House of Fraser Ltd v Scottish Widows Plc

JurisdictionEngland & Wales
JudgeTHE HONOURABLE MR JUSTICE PETER SMITH,Peter Smith J
Judgment Date28 October 2011
Neutral Citation[2011] EWHC 2800 (Ch)
CourtChancery Division
Docket NumberCase No: HC10C03777
Date28 October 2011

[2011] EWHC 2800 (Ch)

IN THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

Royal Courts of Justice

Strand,

London, WC2A 2LL

Before:

Mr Justice Peter Smith

Case No: HC10C03777

Between:
House Of Fraser Ltd
Claimant
and
Scottish Widows Plc
Defendant

And In The Matter Of An Arbitration Between

Between:
Scottish Widows Plc
Claimant in the arbitration
and
House Of Fraser Ltd
Respondent in the arbitration

Katharine Holland QC (instructed by Pinsent Masons) for the Claimant

Timothy Fancourt QC (instructed by Freshfields) for the Defendant

Hearing dates: 12 th October 2011

Approved Judgment

I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.

THE HONOURABLE MR JUSTICE PETER SMITH Peter Smith J

INTRODUCTION

1

This is an oral application for permission to appeal under section 69 of the Arbitration Act 1996 for permission to appeal the Award ("the Award") dated 15 th October 2010.

2

By the Award the Arbitrator Mr Douglas Stevens ("the Arbitrator") determined the annual rent of the premises ("the Premises") known as "House of Fraser" department store at 140–142 Briggate, Leeds.

3

The Award was to determine the rent as at 30 th July 2009. The Arbitrator by the Award determined the rent as of that date ("the second Review Date") as £1,550,000.

4

The review was under the terms of a Lease ("the Lease") dated 30 th July 1999 made between BL Fraser Ltd as Landlord and the Claimant as Tenant.

5

The term of the lease was for 40 years commencing on and including 30 th July 1999. The initial passing rent was £1,040,000 subject to 5 yearly reviews. This review as I have said is the second review.

6

Separately the Claimant ("HOF") has made an application seeking to set aside the Award under section 68 alleging serious irregularity.

7

Vos J on 27 th May 2011 made a directions order for an oral hearing of the present application for permission to appeal which has come on before me.

8

The application to set aside the Award for serious irregularity was not before me and will take place after my determination. That is somewhat surprising given the decision of Ramsey J in London Underground Ltd v Citylink Telecommunications Ltd [2007] EWHC 1749 (TCC). In paragraph 16 of that judgment he indicated that the best procedure was when there were applications under both section 68 and section 69 AA 1996 was for the former to be heard before the latter. The logic is that there is no point in dealing with permission to appeal if the Award is going to be set aside. However given the fact that the hearing was already listed before me there was no point in adjourning the matter as that would simply cause further delay.

THE RENT REVIEW CLAUSE

9

The relevant rent review provisions are to be found in clause 6 of the Lease as follows:-

"6.1 Rent Review

With effect from each review date the principal yearly rent payable by the Tenant will be (a) the principal yearly rent payable immediately before the relevant review date or (b) in the case of the first review date £1,205,762 or (c) in the case of the second review date £1,397,656 or (d) the open market rental value (as hereinafter defined) of the demised premises at the relevant review date whichever is the greater.

6.2 Open Market rental value

The open market rental value means the annual rent at which the demised premises might reasonably be expected to be let on the open market at the relevant review date

(A) on the following assumptions at that date:-

(i) that the demised premises:-

(a) are available to let on the open market without a fine or premium by a willing landlord to a willing tenant for a term of 15 years or the residue then unexpired of the term of this Lease (whichever be the longer);

(b) are to be let subject to the terms of this Lease (other than (aa) clause 7 of this Lease (bb) the amount of the rent hereby reserved but including the provisions for review of that rent;

(c) are fitted out in accordance with the attached specification immediately for occupation and use for the installation of the tenant's trade fittings;

