England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
(Mr Justice Colman)

		Royal Courts of Justice The Strand London WC2
		27th April 1999

LORD JUSTICE PETER GIBSON: The plaintiff, Living Waters Christian Centres Ltd ("the tenant"), appeals from the dismissal on 6th August 1997 by Colman J of its application under sections 22(1) and 23(2) of the Arbitration Act 1950 to set aside or remit to the arbitrator, on the grounds of misconduct, an award dated 31st October 1996 in a rent review arbitration, relating to a lease of premises at Coed Coch, Dolwen, Abergele in North Wales ("the Premises"). Leave to appeal was refused by the single Lord Justice (Evans LJ) on paper but, on the tenant's renewed application, allowed by Nourse and Potter LJJ. But leave was limited to the issue of whether there was misconduct by the arbitrator in that in entertaining evidence of one particular comparable (St Brigid's School) and, in the words of Potter LJ, "... allowing it to regulate the decision to which he came..." the arbitrator was acting in breach of principles to be derived from the decision of Hoffmann J in Land Securities Plc v Westminster City Council [1993] 1 WLR 286 and contrary to earlier directions which the arbitrator had himself given.

The facts can be summarised as follows. By a lease dated 13th September 1989 the Defendant, Mr Fetherstonhaugh ("the landlord"), as landlord granted the tenant a tenancy of the Premises for a term of 21 years for educational purposes only. The tenant used the Premises as a retreat centre for groups from churches. The rent reserved by the lease was £7,500 in the first year, £13,500 in the second year and £15,000 for the remainder of the term subject to review at the end of the seventh and fourteenth years. The review provision provided that if the landlord in the six months before the expiration of the seventh year of the term served a notice on the tenant providing for a rent increase, then in default of agreement the matter would be referred to the arbitration of a single arbitrator for him to determine the rent at which the Premises might reasonably be expected to be let in the open market as between a willing lessor and a willing lessee as at the date of the rent notice, subject to certain disregards which it is unnecessary to set out. On 31st August 1995 the landlord served a notice providing for an increase of the rent to £22,500. The parties were unable to agree and Mr Simon Simcox, a chartered surveyor who practised in North Wales, was appointed as sole arbitrator.

On 2nd May 1996 the arbitrator gave the following, among other, directions:

"1.2. I remind both parties/surveyors that the Reference is to be conducted in accordance with the Arbitration Acts 1950-1979, and the Civil Evidence Acts 1968 and 1972.

1.3. The normal rules of natural justice and evidence will apply unless the parties expressly or tacitly agree otherwise.

3.1. The case will be dealt with by way of Written Representations (i.e. a documents only arbitration) without recourse to a Preliminary Meeting or Hearing. This involves a Statement of Case and the absence of formal pleadings.

...

5.2. I will only admit written evidence of fact if supported by a sworn affidavit.

...

9.1. As there is no Preliminary Meeting or Hearing I Direct that the parties' experts are to meet on a `without prejudice' basis to define and narrow the issues in dispute. Both experts are to then prepare a Statement of Agreed Facts insofar as they are able.

...

13.1.4. comparable evidence.

13.1.4.1. consideration of details of any other comparable property and transactions. Such information should ideally be set out in the form of a schedule and reference made to any inducements not apparent.

13.1.4.2 please state if any of the adduced evidence of transactions were negotiated and agreed by the parties or their surveyor direct.

13.1.4.3. if there is no direct involvement in the transaction then the particulars must be prior agreed in writing between the parties and preferably reaffirmed by written confirmation from those involved in the transaction.

13.1.4.4. failure to comply with this requirement may render the particulars inadmissible under the law of evidence. It will then be necessary for the particulars to be strictly proved by the parties to the transaction."

