HMV UK v Propinvest Friar Ltd Partnership

This is an appeal against the order of Warren J refusing the application of the appellant, HMV Records Limited, for permission to appeal from the award of Mr John Male QC sitting as an arbitrator. The respondent, Propinvest Friar Limited Partnership, owns a two-storey retail shop at 138/141 Friar Street, Reading (“the premises”). The premises were demised to a predecessor of the appellant and the appellant is associated with the original tenant. The lease was for a term of 25 years at a rent subject to review at five-yearly intervals. The appellant is also an associated company of the current tenant and it is concerned with the rent review which was required by the lease at the end of a certain number of years into the lease.

The parties were unable to agree the rent payable with effect from March 2005. One of the issues was as to the interpretation of part of the rent review clause in clause 7, to which I will come shortly. The parties agreed that a number of points should be determined by Queen's Counsel experienced in property matters. They instructed Mr Male QC as arbitrator to determine three issues, which the parties formulated jointly. In his award, Mr Male QC determined the first two issues in favour of the appellant and the third in favour of the respondent.

As this was an arbitration award, and the parties did not agree that there should be an appeal to the court, leave of the court is required for any appeal. The court cannot give leave to appeal from the award of the arbitrator except in compliance with Section 69 of the Arbitration Act 1996 (“the 1996 Act”). This provides:

“(1)Unless otherwise agreed by the parties, a party to arbitral proceedings may (upon notice to the other parties and to the tribunal) appeal to the court on a question of law arising out of an award made in the proceedings.

An agreement to dispense with reasons for the tribunal’s award shall be considered an agreement to exclude the court’s jurisdiction under this section.

(2)An appeal shall not be brought under this section except—

(a)

with the agreement of all the other parties to the proceedings, or

(b)with the leave of the court.

The right to appeal is also subject to the restrictions in section 70(2) and (3).

(3)Leave to appeal shall be given only if the court is satisfied—

(a)that the determination of the question will substantially affect the rights of one or more of the parties,

(b)that the question is one which the tribunal was asked to determine,

(c)that, on the basis of the findings of fact in the award—

(i)

the decision of the tribunal on the question is obviously wrong, or

(ii)the question is one of general public importance and the decision of the tribunal is at least open to serious doubt, and

(d)that, despite the agreement of the parties to resolve the matter by arbitration, it is just and proper in all the circumstances for the court to determine the question.

(4)An application for leave to appeal under this section shall identify the question of law to be determined and state the grounds on which it is alleged that leave to appeal should be granted.

(5)The court shall determine an application for leave to appeal under this section without a hearing unless it appears to the court that a hearing is required.

(6)The leave of the court is required for any appeal from a decision of the court under this section to grant or refuse leave to appeal.

(7)On an appeal under this section the court may by order—

(a)confirm the award,

(b)vary the award,

(c)remit the award to the tribunal, in whole or in part, for reconsideration in the light of the court’s determination, or

(d)set aside the award in whole or in part.

The court shall not exercise its power to set aside an award, in whole or in part, unless it is satisfied that it would be inappropriate to remit the matters in question to the tribunal for reconsideration.

(8)The decision of the court on an appeal under this section shall be treated as a judgment of the court for the purposes of a further appeal.

But no such appeal lies without the leave of the court which shall not be given unless the court considers that the question is one of general importance or is one which for some other special reason should be considered by the Court of Appeal.”

The crucial provision for our purposes is subsection (3)(c)(i). This establishes that it is a pre-condition to giving leave that the decision of the tribunal on the question was "obviously wrong". Subsection 3(c)(i) is available as a ground for giving leave as an alternative to subsection (3)(c)(ii) under that provision the point must be one of general public importance. That provision is not one which can be used in the present case because the point which arises is one of the interpretation of a purely private arrangement contained in a lease. If an appellant seeks to rely on subsection (3)(c)(i), it also has to satisfy other matters, including in particular in this case paragraph (d) of subsection (3), that it is just and proper in all the circumstances for the court to determine the question notwithstanding the agreement for arbitration.

