F A Pidgeon & Son Pty Ltd, Re [1991] QSC 248 [1992] 2 Qd R 275

10 30 40 50 60 IN THE SUPREME COURT OF QUEENSLAND CIVIL JURISDICTION BEFORE MR. JUSTICE DERRINGTON BRISBANE, 5 SEPTEMBER 1991 O.S.No.727 of 1991 I REVISED COPIES ISSUED Court Reporting Bureau L.:ate,~_!._ 9 ICj f (Copyright in this transcript is vested in the Crown. Copies thereof must not be made or sold without the written authority of the Chief Court Reporter,Court Reporting Bureau.) IN THE MATTER OF the Commercial Arbitration Act 1990 -and- IN THE MATTER OF an application by F.A. PIDGEON & SON PTY.LTD. JUDGMENT I HIS HONOUR: The application is dismissed and the applicant is to pay the !espondent's costs of and incidental to the application including. reservedcosts, if any, to be taxed. That follows upon my finding that there is no apparent mistake in law on the part of the umpire. Secondly, if there was an error, it is certainly not manifest on the face of the award or, alternatively, there is no strong evidence that he was in error and, thirdly, that it was a valuation rather than an arbitration and so the declaration sought cannot be made. I publish my reasons. I order that the applicant pay the umpire's costs to be taxed. , . ;.; :'' 4,Go,1: Printer, Old. 1 10 20 30 40 50 60 -- 1 of 13 -- IN THE SUPREME COURT OF QUEENSLAND Before Mr Justice Derrington o.s. No. 727 of 1991 IN THE MATTER of THE COMMERCIAL ARBITRATION ACT 1990 - and - IN THE MATTER of an application by F.A. PIDGEON & SON PTY LTD JUDGMENT - DERRINGTON J. Delivered the 5th day of September, 1991 CATCHWORDS Counsel: Mr Bowden for applicant Mr O'Shea for respondent Solicitors: Francis & McGregor for applicant Morris Fletcher & Cross for respondent Hearing date: 19 August, 1991 -- 2 of 13 -- ; ' IN THE SUPREME COURT OF QUEENSLAND o.s. No. 727 of 1991 IN THE MATTER of THE COMMERCIALARBITRATION ACT 1990 - and - IN THE MATTER of an application by F.A. PIDGEON & SON PTY LTD JUDGMENT - DERRINGTON J. Delivered the 5th day of September, 1991 The above applicant is the lessor of retail premises in a shopping complex. Under the relevant Lease the term is divided into three-year rental periods for each of which the rental was to be determined in accordance with The Second Schedule of the Lease which will be more precisely described later. Sufficient for the moment is it to say that it provided that if the lessee gave notice that it did not agree with the rent demanded by the lessor by its prior notice then the parties were each to appoint a valuer, and if the valuers were in dispute as to the commercial rent of the premises assessed in accordance with the formula prescribed then they should appoint an umpire who could receive submissions from each of them and determine the rental in accordance with the formula. It is from the determination of such an umpire that the applicant seeks leave to appeal under s. 38 of the Commercial Arbitration Act 1990. By subs. (2) of that section an appeal shall lie to the Supreme Court on any question of law arising out -- 3 of 13 -- 2 of an award but that is made subject to subs. (4) which where relevant requires the leave of the Court. The granting of leave, apart from its discretionary factor, is regulated by subs. (5) which reads as follows:- " ( 5) The Supreme Court shall not grant leave under subsection (4)(b) unless it considers that - (a) having regard to all the circumstances,determination of the question of concerned could substantially affect rights of one or more parties toarbitration agreement; and the law the the ( b ) there is - (i) a manifest error of law on the face of the award; or (ii) strong evidence that the arbitrator or umpire made an error of law and that the determination of the question may add, or may be likely to add, substantially to the certainty of commercial law." There are three issues in this matter which may be briefly stated as follows:- (i) Whether there is any error; (ii) Whether such error, if any, is manifest on the face of the award or demonstrated by strong evidence; and (iii) Whether in any case the determination constituted an arbitration. Because the matter in issue is a point of construction, it is a matter of law, so there is no issue on that point. -- 4 of 13 -- 3 Was there a mistake? The applicant's complaint relates to a factor consisting of a deduction of $170,836.00 per annum which is dealt with in the umpire's decision in the following way:- " In general terms the tenancy appears to have been very well maintained. The only area showing some wear and tear is the carpet. The lessee's Valuer suggest a discount of 5% to offset the carpet depreciation. New quality carpet fully laid, of a standard comparable with that installed by the landlord