Scottish Court of Session Decisions

OUTER HOUSE, COURT OF SESSION [2011] CSOH 186
P487/11	OPINION OF LORD GLENNIE in Arbitration Application No.2 of 2011 An appeal against an arbitration award on grounds of legal error in terms of Rule 69 of the Scottish Arbitration Rules ­­­­­­­­­­­­­­­­­________________

Petitioners/Appellants: Lake, Q.C.; Maclay Murray and Spens

Respondents: Mrs Wolffe, Q.C.; Biggart Baillie

9 November 2011

Introduction

[1] This is a "legal error appeal" against an arbitration award dated 1 April 2011 ("the award") and a subsequent award on expenses ("the expenses award") made on 18 April 2011. The appeal on expenses raises no separate points, but is contingent entirely on the success of the legal error appeal. The appeal is brought in terms of Rule 69 of the Scottish Arbitration Rules ("SAR") scheduled to the Arbitration (Scotland) Act 2010 ("the 2010 Act"), with the agreement of the respondents, the other party to the arbitration, so that leave to appeal was not required.

[2] The petitioners have also brought a separate challenge to the award in terms of Rule 68 of the SAR on grounds of "serious irregularity". The basis of this challenge is that the arbitrator, having (with the consent of the parties) taken the opinion of counsel on the construction of the relevant provisions of the lease entered into between the parties, followed that advice in arriving at his award without first giving the parties an opportunity of commenting thereon. That serious irregularity appeal was brought by separate petition (Arbitration Application No.1 of 2011), though it could, perhaps more conveniently have been brought in the same petition. Both the legal error appeal and the serious irregularity appeal came before the court at the same time on a motion for further procedure under Rule of Court 100.5(5). It was agreed to hear the legal error appeal first, on the basis that if it were to succeed it would render the serious irregularity appeal unnecessary, while if it were to fail, it might deprive the serious irregularity appeal of any content, since if the Arbitrator was correct in the conclusion he reached, any failure to allow parties an opportunity of commenting upon the advice he had received from counsel would probably be of little or no consequence.

[3] The legal error appeal proceeds entirely upon the findings of fact found by the arbitrator in his award. Despite that, the case has become somewhat bogged down in pleadings, involving detailed averments in the answers and adjustments to the petition and answers thereafter. For my part, while different considerations may well apply to other appeals and applications under the SAR, I would not wish to encourage detailed pleading on a legal error appeal. In a legal error appeal, unless one party or the other wishes to assert facts relevant to the exercise by the court of any of its powers under the Act, for example the power under Rule 71(8) of the SAR to order the tribunal to state its reasons in greater detail to enable the appeal to be dealt with properly, there is no scope for either party to make averments of fact about the underlying dispute, and extensive pleading will be unnecessary and, being unnecessary, is likely to be conducive of unnecessary delay. It will normally be sufficient for the respondents in their answers to make clear that they seek to support the award. Adjustment to the petition and answers will seldom, if ever, be required. The hearing of the appeal itself will usually proceed on a basis of written notes of argument lodged in advance of the hearing, rather than on the basis of the formal pleadings.

The issue in the appeal

[4] The petitioners ("the tenants") and the respondents ("the landlords") both carry on business as electricity undertakers. They are respectively tenants and landlords of some 49 properties ("the Premises") under a "Master Lease Agreement" made in 1999. The lease runs until 2014 and from year-to-year thereafter unless terminated by notice. An initial rent for the Premises is specified in the lease, which rent is subject to annual revisal in line with changes in the Retail Prices Index ("RPI"). The rent was subject to review as at 1 March 2009, after which the new revised rent is payable for the remainder of the duration of the lease subject, as before, to annual revisal in line with the RPI.

[5] This dispute concerns the operation of the rent review clause in the lease. The arbitrator, having taken counsel's opinion on some of the issues, found in favour of the landlords' contention as to the correct methodology in relation to two categories of premises (SSPs and TAPs), though he fixed a rental for those premises at rather less than the full amount for which the landlords were contending. The appeal is brought by the tenants. It should be noted that the arbitrator found substantially in favour of the tenants in relation to the other two categories of premises.

