Arbitration — Application to remove arbitrator — Alleged misconduct — Whether demand and receipt of interim payment from one party misconduct
The applicant
is tenant and the respondents council landlords under a lease of business
premises. Pursuant to the rent review provisions of the lease, on February 15
1993 C was appointed by the president of the Royal Institution of Chartered
Surveyors as an arbitrator to determine the revised rent of the premises.
Following a preliminary hearing the arbitrator produced a letter, copies of
which were signed on behalf of the parties, setting out, inter alia, the
basis on which he would be charging his fees. Following several preliminary
hearings, and the appointment of a legal assessor to assist the arbitrator on
legal matters, on May 10 1994 the arbitrator wrote to both parties submitting
an interim account for his fees (including the costs of the legal assessor) in
the sum £6,462.50. The arbitrator sought from each party their agreement to pay
half of that amount. The council sent the arbitrator £3,231.25. On behalf of
the tenant it was contended that the arbitrator had misconducted himself by
agreeing to receive from the council half his fees, rendering himself
vulnerable to the imputation of bias. The arbitrator then repaid the £3,231.25
received from the council. The tenant applied to have the arbitrator removed
for misconduct under section 23 of the Arbitration Act 1950.
payment of an interim account at a contractual rate already agreed was wholly
unobjectionable and not misconduct. The request for an interim payment was made
to both parties to the arbitration; there never was any private agreement
between the arbitrator and the council. An open negotiation as between the
arbitrator and both parties, as here, is entirely unobjectionable. There was a
failed attempt by the arbitrator to negotiate for an interim payment; there was
nothing secretive or improper about it. The mere fact that an arbitrator has
learnt that one of the parties may be willing to pay his interim account but
the other one is not so willing cannot amount to misconduct.
The following
cases are referred to in this report.
Ardahalian
v Unifert International SA ‘The Elissar’
[1984] 2 Lloyd’s Rep 84, CA
K/S
Norjarl A/S v Hyundai Heavy Industries Co
[1992] QB 863; [1991] 3 WLR 1025; [1991] 3 ALL ER 211; [1991] 1 Lloyd’s Rep
524; [1991] EGCS 20, CA
This was an
application by Christopher Alan Turner under section 23 of the Arbitration Act
1950 to remove Mr D W Clark frics,
an arbitrator appointed under the provisions of a lease held by the applicant
from the respondents, Stevenage Borough Council.
Mark Warwick
(instructed by David Barney & Co, of Stevenage) appeared for the applicant;
Joanne Moss (instructed by the solicitor to Stevenage Borough Council)
represented the respondents.
Giving
judgment, Mr Anthony Grabiner QC said: This is an application, by originating
notice of motion, by Christopher Alan Turner to remove Mr D W Clark frics, the arbitrator appointed in the
reference to an arbitration between Mr Turner and Stevenage Borough Council, on
the ground of misconduct under the Arbitration Act 1950, section 23(1). These
proceedings were commenced in the commercial court and have been transferred to
the Chancery Division.
Facts
The business
premises at 7 Austen Paths, Stevenage, are the subject of a lease made between
Stevenage Borough Council, as landlords, and John Christofis, as tenant. The
lease is dated October 26 1982 and is for a term of 21 years from June 16 1982.
Clause 5 of the lease is an ‘upwards only’ three-yearly rent review provision,
which incorporates an agreement by the parties to have the current market rent
of the demised premises determined by an arbitrator appointed, on the reference
of either the landlords or the tenant, by the president for the time being of
the Royal Institution of Chartered Surveyors.
Mr Turner is
the assignee of the tenant’s interest under that lease and carries on a
hairdressing business at the premises.
Mr Turner and
Stevenage Borough Council were unable to agree the new rent effective as from
June 16 1991 and on February 15 1993; in accordance with the terms of the
lease, Mr Clark was appointed by the president of the RICS to determine the
revised rent for the premises.