in the vacant ground floor space (ex-CES), is estimated to cost $100 m2. The existing carpet is showing wear and would probably need replacing by the time of the next rent review ie three years. Therefore of the nine year life span of the carpet two-thirds has expired and one-third remains. The sums are, 7687.6 m2@ $100 Less one-third Spread over the three year term - divide by 3 $768,760 $256,253 $512,507 $170,836" This should be qualified because there is evidence from the lessee's valuer that he suggested a discount of ten to fifteen percent to offset the carpet depreciation. Nothing flows from this directly but it has some inferential value which will be discussed later. The applicant has interpreted the umpire's explanation as indicating that he was proceeding upon the basis that it was the lessee's obligation to replace the carpet whereas under para. 14 of the lease it was the lessor's obligation to do so when the carpet became so worn as to require replacement. Whether it met that description was to be decided by an expert if the parties could not agree. -- 5 of 13 -- 4 Despite the vigorous efforts of learned counsel for the applicant, it has not been shown that the umpire was either under a misapprehension as to responsibility for replacement of the carpet nor that he acted upon any assumption that the carpet was to be replaced by the lessee. The passage referred to makes it clear that in reaching his conclusion upon this factor, he had regard to the general state of the premises in order to assess their rental value, and in doing so he noticed that the carpet was worn and that about two-thirds of its useful life had expired. He assessed the value of that two-thirds as a factor by which the lease value of the premises was diminished by that condition of the carpet. No attempt has been made to show that it would be wrong in such a valuation to take into account the depreciated state of the carpet or to assess such a factor in the way which was adopted. Conversely there is no indication whatever that he was under any misapprehension as to where the obligation to replace the carpet lay or that he acted as if he were under any such misapprehension. On the contrary, he speaks only of depreciation, which is perfectly consistent with a reduction in that which is being leased, and he does not speak in any way of anticipated cost of replacement by the lessee, which perhaps would have been the correct description if he had regarded the obligation as resting on that party. His reference to the discount rate recommended by the lessee's valuer is consistent with the correct view for he might have been expected to treat that recommendation differently had his perception of the situation on the point been erroneous. -- 6 of 13 -- 5 In the result no error is demonstrated. This concludes the matter, but it is as well to discuss with some brevity the other issues which were argued. Manifest or serious error? It is a requirement to the granting of leave under s. 38 either that there be a manifest error of law on the face of the award or that there be strong evidence that the arbitrator or umpire made an error of law and, in the latter case, that the determination of the question may add, or may be likely to add, substantially to the certainty of commercial law. Even if it ~ere so it is certainly not manifest on the face of the award that the umpire was labouring under the error which the appellant would ascribe to him. As it has been explained above, so far as the award on its face would indicate the likelihood is that the umpire was simply reducing the rent because of the worn quality of the carpet, but in any case the position is at least equivocal. For the same reason there has not been shown to be strong evidence of any such error. While in the case of a matter of significance to the certainty of commercial law this alternative leg of subs. (5) does not require that the error should be manifest on the face of the award, it still requires that there be strong evidence of error, as distinct from arguable error, before leave be granted. As Lord Diplock said of similar legislation in Pioneer Shipping Ltd. v. B.T.P. Tioxide Ltd. (1982) A.C. 724 at p. 743, even in respect of standard form contracts leave should not be given unless the Judge considers that a strong prima facie case has been made out that the arbitrator had been wrong in his -- 7 of 13 -- 6 construction; and when the events to which the standard clause fell to be applied in the particular arbitration were themselves "one off" events, stricter criteria should be applied on the same lines as those that apply to "one off" clauses. There is no such strong prima facie case of error made out in