The relevant provisions of the lease

[6] The Premises leased are described in Schedule 1 to the lease. There is a distinction between "the Premises", which are let to the tenants, and "the Subjects" of which the Premises form part, but for present purposes it is not necessary to go into this in detail. Schedule 1 identifies the 49 properties individually. As appears from the award, they fall into four distinct categories namely (a) Site Sharing Premises ("SSPs"); (b) Trunk (or Transfer) Access Points ("TAPs"); (c) Equipment Accommodation Modules ("EAMs"); and (d) offices. This appeal is concerned only with the rent fixed for SSPs and TAPs.

[7] Part 1 of Schedule 1 is headed "The Premises" and deals with what is included within the Premises thus described. It provides, so far as material, as follows:

"1 Where the Premises described in any part of this Schedule comprise an Equipment Accommodation Module the Premises shall be deemed to comprise the area of ground shown delineated on the relevant plan but shall exclude the pre-fabricated module or cabin, any associated foundations, supports, hard standing or the like and any security frame (which excluded items shall be deemed to be tenants fixtures and fittings for which the tenant shall be solely responsible).

2. Where the Premises described in any part of this Schedule form part of a larger building the Premises shall include:-

(i) ...

(v) any channels, drains, sewers, watercourses, pipes, cisterns, tanks, pumps, valves, drainpipes, wires, cables, aerials and other conducting media, manholes, meters, and connections and all associated parts, plant and equipment which exclusively serve the Premises;

3. Where the Premises described in any part of the Schedule comprise a rack or racks designed to accommodate telecommunication plant and equipment the Premises shall be deemed to comprise the floor space occupied by such rack or racks as shown delineated on the relevant plan but shall exclude the rack or racks themselves which shall be deemed to be tenants' fixtures and fittings for which the Tenants shall be solely responsible.

In each case with all additions, alterations and improvements thereto and the Landlords' fixtures and fittings therein and thereon; and

Together Also With:-

(a) ...

and reference in the Lease to the Premises shall in the absence of any provision to the contrary include any part or parts of the Premises."

[8] It is necessary to set out the provision for rent review in clause 3.2 of the lease. So far as material, this provides as follows:

"3.2 With effect from 1 March 2009 (such date being hereinafter referred to as the "Review Date") the Rent shall be reviewed and shall be the market rent (as after defined) of the Premises as at the Review Date.

3.2.1 The expression "the market rent" shall mean the rent at which the Premises might be expected to be let without fine or premium each of the Premises taken individually as one entity on the open market at the Review Date for a period equal to the unexpired period of the Duration computed from the Review Date, with vacant possession by a willing landlord to a willing tenant and subject to similar provisions to those contained in this Lease (other than the amount of rent but including provision equivalent to the provisions contained herein for review of rent)

(i) Upon the following assumptions:-

(a) that the Premises, the Subjects are in good and tenantable condition available, fit and equipped for immediate occupation and use;

(b)...

(ii) But taking no account of any effect on rent of:-

(a) ...

(c) any improvements to the Premises carried out by the Tenants or any permitted sub-tenants with the Landlords' consent otherwise than in pursuance of an obligation to the Landlords or their predecessors in title whether before or after the Date of Entry and whether under the provisions of this Lease or otherwise."

The focus of this appeal was on the effect to be given to the words "fit and equipped for immediate occupation and use" in assumption (i)(a).

[9] It is clear, in general terms, that the tenants were to use the Subjects in connection with their telecommunications business. Thus, in cl.12, dealing with the Regulatory Position, the landlords acknowledged that the tenants were in the business of providing telecommunications services and were bound to comply with the Telecommunications Act 1984 (the 1984 Act) and the licence granted pursuant thereto. The tenants were specifically prohibited from using the Premises other than for purposes connected with telecommunications (cl.4.2.7); the landlords had a right to terminate if the tenants ceased to use the Subjects in connection with their business as electricity undertakers (cl.2.3); and the landlords also had the right to irritate the lease if the tenants' licence under the 1984 Act was revoked (cl.9.1(iv)). Some of the other detailed provisions of the lease were clearly specific to such use. The tenants had the right, without requiring the landlords' consent, to lay new cables in existing telecommunications cable ducts which exclusively served the Premises, and to install within the Premises additional telecommunications, plant and equipment which did not require alteration to the internal layout (cl.4.2.6); and (where the access was not used in common with the landlords) they had the right to share occupation of part of any Premises with any third party who held a licence under the 1984 Act or was a customer or supplier (cl.4.2.13).