(d) may be used only for the Permitted Use if at the relevant review date the demised premises are being used as a department store or otherwise may be used for any of the purposes permitted by this Lease as varied or extended by any licence granted at the request of the Tenant pursuant thereto (other than a personal licence);

(e) are to be let as a whole with vacant possession or in the event any sub-tenancy or sub-tenancies are in existence at the relevant review date are to be let:

(i) as a whole with vacant possession or

(ii) as a whole subject to and with the benefit of the relevant sub-tenancy or sub-tenancies but otherwise with vacant possession

whichever shall produce the highest open market rental value

(ii) that the covenants herein contained on the part of the Tenant have been fully performed and observed;

(iii) that no work has been carried out to the demised premises by the Tenant or any sub-tenant which has diminished the rental value and that in case the demised premises have been destroyed or damaged by any of the insured risks they have been fully restored; and

(iv) that no reduction is to be made to take account of any rental concession which on a new letting with vacant possession might be granted to the incoming tenant for a period within which its fitting out works would take place;

(B) but disregarding:-

(i) any effect on rent of the fact that the Tenant its sub-tenants or their respective predecessors in title or lawful occupiers have been in occupation of the demised premises

(ii) any goodwill attached to the demised premises by reason of the carrying on thereat of the business of the Tenant its sub-tenants or lawful occupiers their respective predecessors in title in their respective businesses; and

(iii) any increase in rental value of the demised premises attributable to the existence at the relevant review date of any improvement to the demised premises or any part thereof carried out with consent where required otherwise than in pursuance of an obligation to the Landlord or is predecessors in title by the Tenant its sub-tenants or their respective predecessors in title or by lawful occupiers during the term provided that if at the relevant review date any part or parts of the demised premises have been sub-let the works to create such sublet parts or parts shall not be disregarded pursuant to this clause 6.2 (B) (iii) (except where the demised premises are being valued on the assumption that they are to be let as a whole).

(iv) any effect on rent attributable to the presence of any asbestos in the demised premises at the relevant review date.

6.3 Referral of disputes

The Landlord and the Tenant shall endeavour to agree the open market rental value as at the relevant review date but if it has not been agreed by the day three months before the relevant review date the question of the open market rental value at the relevant review date may be referred by the Landlord or the Tenant to the determination of a referee acting as an arbitrator pursuant to the Arbitration Act 1996.

6.4 Referee

(A) The arbitrator (who shall be a surveyor having a minimum of ten years national experience in the letting and valuing of property of a similar character and size to the demised property) may be agreed by the Landlord and the Tenant or if not agreed by them within one month from the nomination in writing of an arbitrator by one party to the other is to be appointed on the application of either party by the President for the time being of the Royal Institution of Chartered Surveyors.

(B) If the arbitrator relinquishes his appointment or dies or if it becomes apparent that he will be unable to complete his duties the Landlord and Tenant may agree upon or either of them may apply to the President for a substitute in his place which procedure may be repeated as many times as necessary.

(C) If the President is unable or unwilling to make an appointment at the time of application the appointment may be made by the Vice-President or next senior officer of the Institution then able and willing to make it or if no such officer is available by such officer of such professional body as the Landlord designates.

(D) If either the Landlord or the Tenant fails to pay any part of the fees and expenses of the arbitrator payable by it within seven days of demand and the other party may pay it and the amount so paid shall be repaid by the party chargeable on demand."

10

It will be seen that the Arbitrator's task was to determine the open market rental value of the premises in accordance with clause 6. The rent then payable is the higher of £1,397,656 or the open market rental value. The Award sought to be challenged determined a higher rental than the baseline figure.

CHALLENGE TO AWARD UNDER SECTION 69

11

The ability to challenge an Award under the various Arbitration Acts has been curtailed successfully. Section 69 AA 1996 provides as follows:-

"69 Appeal on point of law.

(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...

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