The tenant was represented by its director, the Rev David Philpott, though a surveyor, Mr Furbur, produced a letter dated 20th June 1996 which constituted the tenant's expert report and a certified accountant, Mr Scofield, by letter gave the tenant accountancy evidence. The Defendant was represented by a surveyor, Mr Godsal. Unhappily, despite the arbitrator's direction, paragraph 9.1, there was no meeting of experts and very little had been agreed prior to the parties submitting their respective representations to the arbitrator in July 1996. The tenant in its representations, which were accompanied by numerous documents, submitted that there was no relevant comparable at all, that the rent ought to be assessed on the "Profit or Accounts Method", and that the rent should be reduced to £13,715 per annum, which, it said, was the average rent paid over the seven years. The tenant's submission included the following:

"13.1.3. COMPARABLE EVIDENCE

I refer here to the letter of my Expert Witness, Mr David Furbur FRICS ... who states that in his researches he has been unable to find a comparable property for lease throughout North Wales and in the Border Area bearing in mind not only the size and situation of the premises but also the terms of the lease with regard to repairing obligations and the limited user clause.

I have also conducted my own exhaustive enquiries by reference to numerous local Agents and been informed that there is no true Comparable that exists and that the Living Waters arrangement is very unique. My enquiries have been made by Mr James Jackson, FRICS, Llandudno, Mr Colin Flannagan, (St David's Commercial), Colwyn Bay, and Mr Gareth Williams, FRICS, Rhyl, among many others. Mr Gareth Williams has been to Living Waters to advise us and although he has been involved in a rent settlement on St Brigid's School near Denbigh, the circumstances surrounding the purchase and subsequent letting of the premises were unique and could not be construed as reflecting a true Open Market transaction. The school was apparently facing financial difficulty and I understand was purchased by a parent/Governor and then let back to the school at a rentalization of the purchase price. Additionally, although a rent was set about five years ago with an upwards only rent review clause, at the review date the Governors beseeched the landlord for a rent reduction which was granted.

Furthermore, St Brigid's was eliminated as a Comparable since this particular property bore no resemblance to the Coed Coch Mansion, being situated in an urban location on the edges of Denbigh Town which was the catchment area for about 80% of its pupil enrolment. With only 35 boarders I understand that from September 1996 this school will be Grant Maintained by the Government who will pay all tuition fees. Since Living Waters occupies an isolated location well away from any centres of population, it was considered that it could never serve as a Day School and was therefore discounted as a possible Comparable.

I have also made enquiries with the Estate Gazette to see if similar properties had been let recently but there was no knowledge of such a transaction."

Two matters should be noted from this passage. The first is that the tenant was free in its reliance on hearsay evidence. The second is that such evidence included what was said about St Brigid's School to distinguish it as a possible comparable, the source being Mr Gareth Williams.

Mr Godsal, for the landlord, in his submission produced a valuation of £27,600. This was based on a figure of £2 per square foot for ground floor space. He relied on a letter dated 4th July 1996 from Mr Fifield which constituted the landlord's expert report. Mr Fifield said that he had inspected four comparables, including St Brigid's School, and that they showed that the going rate for a property similar to the Premises in use for educational Premises was based on £3 per square foot for the ground floor space, with appropriate downwards adjustment for other areas. (One of the comparables in fact showed a higher figure than £3 per square foot for ground floor space.) Mr Fifield also arrived at a figure of £27,600. In giving details of St Brigid's School he said that his source was also Mr Williams.

However, on 11th July 1996 Mr Philpott wrote to the arbitrator and Mr Godsal complaining that the Defendant was relying on inadmissible hearsay evidence relating to all four comparables and he asked for the arbitrator's "urgent directions". The arbitrator replied that day that it was for him to decide on the admissibility of evidence. Mr Williams on 15th July wrote a letter addressed to both Mr Philpott and Mr Fifield about St Brigid's School. He said that he had been asked by each of them to provide information with regard to the School, which, he understood, each wished to put forward as a comparable. He explained that he was not a party to the granting of the original lease of the school, nor to any subsequent rent reviews, that his own knowledge was derived from him having been instructed to carry out a probate valuation on which he reported in August 1994, and he supplied a copy of a lease dated 6th June 1991 of the School for 21 years from 28th August 1990 at £33,000 per annum. In one paragraph he recounted the circumstances in which the school was leased, and the rent reviews had taken place. But he was careful to state that the paragraph was entirely hearsay. He recorded that there were memoranda (copies of which he also supplied) that on a renewal the rent was agreed to be increased to £39,000 per annum from 28th August 1993, but was agreed to be reduced to £33,000 per annum. He confirmed that the information given in his letter was limited to fact.

