Fulham Broadway Trustees v Telefonica UK

I have to decide an application made by the Claimant landlord (“the Landlord”) under section 68 of the Arbitration Act 1996 (“the 1996 Act”), the Landlord’s Claim Form having been issued on the 4 September 2013. The Defendant (“the Tenant”) is the tenant of shop premises, Unit 9, Fulham Broadway Retail Centre, London SW6. I shall refer to these premises as “Unit 9”. The Landlord is the owner of Fulham Broadway Retail Centre (“the Retail Centre”), and the landlord of other units within the Retail Centre.

The facts which give rise to this application are as follows. The Lease of Unit 9 was granted on the 1 July 2005 for a term 15 years from 29 September 2002. The Lease contains a rent review clause with a review of the rent on the 29 September 2012. It also contains a provision for arbitration in the event of disagreement. The reviewed rent was to be the “Open Market Rent”, as defined in the Lease; that is to say:

The parties failed to agree on the reviewed rent at 29 September 2012 and the matter was remitted to arbitration, with Mr Mervyn Saunders, FRICS, being appointed to be the arbitrator by the President’s Office of the Royal Institution of Chartered Surveyors. Procedural directions for the arbitration were given by the Arbitrator in March 2013. These provided materially for the parties to agree a Statement of Agreed Facts, and for there to be two rounds of submissions from each party.

The Statement of Agreed facts was to provide for various matters relevant to the reference to arbitration, including, details of Unit 9 (that is the dimensions, areas, zones, if appropriate, uses and relevant facts generally). There was also to be agreement on such matters as, for example, a plan of the geographical and commercial setting of Unit 9. Significantly the statement of agreed facts was to include:

The two rounds of submissions contemplated by the March 2013 directions were, broadly speaking, to be presented in a process of exchange such that neither side would see in advance the submissions which, at the time, the other side was making. The first round of submissions was to be by way of Reports submitted on the 12 April 2013, and the second round by way of Points of Reply to be submitted on the 26 April 2013.

There were directions as to what was to be contained within the various rounds of submissions. Paragraph 10 of the directions was as follows:

The March 2013 directions also said this about the Points of Reply:

The intended programme for the exchange of Experts’ Reports followed by Points of Reply appears to have slipped a little. At all events, by the beginning of May the parties’ Surveyors had exchanged their first round of Reports containing evidence and submissions.

The Landlord’s surveyor is a Mr Simon Goulddbourn BSc MIRCS, a charted surveyor and a partner of the property consultancy known as Kitchen La Frenais Morgan. He or his firm acted generally for the Landlord in relation to the Retail Centre. By that I mean that he or his firm act not only in relation to the review and arbitration concerning Unit 9, but have acted for the Landlord in relation to other lettings at the Retail Centre.

The Tenant’s surveyor is a Mr Ross Thomson MRICS, a chartered surveyor and associate director at Jones Lang LaSalle.

At the same time as the Expert’s Reports were signed off on the 1 May 2012, the Statement of Agreed Facts was also signed off. In the Statement of Agreed Facts, there was reference to a letting to a company called “3 Store” in mid-2012 of part of Unit 8 at the Retail Centre (identified in the Statement of Agreed Facts as a comparable for the purposes of the review of the rent at Unit 9). At section 5 of the Statement of Agreed Facts is the heading “Comparable Evidence” and the legend: “Unit 8, Fulham Broadway Retail centre, Fulham Broadway (3 Store)”; and below this is the text “Term: 10 years from the 12 June 2012”; and “Transaction: Open Market Letting”; and “Agreed Rent: £165,000 per annum”; and then there are other matters relating to the 2012 letting of Unit 8, such as the effective date, a break option, provision as to repairs and alienation and so forth, as well as the area (and areas of zones) within Unit 8.

I should just mention that from time to time I will refer to this particular letting, describing it as the “2012 Unit 8 Letting.” I do this to distinguish this particular letting from a previous letting of the whole of the same unit, Unit 8, in 2007 to Monsoon. This 2007 letting was discussed in the course of the arbitration as being relevant to the review of the rent of Unit 9.

