BLCT (13096) Ltd and J Sainsbury Plc
| Jurisdiction | England & Wales |
| Judge | Lady Justice Arden,Lord Justice Longmore |
| Judgment Date | 30 June 2003 |
| Neutral Citation | [2003] EWCA Civ 884 |
| Docket Number | Case No: A3/2003/0305 PTA |
| Court | Court of Appeal (Civil Division) |
| Date | 30 June 2003 |
[2003] EWCA Civ 884
Lady Justice Arden and
Lord Justice Longmore
Case No: A3/2003/0305 PTA
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM CHANCERY DIVISION
(Mr Justice Pumfrey)
Royal Courts of Justice
Strand,
London, WC2A 2LL
Michael Barnes QC and Jonathan Seitler QC (instructed by Nabarro Nathanson) for the Appellant
Jonathan Gaunt QC (instructed by Denton Wilde Sapte) for the Respondent
This is an application for permission to appeal against the refusal of Pumfrey J by letter received on 30 January 2003 to hold an application for an oral hearing of an application made by the appellant BLCT ( 13096) Ltd ("BLCT") for permission to appeal on a point of law against an award dated 13 May 2002 in an arbitration between BLCT and J Sainsbury plc. The application for permission to appeal to this court comes on for hearing in court before two Lord Justices pursuant to the directions of Waller LJ dated 31 March 2003. In his reasons Waller LJ stated that he had doubts as to whether the Court of Appeal had jurisdiction to grant permission and as to whether it would grant permission even if it had jurisdiction to do so. However, he added that the point on jurisdiction was one which should be clarified. Accordingly, the matter has come on for hearing before this court with respect only to the question of an application for permission to appeal. There is also an application for an extension of time. With the permission of the court, the respondent also appears by counsel.
The relief sought in the re-amended notice of appeal is that the order made by the judge set out above should be set aside and that there should be an oral hearing of the appellant's application for permission to appeal against the arbitrator's award. The grounds of appeal are as follows:-
i) in not granting permission to appeal the judge erred in law for the reasons set out in the application dated 7 June 2002 and the statement of Mr I P Travers dated 7 June 2002. This ground has not been pursued.
ii) the judge also erred in not allowing a reconsideration of the decision to refuse permission to appeal at an oral hearing. Reliance is placed on CPR Part 52.3(4) which provides that "where the appeal court without a hearing refuses permission to appeal, the person seeking permission may request the decision to be reconsidered at a hearing". In the notice of appeal BLCT submits that this rule is not excluded by section 69 of the Arbitration Act 1996. However, this ground has also not been pursued.
iii) section 69(6) of the Arbitration Act 1996 is incompatible with Article 6(1) of the European Convention on Human Rights because of its effect in entirely preventing in the circumstances such as have arisen in this case any consideration by the Court of Appeal of an application to appeal it.
Background
The arbitration which led to the award concerned the operation of a rent review provision in a lease dated 21 December 1989 for a term of 35 years made between the Equitable Debenture and Assets Corporation Ltd, as landlord, and J Sainsbury plc, as tenant, of a food superstore at Coldhams Lane, Cambridge. The current landlord is BLCT. The critical definition for the purposes of the arbitration was that of "market rent" as referred to in paragraph 1.2 of the third schedule to the lease. The arbitrator's function was to determine that market rent in accordance with the terms of the lease and the law. Under paragraph 1.2 of the third schedule, "market rent" means "the higher of the yearly rental aggregate yearly rents at which the demised premises might reasonably be expected to be let as a whole or in permitted parts by a willing lessor to a willing lessee with vacant possession without any premium in the open market at the relevant Review Date …" on certain specified assumptions. The nearest comparable related to a proposed new ASDA store at the Beehive Centre in Cambridge. The ASDA comparable was largely contemporaneous, was a superstore of the same size as Coldham Lane and was only about a mile away. In July 1999 Safeway offered £20.48 per square foot and ASDA offered £18.00 per square foot plus a premium of £3,000,000 and the latter offer was accepted. The £3,000,000 capital payment was not paid for anything specific. BLCT says that it was paid as a premium in the ordinary strict sense of being a part of the consideration for the grant of the lease. Its case is that it was not unusual. Companies taking leases of large superstores are often willing to offer and pay substantial premiums in order to do so in addition to the rent as ASDA did in the case of the ASDA comparable. Operators of such stores apparently find this