ST GEORGE'S INVESTMENT COMPANY v GEMINI CONSULTING Ltd [Ch D, 08/10/2004]
| Jurisdiction | England & Wales |
| Judge | JOHN JARVIS QC |
| Judgment Date | 08 October 2004 |
| Neutral Citation | [2004] EWHC 2353 (Ch) |
| Date | 08 October 2004 |
| Court | Chancery Division |
| Docket Number | Claim No: HC03C03775 |
[2004] EWHC 2353 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand, London WC2A 2LL
John Jarvis Qc Sitting as a Deputy Judge of The High Court
Claim No: HC03C03775
Edwin Johnson (instructed by Simmons & Simmons) for the Claimant
Stephen Jourdan (instructed by Oxley & Coward) for the Defendant
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.
Introduction
This is an application by St George's Investment Company, the Claimant, for the remission of an arbitration award pursuant to the Court's powers under s.68(1) of the Arbitration Act 1996 ("the 1996 Act"). By an award dated 1 October 2003 ("the Award"), the arbitrator, Mr Anthony Salata ("the Arbitrator") determined the reviewed rent payable under an underlease of office premises in Knightsbridge known as Lower Ground Floor, 1 Knightsbridge, London SW1 ("the Premises").
The reviewed rent fell to be determined pursuant to the rent review provisions contained in the underlease of the Premises ("the Lease"). The Lease is dated 22 May 1997 and was made between the Claimant as landlord and Gemini Consulting Limited, the Defendant, as tenant. The Lease provides for the rent to be reviewed on 25 December 2001 and it was this reviewed rent which fell to be determined by the Arbitrator. The Claimant challenges the Award on the basis that a serious irregularity occurred in the course of the proceedings before the Arbitrator. The Claimant says that this irregularity caused a substantial injustice to the Claimant which justifies the Court remitting the Award to the Arbitrator for reconsideration under s.68 of the 1996 Act.
Background
The Premises comprised part of the lower ground floor of the building known as No. 1 Knightsbridge. This building was constructed in the early 1990s to provide office accommodation over lower ground, ground and five upper floors. The Premises themselves comprised office premises.
The Lease was granted for a term commencing on 22 May 1997, expiring on 24 December 2008 with the tenant's option to determine on 24 March 2007 on giving not less than 13 months' prior written notice.
The rent review provisions are to be found in clause 8 of the Lease. Clause 8.1 provides:
" Procedure
The rent reserved by this deed shall be revised at 25 th December 2001 and 25 th December 2006 respectively ("the review date") and after the review date the rent shall be such sum ("the revised rent") as shall (in default of agreement between the Landlord and the Tenant within three months before the review date) be determined by a valuer to be agreed upon by the Landlord and the Tenant (or in default of agreement between the Landlord and the Tenant within one month before the review date be nominated at the request of either the Landlord or the Tenant by the President for the time being of the Royal Institution of Chartered Surveyors) to represent the full yearly rack rent which would be payable for the property (after the expiration of any rent-free period or period of reduced or concessionary rent and after the willing tenant hereinafter mentioned had received the full benefit of any other inducement of whatever nature which might be given or allowed on a letting of the property with vacant possession in accordance with the practice of the willing landlord hereinafter mentioned or of the open market at the review date) let as a whole on the open market as between a willing landlord and a willing tenant at the review date for a term of years equal to the term of years hereby granted with vacant possession…"
The clause then went on to provide for certain assumptions which were to be made in reviewing the rent.
In short, the rent review provisions provide for the review of rent to be determined by reference to an assumed letting of the Premises between a willing landlord and a willing tenant for a 7-year term, and subject to a tenant's only option to determine the Lease as at 24 March 2007.
The Claimant and the Defendant failed to agree on the level of the reviewed rent payable on 25 December 2001. Pursuant to the request of the parties, the President of the Royal Institute of Chartered Surveyors appointed the Arbitrator on 5 February 2003. The seat of the Arbitration was England and the Arbitration was to be governed by the 1996 Act. The Arbitrator held a preliminary meeting on 4 March 2003 and issued directions on 27 March 2003. The parties were content that there should be written representations and counter-representations together with a statement of agreed facts. Neither the parties nor the Arbitrator required an oral hearing.