In his first Report, Mr Gouldbourn said various things about the 2012 Unit 8 Letting. This Report included, in section 8 of his Report, the following text under the heading “Comments on Comparable Evidence”:

In his first Report, Mr Thomson commented on the 2012 Unit 8 letting. Section 8 of his Report, under the heading “Evidence of Value” contained, at paragraph 8.1, about 16 or 17 unnumbered paragraphs, amongst which he said:

At the end of May the two Surveyors submitted their Points of Reply to the Arbitrator, again in a process of exchange. Mr Gouldbourn’s Points of Reply contained the following about the 2012 Unit 8 letting and its relevance as a comparable. At section 8 of his Points of Reply, under the heading “Evidence of Rental Value,” Mr Gouldbourn explained:

Mr Thomson, for his part, made in his Points of Reply various submissions about the 2012 Unit 8 Letting. These I shall mention later.

The Arbitrator’s Award was given on the 7 August 2013. The Award contained formal parts describing the Arbitrator’s appointment, the parties’ representation in the arbitration by the two Surveyors, the directions that he had given, his inspection of the property, and so forth. In particular, at paragraph 7 of the Award, the Arbitrator referred to the Statement of Agreed Facts. He said:

The Award continued in paragraph 8 to describe the evidence provided by Mr Gouldbourn. As to the 2012 Unit 8 Letting the Award included the same caption that had appeared in paragraph 7 (at sub-paragraph (ix)) dealing with the Statement of Agreed Facts (namely “Unit 8 Fulham Broadway Retail Centre – Three – OML – 12th June 2012”) and followed this with this description:

In paragraph 8 of the Award the Arbitrator also drew attention to certain further evidence provided by Mr Gouldbourn in his Points of Reply and made a finding about this evidence in which he explained that he did not consider it to assist.

At paragraph 9 of the Award the Arbitrator dealt with the submissions made and evidence advanced by Mr Thomson. As to this the Arbitrator said the following among other things:

At paragraph 10 of the Award the Arbitrator explained:

There then followed under headings various matters which the Arbitrator regarded as issues, as to which there had been disagreement, with his findings on those issues. These included, for example, findings as to the location of Unit 9, with the Arbitrator recording that Mr Gouldbourn’s was case that the location was primary in a strong retail centre while Mr Thomson’s position was that Unit 9 was simply an end-line unit in a poor retail centre. As to this particular issue, for example, the Award concluded with an italicised and bold lettered finding as follows:

In this same fashion the Award dealt with issues surrounding the ground floor area of Unit 9 in terms of Zone A; it dealt with an issue concerning the basement value and another issue concerning reductions as to value to be attributable to the basement letting; it dealt with the state of the market, and submissions as to that and the findings that the Arbitrator could make; it made findings about the assumed 15 year term which was in play for the purposes of the review of rent of Unit 9; and then finally it dealt with the Zone A price. As to this the Arbitrator said as follows:

In paragraph 11 of the Award the Arbitrator amplified the arguments about, and his findings in relation to, the Zone A price. He commented that there was a dearth transaction evidence in the Retail Centre, this comprising the 2012 Unit 8 Letting (which he referred to as “a tri-partite arrangement between the landlord, the previous tenant, and the new tenant”); the letting of Unit 8 in 2007; the dealings with Unit 10 (the Joy letting); and “the implications of the vacant Unit 12”. He then went on to consider in more detail the first three of these matters, and to make further findings about them.

As to the 2012 Unit 8 Letting the Award set out the familiar caption (“Unit 8 Fulham Broadway Retail Centre - Three – OML – 12th June 2012”), and continued (so far as material for present purposes) as follows with the description of the relevant issue:

The Arbitrator continued in paragraph 14 of his Award to deal with the way in which the Surveyors had arrived at their respective reviewed rents for Unit 9; and at paragraph 15 the Arbitrator set out own calculation of the Open Market Rent: this, he was persuaded, was £151,250.00. That was the rent which he concluded for the purposes of his Award and so published.

