Checkpoint Ltd v Strathclyde Pension Fund
| Jurisdiction | England & Wales |
| Judge | Lord Justice Ward : |
| Judgment Date | 06 February 2003 |
| Neutral Citation | [2003] EWCA Civ 84 |
| Docket Number | Case No: A3/2002/0722 |
| Court | Court of Appeal (Civil Division) |
| Date | 06 February 2003 |
[2003] EWCA Civ 84
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM CHANCERY DIVISION
(The Hon. Mr Justice Park)
Lord Justice Ward
Lord Justice Mummery And
Lord Justice Jonathan Parker
Case No: A3/2002/0722
Guy Fetherstonhaugh (instructed by Macfarlanes) for the Appellant
Jonathan Seitler (instructed by Nabarro Nathanson) for the Respondent
The scope of this appeal.
The appellant, Checkpoint Ltd., the tenant of the respondent, the Strathclyde Pension Fund, seeks to set aside an award dated 18 th May 2001 by an arbitrator, Mr T. Bloomfield FRICS, ACI ARB., on a review of the rent payable for the premises which he determined at £440,000 per annum. The award was challenged on the ground of serious irregularities of the kind within section 68 of the Arbitration Act 1996. On 21 st March 2002 Park J. rejected that challenge but granted permission to appeal limited to the following grounds:-
"(a) Whether, to the extent that the arbitrator took into account his own personal experience of specific transactions without giving the parties an opportunity to comment, the arbitrator committed a serious irregularity within section 68(2) of the Arbitration Act 1996, and, if so, whether the irregularity has caused substantial injustice to the [appellant].
(b) Whether the arbitrator's failure to address the [appellant's] evidence concerning the over-supply of and poor demand for comparable premises in the immediate locality of the subject premises was a serious irregularity and, if so, whether this caused substantial injustice to the [appellant]".
The background.
The demised premises are a storage and distribution depot known as Arrow Point at 43 Western Road, Bracknell in Berkshire. The internal floor area is about 43,000 square feet of which some 28,000 square feet comprise the warehouse and nearly 15,000 feet are used as offices. This 34.7% office content is apparently a good deal higher than the standard office content for warehouse buildings.
The lease was granted for a term of 15 years from 2 nd May 1995 at an initial annual rent of £220,000. A rent review clause provided for upwards-only rent reviews on 2 nd May 2000 and 2 nd May 2005, the rent to be "the open market yearly rent for which the premises could be expected to be let with vacant possession on the relevant review date in the open market by a willing lessor to a willing lessee …" If the lessor and lessee could not agree upon that open market rent, as happened here, the rent was to be determined by an independent surveyor appointed (if the parties could not agree his identity) by the President of the Royal Institution of Chartered Surveyors. The lease contained these provisions:-
"15.2 The surveyor must be a chartered surveyor experienced in the letting and/or valuation of property which is of a similar nature to the Premises, is situate in the same region as the Premises and used for purposes similar to those authorised under this Lease at the date of the Surveyor's appointment. …
The Surveyor will act as an arbitrator under the provisions of the Arbitration Acts (to whom the referral will be a submission to arbitration in accordance with the Arbitration Acts). The Surveyor's decision will be final and binding on every person who at any time is or has been the Landlord or Tenant or a Guarantor under this Lease."
Mr Bloomfield was appointed in January 2001. The parties were represented by chartered surveyors. The landlord appointed Mr Michael Garvey, a divisional director of Rogers Chapman based in their Thames Valley office in Bracknell. The tenant appointed Mr Kenneth Tapping of Croft & Co. in Windsor. Each submitted his initial written representations followed by supplemental written representation. The arbitration was to be conducted on the basis of those representations without an oral hearing. The parties submitted a statement of agreed facts which included their agreeing which transactions could be treated as comparable. Mr Garvey relied upon three lettings of units in Winnersh Triangle, Winnersh, also units at Lovelace Road, Bracknell, the Sterling Centre, Eastern Road, Bracknell and the Astron Centre, Western Road, Bracknell. The Winnersh site is apparently six miles from Arrow Point, but the travel time is only ten minutes. Mr Tapping submitted that Unit 3, Doncastle Road in the southern industrial area of Bracknell was the only property which was strictly comparable to the subject property in terms of specification, office content and date of transaction. The arbitrator visited Arrow Point and each of the properties which were the subject of the comparable rents.