the present case. Even if there were some indication of error, it would only have related to an oversight or obvious error by the umpire as to where the obligation to replace the carpet lay, and that would constitute only a "one off" event of the kind described by Lord Diplock. It is quite a different thing from a deliberate and reasoned construction which would be likely to lead to some uncertainty in commercial law relating to this type of matter. It is clear that the purpose of the section is to permit error less than that which is manifest on the face of the award to be a ground for leave only when it is likely to lead to confusion on the point in the commercial world. If the error is no more than oversight, that result does not follow, and so the criterion is not met. Learned counsel for the respondent lessee attempted to confine the second leg of the subsection to cases of standard form contracts, and in support of this he referred to Lord Diplock's references to contracts of that nature in his discussion of the English equivalent of this leg of the section. The submission however is not well-founded. First, the remarks were obiter dicta, and whilst the highest respect would be paid to them, they were not intended to be expository of definitive limitations in that respect. Standard form contracts were the most obvious example to be used in a broad exegesis of the -- 8 of 13 -- 7 framework of the legislation. Read in this way, Lord Diplock's references will be seen not to be exhaustive. Secondly, the legislation itself obviously imposes no such limitation and learned counsel for the applicant is right in claiming a sufficiency of evidence of general usage of the clause setting up the machinery for the determination of the rent to bring it within the description of the second leg of subs. (S)(b) of s. 38 in this respect. However, it must be observed by way of qualification to that commendation that the applicant did not prove nor did it attempt to prove that the provision relating to the replacement of carpets had such a wide commercial application, and as it is in respect of that clause that it is alleged that the error was made, it would be very doubtful whether the evidence as to commercial importance was sufficient to comply with the requirements of the second leg of that subsection. Arbitration or valuation? In attempting to demonstrate that cl. 1 of The Second Schedule constituted an arbitration agreement, the applicant heavily relied upon the proposition that the mechanism for the determination of the rental makes numerous references to a "dispute" and ultimately provides for the appointment of an "umpire to determine the annual rental in dispute". It was argued that the mere fact an umpire was to be appointed to resolve a dispute necessarily implied that the parties intended that there be an arbitration rather than a valuation. -- 9 of 13 -- 8 Reliance was placed on two English decisions as authority for this proposition. In Turner v. Goulden (1873) II L.R. 1257 at 60 Coleridge C.J. said: " ... the defendant and Holmes were to act as valuers, one for the purchaser and the other for the seller. If they arrived at the same figures, the money was to be paid upon the joint valuation. If not, recourse was to be had to an umpire. If that had occurred, the person so appointed would have had a matter indifference before him, and he would have stood in the position of an arbitrator." Similarly in In re Carus-Wilson & Greene (1886) 18 Q.B.D. 7 it was held that there was a difference between settling a dispute which has arisen, which was the role of an arbitrator, and preventing any dispute, which was the role of a valuer. Lindley C.J. at p. 10 held "In the ordinary cases of arbitration there is a dispute which is referred. The object of valuation, on the other hand, is to avoid disputes". This however is an artificial distinction and on any reasonable approach to the issue cannot be valid in its raw terms. As was pointed out by Pope J. in Ajzner v. Cartonlux Pty Ltd [1972] V.R. 919 at 930: "I find it difficult to imagine any case where a matter is referred to another for determination where there is not some dispute or difference. No reasonable man would incur the expense of referring a matter to the determination of another if both interested parties were in agreement with regard to the matter to be referred." Consequently, whilst it cannot be doubted that a "dispute" is indeed an element of an arbitration, it is not the decisive element (Capricorn Inks v. Lawter International [1989] 1 Qd. R. 8 at 15) . The distinction between the processes of resolving and avoiding disputes as ref erred to in Turner v. Goulden and -- 10 of 13 -- 9 In re