Arbitration — Arbitrator failed to inspect comparables contrary to his directions — Whether misconduct — Whether leave to extend time for application to remit or set aside
Pursuant to
the rent review provisions of a lease dated May 21 1984 of business premises, A
was appointed an arbitrator to determine the rent payable by the appellant
tenant to the respondent landlord in respect of the 1993 review. By letter
dated April 26 1995 A gave directions for the conduct of the arbitration and
stated that he would inspect the comparables only from the exterior unless
either party requested him to make an internal inspection. Following receipt by
A of the parties’ submissions, he stated in a letter dated July 17 1995 that he
would inspect the subject premises on July 27 ‘following which I shall make an
inspection of the comparable properties’. The comparables were located
throughout the country. The tenant received the arbitrator’s award on August 22
1995 and made an application on October 4 1995 for an extension of time to apply
to have remitted or set aside the award on the ground that the arbitrator had
misconducted himself because he had not, as he later admitted, inspected any of
the comparables.
arbitrator’s award remitted to him. The failure of the arbitrator to inspect
the comparables was a failure to follow the procedures he had laid down; it did
constitute sufficiently material misconduct. The rental figure he awarded
should be treated as set aside. The proper course for the arbitrator is to
consider afresh, in the light of his inspection of the comparables and other
evidence, what the correct award should be.
The following
cases are referred to in this report.
Zermalt
Holdings SA v Nu-Life Upholstery Repairs Ltd
[1985] 2 EGLR 14; (1985) 275 EG 1134
This was an
application by Oakstead Garages Ltd for an extension of time to apply under
section 23 of the Arbitration Act 1950 for the setting aside or remission of an
award made by John Charles Ankcorn FRICS in a rent review arbitration under a
lease to which the respondents, Leach Pension Scheme (Trustees) Ltd, are
landlords.
Guy
Fetherstonhaugh (instructed by Manches) appeared for the applicants; Kirk
Reynolds QC (instructed by Robert J Knight, Cuffley) represented the
respondents.
Giving
judgment, Sir Richard Scott V-C said: The application before the court is an
application made under section 23(2) of the Arbitration Act 1950 to have
remitted to the arbitrator, or set aside, an arbitration award which was made in
rent review proceedings between the parties. The applicants are the tenants,
Oakstead Garages Ltd. The landlords, the respondents to the application, are
Leach Pension Scheme (Trustees) Ltd.
The lease in
question is a lease dated May 21 1984 which granted a term of 25 years from
December 25 1983 at an annual rent of £10,000 subject to review every five
years. The first rent review occurred on December 25 1988 and the rent was then
increased to £14,000 pa.
In 1993,
therefore, the time arrived for the second rent review. The parties were unable
to agree what the revised rent should be and,
was asked by the parties to appoint an arbitrator and he did so. He appointed
Mr John Ankcorn [frics] to act as
arbitrator of the issue and to determine the rent payable for the premises with
effect from December 25 1993.
On August 8
1995 the arbitrator gave his award determining the rent at a sum of £32,000 pa.
The award was received by the tenant on August 22 1995, but it was not until
October 4 1995 that the tenant made his application under section 23(2). The
time prescribed for such applications is 21 days and, accordingly, the tenant
requires to obtain from the court an extension of time for the purposes of the
application.
In considering
whether an extension of time ought to be granted, one of the main matters to be
considered is the substance of the claim for relief. Plainly no extension
should be awarded in order to enable a useless point to be argued. Accordingly,
Mr Guy Fetherstonhaugh, for the tenants, addressed me on the substance of his
section 23(2) application.
The point at
issue arises out of the use made by the arbitrator of the comparables on which
the respective parties relied in support of their contentions as to what the
new rent should be. Of course, reliance on comparables is an almost invariable
feature of rent reviews, whether they are rent reviews dealt with by the
parties in negotiation, whether they are rent reviews dealt with by the courts,
or whether they are rent reviews dealt with by arbitrators.
This being a
rent review dealt with by an arbitrator, directions were given by the
arbitrator as to the procedure to be adopted. By letter dated April 26 1995, Mr
Ankcorn gave direction to the parties. He provided for written representations
to be submitted to him by Friday, June 17 1995. He said that when he received
them he would transmit a copy to the other party.
In para 6 he
directed that:
Particulars
of any comparable transaction included in any representations should contain
the following details: (1) age of property; (2) a brief description of the
property and its construction; (3) a brief description of the amenities and
ancillary services; (4) the agreed let floor areas; (5) the nature of the
comparable transactions, eg whether it is a new letting or a rent review; (6)
the date of the lease in question, the date specified for commencement of the
term and the length of the term; (7) full details of all terms and conditions
in the lease which might have an effect on rental value; (8) the rent review
period or pattern; (9) the names of the parties; (10) the figure which has been
agreed in the open market or on rent review.
The directions
went on:
No
particulars of a transaction relating to a comparable property shall be
included unless those particulars have either been agreed and the particulars
are set out in the agreed statement of facts or are within the personal
knowledge of the surveyor preparing the representations who should certify that
he or a member of his firm has personal knowledge of such transactions.