It will be apparent from section 69 that rights of appeal from an arbitration award are severely restricted. It is not enough, therefore, simply to show that there is an arguable error on a point of law. Nor is it enough that the judge to whom the application for leave is made might himself or herself have come to a different answer. The required quality of the accepted error is that it must be “obviously wrong”. Thus the alleged error must be transparent. It must also, at the least, be clear. The word “obvious” is a word of emphasis which means that the courts must not whittle away the restriction on rights of appeal in subsection (c)(i) by being over generous in their determination of the clarity of the wrong.

The words “obviously wrong” should be seen as reflecting the case law on the predecessor provision in section 1(3)(b) of the Arbitration Act 1979. In the well-known case of The Nema [1982] AC 742-3, Lord Diplock held:

“Where...a question of law involved is the construction of a ‘one-off’ clause, the application of which to the particular facts of the case is an issue in the arbitration, leave should not normally be given unless it is apparent to the judge upon a mere perusal of the reasoned award itself without the benefit of adversarial argument, that the meaning ascribed to the clause by the arbitrator is obviously wrong. But if on such perusal it appears to the judge that it is possible that argument might persuade him, despite first impression to the contrary, that the arbitrator might be right, he should not grant leave...”

The effect of the Arbitration Act 1979 in this regard was thus, in my judgment, carried through into section 69 of the 1996 Act. Lord Diplock referred to adversarial argument and to the court determining the question of leave without the benefit of adversarial argument. In the context, it seems to me that he meant primarily oral argument. Contrary to the passages I have cited, in this case this court has heard oral argument, as did the judge, but it is to be noted that Lord Diplock considered that this should not normally happen. The matter should therefore normally be dealt with on paper. I shall come back to these points at the end of my judgment. The point, however, that I wish to emphasise at this stage is that Lord Diplock was clearly contemplating that the error is one which can be grasped simply by a perusal, that is, a study, of the award itself.

We have been taken to the authority of Braes of Doune Wind Farm (Scotland)  Ltd v Alfred McAlpine Business Services Ltd [2008] 1 Lloyds Rep 608 where there is a helpful analysis by Akenhead J. He uses the memorable phrase "a major intellectual aberration" in paragraph 31 of his judgment, which I have found a useful way of bringing to mind that the error on which we are concerned, if there be an error, must be an obvious one.

I turn now to the provisions of the lease. Clause 7.2 of the lease requires the principal rent to be reviewed at each rent review date and to be the greatest of the passing rent, the Market Rental Value and the Comparable Rental Value. The latter two expressions are defined in Clause 7.1 of the lease. The parties therefore agreed that the reviewed rent would be the highest of those values. Mr John Furber QC, who appears for the respondent, emphasises to us that the provision for the ascertainment of the principal rent and the definitions of Comparable Rental Value and Market Rental Value were clearly ones which were used with the intention of benefiting the landlord so that he could take the highest of these amounts.

Clause 7.1 defines the Market Rental Value (so far as material) as follows:

“the yearly rent at which the Demised Premises might be expected to be let in accordance with the terms of this Lease in the open market at the relevant Rent Review Date for a term of 15 years and for a Term equivalent to the then unexpired residue of the term whichever period shall be the longer … and on the further assumptions that … (b) the provisions of this Lease have been fully performed and observed without prejudice to any rights of any part in regard thereto… "

The definition of Comparable Rental Value is set out immediately above Market Rental Value. This definition provides that Comparable Rental Value is:

That definition refers to Prime Units. Prime units are also defined in clause 7.1 as follows :

“A unit shop constructed in a proper and workmanlike manner with good quality materials and enjoying similar easements and rights as the Demised Premises."

I note that in the definition of Prime Unit the expression "a unit shop" is not itself defined, which supports a proposition put to us, to which I will refer later, that the contemplation of the clause is of a notional rent rather than of a realistic actual situation.