[10] I should set out the material part of the user clause in full, since it was the subject of detailed argument. It forms part of clause 4 (Tenants' Obligations) and provides as follows:

"4.2.7 User

Not to use or permit or suffer the Premises or any part therefore to be used otherwise than in connection with the operation of the Tenants' telecommunications systems or the provision of a telecommunication service and commercial activities connected with telecommunications (all as those terms are defined in section 4 of the Telecommunication Act 1984) save with the prior written consent of the Landlords, such consent not to be unreasonably withheld, and without prejudice to the foregoing, not to ..." [Emphasis added]

I was referred to the relevant definitions in the 1984 Act. It is sufficient for present purposes to note that the phrase "commercial activities connected with telecommunications" is defined in the 1984 Act to mean any of the following, namely "the provision of telecommunication services, the supply or export of telecommunication apparatus and the production or acquisition of such apparatus for supply or export". The argument between the parties was as to the width of this expression in the context of the user clause read as a whole.

The award

[11] In Part 2 of his award, the Arbitrator identified the Subjects. He explained that the Subjects comprised 49 separate properties throughout Scotland, all of which were used in connection with telecommunications purposes. He found that they fell into the four categories mentioned above, namely SSPs, TAPs, EAMs and offices. As I have said, this appeal is only concerned with SSPs and TAPs. His findings about these two categories were as follows:

"(a) Site Sharing [i.e. SSPs]

Forming part of a larger building to accommodate telecoms' plant and equipment. These vary in size, and specification includes secure premises with open plan floor space, shared parking; air conditioning; raised floor/ overhead cable tray. Access to fibre including proximity to ... overhead transmission at certain locations; proximity of ... sub-stations.

(b) TAP's (Trunk Access Points)

Transfer Access Points, comprise rooms within larger ... Sub-Stations which accommodate telecoms equipment with racks, and in locational terms have the advantage of being close to a large power supply and secure environment. Mostly in Edinburgh and Glasgow."

In describing the categories in this way, the arbitrator preferred the submissions of the landlord over those of the tenants. It was accepted that these were findings of fact.

[12] Having identified the Premises, the Arbitrator went on in Part 3 of the award to summarise the relevant part of the lease and the rent review provisions. He referred to the standard assumptions to be made in the assessment of the market rent, such as vacant possession and a willing landlord and willing tenant, and went on to refer specifically to the assumptions and disregards specified in paragraphs (i) and (ii) of clause 3.2.1.

[13] In Parts 4, 5 and 6, he summarised the parties' submissions. Both parties put forward comparables for the purposes of influencing the assessment. At the heart of the dispute between the parties was an issue about the proper approach to the assessment of rent, at least in respect of SSPs and TAPs. In summary, the tenants contended that the permitted user under the lease, although restricted by reference to telecommunications use, was nonetheless very wide. The assumption, therefore, required by the words "fit and equipped for immediate occupation and use" did not import an assumption that the premises were fitted for a specialist purpose. Nor could tenants' equipment or improvements be taken into account. Accordingly, the relevant premises should be regarded as "merely housing for the Tenants equipment which could be sited virtually anywhere." The premises should therefore be valued as, in effect, ordinary commercial units attracting a rental per square foot of floor space based on evidence of similar premises elsewhere. The landlords contended that the permitted user was restricted to telecommunications use. In respect of these categories of buildings, they contended that the rental should not be based on a rate per square foot of floor space, assessed by comparables of the type suggested by the tenants, but on a rate per square foot of rack space (the square footage being of the smaller area of floor space taken up by the racks in each building), the rate being applicable to this smaller area being much higher than an ordinary floor space rate. I need not set out their submissions in detail, but it is useful to refer to one part of his summary of the Landlord's Counter-Submission, since it casts light on his later findings and reasoning:

