing take place to pursue the question of the service charges in greater
detail, will he please confirm the matter to me.
Then he
referred to the fact that there had been no request for a reasoned award. He
ends the letter by saying:
I will then
decide whether a further preliminary meeting is desirable and whether to direct
that a formal hearing should now take place.
As I read that
letter it recognises that there is a right to request an oral hearing; it
accedes to that request and says that it is believed that it will increase the
costs, and there is an implicit invitation to Mr Fryman, the tenant’s surveyor,
to reconsider his request.
Then, on
September 5 1991, there is a further letter from the landlord’s surveyor which
refers to the insistence of his opposite number on an oral hearing and his own
belief that an oral hearing is not necessary.
There was a
meeting in mid-September with the arbitrator in the form of a further
preliminary meeting. Various points of discovery were disposed of adversely to
the tenant’s surveyor and the arbitrator’s letter concluded:
If the
parties so request after written submissions have been exchanged, an oral
hearing may take place to investigate further the contents of the written
submissions, prior to any written counter-submissions being forwarded. I direct
that an oral hearing may take place at the written request of either party
within seven days from the receipt of the initial written submissions. The
parties should give reasons for the request for an oral hearing at that time.
In the context
of what had gone before I consider this to be a recognition of a perceived
right of either party to request an oral hearing which must then take place. It
is not written, in my judgment, as preceding a question of discretion, and the
reference to giving reasons for the request for an oral hearing is, in my
judgment, to make sure that the opposite party and the arbitrator so far as
necessary have full notice of what is going to be dealt with or sought to be
dealt with at the oral hearing. There is further reference to the right
to an oral hearing in later correspondence.
Then on
September 24 1991 the arbitrator said:
I now wish to
hear from either party within seven days whether or not they wish for an oral
hearing to take place in view of the representations which have been exchanged.
The tenant’s
surveyor then requested an extension of that time because he wanted to see what
the other side was saying in response before he confirmed his request. That was
acceded to on October 2, when the time was extended to seven days after the
cross-representations —
. . . to
confirm to me whether or not they wish for an oral hearing to take place as a
result of the representations and cross-representations.
That, in my
judgment, is properly to be read as saying that either party can request an
oral hearing and, if they do so, it will then take place.
There is then
a further letter on October 16 1991 which seems to point in a slightly
different direction and indicates that the arbitrator may proceed to his award
if certain other matters are not raised.
However, on October
18 the tenants’ surveyor wrote as follows:
Unfortunately,
Mr Wilson’s further reports contain a number of errors of fact, misleading
statements and new material. I therefore request, in accordance with your
further directions set out in your letter of 2nd October, that an oral hearing
be held.
That letter is
unequivocal.
The
arbitrator, on October 21, referred to a further preliminary meeting. In my
judgment, that cannot be confused with a hearing of the arbitration. There was
then a suggestion on October 22 that the tenant was wasting time and seeking to
delay. That, in view of what was said in the October 18 letter, was entirely
inappropriate because in the October 18 letter the tenant was seeking to deal
with the whole matter within the course of a day and seeking to make convenient
arrangements which would put the parties to a minimum of inconvenience and,
indeed, would enable the whole arbitration to be disposed of very promptly. So
the letter of October 22, in my judgment, was unjustified.
Then matters
ran into difficulties in finding dates available to everybody for an inspection
of the comparable premises. The inspection was eventually arranged for November
4. There was no arrangement for having any hearing on November 4 and no such
hearing actually took place. It is common ground that on November 4 a short,
informal discussion took place, at one of the premises which the parties were
visiting, which may have included some reference to an oral hearing and some
reference to reasons why an oral hearing should take place, and possibly to the
provision of further information. I do not attach importance to what happened
on November 4 because it, on any view, was not a hearing, and on any view was
inconclusive.
On November 19
1991 there was a further communication from the arbitrator which indicated,
slightly surprisingly, that he had not had time to consider the parties’
representations, which was not a very helpful comment from the arbitrator.
‘Further,’ he said, ‘once I have had the opportunity I will write to the
parties and let them know whether I consider further discovery should or should
not be granted’. That is on the question of discovery, which was one of the
points in issue. Also, perhaps, one of the questions that underlie this whole
unhappy history is indicated by the final comment of the arbitrator:
Regrettably,
I have a current overload of arbitration work and hope to be in a position to
respond to you positively in the near future.
In fact he did
not respond at all.
On January 2
1992, that is a considerable period later, he simply wrote to the parties
informing them that he had made his award. I consider that that situation
discloses clear misconduct on the part of the arbitrator. He had accepted a
situation which gave a party a right to call for an oral hearing. That oral
hearing had been called for. The request had not been abandoned. He had
furthermore given the parties to expect that there would be a further
communication from him. Yet, without even consulting the parties as to whether they
had any further submissions to make, he proceeded straightaway to publish an
award. I consider, as I have said, that that is a clear case of misconduct on
the part of the arbitrator. It no doubt stems from the fact that he is somewhat
overworked; it may stem from the fact that he is a very experienced arbitrator
who thinks that he will gain relatively little from having submissions by one
party or the other. But it is the duty of an arbitrator to act judicially and
to receive submissions from both parties whether he considers that they are
really going to assist him or not. Each party is entitled to present his case
to the arbitrator and comment upon the case of the other side. If a party is
legitimately believing that he is entitled to an oral hearing, the arbitrator
must, at the least, offer him such an oral hearing before he publishes his
award.
Of course, in
certain situations the parties may agree to dispense with any oral hearing and
may agree to confine themselves to a particular procedure. That in fact very
often occurs and, as I said at the outset, is very often the case in this type
of arbitration. It is also how this arbitration started off. But, as is clear
from the correspondence to which I have referred, that is not how it was left
in November and the arbitrator was clearly not justified in doing what he did
on January 2 1992.
I consider
therefore that there has been misconduct and his award should be set aside. The
only remaining question is whether it should be remitted to the same arbitrator
for a further hearing or should be remitted to a fresh arbitrator. On balance,
because there are arguments which apply both ways, I consider that this matter
must be remitted to a fresh arbitrator. Having seen this correspondence I am
not satisfied that the arbitrator will approach the matter wholly with a fresh
mind. He has committed himself to a particular view; he has committed himself
to a view that an oral hearing will not affect his thinking. I am afraid
therefore, having decided that he has misconducted himself, that it really is
inevitable that there should be a hearing before a fresh arbitrator who should
apply his mind afresh to the submissions of the parties.
I accept that
this situation has come about as a matter of the conduct of the arbitrator and
it is, in a sense, unjust to either party that they should have to bear the
costs of a further arbitration and that there is a risk that the costs are
beginning to get out of proportion, although of course, on a five-year review
and commercial premises, the outcome of the rent review is of considerable
financial import to the parties.
For the
reasons that I have given I hold that the arbitrator has misconducted himself.
I set aside the award and I order that the matter be remitted to a further
arbitrator. I direct that the costs incurred in the arbitration already shall
be costs in the further arbitration which will take place.
Award set
aside and the reference remitted to an arbitrator to be appointed in accordance
with the terms of the lease.