That last
direction was intended to rule out hearsay evidence.
In para 8 of
the letter Mr Ankcorn gave directions as to the manner in which he would
proceed regarding inspection. Para 8 was in these terms:
I shall
advise the parties of the date upon which I wish to make an inspection of the
premises. I am prepared to make an inspection unaccompanied by the parties’
surveyors but if one party wishes to be present then both should attend. It
will be my intention only to view any comparable property cited in the
representations from the exterior unless I am specifically requested to make an
internal inspection. If any internal inspection of a comparable property is
required, I shall expect the arrangements to be made by the party so
requesting.
That last
direction, so far as inspection of comparable properties was concerned, seems
to me a clear indication of the intention, provisional as it may have been as
the arbitrator had not, at this stage, received the parties’ representations,
to inspect the comparable properties, or at least the more relevant and
important of the comparable properties, on which the respective parties relied.
It could not
be said that by that direction the arbitrator bound himself to inspect each and
every one of the comparable properties referred to by the parties’ surveyors.
If he concluded that one or more of the comparables would be of so little
relevance to the issues before him as to afford him no assistance, he plainly
would not waste his time and the parties’ money by visiting it. But, subject to
that, the direction constituted a statement of the arbitrator’s intention that
he would be inspecting the comparables referred to by the parties’ surveyors.
On June 15 the
tenants’ submission was provided to the arbitrator and also in June, but I do
not know the exact date, the landlords’ submission was provided. Each of the
submissions referred to comparables. A feature of the case that might have made
the arbitrator’s task more difficult is that each submission referred to
different comparables. Each surveyor, having received copies of his opposite
number’s submissions, then commented on the comparables relied on by his opposite
number. The comments on each comparable tended to disparage the inferences
sought to be drawn from the comparable by the party who relied on it and to put
forward reasons why that reliance was unfounded.
Following
receipt of the submissions, and no doubt after he had read them because it was
some time thereafter, the arbitrator, by a letter dated July 17 which
acknowledged receipt of counter-submissions in duplicate from each party’s
surveyor, said:
In accordance
with my telephone call to both surveyors today, I confirm my proposed
inspection of the subject premises on Thursday of next week, 27th July 1995. I
intend to commence my inspection at approximately 11.30 am following which I
shall make an inspection of the comparable properties which have been cited in
support of the submissions made by both parties.
I think one is
entitled to wonder whether the arbitrator in fact intended the assurance, which
he appears there to have given, that he would be making an inspection of the
comparable properties cited. It is to be borne in mind that the properties were
situated all over the country. There was one in Milton Keynes. There was one
near Bicester. There was one, I think, near Sheffield. The notion that
following on from his 11.30 am visit to the subject premises he would have been
inspecting the comparable properties as apparently part of one continuing
process was plainly unreal. However, the letter can only be taken, and the
parties were entitled to take it, as an indication that the arbitrator would,
as part of the process of his preparation of the award, be visiting the
comparable properties on which the respective parties’ surveyors had relied in
their submissions to him.
As I have
said, the award was dated August 8. It was received somewhat later than that by
the tenants. It was not clear, at least, from the face of the award, whether or
not the arbitrator had visited any of the comparable properties. The award
recited that he had visited the subject premises but contained no similar
recital in regard to the comparables. Mr Kirk Reynolds QC, for the landlords,
very realistically accepts that the absence of such a recital could not have
been taken as conclusive that the comparable properties had not been inspected.
The belief
that the comparables had not been inspected derived, so far as the tenants were
concerned, from an examination of the bill for disbursements which was put in,
in due course, by the arbitrator. The sum claimed for travelling expenses, when
analysed, made clear that the arbitrator could not have travelled to the
various different locations in England at which the respective comparable
properties were to be found.
Subsequently,
after the commencement of these proceedings, a letter dated October 19 1995
from solicitors instructed on behalf of the arbitrator, made clear that the
arbitrator had in fact not visited any of the comparable properties. He had
inspected none of them.
Evidence has
been put in by both sides in regard to the differences between the views of the
landlords’ surveyor and the views of the tenants’ surveyor on the comparables
relied on by each and the difficulty the arbitrator must have had without an
inspection of reconciling those differences.
I am not, for
my part, particularly impressed by that part of the case made in support of the
application. It seems to me that it might well have been open to the
arbitrator, looking at the submissions on either
of the respective comparables for the purposes of reaching his decision on the
arbitration award without the necessity of an inspection of the respective
comparables.
But that does
not appear to me to be the real point of grievance available to the tenants.
This is an arbitration in which the arbitrator need not have done but did, both
before and after receiving the respective parties’ submissions, state that he
was going to visit the comparables. The parties prepared their submissions in
the context of his statement of a preliminary intention to that effect. After
they had prepared and supplied him with their submissions and their
counter-submissions, they received what they were entitled to have taken to
have been a firm decision on his part to visit the comparable sites. It is now
known that he did not visit them.