Mr Clark
conducted a preliminary hearing at a meeting on March 12 1993. Following that
hearing he produced a letter which confirmed various matters which had been
agreed at the meeting. His letter is dated March 15 1993 and, in accordance
with its terms, copies of it were signed on behalf of both parties. The
relevant parts of the letter stated:
The following
points were agreed:
1.
Confirmation of my appointment as set out in the introduction to this letter
and verbal agreement by the parties that my charges be based on an hourly rate
of £100 per hour to cover all time involved in the Arbitration procedures to
include all outgoings but excluding VAT which would be charged at the standard
rate. The minimum fee was stated at £500 irrespective of whether the matter is
settled by agreement or by arbitration. In the event that separate legal advice
is required I would propose to provide the parties with an estimate of the
additional costs before taking such advice.
The letter
went on to say:
vii. The
Award to be made by Friday the 30th June 1993 — assuming that the arrangements
for the inspections of the subject properties and the comparables have been
made in sufficient time and that the fees required prior to the release of the
Award have been paid.
In the event
the anticipated date of June 30 1993 for the production of the award turned out
to be rather optimistic. There were
for Mr Clark to write to the parties, which he did on August 20 1993 as
follows:
I refer to the
previous correspondence concerning the representations and
cross-representations on the subjects of admissibility and disclosure, and
write to acknowledge receipt of your letter of the 16th August 1993 and Mr
Barney’s letter of the 17th August (copy enclosed). I had previously referred
to the references to matters of a legal nature affecting the issues in question
and I am also concerned at the apparent disagreement over points of law.
Accordingly, and in accordance with the proposals set out in my letter of the
6th August and my Directions dated 15th March, I have enquired of Mr Tunstill
whether he would accept the instruction to proffer advice on these matters and
if so at what figure.
Mr Tunstill
has confirmed that he would be willing to do so and has estimated his fees at
around £300 plus VAT. Would you please signify your agreement to the proposed
action and Mr Tunstill’s likely costs by signing and returning the endorsed
copy of this letter.
Before doing
so, however, I would urge the parties’ representatives to consider whether or
not it is possible to agree the issues between themselves since the Arbitration
of this rent review has already become both protracted and costly to the
parties.
My
understanding is that the parties agreed to Mr Clark appointing Mr Tunstill
although I have not seen any letter to that effect.
It is plain
there was lengthy correspondence and no less than five preliminary hearings
during 1993. Mr Clark took legal advice and sat with his adviser on September
23 1993. According to Mr Castledine, the solicitor having conduct of the
arbitration on behalf of the Stevenage Borough Council:
Costs have
escalated out of all proportion by comparison with the amount of rent in issue.
In this rent review the difference between the parties is £2,600 annually since
the tenant contends for £3,500 and the landlord for £6,100. The passing rent is
£3,500.
I can now take
up the story from the correspondence beginning with Mr Clark’s letter of May 10
1994 which, as one would expect, was addressed to both parties:
I have not
received a reply from either party to my letter of the 21st April which in turn
referred to my previous letters of the 23rd February and the 8th and 25th March
requesting your joint suggestions for the timetable for the Hearing in this
matter.
In all the
circumstances, therefore, I have no alternative but to set out my own timetable
as follows:
Mr Clark then
prescribed a timetable including the fixing of what he called the formal
hearing on Thursday July 14 1994 commencing at 10 o’clock am at his own office.
I have to
point out that the failure to respond to my previous letters is adding to the
cost of this matter and I have previously mentioned my concern on this issue.
In addition to my own costs fees are due to Mr Tunstill of Breeze and Wyles in
his capacity as Legal Advisor on the issues of Admissibility, Amendment and Discovery
and, following discussions with the RICS Arbitration Service and the Chairman
of the Arbitration Skills Panel I propose that an interim account should be
settled before proceeding to the stage of the Hearing. Naturally the payment of
the interim moneys becomes part of the costs, but the account has been drafted
on the basis that each party should bear an equal part at the present stage.
I look
forward to receiving confirmation of agreement to the timetable set out in this
letter and also to receiving payment in settlement of the interim account.
