Arbitration — Rent review — Evidence — Whether award of an arbitrator admissible as evidence
plaintiff, Land Securities plc, is the owner of Westminster City Hall, Victoria
Street, London SW1, let to the defendants, Westminster City Council, under a
lease dated August 24 1972 for a term of 99 years — The lease contains
provisions for rent review at which the rent is to be fixed at two-thirds ‘of
the fair market rack rent’ at the appropriate review date — The lease provided
for arbitration in default of agreement between the parties at review — In
relation to the review for March 25 1991 the parties referred the matter to the
arbitration of Mr D Harris FRICS, who issued directions that, inter alia,
normal rules of evidence should apply — The hearing commenced on May 11 1992 —
As closing submissions were being made, the plaintiff discovered that on May 12
1992 Mr P H Clark LLB FRICS ACIArb had issued an interim award in a rent review
between Pearl Assurance plc and the Secretary of State for the Environment,
determining the market rent on February 29 1991 of another office building in
Victoria Street at £34 per sq ft — The plaintiff applied to the arbitrator for
leave to adduce Mr Clark’s award as evidence of the rental value of the
comparable property — On the defendants’ objection the parties, by consent,
sought a determination as to whether the award was admissible
a comparable property is admissible because it shows what an actual landlord
and tenant were willing to agree in a transaction in which real money changes
hands — An arbitrator’s award is his opinion, after hearing evidence, of the
rent at which premises might reasonably be expected to be let; the letting is
hypothetical, not real — The award is therefore not direct evidence of what is
happening in the market — In principle the judgment, verdict or award of
another tribunal is not admissible evidence to prove a fact in issue or a fact
relevant to the issue in other proceedings between different parties: see Hollington
v F Hewthorn & Co — Although Mr Clark may be an expert, he did
not give his award in that capacity but on the basis of the evidence before him
and his position was no different from a judge determining rent under the
Landlord and Tenant Act 1954 — In any event the arbitrator’s award could be
excluded as hearsay — And if the arbitrator were called to give evidence, to
avoid the application of the hearsay rule, he would be cross-examined and his
opinion would cease to have evidential value because he would not be in a
position to give evidence of the comparables presented to him in his reference:
there would be no admissible evidence to support his evidence — Even if Mr
Clark were able to give evidence, it would amount to a collateral inquiry as to
whether he came to a right decision; the result of that inquiry would have
insufficient relevance to the issue in the present arbitration
The following
cases are referred to in this report
Buccleuch
(Duke of) v Metropolitan Board of Works (1872)
LR 5 HL 418
Hollington
v F Hewthorn & Co Ltd [1943] 1 KB 587
Hui
Chi-ming v The Queen [1992] 1 AC 34; [1991]
3 WLR 495; [1991] 3 All ER 897, PC
Hunter v Chief Constable of the West Midlands Police [1982] AC 529;
[1981] 3 WLR 906; [1981] 3 All ER 727, HL
Savings
& Investment Bank Ltd v Gasco Investments
(Netherlands) BV [1984] 1 WLR 271; [1984] 1 All ER 296
Ward v Shell-Mex & BP Ltd [1952] 1 KB 280; [1951] 2 All ER 904
This was a
hearing by way of an originating summons issued by the plaintiff, Land
Securities plc, for the determination of questions relating to the
admissibility of an arbitrator’s award in rent review proceedings arising in a
lease held by the defendants, Westminster City Council.
Michael Barnes
QC and John Male (instructed by Nabarro Nathanson) appeared for the plaintiff;
Terence Cullen QC and John Burrett (instructed by the solicitor to Westminster
City Council) represented the defendants.
Giving
judgment, HOFFMANN J said: This summons raises the question whether an
arbitrator’s award determining the market rent of a property is admissible
evidence in another rent review arbitration relating to a comparable property.
The plaintiff
is the landlord of Westminster City Hall in Victoria Street. The premises are
let to the City of Westminster under a lease dated August 24 1972 for 99 years.
The lease provides for rent reviews at which the rent is to be fixed at
two-thirds ‘of the fair market rack rent’ at the review date. If the parties
are unable to agree the rent is to be determined by arbitration. The most
recent rent review date was March 25 1991 and the parties were unable to agree.
The question
arbitrator.
On February 14
1992 the arbitrator gave preliminary directions for the hearing, which included
the following:
1. Each party
to be limited to one expert witness with a right to apply to call others.
2. Copies of
reports and valuations to be exchanged by March 13.
3.
Cross-representations on each others reports and valuations to be exchanged by
March 27.
4. Hearing
commencing May 11.
5. Normal
rules of evidence to apply at the hearing.
6. Evidence
that is not agreed must be strictly proved.
The hearing
commenced on May 11. The plaintiff was contending for a valuation of £35 per sq
ft and the tenant for £16 per sq ft.