In my view,
that departure by the arbitrator from the procedure that he had prescribed for
himself constituted misconduct in the conduct of the arbitration; misconduct,
that is to say, of a procedural character. It was not misconduct which carries
any moral obloquy with it, as misconduct in other areas might be thought to do.
It was, none the less, a failure to conduct the arbitration in accordance with
procedures that were and could be seen to be fair to both sides.
I do not mean
by that that if the procedures as announced had been different and had been in
accordance with what the arbitrator actually did, that would necessarily have
been unfair. The unfairness lies, to my mind, in leading the parties to believe
that a certain procedure, relevant to the reaching of conclusions and the
formulating of the award, was to be followed, leaving the parties to make their
submissions on that footing and then departing from it.
In my opinion,
in such a case there has been a material misconduct in the conduct of the
proceedings. The tenants were entitled to expect, unless told to the contrary,
in which case they would have taken such steps as they might have been advised,
that the arbitrator would inspect the comparables which had been put before him
and would take his inspection into account in considering the weight to be
attributed to the parties’ respective submissions on those comparables.
I conclude,
therefore, that the tenants do have a substantial point to put forward if there
is an extension of time allowed for them to do so.
The
explanation for the delay that has been put forward by the tenants falls into
two parts: first, that the award was not received until August 22 or
thereabouts. The application was not made until October 4 so even if time had
started running from August 22 there was still some weeks’ delay. The second
part of the tenants’ explanation is that the nature of the case available to
them was not apparent until the analysis of the arbitrator’s disbursements bill
had been carried out and the conclusion had been reached that there could not
have been any visit by the arbitrator to a comparable site.
Mr Reynolds
has argued that no sufficient reason for the delay has been shown in order to
justify an extension of time. He has reminded me of the approach that the court
should adopt to delays under the Arbitration Act 1950 and, in particular the
statement of principle from Bingham J (as he then was) in Zermalt Holdings
SA v Nu-Life Upholstery Repairs Ltd [1985] 2 EGLR 14. The judge
said:
This is a
field in which the court is extremely strict in insisting on the time-limits to
avoid the lengthy and protracted hearings which used to afflict arbitration
matters. Only where good cause is shown and where there is no possibility of
prejudice will any extension of time be granted, and then only if the delay is
minor.
A fair
explanation seems to me to have been given by the tenants for the delay. There
is no prejudice to the landlords save that of delay in receiving the increased
rent to which the landlords will, in due course, become entitled. It is, of
course, the tenants’ submission that the rent should not be increased at all.
There is no reason to suppose that, if and when an increased rent does become
payable, the arrears which will by then have built up will not be paid. It is
not said that the tenants are in any position of financial instability. And I
do regard the delay, in the circumstances of this case, as being really no more
than minor.
In these
circumstances, I propose to grant the extension of time necessary to enable the
application made on October 4 to proceed.
I have already
indicated that I consider the point is, in substance, a good point. The
question is what relief should be granted. There are two alternatives: one is
that the award should be set aside which would, as I understand it, having been
referred to the relevant passages in Mustill & Boyd, lead to the
necessity for the arbitration to be resumed under a new arbitrator. The
alternative would be to remit the award to the arbitrator appointed by the
president of the RICS, Mr Ankcorn, with a direction that he should complete the
procedures that he prescribed for himself in the directions he gave; that is to
say, he should visit the comparables and reconsider, in the light of that visit
and a consideration of the parties’ submissions on the comparables, what the
new rent should be; what, if any, increase over the £14,000 would be justified.
Mr Reynolds
has suggested the latter course. I think perhaps he has suggested that I should
not grant any relief at all because, in the circumstances, it is not clear that
if the arbitrator had visited the comparable sites as he said he would, it
would have made any difference to his award. That has to be an imponderable. It
is impossible to tell what, if any, difference an inspection of the comparables
would have produced.
The reason why
I have come to the conclusion that the failure of the arbitrator to inspect the
comparable sites did constitute sufficiently material misconduct to justify
relief is because the failure to proceed in accordance with the indicated
procedures was not, in my view merely a technical failure but was one of
substance. It is impossible to tell what the substantive result of such a
failure in procedure might be and I do not think, therefore, that speculation
as to what might have happened is a fruitful avenue to pursue.
This is not a
case, as I have said before and repeat, in which any suggestion of
incompetence, of bias or of inadequacy has been levelled against the arbitrator
save in respect of his failure to abide by his stated decision to visit the
comparable sites. It seems to me, in these circumstances, that justice will be
done if the case is remitted to the arbitrator on the footing that he, having
failed to carry out the procedure he prescribed for himself, should now do that
and should reconsider what the rent should be. I should perhaps say that the
proper course for him is not, in my opinion, to consider whether his £32,000 is
correct or should be varied. The £32,000 should be treated as set aside. He is
to consider afresh, in the light of his inspection of the sites and the other
evidence, what the correct arbitration award should be.
There is
nothing in the evidence to suggest that he will not faithfully do that. That,
accordingly, is the order I propose to make.