"The Landlord's Advocate detailed the differences between the dispute subjects and the Tenants comparables in terms of specification etc. He avers that for standard offices or industrial subjects to be fit for telecommunications purposes, a substantial cost is involved, and hence why [the tenants] and other operators will pay rentals in line with co-location comparables in his main Submission. Essentially he submits that this rental (rate/sq.ft I assume) is paid for the ability to locate telecommunications racks within the premises already equipped with the infrastructure to allow them to operate. Accordingly he attacks the Tenants comparable evidence on this basis.

... He stresses that his own / Landlord's valuation is based on ignoring the existence of actual racks & tenants improvements ..."

[Emphasis added in both places]

[14] In Part 7 of his award, the Arbitrator turned to make certain findings and deal with legal issues that had arisen in the course of the arbitration. At the beginning of this section he referred to the fact that he had taken the opinion of counsel, which he attached to his award, and noted that he, as arbitrator, agreed with counsel's conclusions on each of the main matters referred to him. Two of those issues were "User" and "Equipped", both of those relating to assumption (i)(a) in clause 3.2.1 of the Rent Review Provision. His findings on these two matters were as follows:

"(a) 'User'

Though the main Use which the Parties agree relate to 'Telecommunications Use' and the Use which applies to the 'equipped aspect' as covered below, it is clear that other uses may be feasible with the landlords prior written consent which is not to be unreasonably withheld. Clause 4.2.7 of the Lease specifically refers.

Whether the hypothetical landlords consent would be difficult to secure in a change of use from telecommunications use would depend on any possible evidence reflecting this - for example prejudice in future reviews - though in this case there are no further reviews under the Master Lease.

In the absence of any tangible evidence to indicate such landlords consent might be problematic in the real world, I can only judge on the evidence here, and guided also by the advice from Counsel. The conventional legal interpretation favours the Landlords position that there should be no user discount. I return to this in the following sections.

(b) 'Equipped'

This was, in my judgement as Arbitrator a critical issue in this case. Counsel's opinion accords with that of the Landlords, and as a result he states that the tenant is to be taken as taking up premises which have already been fitted out with the technical apparatus required for the efficient operation of telecommunications. This has significant valuation implications which I address in the next section." [Emphasis added]

The Arbitrator also dealt in this section with points relating to aggregation and location, but I need not say anything about these aspects.

[15] In Part 8 of his award, the arbitrator upheld the landlords' submission that no discount should be made for a restricted "user". He made the following findings as regards "Equipped":

"(b) Equipped

The legal Opinion from Counsel, with which I agree, favours the Landlords. It falls to me as Arbitrator though, to transmit this into a judgement on the valuation of the respective parts of the portfolio ...

The assumption of 'equipped', in general terms, for telecoms use, as the Primary use, in the User clause, has in my judgement the knock-on effect, on correct valuation methodology, for those subjects which comprise the [SSPs] and the [TAPs], where [the landlords' representative] has valued on a rack space basis, but excluding of course the racks themselves ...

...

So in summary, I judge that a rate per rack space more properly reflects the actual review assumptions in relation to 'equipped'. ...

Although noting the range of values as asserted by [the tenants' representative], for normal commercial premises, the 'equipped' hypothesis legally supports the rack space approach in my judgement, as Arbitrator, than one based on a rate per sq.ft. and to a 'stripped out' standard, as averred by the Tenant. ...

[The landlords' representative's] closing paragraph in his Counter at the foot of Page 6 is persuasive - 'The rent is paid for the ability to locate telecommunication racks within premises already equipped with the infrastructure to allow them to operate'. This synchronises with the interpretation of equipped in this case; that is what I consider the inescapable conclusion.

