Lease — Agreed statement of facts — Arbitrator discarding assumption made for rent review assessment in statement of facts — Whether arbitrator misconducted himself in disregarding assumption — High Court holding that arbitrator guilty of misconduct — Award remitted to arbitrator with appropriate directions
The tenant held the lease of a 99,000 sq ft warehouse at 1/8 Capitol Way, London NW9, for a term of 25 years expiring in 2006 at the initial rent of £450,000 subject to review — in 1991, 1996 and 2001. The lease provided for the appointment of an arbitrator in default of agreement. The arbitrator asked the parties’ surveyors to clarify the main assumptions to be made in assessing the rent. The surveyors agreed a statement of facts including the assumptions agreed as to rent review. In making his award the arbitrator discarded the agreed assumption as to the situation and description of the property and awarded the relevant rent per square foot. The tenant applied to set aside the interim award and remit the determination for reconsideration.
Held The award was set aside and remitted to the arbitrator.
1. The statement of facts on the evidence was a package deal: both parties negotiated and agreed its terms in an endeavour to secure the more expeditious, economic and advantageous determination of the arbitration. It was intended to be legally binding and constituted a binding contract. But it was a contract which could only be enforced or given effect to in the arbitration. In principle and as a matter of common sense, the arbitrator had a discretion not to enforce it if justice so required.
2. In exercising his discretion the arbitrator had to have regard to the reasons relied on by the party seeking its exercise: good reason must be required if effect was not to be given to a bargain deliberately made.
3. The release must be (if both parties did not agree to deletion of one provision only from the agreed statement of facts) a release from the agreement as a whole; otherwise the arbitrator would be asserting jurisdiction to substitute a new package deal for the old and to rewrite the parties’ contract.
4. Before exercising his discretion the arbitrator must give an opportunity to both parties to be heard on the issue, and after exercising his discretion must ensure that in the light of his decision both parties were given the opportunity to represent their cases fully.
5. Further the arbitrator must have regard to the prejudice to be occasioned to the tenant by a decision to jettison the assumption and perhaps statement of facts, but in that regard he might conclude that any prejudice could sufficiently be cured by allowing the tenant to represent its case fully on the new basis, ie in the light of the ruling and by an appropriate order as to costs.
6. In the present case the arbitrator while generally treating the statement of facts as operative and effective, without any notice to either party, treated the concession as to the situation and description of the property alone as ineffective and to be ignored. That he was not permitted to do. He was entitled to form the prima facie view that the concession involved led to an untenable view as to the scope and effect of the rent review clauses. He was entitled to invite the parties to address him. In the light of the parties’ submissions he should have ruled on the question and given notice of his ruling; and then invited the parties to address him on what further opportunities should be given to adduce evidence and argument on the substantive issue in the arbitration in the light of his ruling.
7. Since he did not follow that course the arbitrator was guilty of misconduct and the case had to be remitted with appropriate directions.
Hazel Williamson QC (instructed by Rabin Leacock Lipman) appeared for the tenant; Paul Morgan QC (instructed by Nabarro Nathanson) appeared for the landlord.
