by Michael Treays
With the current difficulties in the commercial property market and the increased burden of the UBR it is reasonable to expect an increasing number of rent review negotiations to be settled by arbitration. Whether the parties should ask for a reasoned award or not is a matter of judgment, but they should at least be aware that this course of action will incur additional cost.
In deciding whether to give reasons an arbitrator will be guided by the RICS guidance notes for surveyors acting as arbitrators or as independent experts in rent reviews:
(1)If neither party asks him to give reasons he should not do so.
(2)If both parties request an award supported by reasons the arbitrator should comply.
(3)If one party asks him to give reasons and the other party is either silent or specifically requests that no reasons be given he should consider whether under the Arbitration Act 1979 the courts would be likely to require a reasoned award because a question of law is likely to arise out of his award; whether the party asking for this is acting bona fide or is merely seeking to delay matters; and whether there are other circumstances making it desirable to give an award supported by reasons (for example, because a point of principle not amounting to a point of law is involved which is likely to recur in future dealings between the parties). Unless he is satisfied that there is no justification for making an award containing reasons he should normally accede to the request that he should give reasons.
(4)If the dispute concerns value only, with no legal issues or issues of principle arising, then a reasoned award is not justified.
When an arbitrator undertakes a reasoned award the reasons, whether for a small arbitration affecting a secondary shop in south London or for a major City office block, still have to follow the same rules and stand up to scrutiny under the same process of logic.
I would suggest that a reasoned award on a relatively small arbitration is a good deal harder to produce than a reasoned award on a dispute involving a large rent. This is because on a large review the parties are well represented by professionals who are fully qualified and experienced in the procedures of arbitration. You do not need to remind them that they should not produce hearsay evidence. You do not need to tell them not to ring you for a chat on the quiet. You can be reasonably certain that any points of law are properly argued from both sides with supporting legal evidence. Even where there is no counsel/solicitor involved there is very often a legal opinion put forward by one of the party’s representatives as written evidence. All this makes the job of the arbitrator that much easier.
In cases where you may encounter language and cultural differences you can be fairly sure that you are going to have your work cut out just to get the parties to follow your directions on how the arbitration should be conducted. Very often one or other of the parties is not professionally represented at the outset and this in turn creates enormous difficulties for the arbitrator.
In my opening arbitrator’s letter to the parties I always try to advise them that if they are not professionally represented by a surveyor then they should avail themselves of some professional advice if they are to present evidence in the required form. In this opening letter I normally state: “I assume that there is no dispute either on the interpretation of the lease or any legal points, but if so the parties should notify me immediately as it may be preferable to arrange a preliminary meeting.”
I then go on to say: “Unless there is a point of law, or unless the parties specifically request it, it will not be my intention to give a reasoned award.” I end by requiring both parties to confirm in writing: (1) how they wish to proceed — oral hearing or written representations; and (2) acceptance of my fees and disbursements.
Usually, when the parties reply, they opt for written representations without making any mention of my fee and disbursements! They usually do not make any mention of whether the award should be a reasoned one or not. Assuming neither of the parties has mentioned the subject, I then go on, when I issue my formal directions, to state: “As no point of law arises a reasoned award will not be given.” It is, therefore, my experience that one usually ends up giving an award without reasons.
However, where a surveyor asks for a reasoned award, then I would normally give it, taking into account the RICS guidance notes.
Whether the subject of the arbitration is large or small, there are various essential points that must be covered if the award is to be valid. These points apply to all awards, whether reasoned or not:
(1)The award must be made within the prescribed time (if any). Most parties will agree to a timetable being delayed or postponed to enable all the facts and figures to be properly presented etc.
(2)The award should comply with any special directions in the arbitration agreement. This might cover matters relating to the method of publication or the delivery to one or other of the parties etc. This does mean that an arbitrator should carefully read the lease as soon as he is instructed, to be certain that he complies with any prescribed timetable or other special directions.
(3)The award must be certain in meaning. It is my experience that very often not only the rent but the date from which it should be paid is in dispute, and an award which merely states that the revised rent should be £15,000 pa without stating the effective date could, in my view, lack certainty.
(4)The award must be consistent in all its parts and not be ambiguous or contradictory. This is not always easy to achieve in a long reasoned award.
(5)The award must not exceed the scope of the arbitration agreement.This is a very difficult area. On a well-conducted arbitration there is no particular problem, as the parties clearly set out their case, argue it, and define exactly the points of claim and defence. The decision for the arbitrator is in essence made easier by the professionalism of the representatives. On smaller arbitrations where less experienced surveyors are acting, one does find that all sorts of extraneous matters are brought in during the reference. The tenant usually sees the arbitration as an opportunity to unload all the complaints which he has accumulated over the years against the landlord.
In my opinion, some additional matters can properly be dealt with by implications where they have a bearing on the rent, and the arbitrator could be within his rights in deciding any dispute in reference thereto, provided both parties have had a proper opportunity of stating and defending the issue in question — but the arbitrator must tread carefully and not go beyond his brief.
(6)The award must be directed to all the matters referred to. This, of course, does not prevent the arbitrator from making an interim award, to be followed by a final award.