The award.
Mr Bloomfield made his award on 18 th May 2001. He accepted the landlord's submission that the rent should be £440,000 per annum. He rejected the tenant's submission that the open market rent was only £273,000.
In dealing with "the issues" he observed:-
"The parties' representatives adopt a completely different approach to their valuations of the property and that reflects in the comparables they have relied upon."
He summarised Mr Garvey's "broad approach" looking "at comparables before and after the valuation date" relying "heavily on lettings at Winnersh Triangle to demonstrate the market rent for high office content properties" and also the Sterling Centre "to demonstrate the lowest level of rent that would be paid by a tenant for more standard warehouse and industrial units in Bracknell". Mr Tapping strongly disagreed, rejecting the evidence of the comparables at Winnersh Triangle or the Sterling Centre and looking to the rental achieved for Unit 3, Doncastle Road, for him the only strictly comparable property.
The arbitrator agreed with Mr Garvey's approach. He did not find Unit 3 Doncastle Road to be a reliable comparable because it was situated on the southern industrial area which had a high preponderance of traditional distribution uses compared with the western industrial area increasingly dominated by the computer, electronic and knowledge based sectors. He was of the opinion that the subject property enjoyed another advantage over Unit 3. He was of the view that the disadvantage to an occupier of landlord redevelopment breaks, which was the case with Unit 3, outweighed the advantage to the tenant of having lessee breaks, and he considered that might be very significant for companies, particularly from the high technology sector, taking a high office content building. He felt it was a factor likely to depress the rent.
He then considered the comparables in the Winnersh Triangle upon which Mr Garvey relied. Mr Tapping dismissed them completely, arguing that the location was unique and the dates of the transactions too distant from the valuation date for the subject property. The arbitrator once again found Mr Garvey's approach to be correct and Mr Tapping's to be wrong and he gave the following reasons for that conclusion:-
"Firstly it is a matter of fact that although the first letting of Unit 415 Winnersh Triangle was in September 1999, the second letting of Unit 650 was in August 2000. If one finds that they [provide] a better guide to the value of Arrow Point than say, Doncastle Road, which I have, then the fact that they occurred 8 months [before] and 4 months after the valuation date is not relevant unless there has been some dramatic changes in market conditions. Whilst both parties' representatives seem to have different views on the state of the market, neither of them suggest there has been any dramatic deterioration. Secondly the parties know that I was instructed and personally involved with Winnersh Triangle for some years including the period within which these two lettings were achieved. My experience as letting agent confirms that companies considering Winnersh Triangle would consider similar type buildings in other locations such as Bracknell, Wokingham, Reading and Camberley and indeed potential lettings were lost to locations such as those mentioned, which were possibly inferior but cheaper than Winnersh Triangle." [I have added the emphasis because this is a passage to which the tenant takes exception].
The arbitrator justified his rejection of Mr Tapping's contention that Sterling Centre should be ignored. He explained why he accepted Mr Garvey's view about the comparability of the two buildings with their respective office content. Then he said in another passage to which the tenant takes exception:-
"Mr Tapping submits that there is no demand for high office content buildings in Bracknell and therefore the higher office content of the subject property will not be reflected in a better rent than say, the Sterling Centre. As I have already stated my own experience in the market at Winnersh Triangle does not support that contention." (Again I add the emphasis).
He looked to the other evidence such as the relevance of a higher office content than the more traditional office content for warehouse and industrial units and he considered that the Doncastle Road evidence did not support Mr Tapping's submission. He rejected Mr Tapping's opinion that difficulties in letting the property in 1987 and 1995 were a true guide to the value of the property today, saying that, whilst market conditions in 1987 were "extremely healthy", the "high tech revolution in property with changes of the Use Classes Order was in its infancy". He concluded:-
"I therefore accept Mr Garvey's submissions that if one adjusts for differences between Arrow Point and the lettings at the two locations...
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