Before me the Landlord seeks to have the Award remitted to the Arbitrator or alternatively set aside. The grounds for this are summarised in the Claim Form as follows:

The relevant statutory provisions, as regards the Landlord’s application, are as follows. First, section 1 of the 1996 Act, headed “General Principles”, is so as far as material in the following terms:

act fairly and impartially as between the parties, giving each party a reasonable opportunity of putting his case and dealing with that of his opponent, and

It is common ground between the parties that arbitration, at any rate, in a case such as the present, is intended to be quick and cost effective. It is also clear that, as a consequence, the process may be relatively robust and that the parties should not be unduly sensitive if there is some roughness in the process. Furthermore, the court should approach an arbitrator’s award as a commercial document, not to be parsed in excessive detail or subject to elaborate textual analysis; and the court should allow an arbitrator a reasonable margin of appreciation. I was reminded in particular that the court should not be quick to intervene to upset the arbitral process. Rather the court’s function is to support and protect the integrity of the process, intervening in the process where necessary to discharge that function.

In this connection I was shown extracts from numerous judgments. They are sufficiently encapsulated for present purposes by Lawrence Collins LJ in paragraph [46] of his judgment in Bandwidth Shipping Corporation v. Intaari

With this I turn to the arguments which have been made on this present application.

As to the Landlord’s first ground, ground (a) in paragraph 27 above, the case set out in the Claim Form is that before the Arbitrator the Tenant had not raised:

In the Claim Form it is then explained that what went wrong was that, as a consequence of the “issue of Unit 8” not having been squarely raised, the Landlord did not explain and make submissions to the arbitrator as to “the difference between the concepts of (i) an open market rental; and (ii) the property being marketed openly in the sense of being advertised and extensively publicised”. Further, so it is said, as a consequence of the “issue of Unit 8” not having been squarely raised, the Landlord failed to point out, as it would have otherwise have done, that:

As to the Landlord’s second ground, ground (b) in paragraph 27 above, the case made is that there was an important issue for the arbitrator to resolve which he failed to deal with. This, as described in the Claim Form, is that Unit 8 having been “signed off as an open market (sic) under the Statement of Agreed Facts”, it “required explanation from Mr Thomson as to how he came to sign the Statement of Agreed Facts if he was then going to challenge Unit 8 as an ‘open market letting’.”

The Claim Form and Mr Gouldbourn’s witness statement in support assert that these grounds constituted serious irregularities which caused substantial injustice because (and I quote from paragraph 19 of Mr Gouldbourn’s witness statement):

Ground (a) as set out in the Claim Form is in my judgment completely hopeless. In his first Report Mr Thomson did squarely put in play the manner in which the 2012 Unit 8 Letting had come about as a matter impacting on the worth of that transaction as a comparable. His point was that the transaction was “off market”, not having been advertised, and that therefore the weight to be attached to the letting was qualified and other evidence should be given weight. This other evidence was that the Retail Centre was less attractive than it might seem and that the Landlord proceeded to maintain the appearance of value by not openly marketing units.

I have set out parts of Mr Thomson’s Report which made this point, in particular the first, second and eighth paragraphs within his paragraph 8.1. Other parts to similar effect are within the twelfth and fifteenth paragraphs of his paragraph 8.1. As to the second of these, what was said:

Mr Gouldbourn responded in his Points of Reply in a way which conveyed that he understood Mr Thomson’s argument. In his Points of Reply he drew attention to the fact, conceded and agreed in the Statement of Agreed Facts, that the 2012 Unit 8 letting was an open market letting. He further dealt with the substance of Mr Thomson’s argument by making forensic points aimed at countering, by argument rather than by fresh evidence, the suggestion that the 2012 Unit 8 Letting involved an attempt by the Landlord to manipulate evidence. And Mr Gouldbourn also explained, as regards the 2012 Unit 8 Letting, and as relevant to it being an open market letting, that (and I take this from his Points of Reply, a passage quoted above already):

I am satisfied that the second of the two points in particular made by Mr Gouldbourn would naturally have been read and understood by the Arbitrator as indicating an acceptance of a proposition that Unit 8 had been an off market transaction. Specifically, not only had Mr Gouldbourn not challenged Mr Thomson’s description in this respect, but he had sought to make argument as the evidential value that such a transaction might have, it being accepted that the transaction had not involved advertising and extensive publicity.