That letter was among the very substantial number of further documents which in July 1996 accompanied the lengthy Cross Representations submitted to by Mr Philpott to the arbitrator. He said of St Brigid's School:

"It is clear from Mr Williams' letter that the information which he provided to Mr Fifield was hearsay evidence and as Mr Williams himself says, he has no personal knowledge of the transaction at the time the lease was signed. Since it is clear that this was not an arm's length open market transaction, it is incumbent upon the Claimants to prove otherwise and since the burden of proof is upon them, seeing as it is apparent that no such evidence exists this evidence cannot be admitted."

He asked the arbitrator to disallow the evidence of St Brigid's School as a comparable on the ground that it was hearsay and not an open market settlement. He added:

"the cost of the freehold being rentalised in order to keep the school functioning with a daughter of the owner being a Governor."

That appears to be derived from that part of Mr Williams' letter which he had expressly described as hearsay. Mr Philpott went on to make some more statements on St Brigid's School which were obviously hearsay as well. Another document relied on by Mr Philpott was a letter dated 16th July 1996 from Mr Furbur considering the comparables by reference to various tests which he set out, but concluding that none of the evidence of the comparables was admissible.

The landlord, by Mr Fifield, also put in Cross Representations in July 1996, and on 7th August made further comments on the lack, which Mr Furbur had alleged, of true comparables. Mr Fifield said of St Brigid's School that he did not consider that the arrangements over the lease could be construed as artificial, that the rent was agreed by the occupational tenant, who had the benefit of knowing precisely the viability of the operation, and that the evidence had been verified by Mr Williams, who had inspected the property and seen the lease and other documents and was admissible.

On 16th August the arbitrator, by a letter to the tenant and the landlord, raised 28 questions which included:

"25. Do you intend to submit evidence on the admissibility or otherwise of rental comparables? If so, please do so.

27. Do you intend to make legal submission on the provisions of the Civil Evidence Act 1968.

28. Do you intend to refute/discuss/comment or otherwise act in respect of any documents made available to me which are not agreed? If so, please do so."

The landlord's solicitors on 4th September 1996 answered questions 25 and 27. Their answer made the point that although the tenant complained that the evidence was hearsay, it was not clear with regard to all the facts relied on by Mr Fifield as to whether the tenant actually disputed the truth of the facts.

On 6th September Mr Philpott had written to the arbitrator saying that one of the fundamental points which had arisen in the arbitration was the admissibility of the landlord's comparables. He repeated his request that the arbitrator make a determination on this as a preliminary point of law and that request was repeated on 12th September 1996. But on 13th September that request was refused by the arbitrator. On 4th October Mr Philpott responded to the arbitrator's 28 questions. He enclosed a legal submission from the tenant's solicitors to show why the arbitrator should not place any weight on the Defendant's comparables and he criticised Mr Fifield for not sending the arbitrator Mr Williams' letter of 15th July 1996, which, he said, "proves without doubt that St Brigid's was not an Open Market Rent settlement." The tenant's solicitor submitted that all the comparables were inadmissible because they constituted hearsay evidence. He said in relation to St Brigid's School that Mr Williams' letter was inadmissible, Mr Williams not having been a party to the grant of the lease or the subsequent rent reviews, and said it was not known whether there were any special circumstances involved in the rental agreement, and in particular whether it was an arm's length transaction. On 16th October Mr Godsal wrote to the arbitrator complaining of the absence of an agreed schedule of facts relating to the comparables, and asked for the arbitrator's direction as to whether he would accept Mr Fifield's report and valuation and counter submissions as they stood, or whether he required further corroborative evidence or information in relation to the comparables. The arbitrator replied the same day to both parties:

"I advise the parties that as things stand at present I have no problem with the issue of admissibility. I will simply weight the evidence."

Nothing daunted Mr Philpott wrote again on 21st October asking whether the arbitrator had ruled on the admissibility of evidence and challenging how it was possible for the evidence to be weighted in the absence of "so much basic information". He asked for alternative awards if any comparable evidence was treated as admissible and he asked for a reasoned award. The arbitrator promptly replied that he had not yet made a ruling on admissibility. But on two further requests from Mr Philpott for an alternative award the arbitrator said that he would not make alternative awards, though he agreed to give a reasoned award.

On 31st October 1996 the arbitrator gave his award. He carefully set out the evidence and the submissions which were made to him. His award included the following:

"6.1. I am asked to deal with the issue of comparables.