The enclosed
interim account gave full particulars of the work which had been done to date
by the arbitrator producing a total of £6,462.50 inclusive of Mr Tunstill’s
fees and VAT. Mr Clark sought from each of the parties their agreement that
each of them would pay half of that account, ie £3,231.25.
Mr Clark’s
letter elicited a peremptory response from Mr Barney, the solicitor acting on
behalf of Mr Turner:
[W]ithout
prejudice to my client’s right to comment on both the quantum and principle of
your purported interim account, are you saying that if your interim account is
not paid in full you will not hear the Arbitration?
Mr Clark
replied on May 31 1994:
My decisions
on the matters of Admissibility, Discovery and Amendment were communicated to
the parties on the 6th December 1993 and since that time I have been
endeavouring to establish the timetable for the Hearing. As you are aware my
letter of the 10th May was preceded by letters of the 23rd February, 8th and
25th March and 21st April, which have not been acknowledged or answered by
yourself or by the Council. In those letters I requested information on the
subject of Discovery and the joint views of the solicitors on the length of
time required for the preliminaries to the Hearing and a suggested date for the
Hearing itself.
My letter of
the 10th May suggested a timetable and although on this occasion you have
advised that your holiday commences on the suggested Hearing date of the 14th
July, you do not provide the information that has been requested on previous
occasions or suggest an alternative date. For your information I would be able
to hold the Hearing on Monday 11th July and would suggest that it would be
possible to adhere to the preliminary stages of my timetable as set out in the
letter of 10th May. I will be much obliged if you and Mr Castledine (to whom I
am sending a copy of this letter) will please respond in order that the
Arbitration Hearing can proceed.
My
appointment was made on the 8th February 1993 when I was advised that the
undertaking as to fees had been signed. I have been asked by the Arbitration
Service of the RICS to advise of the current position on this protracted matter
and have been asked by my legal advisor when payment can be expected. The first
priority must be to fix the Hearing and to resolve the long-standing dispute,
but I hope that the parties will agree that it would be reasonable that Mr
Tunstill and I should receive interim payment for time expended on the matter
and in this regard please let me know whether your letter indicates that you
are not prepared to make an interim payment and elaborate on your comments of
‘the quantum and principle’ of my ‘purported interim account’.
The reaction
of Stevenage Borough Council to Mr Clark’s May 10 letter is explained by Mr
Castledine in his affidavit:
6. Mr Clark’s
letter of 10th May 1994 and request for payment was duly received by the
Council but was referred not to the legal department but direct to the Estates
Section of the Department of Technical Services without my knowledge or
approval. Mr Bader in that department requisitioned a cheque directing that the
cheque be handed to him for onward transmission. Mr Bader subsequently advised
me of receipt of Mr Clark’s letter whereupon I gave instructions that the
cheque when drawn was to be handed [to] me. In error the cheque was in fact
sent out by the Director of Finance in his normal course of post … .
8. It was my
intention when the cheque was in my hands to discuss the matter further with Mr
Barney.
9. I
considered that Mr Clark’s request was eminently reasonable in view of the
horrendous escalation of costs and delays that had occurred since the
preliminary meeting on March 12 1993 none of which had been caused or foreseen
by the arbitrator.
On June 20
1994, which was the same date as the council’s cheque was paid to him, Mr Clark
wrote to Mr Barney, with a copy to Mr Castledine:
For your
information I write to advise that the Stevenage Borough Council has forwarded
a remittance in the sum of £3,231.25 in settlement of the share of the interim
account due from the Landlord.