There are important covenants in the lease, including a covenant as to user, in clause 3.20, and a covenant in clause 3.31 as to compliance with fire requirements. I need only read paragraph (a) of clause 3.21, which is headed “Fire Precautions and Equipment”:

I have referred to those clauses, because, as will be recalled, the definition of Market Rental Value requires the valuation of market rent to take place on certain specified assumptions, including an assumption that the provisions of the covenants in the lease have been fully performed and observed.

Four questions were set out for the arbitrator. We are only concerned with the first three, which were as follows:

“1.

With reasons, does the definition of ‘Comparable Rental Value’ in clause 7.1 of the lease made the Second day of August 1990 (a copy of which is enclosed herewith – ‘The Lease’) when read together with the definition of ‘Prime Units’, to which it refers) require there to be taken into account ‘facilities easements and rights’ (and any restrictions therein) of access and egress (and in particular means of escape in case of fire) similar to those available to the Demised Premises at the relevant Review Date?

2.

If so, with reasons, is it to be assumed that the ‘facilities easements and rights’ available to the [Demised] Premises at the relevant Review Date include a secondary means of escape (whether over Fife Court or otherwise)?

3.

In the alternative to 1 & 2, with reasons does the definition of ‘Comparable Rental Value’ in clause 7.1 of the Lease (when read together with the definition of ‘Prime Units’, to which it refers) require that the Unit is to be assumed to be let in accordance with the terms of the Lease in the open market at the relevant Review Date on the assumption that all requirements and recommendations of the appropriate authority and the proper requirements and recommendations of the insurers in relation to fire precautions have been fully performed and observed so that there is no need for the provision of any means of escape in the case of fire.”

Questions 1 and 2, therefore, required the arbitrator to determine whether the expression “facilities, easements and rights” and succeeding words included the restriction on fire escapes for the purposes of the Market Rental Value and Comparable Market Value. The position in relation to these premises is that they were a single shop with only an entrance at the front. In order to provide a secondary escape, it had been necessary to come to an agreement with another adjoining occupier. The tenant had thereby gained sufficient access to constitute a secondary fire escape. If that had not been done it would have been necessary to take some other course, such as to use some part of the retail space provided by the demised premises to create a corridor which would be fire-proof and which would be capable of being used so that people could escape in the event of fire. Obviously the installation of such a corridor would entail cost. It would also reduce the amount of retail space.

As to question 3 the critical words are the final words, which apparently were drafted by the respondent, "so that there is no need for the provision of any means of escape in the case of fire". It will be readily understood why those words are so critical given the explanation I have given about the configuration of the premises. Now on this question the landlord put in lengthy submissions, which start at page 167 of the bundle (page 3 of the internal numbering of the submission):

“2.

Analysis

(i)

A valuation of the ‘Comparable Rental Value’ is not in any sense whatever a valuation of the demised premises nor is it a valuation of any actual existing premises. The ‘Comparable Rental Value’ is a percentage of the value of a hypothetical ‘unit shop’, as described in the definition of ‘Prime Units’, located somewhere ‘in the prime retail location in Broad Street Reading’ but not in any precise actual location and thus not in any geographical relationship with any actual buildings or land. The purpose of the introduction of the concept of ‘Comparable Rental Value’ into the lease is plainly and simply to allow the landlord to obtain a rent for the demised premises which is a fixed percentage of the current rental value of a standard unit in the prime retail location in Reading.

(ii)

As the premises to be valued for the purpose of determining the ‘Comparable Rental Value’ are wholly imaginary, there is no scope for any general application of the ‘presumption in favour of reality’. The only reality which is of primary importance for these purposes is the rental tone in the prime retail location which must be identified in order to value the imaginary unit shop.

(iii)

All that we and the valuer know about this imaginary unit shop is to be found in the definition of ‘Comparable Rental Value’, the definition of ‘Prime Units’ and the various ‘provisions contained in the definition of Market Rental Value’. It is not permissible to give the imaginary unit shop any imaginary attributes other than those specified in the relevant provisions of the Lease.