6.2. The arbitration process, including Questions and comment has produced some improvement on what would otherwise be considerable problems with comparables.

...

6.4. Mr Gareth Williams has provided information to both parties concerning St Brigid's and neither party has disputed it. Will both parties please note I know Mr Gareth Williams and have done so for many years.

6.5.1. Mr Fifield improves on the comparable evidence in general by way of his letter to me dated 12 August 1996.

...

6.5.5. I find the situation on comparables very unsatisfactory. I consider the parties should have done the best they could with the information that was available, however deficient.

6.5.6. I am forced to discount comparables and apply less weight to them than could have been the case had the parties co-operated."

Then in another paragraph, also numbered 6.5.6:

"For all its deficiencies I find the St Brigid's information addressed by Mr Gareth Williams to both parties the most useful as it is nearby in geographical terms and subject to some but by no means all of the same economic and geographical factors as have been ably brought to my attention by the respondent. I note all the respondent says about the differences in various categories between Living Waters and St Brigid's. I am familiar with the exterior and location of St Brigid's and have not inspected it externally for the purposes of this arbitration or internally on any occasion. I note in particular the remark by Mr Fifield that `The rent was agreed by the occupational Tenant who had the benefit of knowing precisely the viability of the operation.' I also note that the rent was reduced to £33,000 and the claimant has not disputed that statement made for the respondent. Other statements made by either or both parties have not been disputed or are the same. I deduce I have some agreed facts concerning St Brigid's, regardless of the admissibility issue. I consider I am as arbitrator entitled to that deduction."

The arbitrator said that in the absence of valuations from the tenant and the difficulties with the comparables brought forward by Mr Fifield, he had also to weight the individuals giving evidence. He commented on each of Mr Godsal and Mr Fifield, both of whom, he noted, had produced full rental valuations in a standard form. He also commented on Mr Philpott, Mr Furbur and Mr Scofield, none of whom, he noted, had produced a valuation in a standard form. He used Mr Godsal's valuation as his starting point for his valuation for his own award. He continued:

"The adjustments I make are taken as best I can from the evidence placed before me from the various sources. I note that Mr Fifield's base valuation before allowances is considerably higher than Mr Godsal's."

That is, of course, a reference to the £3 per square foot used by Mr Fifield for ground floor space, as distinct from the £2 per square foot used by Mr Godsal. The arbitrator then followed to a large extent the figures taken by Mr Godsal, from which he deducted a number of items in order to arrive at a figure of just over £21,500 and he made an award of £21,500 as the rent. That, as the judge was to observe, was £6,100 less than the landlord's figure and £6,500 more than the passing rent.

I would observe that although I have drawn attention to what was said of relevance to the point in issue in the present appeal, it must be appreciated that the admissibility of the evidence relating to St Brigid's School was but one of the numerous points addressed in this protracted arbitration, the course of which was not assisted by the somewhat unconventional and uncooperative approach of the tenant. Further, the evidence of the rent of St Brigid's School was but one part of the total evidence before the arbitrator on which he based his award. Although the arbitrator found it the most helpful of the comparables, it is plain that he was dissatisfied with the evidence of the comparables, that the rent award arrived at was not based on the rent for St Brigid's school directly (at £3 per square foot for the ground floor space), but that it was based more on Mr Godsal's lower figure of £2 per square foot for that space. Mr Godsal undoubtedly took into account the comparables and made a substantial discount from them. But Mr Godsal was looking at all the comparables from which he was entitled to form the view that they supported a valuation of at least £3 per square foot, but that nevertheless because of the particular circumstances of the Premises a large discount was appropriate. Nor did the landlord base his submissions only on the St Brigid's School rent, for the reasons which I have already given.

The tenant issued two applications on 22nd November 1996 an originating summons seeking leave to apply for an order directing the arbitrator to give reasons, under section 1(5) of the Arbitration Act 1979, and a notice of motion seeking to set aside or remit to the arbitrator the award on the ground of misconduct under sections 23(2) and 22(1) of the Arbitration Act 1950. Those applications came before the judge. He noted that in view of the basis for the allegations of misconduct the tenant accepted that if those criticisms were not sustained the application under section 1(5) could not succeed. The misconduct alleged was said to have been that the arbitrator treated as admissible evidence of facts relating to the comparables which was hearsay or not strictly proved by the evidence on affidavit and so not in compliance with the arbitrator's own directions.