In Finding in favour of the Landlords valuation approach I accept of course fully the Tenants argument in respect of Tenants fixtures/ improvements etc which must be excluded. The evidence also suggested that no Application for Landlord's consent had been made by the Tenants, and this was not contested. The Landlords position was simply that the respective subjects enjoy air conditioning; fire detection system; fire suppression systems; a particular power supply and secure entry all fully noted. However the standard/ quality of the properties I find was only basic.

The above conclusions have ramifications on value, which will also be governed by the quality of the evidence led, which is quite a different matter, and in this latter respect, the Landlords evidence is far from ideal. However that is a quite separate issue. The Methodology though is clear - on a 'rack space' basis - but excluding any presence clearly of the racks themselves. ..."

Under the heading of "(f) Methodology", the arbitrator returned to this issue under reference to the different categories of properties:

"(i) Site Sharing Premises; The Tenants method is fundamentally flawed, since the rate / sq.ft levels adopted do not reflect properly the 'equipped' aspect in the Rent Review Clause and the Opinion of Counsel on this point which as Arbitrator I accept. The rate / per rack space approach as utilized by the Landlords I support, based on the totality of evidence submitted (excluding the racks themselves.) ...

(ii) TAP sites; ... As with the Site Sharing Premises, I support the Landlord's methodology of a rent per rack space. ..."

[16] Finally, in Parts 9 and 10 of his award, the arbitrator considers the evidence and arrives at a figure for the market rent for these two categories of building based on a rate per rack space approach.

[17] In a number of passages the arbitrator made it clear that he accepted the opinion of counsel on the meaning of "equipped" in assumption (i)(a) of the rent review clause. He attached that opinion to his award. I should refer to two short passages in that opinion for the light it casts on the arbitrator's reasoning, since it was much relied on by counsel for the tenants on the hearing of this appeal. I quote from paras.6 and 9:

"6. The assumption upon which the rent review takes place is that as at 1 March 2009 the Premises, and the Subjects (of which the Premises form part) are in good and tenantable condition available fit and equipped for immediate use. Reading that part of Clause 3.2.1(i)(a) along with Clause 4.2.7 it appears to me that it must be assumed that the Premises have been at that date equipped with that which is necessary to enable those premises to be used for telecommunications purposes. However that must be read along with Schedule 1, Part 1, Item 1 thereof in the case where the Premises comprise an [EAM], ... since in such cases various items such as the prefabricated module or cabin, associated foundations supports, hard standing or the like and any security frame shall be deemed to be tenant's fixtures and fittings. Similarly by Item 3, if the Premises comprise a rack or racks designed to accommodate telecommunication plant and equipment the rack or racks themselves shall be deemed to comprise the floor space occupied by such rack or racks but shall exclude the rack or racks themselves which shall be deemed to be tenants' fixtures and fittings.

9. The meaning of equipped. In the context I am of opinion that the tenant is to be taken as taking up premises which have already been fitted out with the technical apparatus required for the efficient operation of a telecommunication system. The phrase 'available fit and equipped for immediate occupation and use' cannot in my view mean less than that the tenant is taken as finding the Premises at the review date as capable of immediate occupation with all the technical items provided to enable it to proceed. I note the point made by the landlord with reference to Scottish Discount Company Ltd. v Blin 1985 SC 216 that many of the items required to be provided do not constitute tenants' fittings in Scots law, and that in any event they do not fall under the 'disregards' provision in Clause 3.2.1(ii). I consider that to be a correct view of the matter in the circumstances of this case."