(7)The award must be final. This is fairly obvious, but at the end of the day the parties must know exactly what their position is without resorting to further judicial inquiry.
In deciding what to put into a reasoned award and what to leave out, one is influenced by the size of the dispute. Obviously if the subject property and the dispute would justify a high arbitration cost then one should be as thorough as possible. But where the arbitration is dealing with, say, a rent of £6,000 pa, it is frankly difficult to justify writing an award in excess of perhaps 15 pages, not because there may not be sufficient detail involved, but merely because at a practical level one must be conscious of the overall costs in an arbitration of this size. So there is sometimes a balancing act to be achieved between setting out as much as one can, and at the same time giving the facts and your opinion in a brief and economical style.
In writing the reasoned award one should first set out “the recitals”, the facts of the matter, no more no less. Very often where one can get the parties to agree an “agreed statement of facts” this can be attached to the reasoned award as an appendix. The recitals are then followed by the “operative part”.
It must be made quite clear where one is stating an opinion as opposed to stating a fact. I believe that the arbitration award should stand up as a document on its own and be clearly understood by anybody coming fresh to the problem.
It is important not to bamboozle the parties with your eloquence and legal knowledge. Both must clearly understand exactly what you are saying and this at times may mean the adoption of a more simplistic approach, depending on the level of expertise with which you are dealing. I appreciate that there may well be times when this is impossible and that it is necessary to mention “estoppel” or use other words which may well not be understood by the parties. The point is, however, that if technical jargon has to be used then so be it, but if possible it should be avoided. It is almost certain that the surveyors will pass a copy of the award to their particular clients, and so not only should one be writing so that the surveyors understood your award but the actual landlord or tenant must be borne in mind.
Accuracy is essential. It is not uncommon for a word-processing error to reproduce a paragraph which you thought you had eliminated!
On rare occasions I have found it necessary to provide some explanation as to how I arrived at my award, even though reasons had not been requested — where, for example, I felt that the evidence was so conflicting that neither party would be satisfied with the award I gave unless there was some explanation. This explanation would be given outside my award, and this would be clearly stated on the letter, which would be marked “Without Prejudice”. In such cases I do not feel it necessary to explain the whole background of the arbitration as the parties are fully aware of all the circumstances.
In my experience a reasoned award normally runs to about 15 pages of double-space typing: if, however, the matter is complicated then we might well get 15 pages of close-typed reasons, not to mention appendices which might include a statement of agreed facts, a copy of the lease and a copy of the licence etc. The preamble or recital normally runs to two or three pages, and summarises the matter in dispute, how you were appointed, the parties to the dispute, when the property was inspected and when evidence was submitted etc.
When asked to give a reasoned award because there is some point of law that needs to be decided, not only do I give a reasoned award on that particular issue but I normally go on to give a reasoned award on all the rest of the rental evidence which I have received. This would seem to be right thing to do, for if I am wrong on my point of law and it is challenged in the court, the court may have the ability to decide what the correct rent should be in the light of my other reasons.
In dealing with comparable evidence in a reasoned award one has to be fairly diplomatic as to how evidence is accepted or rejected. When I receive the written representations I normally pencil comments in on the margin; these normally include “rubbish”, “illogical” etc. When I come to write my award, these get watered down to: “I have treated this rental evidence with considerable caution”; “There appears to be an apparent contradiction in Mr X’s evidence”; “This is hearsay evidence which I have ignored”; “I attach little weight to this”.
Where a party seeks a reasoned award and there is no point of law arising because he has other properties in the vicinity, and he wishes to use the award as a benchmark for other rent settlements, it is only right and proper that he should pay the additional cost involved in producing a reasoned award.
It is my experience that rent disputes are becoming increasingly bitter and the element of compromise required to settle sadly missing. Submissions now tend to contain all sorts of minor sniping points and criticisms of the other party’s views or conduct which have little or no bearing on the rent issue, and this is a sad reflection on the profession. Of equal concern is the tendency for both parties to inflate or deflate their figures to the point that their valuations stretch credibility to the limit. In my formal directions I remind each party “that each representation should contain the party’s honest opinion of the rental value of the subject property in accordance with the terms of the lease”. Where the arbitration is conducted by way of oral hearing it is possible to have the expert witnesses under oath, but the tendency to act as an advocate rather than as an expert now seems to be a well-entrenched one for surveyors.
Producing reasoned awards in a climate of considerable landlord and tenant conflict is no easy matter, but then those who act as arbitrators will know that you never please both parties. A reasoned award is, of course, more likely to be challenged in the High Court, where it can be set aside, varied or remitted if there is an error of law or where the arbitrator has been guilty of misconduct. Misconduct may include a mere procedural error on the part of the arbitrator.
I foresee an increased number of requests for reasoned awards in the months ahead. Where landlords have a choice of seeking the appointment of an arbitrator or of an independent expert, I suspect that most landlords will realise that markets are falling and look to arbitration where historic evidence assumes a greater importance than unsubstantiated opinion (no matter how expert). Given a choice — which they are not normally given today — tenants would probably prefer an independent expert. Tenants should not, however, overlook their ability to seek discovery during arbitration.