Carus-Wilson & Greene has validity however if understood in the correct sense. In the present case the purpose of the whole exercise is to set the rent by agreement if possible but otherwise by the umpire. It is not that the parties are in dispute as to aq established right but that they cannot agree as to a right, that is the amount of rent which the lessor should receive. The process avoids any dispute as to the rent by providing the process for resolution if there is no agreement; and the decision provides what the rent should be rather than what is right as to the rent that is payable. This may be contrasted with, say, the resolution of a dispute as to what the umpire meant by his award, for in that case he would have set the rent and the parties would be in dispute as to the~r respective rights which had already been determined, albeit unclearly. The second important element of an arbitration is a clear indication that the proceedings are to be in the nature of a judicial inquiry. Reliance was placed by the applicant on cl. 1(f) of The Second Schedule which provides:- "The umpire in determining the annual rental shall have regard to the market rental value of the demised premises with the benefit of 220 car parks as between a wiling landlord and a willing tenant with vacant possession and to the contributions to operating expenses payable by the tenant in terms of this lease and to any representations submitted in writing with respect to fair market rental by either or both of the representative valuers ... " (my underlining) It is important to note from this clause that there is no obligation on the umpire to require written submissions nor is there any provision for the examination of witnesses. If what is contemplated is an inquiry in the nature of a judicial inquiry then as Lord Esher M.R. said in In re Carus-Wilson & Greene -- 11 of 13 -- 10 (supra) at 9 the intention must be that the arbitrator should "hear the respective cases of the parties and decide upon " . . . . That is clearly not the intention evidence laid before him expressed in cl. 1(f). The umpire is in no way compelled to decide between the cases of the respective parties; indeed if they choose not to provide them he may not even receive submissions from the parties and the total absence of such submissions would not prevent his proceeding. Although he was required to have regard to the submissions made the umpire in this case has been left "at large" to determine the rental and was not required to settle on the rental suggested by either the landlord or tenant: cf. (Ajzner v. Cartonlux Pty Ltd [1972] V.R. 919 at 930; I.S.C.A. Construction Company Pty Ltd v. Grafton City Council (1962) 8 L.G.R.A. 87 at 93; In re The King and The Acclimatisation Society of Old; Corrie and Vidgen v. McDermott (1913) St. R. Qd. 10 at 21; Re Hopper (1867) II L.R. 367 at 373.) Consequently it cannot be said that the process contemplated by cl. 1(f) for settling the rental was in any way to be in the order of a judicial inquiry. Rather an independent valuation subject to consideration of certain specified sources of information is contemplated. Finally there was passing reference to the point of distinction that the function of an arbitrator is to decide disputes concerning "accrued rights". It was suggested that cl. 1(a) of The Second Schedule, which provides for the landlord to give to the tenant notice in writing stating the annual rental required by the landlord, created an "accrued right" in the lessor to receive that stated rental until it was put in issue -- 12 of 13 -- 1 1 by the lessee. There is no substance in this proposition. The only accrued right the landlord could be said to have is the right to an annual rental not less than the annual rental payable at the time of the landlord's notice to the tenant (cl. 1(f)) and that is not what the umpire is called upon to determine. The position of the lessor when its notice is given and not yet replied to is not that of the holder of any right to receive the rent which it nominates. That only comes about if and when the lessee fails to respond by the appointed day. In any case, as there has been a response, the determination by the umpire had nothing to do with the suggested "vested right" of the lessee but rather with its invested rights, which in the then-existing circumstances, could not vest until they were determined by the umpire. Consequently the determination of the umpire cannot be said to have constituted an arbitration. It was clearly a valuation. The application is dismissed and the applicant is to pay the respondent's costs of and incidental to the application (including reserved costs, if any) to be taxed. -- 13 of 13 --