(iv)

As should appear from the nature of the questions put to the Arbitrator, there is a dispute between the parties as to what assumptions ought to be made as to the means of fire escape available to the imaginary unit shop. In particular, it is understood that it will be contended on behalf of the Tenant that the actual demised premises do not have or should be deemed not to have a secondary means of escape in the event of fire and that the need to provide such means of escape should be taken into account when valuing the actual demised premises. It will then, it is understood, be contended that the imaginary unit shop should therefore be valued on the assumption that it lacks a secondary means of escape which will need to be provided.

(v)

As stated above, when ascertaining the ‘Comparable Rental Value’ it is only permissible to give the imaginary unit shop attributes expressly provided for in the lease. In one respect, it is permissible to make reference to the actual demised premises, in that it is specified in the definition of ‘Prime Units’ that the imaginary unit shop enjoys similar facilities easements and rights as the ‘Demised Premises’ (thus, for example, the right to erect and maintain aerials and dishes on the imaginary roof, subject to obtaining planning consent, as provided in the First Schedule to the lease).

(vi)

The lease does not state in terms whether or not the imaginary unit shop has or requires secondary means of escape in the event of fire. However, it does, it is submitted, make it quite clear that no adjustment should be made on account of any imaginary need to make any imaginary physical adjustments to the imaginary unit shop, or to obtain any imaginary rights for the benefit of that shop, in order to make good any imaginary absence of a secondary means of escape in the event of fire. This follows from the matters which are expressly required to be assumed. Firstly, it is to be assumed that all parts of the imaginary unit shop ‘are available and fit for immediate occupation and are ready for any use permitted by this lease’; thus there is no scope for any assumption that any part of the imaginary unit shop must be converted for use as a fire escape. Secondly, it is to be assumed that the covenant in clause 3.31 of the actual lease has been performed and observed; thus it is to be assumed that all requirements as to fire precautions have been met, with the consequence that, even if it is for some reason to be assumed that there is no secondary means of escape in the event of fire, such absence is not in breach of any requirements by any appropriate authority and therefore would appear to be irrelevant for the purposes of valuation.”

Those then were the submissions put by the landlord. The central point made by the tenant on this appeal is that the final words of subparagraph (vi), starting with the words "and therefore would appear", were on its case a complete non sequitur. The tenant’s arguments were summarised in its submissions to the arbitrator. In particular, those submissions stated:

“10.

The evident purpose of the comparative exercise required to be carried out by clause 7 is to compare the Market Rental Value with the Comparable Rental Value. The chief characteristic of the comparator was that the Prime Unit should be situation ‘in the prime retail location’ in Broad Street, Reading. It is not evident that the purpose of this exercise was not merely to compare the characteristics of Broad Street with Friar Street, but was also to upgrade the notional premises so as to remove all the imperfections to which the actual Premises were subject. If that is the result that the parties intended, then clear words should have been used to demonstrate that fact. Far from using clear words, the parties made it plain, in their reference to ‘similar facilities easement and rights’ that the Prime Unit should be no better, and no worse, in terms of those rights, as the subject premises.

...

12.

This approach involves a false syllogism. First, the assumption in clause 7.1(a) regarding fitness for use and occupation is plainly directed at the physical state of the Premises. As to this, once the Tenant’s occupation has been disregarded under clause 7.1(i), the Premises will indeed by ‘available and fit for immediate occupation’ and ‘ready for any use permitted by this Lease’.”

The arbitrator gave his award in July 2010. I need set out only paragraphs 47 and 48 of his award, which state:

“47.

Neither party has taken me through the relevant legislation relating to fire precautions or explained to me the source of any legal requirement for a secondary means of escape. However, it seems to me that the Landlord accurately summarises the effect of clause 7.1(b) as it interacts with clause 3.31(a) in the last sentence of para.2(vi) of the [Landlord’s Submissions]. The Landlord there says, and I agree, that, even if (as I consider to be the case) it is for some reason to be assumed that there is no secondary means of escape in the event of fire, such absence is not in breach of any requirements by any appropriate authority because the Prime Units are not be assumed to ‘comply with all requirements and recommendations from time to time of the appropriate authority... in relation to fire precautions.’