The argument put forward before me by Mr Jonathan Seitler, Queen’s Counsel, on behalf of the Landlord is that Mr Gouldbourn recognised that he had a killer point, deployed the killer point, and believed that because it was a killer point he had no further need to deal with the case made by Mr Thomson as regards the 2012 Unit 8 Letting. This case, that is Mr Thomson’s case in relation to the 2012 Unit 8 Letting not being an open market one, Mr Seitler says was one which had “put its head above a parapet”, which I take to mean it was a case which had been raised.

Mr Seitler’s argument, it is to be noted, is at odds with and destructive of the Landlord’s case on ground (a) as set out in the Claim Form. It presupposes that Mr Gouldbourn had indeed identified that Mr Thomson had put in question the worth of the 2012 Unit 8 Letting as a comparable and was taking the point that while an open market letting the circumstances of it meant that it was unreliable as a guide to the Open Market Rent of Unit 9.

As I see it, Mr Seitler’s argument is a brave attempt to save an otherwise impossible position. I reject it for a number of reasons.

The first concerns the so-called killer point. The killer point is the point that, having agreed that the 2012 Unit 8 Letting was an open market letting, it was not open to Mr Thomson to advance argument or evidence as to the letting which might call into question the worth as a comparable by reference to the manner in which the transaction had been brought about. In other words it was not open to Mr Thomson to submit to the Arbitrator, or for the Arbitrator to find, that the transaction was an off market one so that there could be some question as to it’s worth as a comparable.

It is noticeable that the Claim Form did not put forward the so-called killer point. The case presented by the Landlord was not at inception, and indeed has not been put before me, that the submission made by Mr Thomson to the Arbitrator was one that was ruled out once and for all by Mr Thomson’s agreement of the Statement of Agreed Facts.

Second, I have not seen among the materials before the court any evidence to support the case that Mr Gouldbourn believed that he had the so-called killer point to take in a way which would prevent any argument or finding to qualify the value of the 2012 Unit 8 Letting as a comparable. In particular as to this, Mr Gouldbourn’s explanation in his witness statement does not say that he believed that he had any killer point. He simply repeats in his paragraph 14 what is to be found in the Claim Form. That is:

The only other relevant evidence given by Mr Gouldbourn is in paragraph 17 of his witness statement. This, an expansion of the material to be found in the passage in the Claim Form which I have set out in paragraph 33 above, is that:

This is no more than assertion that, had Mr Gouldbourn known that the Arbitrator would reject what he had put forward in his Points of Reply as to the worth of the 2012 Unit 8 Letting as a comparable, he would have put in further argument or evidence (so the Claim Form and his witness statement would indicate) as to the relevance of the letting in the light of the way that it had been brought about. But this is not an assertion that he had failed to appreciate that the worth of the Unit 8 2012 Letting as a comparable had been raised.

Third, Mr Gouldbourn’s own Points of Reply did not take the so-called killer point. By drawing attention to the fact that 2012 Unit 8 Letting was agreed to be an open market letting, he went on to explain, as I see it, and to make submissions as to, the inferences which might be drawn from the point, not disputed by him, that there had not been an open marketing but that the transaction was off market as stated by Mr Thomson.

My conclusion is that, as submitted by Mr Edward Peters for the tenant, Mr Gouldbourn chose not to add to the evidence in relation to the 2012 Unit 8 Letting, not because he thought that the so-called killer point disposed of any possible argument as to the weight to be attached to that transaction by reason of its circumstances, but because he judged that tactically the Landlord’s case was better served by argument than by evidence as to the process which had brought about the transaction.

In this regard Mr Gouldbourn was certainly not inhibited in advancing fresh evidence in his Points of Reply, where it appeared that evidence might assist his case. This appears from what was said by the Arbitrator in paragraph 8 of the Award, between sub-paragraphs 5 and 6. The Arbitrator pointed out that Mr Gouldbourn’s Points of Reply contained fresh evidence. It is also to be mentioned that the Arbitrator’s directions at the outset of the arbitration had contemplated that the Points of Reply could include new evidence by way of rebuttal.