Parties' submissions

[18] For the tenants, Mr Lake QC submitted that the arbitrator's approach was wrong in law. He argued that the lease excluded equipment such as racks (and, in the case of EAMs, the other equipment mentioned in Schedule 1, Part 1, Item 1) from the subjects let. The landlords owed no responsibility in relation to the provision of such equipment and the tenants came under no maintenance or repairing obligation in connection with it. It was for the tenants, not the landlords to provide the "apparatus" (a word which he used, as did the arbitrator, but which is not to be found in the lease). That made good sense, since if the subjects let included equipment already installed by the landlords, the obligation on the tenants to maintain and repair and return the Premises in good condition and repair at the end of the lease would require the tenants to reinstate technology which, by the end of the lease, was 15 years old and probably out of date. He referred to the various assumptions and disregards in the rent review clause. The crucial paragraph, para.(i)(a), addressed the physical state of the premises. Its function was only to make it clear that, in setting the open market rent, it should be assumed that there would be no delay in the tenant getting access to the Premises and making use of them: see The Ocean Accident and Guarantee Corporation v Next plc [1996] 2 EGLR 84. It was to be assumed that the tenants could go in immediately and make use of them, e.g. by installing their own equipment. Applying this assumption, the tenants would not be entitled to a discount simply because of a possible delay in taking possession while the premises were equipped for use: see London and Leeds Estates Limited v Paribas Limited (1993) 66 P&CR 218. That was what that paragraph was directed at - it was not intended to subvert the other provisions of the lease which made it clear that the landlord had no responsibility for providing or installing equipment.

[19] The argument for the landlords, he submitted, proceeded on the basis that premises must have "apparatus" for the operation of a telecommunication system. But such an argument made unwarranted assumptions about the permitted "use" for which the Premises were to be assumed to be equipped. Despite the permitted user being confined to activities of a specified class, the words "in connection with" in the early part of cl.4.2.7 meant that the range of uses to be taken into account was broad: see Bank of Scotland v Dunedin Property Investment Co. Ltd. 1998 SC 657. It included commercial activities connected with communications and with the provision of a telecommunication service. That would include not only office use but storage and handling of goods, whether for internal use or supply to others. Further, the landlords' construction required rent to be assessed on the assumption that equipment was provided when it was not. The clause should be construed so far as possible to reflect the underlying reality. This was consistent with the "presumption of reality" approach identified in cases such as Co-operative Wholesale Society Limited v National Westminster Bank plc [1995] 1 EGLR 97 and City of Aberdeen Council v Clark 1999 SLT 613. If the landlord's approach was applied, for what particular use was it to be assumed that the Premises were equipped? The arbitrator referred to equipment required for the "efficient operation of telecommunications" (see the italicised passage in para.[14] above), whereas counsel's opinion, which the arbitrator said that he accepted, suggested something else, though it was not clear exactly what he had in mind by the expression "the efficient operation of a telecommunication system" in para.9 of his opinion. The landlords' argument relied too heavily on what equipment was in fact present at the time of entering into the lease and paid insufficient regard to the words used.

[20] For the landlords, Mrs Wolffe QC submitted that the arbitrator was correct in law. The task of the court was to ascertain the intention of the parties to the lease by reference to the language used, and having regard to the context provided by the document as a whole and the relevant circumstances known to both parties: Prudential Assurance Co. Ltd. v Salisbury's Handbags Ltd. [1992] 1 EGLR 153. She challenged the tenants' argument that the user clause permitted a wide range of uses. She relied on the use in that clause of the words "or" and "and" in cl.4.2.7, italicised in the quotation in para.[10] above, which made it clear that the words "commercial activities connected with telecommunications" did not identify a separate permitted use but rather were ancillary to each of the main two uses, namely (a) the operation of their own telecommunications systems, and (b) the provision of a telecommunication service. The user clause informed a content for "fit and equipped" commensurate with that specific user, and militated against a construction, such as that advanced by the tenants, that rent should be assessed for the equivalent of a bare office or commercial space, without additional cabling, power supply, cooling equipment, etc..

[21] The landlords' construction, she submitted, accorded with a commercially sensible construction having regard to the factual matrix: c.f. Multi-Link Leisure Developments Ltd v North Lanarkshire Council [2011] SC (SC) 53. The Premises were in fact equipped for telecommunication purposes at the commencement of the lease. It would be perverse to construe the premises of the hypothetical lease (for the purpose of rent review) as different, or differently equipped, from the Premises subject to the Lease. She referred to the cases cited by Mr Lake in support of the "presumption of reality" and referred also to Laura Investment Company Ltd. v Havering LBC [1992] 1 EGLR 155 in support of the proposition that the rent review provision assumed a hypothetical letting of the actual premises. She insisted that the tenants' construction of the lease was consistent with the presumption for reality. If assumption (i)(a) did not exist, the market rent would still have to take into account the features of the Premises at the date of the rent review. The tenants were trying to use an abstract construction of the user clause to displace the presumption for reality. She referred to Iceland Frozen Foods v Starlight Investments [1992] 1 EGLR 126.