convenient. Both parties in effect agreed that this was the nearest comparable but they did not agree how to analyse it and how it should be adjusted for the purposes of finding market rent at Coldhams Lane. In particular they could not agree as to whether the £3,000,000 premium paid by ASDA should be decapitalised (or rentalised) and treated as part of the rent. BLCT's expert witness said that the ASDA comparable would reveal an open market rental of £23.00 per square foot if no premium had been paid and appropriate adjustments were made. On that basis he reached a rent of £1.8 million per year. By contrast, the expert witness for Sainsbury said that the appropriate course was to ignore wholly the premium element in the ASDA comparable and to reduce the £18.00 per square foot to £16.00 per square foot to take account of other factors, for instance, that the ASDA comparable is of a new building. BLCT says that the rentalisation of capital sums is a common feature of adjustment of comparables in the course of rent reviews and cites in support to the decision of the High Court in Curry's Group v Martin [1993] 3 EGLR 165 and Broadgate Square plc v Lehman Brothers Ltd [1995] 1 EGLR 97, which concerned a reverse premium.
The arbitrator, Mr Graham Frank Chase, Dip.Est.Man, FRICS, FCI Arb ("the arbitrator"), in effect preferred the view of Sainsbury. He accepted that the ASDA comparable was of critical importance but then treated it as if no premium had been paid. He held that the premium was a "key money payment with no evidence that it could at any time be converted into a rental payment or could be treated as a payment in lieu of rent." He held that there was no single approach to the treatment of premiums as they could be amortised at different rates. His opinion was that premiums should not be decapitalised as a matter of course. Market place rentals could be lower than that which operators could afford. It could not automatically be assumed that a premium paid for representation reflected the difference between rent actually paid and a higher market rent. He said:-
"Although it is accepted that for the purposes of the review a hypothetical world has to be adopted where no premium is paid, this does not necessarily mean premiums in themselves have to be amortised and added to the Market Rent if the Market Rent identified is already at the level which the market will adopt and where there is no evidence to suggest that a higher rent in the market would be achievable."
He held that in order to amortise the premiums paid for food superstores it would be necessary to identify the higher open Market Rental level which can be achieved and that the premium paid reflected the difference between that recognised rental level and the rent actually paid. The arbitrator held that his function was to ascertain the Market Rent and that for this purpose the market itself had to be identified and the rents which were paid in the market applied to the subject premises. If there was no evidence in the market that higher rental levels would be paid and that the landlord receives the full rent plus a premium there is no evidence as to why an even higher rent should be automatically identified as the market rent through the amortisation of the premium if there is no such evidence of Market Rents being at higher levels. Where the rental reflected the Market Rent and the premium paid is key money there is no reason to amortise or decapitalise the rent to secure a higher rent which in itself cannot be supported by evidence in the market place. Accordingly, it was not appropriate to decapitalise the premium paid by ASDA. "If the market will not support a higher rental level than the rent paid, then the Market Rent must be adjudged to be the rent paid without the amortisation of a premium".
BLCT's case is that the arbitrator misunderstood the legal concept of willing lessee. A willing lessee is a person who is actively seeking premises which fulfil the needs which the present premises could fulfil. However, he is an entirely hypothetical person: Evans (Leeds) Ltd v English Electric Co Ltd [1978] 1 EGLR 93. In other words, he is a hypothetical entity. Accordingly, the fact that other real tenants would not have paid a higher rent in place of the premium is irrelevant. Accordingly, the arbitrator made a fundamental error of law to reject the rentalisation of the £3,000,000 paid by ASDA, in a word, the comparable is not truly comparable at all. BLCT also submits that the result is very unfair on the landlord. The second error of law which BLCT alleges is that the arbitrator wrongly regarded the premium as "key money" and thereby as entirely unconnected with the lease and the consideration paid for the grant. BLCT submits that this is unrealistic. The £3,000,000 was part of the package which ASDA paid to obtain the lease. BLCT submits that a case relied on by Sainsbury before...
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