The parties made their representations through their expert valuers. The expert valuer on behalf of the Claimant was Mr John Kent, a partner of CB Richard Ellis. The Defendant's expert valuer was Mr James Baker, a partner in White Druce & Brown.
The Arbitrator issued the Award on 1 October 2003. By his Award he determined that the annual rent of the Premises should be £472,624 as at 25 December 2001. His conclusion and valuation are set out in paragraph 16 of the Award and it is necessary to set out that paragraph of the Award:
" 16.1 I have valued the properties in accordance with the terms of the lease and the Statement of Agreed Facts and my conclusions are based on the parties' representations in their submissions.
I have inspected all of the comparables put forward. Both parties were agreed that the external comparables were of little value for direct comparison and both parties agreed that the evidence of value in 1 Knightsbridge was the most important. I was also persuaded of this and found that the other comparables were of limited assistance except in so far as they indicated parameters of value. I have restricted my comments to the comparables that were geographically the closest. I have accepted the parties' submissions that the most important comparables are the transactions in the subject property. The parties' representatives have adopted very different methodologies in order to arrive at a rental value. Mr Kent has arrived at rental value by considering the value of an upper floor and then applying a current market discount. He has supported his view of an appropriate discount by reference to the comparables submitted by him. Mr Baker in contrast has concentrated more on the discount relationship between the original lettings as well as analysing the growth in rental values over the preceding period by reference to chronologically similar transactions.
The 1 Knightsbridge third floor rent review award arises from an Arbitration of KTA Gyngell. In general such an award would have less weight attached to it, however both parties are content to place some reliance on it. I have accordingly also placed some reliance upon it and have been persuaded that it is at an appropriate level.
The parties are not in dispute as to the value of the car parking accommodation.
The parties have given me very little assistance in respect of the value of the storage accommodation.
Although I have had regard to all of the evidence submitted I was most assisted by the use of discounting from an upper floor value. Both parties used this method to some extent and both parties relied particularly on the third floor of the subject property. Using that valuation method but also having some regard to the other comparables I find that the value is
Upper floor adjusted rent £55
Lower ground floor discount 60%
Net £33
Less adjustments for
Lease term 2.5%
Alienation 5%
Reservations concerning access 5%
Restricted user 2.5%
Adjusted Rent £28.05 per square foot
Offices
16,639 square foot @ £28.05 per square foot £466,724
Storage
190 square foot @ £10 per square foot £ 1,900
Car space £ 4,000
Total £472,624
Finally, by way of background I should refer to the fact that the third floor of 1 Knightsbridge is also demised to the Defendant by a separate lease which was subject to a rent review with effect from 25 December 2001. The parties were unable to agree on the reviewed rent and the rent review was determined by Mr K.T.A. Gyngell acting as an arbitrator. Mr Gyngell determined that the rent per square foot of the third floor should be £53 per square foot as at 25 December 2001. In all material respects, the terms of the lease of the third floor premises are identical to the terms of the Lease.
The submissions before the Arbitrator
The written submissions before the Arbitrator were voluminous and I shall only shortly summarise those matters that are relevant to this application.
Mr Kent for the Claimant landlord submitted that the correct way to ascertain the reviewed rent was to take the reviewed rent determined for the third floor by Mr Gyngell and then apply an appropriate discount to arrive at the appropriate figure for the Premises ("the Third Floor Discount Method"). Mr Kent submitted that the appropriate discount was 30% which took the rent per square foot from a figure of £55 (£2 per foot being added to take into account the lack of fenestration on the third floor) to the figure of £38.50. Using that rate of £38.50 per square foot and adding on small sums for some storage space and a car parking space, Mr Kent arrived at a figure for the reviewed rent of £646,502 per annum.
Against this, Mr Baker for the Defendant tenant submitted that the rental valuation was difficult with poor comparable evidence. In these circumstances Mr Baker considered that the best method of valuing the Premises was to take the reviewed rent determined for the third floor premises and apply a percentage discount in order to arrive...
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