48.

Drawing the strands together, the result is as follows. First, as there is no secondary means of access to the Demised Premises it cannot be assumed in the case of the ‘Prime Units’ that they have such an access because this would conflict with the direction that the ‘Prime Units’ enjoy ‘similar facilities easements and rights as the Demised Premises’. Second, however, the assumption of compliance with covenants requires it to be assumed that the Prime Units ‘comply with all requirements... of the appropriate authority...in relation to fire precautions.’”

The critical sentence is the final sentence of paragraph 48, that the assumption of compliance with covenants, which I have shown is part of the definition of Market Rental Value, requires it to be assumed that the Prime Units comply with all requirements of the appropriate authority in relation to fire precautions.

The arbitrator went on to say that, whilst he rejected the other arguments raised by the landlord, he had accepted the arguments in the last sentence of paragraph 2 (vi) of the landlord's submissions, starting "Secondly …". Those were the submissions referred to above. The arbitrator concluded that that sentence correctly set out how the valuers should proceed in relation to the three issues set out in his instructions.

Following the award an application for leave to appeal was made and came before the judge pursuant to the directions of Morgan J. I will refer to those directions again below.

The judge held that the appellant could not satisfy section 69(3)(c)(i). He accepted that the assumption that the Prime Units had similar facilities meant that the Prime Units had to be assumed to have no secondary fire escape and that that fact was not a breach. He noted that the arbitrator had held that this meant that the lack of a fire escape was irrelevant for rental valuation purposes. The appellant argued that that conclusion of the arbitration was “obviously wrong”. In relation to the Comparable Rental Value the judge was not satisfied that it had to be assumed that a secondary fire escape was required. The judge looked at the matter in considerable detail. He held that, even if the premises were in good repair and properly decorated, the rent for the future would have to reflect the fact that the tenant had repairing and decorating obligations which were imposed on it by the lease. In other words, the future working out of the obligations in the lease would be taken into account by the prospective tenant in negotiating the terms of the lease. The judge used the covenants as an example, and the example led him to the conclusion that, when interpreting the lease, it was necessary to have regard not simply to immediate compliance with fire precautions but also to what the prospective tenant would have to do so in the future. The judge held, therefore, that, had the matter been left to him, he would have been of the view that it was not a correct application of the assumption in the lease as to the compliance with covenants to come to the same conclusion as the arbitrator had come. On the other hand, however, the judge was not prepared to say that the conclusion to which the arbitrator had come was “obviously wrong” for the purpose of section 63(3)(c)(i). Therefore he refused to give permission to appeal.

Before he did that, he also considered the application of section 69(3)(d). He did not reach a final view on this point. However, he expressed the view that he would have been extremely reluctant to allow the matter to proceed even if the decision of Mr Male had been “obviously wrong”. In other words he would also have considered that section 39(3)(d) might have been a bar to the grant of leave under section 69.

The judge gave permission to appeal to this court. It will be noted that this court has no jurisdiction to give permission to appeal from a grant or refusal of leave under section 69. It must be given by the judge. The judge gave that leave in this case.

We have had most helpful submissions this morning from counsel instructed by the appellant and the respondent. We are fortunate that they have long familiarity with this matter since they both were responsible for submissions to the arbitrator and appeared before the judge. Mr Fetherstonhaugh submits that it is significant there was no specific and express disregard of the fire escape. He further submits that, to obtain the Comparable Rental Value on a review, what has to be done is to determine the rental value of a unit shop, constructed as mentioned in clause 7.1, located in the prime retail location in Reading, namely Broad Street, and let with vacant possession on the rental review date. It has to enjoy similar facilities and it has to be subject to the terms of the lease. The letting has to be on the assumption that the provisions in the lease have been fully performed and observed.