Discussion

[22] The question before the court is whether the arbitrator erred in law in a material way in his approach to fixing a market rent for the SSPs and the TAPs. If he did, the case should be sent back to him to reconsider the market rent in light of all the evidence and applying the correct legal approach. This may seem obvious, but it needs to be stated because, in the landlords' note of argument, it was sought to be argued that the court should not interfere with the decision of the arbitrator in his award unless he was not just wrong but "obviously wrong". In other words, it was contended that the "obviously wrong" test for the grant of leave to bring a legal error appeal (set out in Rule 70(3) of the SAR) should carry over to the merits of the appeal itself. That was said, in the note of argument, to be consistent with the policy and intention of the 2010 Act. At the hearing of the appeal, Mrs Wolffe Q.C., on behalf of the respondents, did not press this point. In my view, she was right not to do so. It is, to my mind, clear that the "obviously wrong" test lays down a threshold to be crossed before the court may grant leave to appeal from an award on grounds of legal error, where the point is not one of general public importance and where there is no agreement between the parties that an appeal may brought. But that is a threshold test. There is no warrant for the argument that the same test should apply also to the hearing of the appeal on its merits. At that stage, the court is simply concerned with the question whether, on the point of law raised in the appeal, the arbitrator made a legal error and, if so, what consequences flow from that.

[23] I am not persuaded that the arbitrator did err in law in the way complained of. Having re-read the award carefully in light of the submissions made to me at the hearing, it seems to me, with respect to those submissions, that the tenants' most powerful argument, superficially at least, was in fact based on a misunderstanding of the arbitrator's reasoning.

[24] It was contended that he had, in effect, failed to draw the correct distinction between the subjects let and tenants' fixtures and fittings; in other words, that he had treated telecommunications equipment (which, even if originally provided by the landlords and was there, in place, at the commencement of the lease, nonetheless was to be regarded as tenants' fixtures and fittings in terms of the lease) as if it were part of the Premises for the purposes of the rent review clause. I agree that, if he had done this, he would have erred in law. But I do not think that he has.

[25] The word "equipped", where it appears in the phrase "fit and equipped for immediate occupation and use" in assumption (i)(a) of cl.3.2.1, is not intended to refer to telecommunications equipment of the type which would be regarded as tenants' fixtures and fittings. It requires, as Mr Lake argued, an assumption to be made that the subjects are fit and equipped for immediate occupation. The main thrust of that assumption is temporal. The full rent will be payable immediately - the tenants will not be entitled to a discount on the ground that there might be a delay in taking possession on account of the premises not being equipped for use on day one. But it also requires it to be assumed that the premises in question are as fit and equipped as premises of that type are expected to be. To take a simple example, unrelated to the present case, if the lease was of a warehouse fitted with an electric power supply, the assumption "fit and equipped for immediate occupation and use" would require the market rent to be assessed at review on the basis that there was in fact such a power supply, though of course it would disregard completely the equipment which the tenants might have installed making use of that power supply. So here, in the present case, according to the arbitrator's findings of fact, the SSPs and TAPs are not bare shells in the middle of nowhere. He describes SSPs as forming part of a larger building to accommodate telecoms' plant and equipment, varying in size, being close to overhead transmission lines and sub-stations, and having a specification which includes secure premises with open plan floor space, shared parking; air conditioning; raised floors and overhead cable trays. He describes TAPs as comprising rooms within larger sub-stations which can accommodate telecoms equipment with racks, and which are close to a large power supply and secure environment.