In his letter
of July 4 1994 Mr Barney, after quoting at length from the judgments of the
Court of Appeal in the Hyundai decision to which I shall refer later in
this judgment, charged Mr Clark with misconduct:
It is quite
clear from perusing your letter of the 15th March 1993 that there was no
provision therein for any interim account to be raised by you. Whilst it would
have been legitimate for you to invite both parties to agree to pay an interim
account but not to insist on such a fee being payable, it was not legitimate of
you, firstly to write in your letter of the 10th May in terms which strongly suggested
that if the purported interim accounts were not settled in full you would not
proceed to the stage of the hearing. You have never answered the questions
raised in our letters of the 26th May and 2nd June as to whether or not you are
saying that if the interim account is not paid in full you will not proceed to
the hearing. You effectively dodged the issue by in your letter of the 31st May
1994 phrasing your request in a totally different way namely in terms that you
hope that the parties would agree that it would be reasonable for Mr Tunstill
and you to receive an interim payment. Subsequently, the Council has paid you
and you have accepted and received a
Council did not obtain our agreement to them paying one half of your fee and
indeed such agreement would not have been forthcoming from us or our client.
Any agreement
between you and the Council for the payment of a fee by the Council and, a
fortiori, the payment and acceptance by you of such a fee constitutes
misconduct such that, in the words of Leggatt LJ would ‘render such arbitrator
vulnerable to the imputation of bias and so be objectionable’.
Counsel is of
the opinion that you have misconducted yourself in this arbitration and that an
Application should be made to the High Court pursuant to the Arbitration Acts
to remove you as arbitrator. In our Application to the High Court we shall be
asking the Court to order that you, or alternatively the Council or both of you
in such proportions as the Court may decide, should pay our client’s costs
thrown away in this arbitration. If you are prepared to concede that our Client
is entitled to all or any of the above relief would you please let us know by
return.
In these
circumstances Mr Clark was obviously unable to proceed with the arbitration
and, after taking separate advice, he repaid Stevenage Borough Council the
amount of his interim account which they had paid. A copy of his letter dated
September 9 1994 was sent to both parties and the material part stated:
I refer to the
recent correspondence regarding the above and write to confirm that my request
for an interim payment comprised an invitation to pay interim costs which, in
the event, one party accepted and the other declined. Clearly as there is no
agreement between the parties, it is appropriate that I return the payment made
by the Stevenage Borough Council and my cheque in the sum of £3,231.25 is
enclosed with the Council’s copy of this letter and formal acknowledgement is
requested. Credit Notes are issued to both parties in respect of the interim
accounts without prejudice to the parties’ verbal agreement on fees confirmed
in my letter of the 15th March 1993.
I reiterate
the information given in my letter of the 10th May 1994 when I mentioned that
the fees of the legal adviser had been outstanding for some time and that I
felt that this should be remedied; reconsideration of the fees position of the
legal adviser is hereby requested.
For
completeness I should say that Mr Clark denied any allegation of bias on his
part. I should also record the fact that he has not participated in the
proceedings before me.
Issue
Accordingly,
the issue before me is whether, in all the circumstances, Mr Clark misconducted
himself (which is the way the case is put in the originating notice of motion).
The specific grounds of the application are that Mr Clark:
(a) Without
any power or provision to do so requested, by letter of 10th May 1994, that
each of the parties to the arbitration do pay him 50% of his ‘interim account’
of £6,462.50 before he would proceed to hear the arbitration.
(b) Received
£3,231.25 from the [council].
(c) Thereby
rendered himself vulnerable to the imputation of bias.
The most
useful discussion of the principles applicable in these cases is to be found in
the recent decision of the Court of Appeal in K/S Norjarl A/S v Hyundai
Heavy Industries Co [1992] QB 863. The facts of that case were
significantly different from the case before me. In particular that case
concerned a request made by arbitrators sometime after their appointment for a
non-returnable commitment fee in the light of a change of circumstances as to
the unexpected length of the hearing of the arbitration. In his judgment Sir
Nicolas Browne-Wilkinson V-C said at pp885–6:
The
arbitration agreement is a bilateral contract between the parties to the main
contract. On appointment, the arbitrator becomes a third party to that
arbitration agreement, which becomes a trilateral contract [citing the Tradax
case]. Under that trilateral contract, the arbitrator undertakes his
quasi-judicial functions in consideration of the parties agreeing to pay him
remuneration. By accepting appointment, the arbitrator assumes the status of a
quasi-judicial adjudicator, together with all the duties and disabilities
inherent in that status. Amongst those disabilities is an inability to deal
unilaterally with one only of the parties to the arbitration, let alone to
bargain with one party alone for a personal benefit.