Most of these ingredients, on Mr Fetherstonhaugh’s submission, cause no problem. He submits that the unit would obviously have to be of a shop of a similar size and it would have to have the facilities which the demised premises actually had. Accordingly, since the lease did not grant a secondary means of escape, he submits that it must be assumed that the prime unites do not have a secondary means of escape either. In those matters, of course, the arbitrator was in his favour.

Then the final requirements assume that the tenant will have complied with the covenants in clause 28 (Statutory Requirements) and clause 3.31. Thus the tenant has been able to achieve some kind of secondary escape by negotiation with the lessor or by arranging a means of escape through adjoining properties or in some other way. On Mr Fetherstonhaugh’s submission, the arbitrator has to take this matter into account in determining what a hypothetical prospective tenant would bid for the premises, which is a relevant matter of course to the determination of market rent.

So the short point, very persuasively put by Mr Fetherstonhaugh, is that the fact that the notional premises would be configured like the demised premises and that the tenant would have to find a means of dealing with the problem of the lack of a secondary fire escape were matters which the prospective tenant would need to take into account when considering whether to take the premises and, if so, at what rent, and thus that the valuer should discount the Comparative Rental Value for this purpose. The absence of a fire escape, on this submission, was not irrelevant, as the arbitrator held. Mr Fetherstonhaugh submits that the covenants simply do not deal with the future situation. Thus compliance in the past was not a guide to the future. No-one had suggested that the tenant of the demised premises would not need a secondary fire escape. Moreover, there is no direction to assume that a Prime Unit does not require a secondary means of escape. Mr Fetherstonhaugh submits that the arbitrator’s conclusion is inconsistent with the fact that the Prime Units would have to be assumed to have no fire escape. That would be bound to affect what the tenant was prepared to pay for the lease. The respondent, for its part, does not say how compliance with the covenant would be met in the future. It was not the appellant's case that some further assumption had to be written into those specified in the lease for valuation purposes. It was simply a matter of looking what the prospective tenant would actually have to do.

Mr Fetherstonhaugh also submits that the appellant can meet the further pre-condition to leave in section 69(3)(d). It was in this case just and proper to give leave because there was no agreement to exclude the jurisdiction of the court. Section 69 makes that possible but it was not a step taken in this case. Secondly, the matter had originally come before Morgan J, who has long experience in landlord and tenant matters. He did not find the decision not to be “obviously wrong” so as to refuse leave on paper, as we shall see in a moment. Thirdly, there was no agreement in this particular case that the resolution of the matter should be speedy and final. The case concerns a rent review to fix rent as of March 2005, and the respondent makes no case that it is not just and proper. The respondent left that matter to the court at the hearing below. Mr Fetherstonhaugh also took us to correspondence in which it is clear that the parties made an active choice between arbitration and expert determination, and one of the factors steering the parties towards arbitration was the question of the limited rights of appeal in the case of arbitration where there is a point of law which a party wishes to appeal. This was, therefore, a case where the parties were actively influenced by the possibility of there being an appeal and therefore the right should not be taken to be one which they were willing to forgo in all circumstances.

The respondent's submissions were put to us by Mr Furber. It is not necessary for me to spell them out in detail, because I took the course of setting out the submissions which he made to the arbitrator, which were also the submissions that he made to us. Basically the ascertainment of Comparative Rental Value requires the assumption of hypothetical premises. Those premises would have to have similar facilities, but there was no mandate to conclude that the hypothetical premises were in fact deficient through the lack of a secondary fire escape because of the assumptions as to the performance of the covenants and as to compliance with the fire regulations. That, indeed, was the essence of the argument which he had put to the arbitrator and the arbitrator accepted. Mr Furber submits that there is no requirement to assume that a secondary fire escape is actually needed. He submits that the actual should not be confused with the hypothetical. The arbitrator had to follow strictly the directions for valuation in the lease. He had to treat the directions (in my words) as if they were as a complete code. He was not told to assume that there needed to be a fire escape. Broad Street was taken as a benchmark to show rent for the most desirable retail premises in Reading, but Comparable rental Value was not taken as 100 per cent of the market rental of unites there. That market rental was indeed to be discounted for the fact that premises in Friar Street were less desirable retail premises. In any event, submits Mr Furber, the decision of the arbitrator was one open to him and it could not be described as “obviously wrong”.