The judge made certain general observations about the issues in the arbitration and the ambit of misconduct or procedural irregularity in relation to the reception of evidence in such arbitrations. He said:

"Firstly, to describe a particular property as a `comparable' in the context of a rent review arbitration, as in relation to any other property valuation issue, is to refer to another property which can be used as a reference point to give some indication of the value of the property in question. The closer the other property stands on the scale of characteristic proximity to the property in question the more helpful indicator it will be of the value of the property. Thus, if all material characteristics going to value are the same, one would expect the value of the property in question to be very close to that of the other property. In such a case much weight would be attached to it as `a comparable'. There might, however, be other cases where a number of properties of similar characteristics had one or more characteristics materially different from the property in issue, but could still be used as the basis for a general indication of the value of that property because an experienced valuer would know what adjustment to make to the value of that property by reference to the material differences in characteristics in order to obtain a general indication of the value of the property in question. In such a case it would no doubt be appropriate to describe the other properties as imperfect or even poor comparables. That would simply mean that their value could not be transposed to that of the property in question, but it would not mean that they were evidentially irrelevant to that value. At the extreme end of the scale would be properties which were so different in material characteristics from the property to be valued that they had no evidential contribution to make and could therefore be treated as irrelevant. Accordingly, the term `comparable' has to be treated as wide enough to cover any other property which has any evidential contribution to make to the assessment of the value of the property in question, whether that contribution is substantial or only relatively small because of differences in material characteristics.

Secondly, information as to the material characteristics of the other properties, said to be comparables, may be complete or relatively incomplete, The less complete it is, the less weight can be given to that property as a comparable. Special circumstances relating to the negotiation of the rent at a particular property may render it a poor comparable or not a comparable at all, whereas, if there were no knowledge of those circumstances, that property might appear to be the perfect comparable.

Thirdly, the fact that one arbitrator has attached to a particular comparable or comparables weight which would not have been accorded to them by a court is not misconduct. It may be at its highest an error of fact but as such is not to be treated as within the appeal regime of the Arbitration Act 1979. Consistently with that approach it is not of itself to be treated as misconduct unless it is the product of procedural irregularity or unfairness in the course of the arbitration or unless it leads to the consequence that the conclusion arrived at is one which no reasonable arbitrator could reach on that evidence.

Fourthly, to describe a comparable as inadmissible is only if the evidence of the material characteristics is inadmissible, for example, because it is hearsay, but not merely because the comparable is a poor comparable or one which is arguably off the scale of comparability.

Fifthly, for an arbitrator to rely on inadmissible evidence may be misconduct or error of law. Whether in any particular case the conduct is admissible or inadmissible depends on whether the parties have expressly or impliedly agreed to the relaxation of the strict rules of evidence."

The judge pointed out that although the arbitrator had directed on 2nd May 1996 that he would only admit written evidence of fact if supported by a sworn affidavit, both parties, as well as the arbitrator, proceeded throughout on the basis that it was open to them to adduce any amount of written evidence otherwise than on affidavit. The judge found that the parties' common position was that the written evidence of unagreed facts was admissible even if not on affidavit. The judge then turned to the allegation that the arbitrator permitted hearsay evidence to be given on St Brigid's School and had relied on it. The judge said that the evidence from Mr Williams' letter and the documents annexed to it went to the dimensions of the property and the rentals in the lease and in subsequent rent review agreements. He pointed to the fact that Mr Williams had been careful to specify what was hearsay. The judge said that the arbitrator in referring to St Brigid's School in paragraph 6.5.6 had confined himself to the facts to be found in Mr Williams' report which were not disputed and that given the way in which the arbitrator expressed himself, he had been careful to exclude facts which were not agreed. He said of the arbitrator's comment on the rent reduction for St Brigid's School, that he was merely taking information as to the identity of the parties to the 1994 memorandum and drawing the inference that the occupational tenant knew what could normally be expected of one in that position. The judge concluded that the evidence in Mr Williams' report, other than what was acknowledged to be hearsay, was properly admitted in the form in which it was tendered, and was to a large extent not disputed by the tenant.