At all events, whatever may have been Mr Gouldbourn’s state of mind when he chose not to adduce further evidence in relation to the 2012 Unit 8 Letting, any mistaken belief that he may have had was not the fault of the Arbitrator or the result of any procedural failure by the Arbitrator in the conduct of the arbitration. Within the language of section 33 of the 1996 Act, as I find, the Arbitrator had given the Landlord a reasonable opportunity of dealing with the case of its opponent.

A further argument advanced by Mr Seitler, to found the Landlord’s first ground, ground (a) in paragraph 27 above, was (i) that following Mr Thomson’s Points of Reply, Mr Gouldbourn believed reasonably that any attack on the weight to be attached to the 2012 Unit 8 Letting as a comparable was precluded by virtue of his own Points of Reply, and (ii) that for this reason Mr Gouldbourn did not seek to put further evidence or argument to the Arbitrator. The proposition seems to be that Mr Thomson’s Points of Reply had in some way abandoned any attack on the 2012 Unit 8 Letting, or so Mr Gouldbourn was led to believe by the Points of Reply.

Quite simply, there is no evidence to support this argument. In any case I believe it to be fanciful because it ignores the fact that in his Points of Reply Mr Thomson did indeed repeat his case that the 2012 Unit 8 Letting was not to be regarded as simply a letting following open marketing, but was an off market transaction as part of an attempt to manipulate rental values. This is set out in his paragraph 7.1 of his Points of Reply, where he made submissions conveying that the letting of Unit 8 had involved the intending tenant being “lined up” to take space. It is also in paragraph 8, where Mr Thomson had pointed out that in his first Report:

The Landlord’s second ground, ground (b), is, in my judgment, equally to be rejected. Again there are several reasons.

First, as will be apparent from what I have already said. I am not satisfied that Mr Gouldbourn fairly made any case that by reason of a so-called killer point it was not open to the Arbitrator to qualify the worth of the 2012 Unit 8 Letting as a comparable. If this is correct it cannot possibly be concluded that by reference to the killer point there was any issue, let alone any important issue, which was before the Arbitrator and which he failed to deal with.

On this particular point, I note that the contention put forward in the Claim Form was not that the killer point was an issue which required resolution but which the arbitrator failed to resolve, but that there was an issue concerning the need for Mr Thomson to give an explanation as to how he had come to sign the Statement of Agreed Facts.

Second, it is in fact clear that the Arbitrator did deal with the question surrounding the evidential value of the 2012 Unit 8 Letting in that he concluded that it was open to him to accept Mr Thomson’s case on the point. This was the case that by reference to what he had been told about the circumstances of 2012 Unit 8 Letting the weight to be attached to the value of the letting as a comparable could be qualified. Essentially therefore the objection is not that the arbitrator failed to deal with the issue but that he failed to give reasons for the way he dealt with the issue.

However, that is not a ground of objection under section 68(2)(d) of the 1996 Act. As to this I would refer to the judgment of Morison J in the case of Fidelity Management SA v. Myriad International Holdings BP [2005] 2 Lloyd’s Rep 508. At paragraph [9], Morrison J cited extracts from the judgment of Coleman J in World Trade Corporation v. Czarnikow Sugar Ltd [2005] 1 Lloyd’s Rep 422, which I shall mention below; and then at paragraph [10] he summarised the position as follows:

To similar effect is the comment made by Thomas J in the case of Hussman (Europe) Ltd v Al Ameen Development & Trade Co [2007] 2 Lloyd’s Rep 83 at page 97 where he observed:

Third, in my judgment the so-called killer point was not an “issue” at all within the meaning of section 68(2)(d). It was simply an argument concerning the way in which the Arbitrator should approach the question of the weight to be given to the 2012 Unit 8 Letting as a comparable. As put by Coleman J in World Trade Corporation v. Czarnikow Sugar Ltd [2005] 1 Lloyd’s Rep 422 at [20], section 68(2)(d) “is confined in its application to essential issues as distinct from the reasons for determining them”.

It follows that the application is to be dismissed and strictly it is not necessary for me to deal with the question whether or not one or other of the irregularities contended for gave rise to a “substantial injustice” within the meaning of section 68 of the 1996 Act. However, as I have reached a clear conclusion on this question, I shall deal with it briefly.

In my judgment the Landlord has failed to show that the matters complained, even if made out would have reached the threshold required to establish substantial injustice.