On Section 69(3)(d) Mr Furber did not say more than that the threshold was a very high one and in effect he left that matter to this court.

I now turn to my conclusions. As I see it, this is primarily and above all an exercise to ascertain whether the arbitrator's approach was one which could properly be described as "obviously wrong " for the purposes of section 69(3)(c)(i). The arbitrator is a specialist in the field of landlord and tenant and therefore very familiar with rent review clauses. Indeed the correspondence shows that he was chosen specifically for his expertise. Now the rent review clauses in this lease are not in standard form. However, they contain features with which specialists in the field would certainly be familiar. Moreover, when it comes to finding a hypothetical answer on a rent valuation and making assumptions, it is well known that the valuer must strictly follow the directions he is given by the document. How narrowly those directions are to be interpreted is, in my judgment, a matter on which there could well be sustained argument and on which experienced and competent lawyers might come to a different conclusion. Certainly the conclusion in this case came, in my judgment, within that category. It was one which it was open to the arbitrator to adopt. It was open, therefore, to the arbitrator to adopt a construction which led ineluctably to a conclusion that he did not have to have regard to the difficulties over the fire escape which an actual prospective tenant would have to face and would have to allow for in assessing what he was prepared to pay to take the premises. Therefore I take the view that the interpretation to which the arbitrator came in this case was one which did not meet the test of being unarguable or making a false leap in logic or reaching a result for which there was no reasonable explanation. I am not, therefore, able to conclude that this conclusion was "obviously wrong".

In those circumstances it is not necessary for me to decide whether the pre-condition in section 69(3)(d) was met. However, I would add that it is not sufficient to show that the parties never agreed to an award which met the hurdle of being obviously wrong. Weight is clearly to be given to the fact of the parties' choice of arbitrator, in particular when that choice is by reference to his particular expertise and reputation. On the other hand, it is evident from the correspondence, as I have said, that arbitration was a preferred option to an independent expert's report and that one of the reasons for this was that there would be limited powers of appeal on a point of law to this court. There were no countervailing factors such as evidence that the point in issue had become of no practical importance to the parties, or some other countervailing factor, which would have led the court to consider, even if the arbitrator's conclusion was “obviously wrong”, that there should be no appeal to this court.

We were taken to the case of Keydon Estates Ltd v Western Power (South Wales) Ltd [2004] EWHC 996 (Ch), a decision of Lloyd J as he then was. He had before him a case where it was said that the point of law determined by the arbitrator was one of general public importance. As he concluded that the point of law was not one of general public importance, Lloyd J did not have to decide whether section 69(3)(d) was satisfied. However, at paragraph 25 of his judgment he came to the conclusion:

It may be that Keydon Estates was an authority with which the judge was familiar. There is also, as I have said, the decision of Akenhead J. He takes a slightly different view and comes to the conclusion in paragraph 31, again obiter, that it was relevant that the arbitrator was a highly experienced Queen's Counsel, well-known, in that case, in the construction field, and that he had to take that factor into account, but it could properly be said that, if all the other criteria were established:

In the context of section 69(3)(c)(ii) of the 1996 Act, I consider that the approach of Akenhead J is the appropriate one. In those circumstances, had I been satisfied that there was an obvious error and the decision on the relevant point was "obviously wrong” for the purpose of section 69(3), I would have been prepared to hold that section 69(3)(d) was satisfied.

I will finally make some observations about the procedure. It is clearly part of the statutory policy that arbitration should be speedy and that, where possible, there should be a cheaper method of dispute resolution than court proceedings. This statutory policy has implications for the procedure which the court should adopt for dealing with applications for permission to appeal. I need not repeat the passage I have already set out from the judgment of Lord Diplock, but it follows, it seems to me from what he held in that passage, that these applications should normally where possible be dealt with on paper. In the case of BLCT (13096)Limited v J Sainsbury Plc [2004] 1 CLC 24 this court held that section 69(6) of the 1996 Act was not incompatible with Article 6 of the European Convention on Human Rights, a point which has not been raised though we were referred in passing to that decision.