The judge similarly rejected the attack on the other evidence of comparables and came to the firm conclusion that the arbitrator did not admit or rely upon inadmissible evidence. He said that the task of the arbitrator was made difficult by the failure of the experts to agree a schedule of comparables, and that he was therefore obliged to investigate with care what facts in relation to each comparable had been proved by admissible evidence and on the basis of those facts whether he derived any assistance from those comparables in fixing the rent. The judge said that the arbitrator was entitled to review the admissible evidence and give it such weight as he considered appropriate. He described as unsustainable the assertion by the tenant that there was insufficient material to form any view as to the rental, and that no reasonable arbitrator could have derived his conclusion from the evidence referred to by the arbitrator. The judge said that the arbitrator was a valuer working within the geographical area of his profession and doing his best with a somewhat limited body of evidence. The judge considered that there were no grounds for holding the arbitrator guilty of procedural misconduct in admitting inadmissible evidence and arriving at a perverse conclusion. He therefore dismissed both applications.

The tenant now appeals on the single ground that the judge was wrong in law to conclude that the arbitrator was entitled to receive and act upon the landlord's comparable, St Brigid's School. Mr King, who appears for the tenant before us, though he did not do so below, submits that the court should exercise its power to set aside or remit an award when something has gone wrong with the procedure in an arbitration which has caused injustice to one of the parties or may well have done so, for which he cited the remarks of Brandon J in The "Aros" [1978] 1 Lloyd's Rep 456 at page 463, Bingham J in Shield Properties & Investments Ltd v Anglo-Overseas Transport Co. Ltd [1985] 1 EGLR 7 at page 9 and Lord Donaldson MR in King v McKenna (Thomas) [1991] 2 QB 480 at page 491. Mr King says that the arbitrator failed to apply his own directions for the conduct of the proceedings and that that was procedural mishap as was found to have occurred in Control Securities v Spencer (1989) 07 EG 82 and Oakstead Garages Ltd v Leach Pension Scheme (Trustees) Ltd [1996] 1 EGLR 26. Mr King relies on the direction of the arbitrator on 2nd May 1996 that the normal rules of evidence were to apply, unless the parties expressly or tacitly agreed otherwise. He pointed to English Exporters (London) Ltd v Eidonwall Ltd [1973] Ch 415 at pages 421-423, as establishing that a valuer may not give evidence stating the details of any transaction not within his personal knowledge to establish them as a matter of fact, and that if the facts are not agreed, then either the transaction must be proved by admissible evidence or it must be omitted as a comparable. Thus far in his submissions on the law, Mr King has stated what is uncontroversial.

Mr King submits that the procedural mishap or misunderstanding occurred in the following respects:

(1) Despite numerous requests by the tenant the arbitrator failed to rule upon whether statements as to the rent payable in respect of St Brigid's School, among other comparables, was admissible. The parties, he said, were entitled to expect that the arbitrator would make a ruling and consider the evidence in the light of that ruling, and the failure to rule meant that the arbitrator did not apply paragraphs 13.1.4.3 and 13.1.4.4 of the order of 2nd May 1996.

(2) Neither Mr Fifield nor Mr Williams had direct personal involvement in the negotiations of the rental values of St Brigid's School and their written statements were not corroborated in writing by those involved in the transaction. He said that there was no admissible evidence of the circumstances in which the rent was agreed and, in the absence of agreement, the admission of incomplete statements relating to the rent of St Brigid's School was contrary to paragraphs 13.1.4.1, 13.1.4.3 and 13.1.4.4 of the arbitrator's directions.

(3) The statements relating to the rent of St Brigid's School were of no probative value, in that they did not prove or render probable any particular level of open market rent and so were irrelevant to the issue which the arbitrator had to determine. He referred us to Land Securities v Westminster City Council [1993] 1 WLR 286, where Hoffmann J had said at page 288 that evidence of the rents at which comparable properties were actually let in the open market at about the same time as the rent review date is relevant if properly proved, and admissible because the fact that someone was willing to pay a certain rent for a property can justify an inference that he or someone else would have been willing to pay a similar rent for a comparable property. Hoffmann J had also said that a rent agreed at a rent review is admissible on similar grounds, although such agreement was not a transaction in the open market. Mr King submitted that in the absence of evidence of the circumstances in which the rent was negotiated, the rent payable could not be treated as an example of rent negotiated between a willing lessor and a willing lessee.

