The Court of Appeal in England had to consider in its decision of Checkpoint Ltd v Strathclyde Pension Fund [2003] All ER (D) 56 whether an arbitrator’s use of personal knowledge amounted to serious irregularity pursuant to section 68 Arbitration Act 1996. The defendant, a landlord, had leased property to the claimant tenant under a lease which provided for upwards only rent reviews. The lease further provided that if the parties could not agree upon the open market rent, the rent was to be determined by an independent surveyor who was to "act as an arbitrator under the provisions of the Arbitration Acts."
Facts
The parties were unable to agree on the open market rent and a surveyor was appointed as arbitrator. The arbitrator considered initial and supplemental written representations from surveyors appointed by each side regarding what they considered to be comparable properties for the purpose of establishing the open market rent. The arbitrator visited each of the properties put forward as comparable but, in making his award, the arbitrator accepted submissions made by the landlord’s surveyor regarding comparable rents. In respect of one of the areas, the "Winnerish Triangle", which the landlord’s surveyor put forward as comparable, the arbitrator confirmed that he had been "… involved with Winnerish Triangle for some years including the period within which these two lettings were achieved." He rejected the contention put forward by the tenant’s surveyor that there was no demand for high office content buildings in Bracknell, stating that his own experience in the market at Winnerish Triangle did not support that contention.
The tenant challenged the arbitrator’s award under Section 68 of the English Arbitration Act 1996 on the basis that there was a serious irregularity in that the arbitrator had relied upon his own experience of Winnerish Triangle without giving the tenant the opportunity to deal with that in evidence. Furthermore the arbitrator had failed to deal with an important part of the tenant’s evidence regarding the oversupply of and poor demand for comparable premises in the immediate locality. Mr Justice Park in the High Court did not agree with these contentions and upheld the award.
Court of Appeal
The tenant appealed the judge’s conclusions. Ward LJ, for the Court of Appeal, considered the submissions made by each side. He noted that the tenant relied on Fox v Wellfair Limited [1981] Lloyd’s Rep 514 to claim that an arbitrator may use his personal knowledge to evaluate the evidence and submissions before him but not to supplement or supplant that evidence. The tenant challenged the award on the grounds of lack of fairness as it had not been given the opportunity by the tribunal to comment or rebut some of the evidence taken into account. By contrast, the landlord relied on clause 15.2 of the lease, which required the arbitrator "to have relevant local knowledge", so that, when drawing on his local knowledge, the arbitrator was simply doing what was required of him.
No serious irregularity
Ward LJ noted that the question of whether an arbitrator’s use of personal knowledge constituted a procedural irregularity was difficult to determine. "The easy answer is when a right minded observer would conclude that the information ought to be disclosed to the affected parties" to give them the opportunity to comment on it. This does not provide any practical guidance, as what fairness requires in a particular case is "essentially an intuitive judgment."1
The Court reformulated the question to whether the information on which the arbitrator relied was information of the kind and within the range of knowledge one would reasonably expect the arbitrator to have if, as required by the terms of the lease, he was to be experienced in the letting/valuation of property of a similar nature, situated in the same region and used for similar purposes. If he uses knowledge of that kind, he acts fairly; if he draws on knowledge outside that field, then he does not.
The Court of Appeal also dismissed the claim, pursuant to Section 68(2)(c) Arbitration Act 1996, that the arbitrator had failed to conduct the proceedings in accordance with the agreed procedure. Proceedings can be conducted in either an adversarial or inquisitorial manner. They are inquisitorial when enquiry is made into issues deemed relevant, even if not raised by the parties, when the arbitrator investigates the dispute himself and seeks out evidence relating to it. Here, however, the arbitrator did not stray outside the issues between the parties nor make any independent enquiries.
The Court finally dismissed the substantive ground raised in Section 68(2)(d) Arbitration Act 1996, requiring that the tribunal deal with all the issues that were put to it. Ward LJ said the words must be construed purposively. It had never been part of the judicial or arbitral function that each and every point in dispute must be considered. There was no duty on a judge, in giving his reasons, to deal with every argument presented by counsel and that "a judge should give his reasons in sufficient detail … They need not be elaborate." The tribunal had done so in its award.
Substantial injustice
Although the Court did not find any serious irregularity in this case it briefly considered the arguments put forward on the second criterion whether or not the irregularity had caused substantial injustice to the tenant. The tenant had argued that a doubling of the rent could not be justified in view of the market. All of these submissions were rejected by the Court of Appeal as being too hypothetical. It was not for the Court to make its own assessment of what the rental figure should be and compare this to what was awarded by the arbitrator. The Court reiterated that Clause 68 is designed as "a long stop, only available in extreme cases where the tribunal has gone so wrong in its conduct of the arbitration that justice calls out for it to be corrected." The Court of Appeal confirmed that Section 68 was not a soft option clause as an alternative to a failed application for leave to appeal. This decision clearly shows that the English courts will not intervene in an arbitral award save in the most extreme circumstances. The fact that the tenant was surprised that the rent was doubled and the landlord’s experts’ figure accepted without any reductions did not of itself substantiate a claim for serious procedural irregularity let alone that a substantial injustice had been caused.
Article by Gearoid Carey
Footnote
1 Lord Mustill, Reg v Secretary of State for the Home Department, Ex Parte Doody [1994] L AC 531, 560