Lord Donaldson MR has also referred to the need to determine these applications quickly and easily in The Kelaniya [1989] Lloyd’s Rep 32. He observed that the court will only intervene if it can be demonstrated quickly and easily that the arbitrator was plainly wrong. It is relevant to set out a little of the procedural history. The matter came before Morgan J on paper and he gave a direction that the application for permission to appeal pursuant to section 69, together with the appeal itself, if permission was granted, should be heard by a High Court judge on a date to be fixed with a time estimate of three hours. Such a direction may be described as a direction for a rolled up procedure. The judge did not retain it to himself. It is not always possible for a High Court judge to retain a matter if he is approaching a long trial. Nonetheless it would in general be preferable, in a case where the judge felt it necessary to adjourn a matter for a hearing in open court, to retain it to himself. However, the point I wish to make is it must be rare that a court finds it necessary to call for further argument orally and also to direct a rolled up procedure as in this case. The danger of a rolled up process is that the judge does not answer the anterior statutory questions in section 69, namely whether the pre-conditions to the grant of leave to appeal in Section 69 are all satisfied. Those questions are ones which statute requires to be answered before the substantive issue on the appeal is fully argued.

For the reasons given above, I would dismiss the appeal.

I agree with my Lady that this is what is sometimes called a one-off case and is not a case where the arbitrator was "obviously wrong". On becoming aware of the issue raised by this appeal, I felt the right course was to read the award before reading either the judgment of Warren J or the skeleton arguments. Having read the award, I can readily see that the decision of the arbitrator was not obviously right but I might be persuaded that it was either right or wrong, once I had the benefit of adversarial argument. My own conclusion that it was not obviously wrong is of course much fortified by the fact that Warren J of the Chancery Division reached the same conclusion. The initial decision of Morgan J, who dealt with the application on paper, is also of some significance because he seems to have decided that the question of obviousness needed to be a matter for oral argument.

Section 69 of the Arbitration Act 1996 is largely based on the decision of the House of Lords in Pioneer Shipping v BTB Tioxide, usually referred to as The Nema [1982] AC 724. Section 69(3)(c) reflects the distinction made in that case between one-off cases or cases involving construction of one-off clauses on the one hand and cases of general public importance on the other. I need not set out again the passage of Lord Diplock's speech which my Lady has already read to the effect that obviousness ought to be apparent, if at all, on a mere perusal of the award. If Warren J had been referred to this passage in Lord Diplock's speech, one wonders if he would have given permission to appeal to this court on the question whether the decision of the arbitrator was obviously wrong. Moreover if Morgan J had had the passage in mind, one wonders if he would have required there to be an oral hearing.

The importance of these considerations is that arbitration is or ought to be a comparatively speedy process giving rise to finality. It has been held that the requirement in section 64(5) of the Act, that applications for leave to appeal should be determined without a hearing unless it appears to the court that a hearing is required, is compatible with Article 6 of the European Convention on Human Rights: see BCLT Limited v J Sainsbury Plc [2004] 1 CLC 24. Morgan J decided, as I have indicated, that an oral hearing was required to determine whether the arbitrator was obviously wrong even though it seems that no obvious wrongness appeared to him to exist on the papers. The consequence of that and permission to this court having been given is that finality was not achieved in July 2010 when the arbitrator made his award nor on the 21 December 2010 when Morgan J considered the application on the papers but only today, 10 November 2011, on the dismissal of this appeal. This case is not therefore a particularly good advertisement for the arbitration process. I also agree with my Lady's reservations about what she has called the rolled up process whereby the question of leave is determined at the same time as any appeal for which leave is given is also determined.

Be all that as it may I agree that this appeal should be dismissed.

I too agree that the appeal should be dismissed for the reasons that both my Lady and my Lord have now given.