On May 22 when
closing submissions had been reached the plaintiff discovered that on May 12 Mr
P H Clark LLB FRICS, ACIArb, had issued an interim award in a rent review
arbitration between Pearl Assurance plc and the Secretary of State for the
Environment, determining the market rent on February 20 1991 of another office
building in Victoria Street. Mr Clark had valued that building at £34 per sq
ft. The plaintiff applied to the arbitrator for leave to adduce Mr Clark’s
award as evidence of the rental value of a comparable property. The tenants
objected to its admissibility and by this summons, under section 2(1) of the
Arbitration Act 1979, the court with the consent of the parties is asked to
determine a question of law, namely whether Mr Clark’s award is admissible
evidence.
The issue in
the arbitration is the rent at which the premises could reasonably have been
let in the open market at the rent review date. Evidence of the rents at which
comparable properties were actually let in the open market at about the same
time is relevant and, if properly proved, admissible because the fact that
someone was willing to pay a certain rent for a property can justify an
inference that he or someone else would have been willing to pay a similar rent
for a comparable property. A rent which is agreed between the parties at a rent
review is admissible on similar grounds, although it suffers from the
disadvantage that such transactions are not in the open market. The parties are
not free to refuse to deal. They bargain under the constraint that if they do
not agree, a rent representing an arbitrator or expert’s view of the reasonable
market rent will be imposed upon them. But these matters go to the weight of
the evidence rather than its admissibility. It is admissible because it shows
what an actual landlord and tenant were willing to agree in a transaction in
which real money was to change hands. An arbitration award on the other hand is
an arbitrator’s opinion, after hearing the evidence before him of the rent at
which the premises could reasonably have been let. The letting is hypothetical,
not real. It is therefore not direct evidence of what was happening in the market.
It is the arbitrator’s opinion of what would have happened.
In principle
the judgment, verdict or award of another tribunal is not admissible evidence
to prove a fact in issue or a fact relevant to the issue in other proceedings
between different parties. The leading authority for that proposition is Hollington
v F Hewthorn & Co Ltd [1943] 1 KB 587 in which a criminal
conviction for careless driving was held inadmissible as evidence of negligence
in a subsequent civil action. There has been criticism of this decision and
important exceptions have since been created by statute, notably in the Civil
Evidence Act 1968, but none of them apply here.
In Hunter v
Chief Constable of the West Midlands Police [1982] AC 529, at p 543,
Lord Diplock said that Hollington v Hewthorn was ‘generally
considered to have been wrongly decided’. He did not elaborate on this remark,
which in any case was not necessary for the decision. In Savings &
Investment Bank Ltd v Gasco Investments (Netherlands) BV [1984] 1
WLR 271 Peter Gibson J said that Hollington v Hewthorn still
represented the common law. Still more recently the principle has been applied
by the Privy Council to exclude evidence of the conviction of a principal
offender at the trial of an accessory: see Hui Chi-ming v The Queen [1991]
3 WLR 495.
Mr Barnes QC,
who appeared for the plaintiff, did not seek to challenge Hollington v Hewthorn
as a statement of the common law, but he said that it is based upon the
rule which excludes opinion evidence. Lord Goddard who gave the judgment of the
court said:
It frequently
happens that a bystander has a complete and full view of an accident. It is
beyond question that while he may inform the court of everything that he saw he
may not express any opinion on whether either or both of the parties were
negligent. The reason commonly assigned is that this is the precise question
the court has to decide, but in truth it is because his opinion is not
relevant. Any fact he can prove is relevant but his opinion is not. The
well-recognised exception in the case of scientific or expert witnesses depends
on considerations which for present purposes are immaterial. So on the trial of
the issue in the civil court the opinion of the criminal court is equally
irrelevant.
This case, said
Mr Barnes, fell within the well-recognised exception to which Lord Goddard
referred. The rental value of the property was a matter which could properly be
proved by expert evidence, and Mr Clark is an expert. The value of a comparable
property is a fact relevant to the issue. Mr Barnes accepted that, having
regard to the arbitrator’s directions, he would have to obtain leave to tender
additional expert evidence but this did not affect its admissibility.
Mr Clark is no
doubt an expert valuer but I do not think he gave his award in that capacity.
An arbitrator is obliged to act solely upon the evidence adduced by the
parties. Mr Clark may, by reason of his expertise, have known about matters
which cast doubt upon points which went unchallenged in the arbitration. If he
had been acting as an expert he would have been able to take this knowledge
into account. As an arbitrator he would not. His position, in my judgment, was
no different from that of a judge determining the rent of a new lease of
premises under the Landlord and Tenant Act 1954. The admissibility of his
judgment as evidence of value of the premises in proceedings between different
parties cannot depend upon whether he happens to have expertise in valuation.
Furthermore,
the opinion rule was not the only basis of the decision in Hollington v Hawthorn.