As to the alleged irregularity argued for as giving rise to ground (a) in paragraph 27 above, the supposed failure to comply with section 33 of the 1996 Act, the argument is described in the Claim Form and in Mr Gouldbourn’s witness statement as being that, had Mr Gouldbourn had a proper opportunity to respond to Mr Thomson’s, case the Arbitrator: “would have had [Mr Gouldbourn’s] submissions as to how an open market rent could be reached even without public advertisement”. As to the substantial injustice contended to flow from the ground (a) alleged irregularity, Mr Seitler relied on Mr Gouldbourn’s statement at paragraph 17, the material part of which I have set out above.

As to the alleged irregularity argued for as giving rise to ground (b), the supposed failure to deal with all issues put to the Arbitrator, the argument is described in the Claim Form and in Mr Gouldbourn’s witness statement as being that the Arbitrator failed to consider the effect of Mr Thomson agreeing and admitting that the 2012 Unit 8 Letting was an open market letting when he signed the Statement of Agreed Facts; and it is said that had he done so he might have arrived at a different conclusion as to the reviewed rent at Unit 9, and one favourable to the Landlord.

When a party alleges that an irregularity of a type set out in the various paragraphs of section 68(2) of the 1996 Act has given rise, or will give rise, to a substantial injustice within the meaning of the section, the onus lies on that party to explain the injustice and to satisfy the court of that injustice. The injustice to be shown is more than the fact of an irregularity: there must be something resulting from the irregularity, that is a real risk of unfairness or prejudice to the party concerned. As to this I refer to what was said by Steyne L in the Lesotho Highlands Development Authority v. Impregilo SpA and others [2006] 1 AC 221 at paragraph 28, where he was discussing the requirements set down by section 68 of the 1996 Act. He pointed out that the requirement to be met is a “serious irregularity” with a high threshold required to be satisfied. But he went on to say this:

Borrowing from language used by Jonathan Parker LJ in the case of Warborough Investments Limited v. S Robinson & Sons (Holdings) Limited [2003] EWCA Civ 751, [2003] 2 EGLR 149, at paragraph [58], I am not satisfied that the case which would have been presented by Mr Gouldbourn, had he been afforded an opportunity to submit a further report along the lines indicated in his witness statement, would have been so different as to justify the conclusion that the lack of that opportunity in itself caused a substantial injustice, regardless of what the outcome of the arbitration would have been. Nor for that matter, am I satisfied that the outcome in that event would have been materially different.

Specifically as to the evidence before the court, Mr Gouldbourn has not explained, beyond the brief summary in paragraph 17 of his witness statement, what further evidence he would have put in to show that the circumstances of the 2012 Unit 8 Letting had in fact resulted in the rental arrived at being one which demonstrated the open market rental value of Unit 9 or how that evidence might have assisted his case. Perhaps the elliptical nature of Mr Gouldbourn’s evidence in his witness statement is because the injustice specifically mentioned in his witness statement was not the missing of an opportunity to put before the Arbitrator evidence which the Landlord might have had, but was his missed opportunity to develop argument concerning valuation concepts. However that may be, I think it was incumbent on the Landlord in this application to give more detail as to the evidence concerned so that the court can see that in fact that there is a real, not fantasy unfairness.

I would add that I see nothing in the proposition that Mr Gouldbourn’s supposed missed opportunity to develop argument as to the valuation concepts caused injustice. I say this because the point is only that Mr Gouldbourn might have expanded upon what he said anyway in the eighth paragraph in section 8.1 of his Points of Reply.

As to ground (b), there is no evidence or indeed inference that the supposed irregularity had any effect at all. What is apparent is that the Arbitrator did not conclude that by reason of anything in Statement of Agreed Facts he was shut out from looking at the circumstances of the 2012 Unit 8 Letting. That conclusion was open to him, in my judgment. Given that, there was no substantial injustice in his rejection of what Mr Seitler called the killer point, if in so far as ever made, without at the same time giving express reasons. There can have been no effect on his Award, and I cannot see any other basis on which it might be said that the ground (b) irregularity, if established, could have caused injustice to the Landlord.

For all these reasons this application is to be dismissed.