So far as the
parties are concerned, their obligations under the trilateral contract include
the liability to pay remuneration for the services of the arbitrator. The
amount of such remuneration and the person liable to pay it can be fixed either
by agreement, or by the arbitrator under section 18(1) of the Arbitration Act
1950, or by taxation under section 19 of the Act … After he has accepted
appointment, the arbitrator cannot, by reason of his status, deal unilaterally
with one only of the parties. Even after accepting appointment there can be no
objection to the arbitrator dealing openly with both parties and
reaching an agreement with both parties as to his fees: such agreement raises
no suggestion of bias or any other impropriety since both parties know what is
going on and agree to it.
On that
approach, in my judgment the solution to the present case is as follows. By
accepting appointment without any express agreement as to their fees, the
arbitrators assumed the status of arbitrator and became entitled to reasonable
remuneration for work done, such remuneration either to be fixed by themselves
(acting quasi-judicially) under section 18 or by the court under section 19.
The contractual obligation on Hyundai and Norjarl to pay such remuneration
could not be altered without the consent of both. If the arbitrators were to
enter into a separate agreement with Norjarl as to the payment of the
arbitrators’ fees, that would be incompatible with the arbitrators’ status
since it would involve a bargain with only one of the parties (Norjarl) under
which the arbitrators were more generously treated by Norjarl than by the other
party, Hyundai. Any such disparity of treatment between the parties as a result
of bargaining by the arbitrators after their appointment would, in my judgment,
be quite improper and incompatible with their status.
It is said by
Hyundai that the mere fact that the arbitrators requested a commitment fee by
itself constituted impropriety. I can see no objection to the arbitrators
raising the question of their fees with both Hyundai and Norjarl with a view to
obtaining their joint agreement… . Although a commitment fee would not have
been payable in default of agreement, I can see nothing improper in the
arbitrators proposing the payment of a commitment fee so long as that proposal
is made to both parties and all negotiations relating to it are conducted with
both parties. Could it really be suggested that, if both Norjarl and Hyundai
had agreed to the payment of a commitment fee, it was improper for the
arbitrators to suggest that one should be paid?
However, in
my judgment the arbitrators in this case went far beyond simply suggesting a
negotiation with both parties for the payment of agreed fees including a
commitment fee. It immediately became clear that Norjarl and Hyundai were not
of one mind in their response to the arbitrators’ approach. I do not find it
necessary to reach a final decision whether or not what happened thereafter
amounted to misconduct. But at the lowest, it came very close to the line. The
arbitrators (although at all times stopping short of concluding an agreement
with Norjarl without the consent of Hyundai) entered into separate negotiations
with one party, Norjarl, as a result of which Norjarl were willing to agree to
far more beneficial terms than Hyundai… . The risk is of the appearance of bias
arising from the disparate responses of the parties and the not unnatural
suspicion that the arbitrators will be more favourably inclined towards those
more responsive to their approach than to those who have been less responsive.
There are
similar observations in the judgments of Leggatt LJ at p877A-F and p880D-F and
Stuart-Smith LJ at p882A-D.
Conclusions
In my
judgment, the criticism made by Mr Barney (in his July 4 letter) that Mr
Clark’s May 10 letter was expressed in terms which ‘strongly suggested that if
the purported interim account were not settled in full [Mr Clark] would not
proceed to the stage of the hearing’ is ill-founded. That is not a fair reading
of that letter or of any of the letters emanating from Mr Clark.