There is also the hearsay rule which appears in Lord Goddard’s judgment
disguised as the best evidence rule. The arbitrator’s award, expert or not, is
an assertion as to the value of a comparable property made by a person not
called as a witness and used to prove the truth of that assertion. Mr Barnes
said that the hearsay rule relates merely to the manner of proof. If it caused
any difficulties he would call Mr Clark as a witness, but he submitted that if
he did so Mr Clark could not be cross-examined on the reasons for his award.
Unlike other experts his reasoning could not be challenged.
The authority
relied upon for this submission was the decision of the House of Lords in Duke
of Buccleuch v Metropolitan Board of Works (1872) LR 5 HL 418. That
decision concerned the evidence which could be given by an arbitrator in a
subsequent dispute between the parties arising out of the award. Mr Baron
Cleasby in his advice to the House of Lords said that the arbitrator could give
evidence of the subject-matter into which he was inquiring but he could not be
asked questions about how he arrived at his award or what it meant. The award
was a document which could not be ‘explained or varied or extended by extrinsic
evidence of the intention of the person making it’.
It seems to me
that the Buccleuch case is an illustration of the operation of the parol
evidence rule and the doctrine of res judicata. The effect of the latter
doctrine is that when the award is made the rights of the parties as they may
previously have existed are merged in the award. It is the terms of the award
which thereafter govern and the award is subject to the parol evidence rule,
which excludes evidence of the intentions of its author.
It follows
that the Buccleuch case can have no relevance when the award does not
constitute a res judicata between the parties but is relied upon as
evidence in other proceedings between strangers. For a contrary view Mr Barnes
referred me to the judgment of Streatfeild J in Ward v Shell-Mex
& B P Ltd [1952] 1 KB 280. The plaintiff had contracted eczema while
clearing mud from under a wharf and claimed that the cause was his employers
failure to supply adequate protective clothing. He wanted to call as a witness
a doctor who had examined him in the course of his duties as a member of the
medical board set up under the National Insurance Industrial Injuries Act 1946
to certify whether, and to what extent, an industrial accident had resulted in
loss of physical capacity. The Minister of Health intervened on the ground that
the doctor’s evidence might be inconsistent with the board’s decision. He cited
the Buccleuch case. Streatfeild J said that the position of a member of the
board was analogous to that of an arbitrator and he therefore could not give
evidence of the reasons why the board issued its certificate. It was true that
the doctor was an expert, but, said Streatfeild J, his opinion as a member of
the board was not expressed as an expert but as a member of a statutory body. The
judge ruled that the doctor could not be called. The plaintiff withdrew his
case and judgment was given against him.
I find this
reasoning very puzzling. The plaintiff was not wanting to explain or vary the
medical board’s certificate. There is nothing to
between the parties for whom the certificate constituted a res judicata.
The Buccleuch case was therefore, in my view, irrelevant. All that the
plaintiff wanted to do was to call as a witness a doctor whose opportunity to
examine him happened to have arisen because he was a member of the board. I
could have understood that decision, without necessarily agreeing with it, if
it had been said that on grounds of public policy members of statutory
tribunals should not be competent or compellable to give evidence on matters of
evidence which came to their attention in the course of their duties. It was
that thought which presumably prompted the Ministry of Health to intervene. But
the grounds upon which the learned judge actually based his decision seemed to
me to be wrong.
In my
judgment, therefore, Mr Clark if tendered as an expert witness would be liable
to cross-examination like any other expert. Once one goes to that point, however,
one has moved a long way from the admissibility of the award as such. If Mr
Clark can be called upon to justify his opinion of the rental value of the
comparable property, that opinion ceases to have any evidential value. His
opinion would presumably be based upon the evidence of real comparables
presented to him in his own arbitration. But Mr Clark is not in a position to
give admissible evidence of those comparables. He can only say what he was told
by the witnesses at his arbitration. It follows that there will be no
admissible evidence to support his opinion.
Even if Mr
Clark or someone else were in a position to give admissible evidence of the
comparables that support his opinion, I think that his award would still be
inadmissible on another ground. It would involve a collateral inquiry as to
whether Mr Clark came to the right decision in his own arbitration. The result
of such an inquiry would, in my judgment, have insufficient relevance to the
issue in the present arbitration to justify undertaking it. So far as the
comparables relied on by Mr Clark are relevant to the value of Westminster City
Hall, they could have been used as such by the plaintiff’s experts. In so far
as they would not have been relevant I do not think they can be smuggled in by
using them to establish Mr Clark’s opinion of the value of a comparable
property and then using that conclusion to support a valuation of Westminster
City Hall.
I therefore
decide that Mr Clark’s award is inadmissible. This is not in my view a
technical decision on outdated rules of evidence. Properly analysed I think
that the arbitrator’s award has in itself insufficient weight to justify the
exploration of otherwise irrelevant issues which its admissibility would
require. I will declare accordingly.
Declaration
accordingly. Certificate granted under the Arbitration Act 1979 and leave to
appeal.
