Guardcliffe Properties Ltd v City & St James

An expert appointed as an arbitrator must act as an arbitrator, not merely as an expert. Where the arbitrator intends to decide a specific matter that has not been raised in the parties’ submissions, each party must have a reasonable opportunity to address it. Reliance on the arbitrator’s professional expertise does not remove that obligation. A failure to provide that opportunity is a serious irregularity under Arbitration Act 1996, section 68, where it causes substantial injustice. The appropriate remedy will ordinarily be remission for reconsideration where that is suitable. An appeal under section 69 requires leave and must satisfy the statutory conditions, including the applicable threshold concerning the alleged error of law.

The claimant landlord and defendant tenant were parties to a 1959 lease of commercial premises containing 21-year rent-review provisions. The rent review due in February 2001 was referred to an arbitrator, who determined the annual rent at £35,000.

The claimant challenged the award under sections 68 and 69 of the Arbitration Act 1996. It alleged that the arbitrator had made substantial deductions for a notional rent-free period and vacant upper floors without giving the parties an opportunity to comment, had wrongly treated a premium in a comparable letting as entirely attributable to fitting-out costs, and had misinterpreted the tenant’s repair obligations.

1. Serious irregularity. The arbitrator’s deduction of £10,000 per annum for a notional rent-free period constituted a serious irregularity. The issue had not been raised by either party, and the claimant had not been given an opportunity to address either the appropriateness or duration of the proposed rent-free period. The principles in Zermalt Holdings SA v Nu-Life Upholstery Repairs Ltd [1985] 2 EGLR 14 and Handley v Nationwide Anglia Building Society [1992] 2 EGLR 114 applied.
2. The arbitrator’s status as a surveyor and his general professional knowledge did not alter the result. He had been appointed as an arbitrator and was required by section 33 of the Arbitration Act 1996 to act fairly and give each party a reasonable opportunity to put forward its case and deal with its opponent’s case.
3. The £8,500 per annum deduction for the vacant upper floors was likewise a serious irregularity. The possibility that the upper floors were a liability, rather than merely lacking rental value, had not been raised and went beyond the defendant’s own case. The deductions were substantial over the 21-year review period and caused substantial injustice.
4. There was also a serious irregularity in the arbitrator’s significant reliance on 40 Collingwood Street without taking the £350,000 premium into account. There was no evidential basis for treating the whole premium as fitting-out expenditure, and the claimant had not been given a proper opportunity to investigate or address the issue. The parties’ reliance on the property as a comparable did not amount to agreement that the arbitrator could choose between competing treatments without evidence.
5. The court did not determine the proposed section 69 error-of-law point concerning the premium because it had not been included in the leave application and no properly formulated amendment application had been made. The court noted the competing approaches in Capital and Counties plc v Hawa [1991] 2 EGLR 133, Geogas SA v Trammon Gas Ltd, The Baleares [1993] 1 Lloyd’s Rep 215, and Secretary of State for the Environment v Reed International plc [1994] 1 EGLR 22.
6. The challenge based on the tenant’s repair obligations failed. The arbitrator’s findings that the property was in good and substantial repair, but that services and lifts might require renewal in the foreseeable future, were consistent with the parties’ agreed understanding of the lease obligations.
7. Leave to appeal under section 69 was refused. Pursuant to section 68, the award was remitted to the arbitrator for reconsideration.