(4) No reasonable arbitrator could have placed any weight on the evidence of the rent of St Brigid's School.

Mr King further submitted that the tenant was, or may well have been, caused injustice by the arbitrator's reliance on the rent of St Brigid's School as a comparable. He argued that the court should set aside the award.

Forcefully though those submissions were made, for my part I am not able to accept them. It seems to me quite impossible to say that there was no admissible evidence in relation to St Brigid's School. In my judgment the judge was correct, for the reasons which he gave, to identify the matters on which the arbitrator could properly rely in treating that school as a comparable. I would also accept as correct the general observations of the judge which I have cited. Both sides had relied on Mr Williams' evidence which had been supplied to them both and the arbitrator had, as I have already noted, commented that neither party had disputed that evidence. Mr Williams in turn had been meticulous in distinguishing what was hearsay from fact of which he was able to give admissible evidence. Ironically it is the tenant which is seeking to rely on hearsay in suggesting that what was agreed as the rent for St Brigid's School was not an open market rental. That, it will be recalled, is asserted because of the alleged rentalisation of the purchase price of the freehold, and because the purchaser who became the landlord had a daughter who became a school governor. But that, as I have already noted, appears to come from a paragraph in Mr Williams' letter which he specifically said was purely hearsay. I can well understand Mr King's submission that without knowing the circumstances of the rental agreements an arbitrator is not justified in attaching weight to the rent agreed for St Brigid's School. But matters of weight are an unpromising ground for asserting misconduct by an arbitrator. It is for the arbitrator to assess the weight to be attached to any agreed facts, and that is so notwithstanding, as in this case, that the tenant was insistent that St Brigid's School, like the other comparables, should be excluded from consideration because the evidence relating to it was hearsay or because significant facts were not known about it. I am unable to say that the arbitrator, in taking into account the admissible facts which he concluded were agreed between the parties, was perverse or otherwise acted improperly.

As for the suggestion that the arbitrator did not follow his own directions, I am unpersuaded that that is correct. The arbitrator was fully entitled not to give an advance ruling on the admissibility of the evidence and to leave his decision on the evidence until his reasoned award. The parties had no ground for thinking otherwise. The arbitrator, in paragraph 6.5.6, appears to me to have reached the conclusion that St Brigid's School was a comparable, by reason of the particular facts to which he draws attention in that paragraph, even though he was fully aware of the limits of those agreed facts. I do not read the paragraphs of the arbitrator's own directions as precluding him from adopting that particular course. He was able, pursuant to paragraph 13.1.4.3, to reach a conclusion on what was agreed in writing between the parties. True it is that he indicated a preference that those matters should be reaffirmed by written confirmation from those involved in the transaction. But he did not say that he would not consider any agreed facts if some other facts which might have been the subject of agreement and were relevant to a particular rent had not been agreed. I have already referred to the fact that both the tenant and the landlord placed reliance on Mr Williams' letter. It is to be noted that when Mr Furbur on 16th July 1996 commented on St Brigid's School as a comparable, he did so in a way suggesting that the basic facts of the letting were not in dispute. What was in dispute, was whether St Brigid's School could properly be taken as a comparable.

I am therefore unable to accept Mr King's submission that the arbitrator failed to follow his own directions in any way, given that he was entitled to find that there had been agreement on particular facts relating to St Brigid's School. I would add that if I were wrong in my conclusion as to the admissibility of evidence relating to St Brigid's School, the error by the arbitrator would seem to me to fall within the rule recognised by Steyn J in Biakh v Hyundai [1988] 1 Lloyd's Rep 187 at page 189, where that judge referred to Moran v Lloyd's [1983] QB 542 as the clearest authority for the proposition that an error of law cannot by itself amount to misconduct.

In all the circumstances, in my judgment, the arbitrator was able properly to reach the conclusion which he did. For these reasons, which largely echo the judge's reasoning, and notwithstanding Mr King's careful and able submissions, I would dismiss this appeal.

LORD JUSTICE POTTER: I agree.

MR JUSTICE BLOFELD: I agree.

ORDER: Appeal dismissed with costs.

(Order not part of approved judgment)

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