[26] These are the features of the Premises in question which he later refers to in his award as "infrastructure". This is clear from passages in the award which I have quoted at paras.[13]-[15] above, and in particular from the following two passages where he quotes the landlords' submissions which he accepted. In the first, he quoted the landlords as arguing that the higher rent was paid

"for the ability to locate telecommunications racks within the premises already equipped with the infrastructure to allow them to operate",

though he was careful to stress that that higher valuation is based on ignoring the existence of actual racks and tenants' improvements. In the second, having repeated this quote from the landlords' submissions, he explains that

"The Landlords position was simply that the respective subjects enjoy air conditioning; fire detection system; fire suppression systems; a particular power supply and secure entry all fully noted."

In accepting this, he was at pains to emphasise that he also accepted "of course fully the Tenants argument in respect of Tenants fixtures/ improvements etc which must be excluded." So there is no doubt, to my mind, that in his interpretation of the assumption "equipped", the arbitrator was having regard to the "infrastructure" described by him in relation to SSPs and TAPs as explained above, rather than to any equipment or apparatus which is properly to be regarded as tenants' fixtures and fittings.

[27] I accept that the award is, in places, perhaps not as clear as it might be on this point. Mr Lake naturally drew my attention to the arbitrator's use, on occasions, of the expression "technical apparatus", as in the finding that

"the tenant is to be taken as taking up premises which have already been fitted out with the technical apparatus required for the efficient operation of telecommunications."

This language, which also features in counsel's opinion on which the arbitrator relied, might suggest that the arbitrator was assuming the premises to be fitted out with equipment which is to be regarded as tenants' equipment and not part of the subjects let. But having regard to the greater clarity in the other parts of the award to which I have referred and to the arbitrator's repeated disclaimer of having taken tenants' fixtures into account, I do not consider that I should on the basis of some occasional lack of clarity find that he has made the legal error which the tenants assert that he has made.

[28] In light of my conclusion on this point, I do not consider that the argument about the breadth of the user clause really matters. If I had had to decide this, I would have preferred the wider construction for which Mr Lake contended, which appears to me to accord more with the commercial sense which the parties would have intended than the narrow syntactical approach suggested by Mrs Wolffe. But the breadth of the user seems to me to be beside the point, when the infrastructure which the arbitrator has taken into account is a feature of the subjects themselves, not of any extra equipment placed therein to enable a particular use. A tenant of a commercial warehouse fitted with electricity cannot have his rent fixed on the basis that it does not have electricity, just because he might not want to use it.

[29] During the course of the hearing I wondered why the arbitrator thought that his approach to "equipped" led him inexorably to a rate per square foot of rack space basis for fixing the market rent. However, Mr Lake made it clear that he did not challenge this. If the arbitrator was correct about "equipped", he was entitled to decide that rate per rack was the correct methodology. That must be right. His finding on that issue, that rate per square foot of rack space is the best way of fixing a rent for premises "equipped" with the infrastructure for telecommunications use, must be a finding of fact which is for him and not for the court.

Decision

[30] For the reasons set out above, I propose to refuse the appeal and uphold the award. I shall in due course pronounce an interlocutor to that effect.

[31] However, I shall first put the case out By Order, for this reason. At the motion for further procedure, I granted a motion for anonymity in terms of s.15 of the 2010 Act and Rule of Court 100.9. In setting out and explaining my decision, I have attempted to respect both the letter and spirit of this requirement for anonymity, though the subject matter of the lease makes the task somewhat difficult. This difficulty is likely to be encountered to some degree, though possibly not in the acute form in which it arises here, whenever arbitration applications come before the courts, particularly since, subject to the statutory protection of anonymity in arbitration cases where an order is made under s.15, there is a public interest in open justice. It was agreed at the end of the hearing that in the first instance I should issue my Opinion to the parties without publishing it more widely, to enable them to make representations as to whether there should be publication and, if so, whether any details could be omitted without removing from my decision such sense as it might otherwise have. The question of expenses also requires to be dealt with. If, having considered my Opinion, parties can reach agreement on all points which may arise, and can agree the terms of the interlocutor to reflect my decision and any other relevant matters, they are at liberty to contact my clerk with a view to cancelling that By Order hearing on the ground that it is unnecessary.

[In the event neither party raised any difficulty about the Opinion being issued in this form.]