I assume,
without deciding the point, that as a matter of construction of Mr Clark’s
letter dated March 15 1993, there is no scope for implying an obligation on the
part of the parties to pay their respective shares of the interim account. On
behalf of Mr Turner it is said that he could have made an express stipulation
for this in the letter. On behalf of the council it is said that given the
unexpected delays and the fact that costs had escalated out of all proportion
the interim payment request was eminently reasonable. It is, however, plain
from the Hyundai case that for an arbitrator to request a payment from
both parties which is not in terms covered by their contractual arrangement is
not in any way improper. In particular, it is worth bearing in mind that the
arbitrators in that case were seeking a commitment fee which was a brand new
element in the relationship whereas, here, Mr Clark was seeking agreement to an
interim payment at a contractual rate
payment was, in my view, wholly unobjectionable and it follows that the first
ground relied on by Mr Turner as a basis for the charge of misconduct is
misconceived and must fail.
Next, on
behalf of Mr Turner, great emphasis is placed upon the fact that in response to
Mr Clark’s letter of May 10 the council sent him a cheque in satisfaction of
their share of the interim account and Mr Clark cashed the cheque. It is
accepted that if he had sent the cheque back immediately there could have been
no complaint, but it is submitted that by passing the cheque to his own bank
for collection and upon being paid Mr Clark concluded a contract between
himself and the council in respect of their share of the interim account. This
was a unilateral transaction entered into between an arbitrator and one of the
parties to the arbitration and (it was submitted) is a good example of the type
of conduct which is deprecated by the Court of Appeal in the Hyundai
case.
In my
judgment, there are at least two answers to these submissions. First, on the
true construction of the correspondence which passed between the parties,
commencing with Mr Clark’s letter of May 10, this was a proposal made to both
parties and not merely to one of them or whichever one of them agreed to
the proposal. The letter, in identical terms, was sent to both parties in the
hope and expectation that they would both agree to its contents. In the event
Mr Turner was not prepared to agree and it follows that there never was any
agreement at all, still less was there any private agreement as between Mr
Clark and the council. Mr Barney’s letters overlook the true nature of the
arbitration agreement as a trilateral contract as explained by Sir Nicolas Browne-Wilkinson
V-C at the beginning of the passage which I have cited. Those letters also
overlook the fact that Mr Clark was writing to both parties with a proposal
which he was making to both of them.
The second
point I would make is closely related to the first but is nevertheless a
distinct one. The passages in the judgments in the Hyundai case, which
were particularly relied upon on behalf of Mr Turner, on their true analysis
contemplate a private negotiation or unilateral dealing as between the arbitrator
and one of the parties. It follows that an open negotiation as between the
arbitrator and both parties is entirely unobjectionable. I would characterise
what took place here as a failed attempt by Mr Clark to negotiate for an
interim payment of the fees of himself and his legal adviser with both the
other parties to the arbitration. There is nothing secretive or improper about
it. It would, no doubt, have been better if before they had sent the cheque to
Mr Clark the council had discussed the matter with Mr Barney but, for the
reasons which are explained by Mr Castledine in his affidavit, that was not
done.
I should
perhaps add that, in my judgment, the mere fact that the arbitrator has learnt
that one of the parties may be willing to pay his interim account but that the
other one is not so willing cannot, in my view, amount to misconduct on the
part of the arbitrator. Nor does it, I think, provide any foundation for a
reasonable or justifiable concern that the arbitrator either will be or may be
biased in favour of the more generous party and against the less generous one.
The test is objective and was conveniently summarised by Ackner LJ in his
judgment in The Elissar* [1984] 2 Lloyd’s Rep 84 at p89 (CA):
*Editor’s
note: Ardahalian v Unifert International SA
To suggest
that the mere lack of confidence which no reasonable person would, in the
relevant circumstances, experience, should be a basis for setting aside an
award, seems to me to be quite unacceptable.
Those
observations were made in the context of an application to set aside an interim
award for misconduct, but they are equally applicable in a case such as this.
In my view, no reasonable person in the position of Mr Turner would have that
lack of confidence or fear of bias in the circumstances of this case.
I would,
accordingly, dismiss this application and remit the case to Mr Clark.
Application
dismissed.
