Cluttons Telecom's team hosted an RICS Telecoms Forum evening seminar at their Head Office on 'Making your case at a Telecoms arbitration'. Chaired by John Wood, head of Telecoms, the main speaker was Cluttons Tony Harris, head of Landlord and Tenant. Hailed a success, the evening was informative and provided the opportunity to raise the possibility of standard telecom documents for arbitration submissions which the Telecom Forum Board will discuss directly with the Dispute Resolution Service at the RICS. You can read Tony Harris' keynote speech below.
Making your case in a Telecoms Arbitration
RICS Telecoms Forum 26 June 2008
Tony Harris FRICS FCIArb
We all have mobile phones, none of us want to pay higher costs for them but we all want full coverage so that our phones work wherever we are.
In order to sell their phones operators need full coverage but also need to control costs. Mobile phone masts are not the prettiest objects in the landscape and are always surrounded by health scares the most recent being only last week. Landlords need sufficient recompense for the use of their land and there must be a minimum figure below which it is not worthwhile the landlord bothering. All of this demonstrates to me the need for a healthy property market for telecommunications installations and a part of that is a dispute resolution mechanism to deal with all of the inherent tensions in the process and which works at reasonable cost.
When we began to think about the topic for this evening we started off by thinking about winning in a telecoms Arbitration. I then moved on to look at the procedures involved in the process and the costs that have arisen in one or two cases where I have been involved as Arbitrator where the size of the submissions and the resulting cost bill are out of proportion to the amount of money in dispute.
That is not to say that there are not real issues to be resolved but I think it is incumbent on us as the professionals in the field to look at ways of resolving those issues within sensible costs bounds for our clients. Many of the agreements for telecommunications installations incorporate provisions for Arbitration.
Just to remind you section 1 of the Arbitration Act 1996 states “the object of Arbitration is to obtain the fair resolution of disputes by an impartial tribunal without unnecessary delay or expense” and “the parties should be free to agree how their disputes are resolved subject only to such safeguards as are necessary in the public interest”. Moving on to section 33 which lays down the general duty of the tribunal, “the tribunal shall
(a) act fairly and impartially as between the parties giving each party a reasonable opportunity of putting his case and dealing with that of his opponent and
(b) adopt procedures suitable to the circumstances of the particular case avoiding unnecessary delay or expense so as to provide a fair means for the resolution of the matters falling to be determined”.
Both of those sections emphasise the need to avoid unnecessary expense in the conduct of the Arbitration. Proportionality as it is termed in the civil procedures rules is a constant theme of disputes in the courts.
In April of this year the Court of Appeal handed down a decision in Carver v BAA Plc concerning a personal injuries claim. The case was as follows. The appellant fell at airport premises and injured an ankle. The respondent conceded liability and was willing to consider any reasonable claim. The appellant submitted a schedule of loss amounting to £2,170. The respondent had already made a payment of £520 and offered a further £3,386. That offer was refused. The appellant’s claim was increased to more than £5,000 and the respondent made a payment into court under part 36 of the CPR of £4,000. The appellant then increased the claim to more than £19,000. The matter was not agreed and went to trial. Judgement was granted for £4,686 inclusive of interest. The question arose whether the claimant should receive her costs. The appellant submitted by reference to earlier practice that beating the payment in by even £1 would suffice to entitle her to her costs. The respondent contended the following the April 2007 amendments to CPR the judge had discretion beyond a strict financial comparison and the court was entitled to consider all of the circumstances in deciding where the balance of advantage lay.
The judge took account of the parties conduct and the lack of response to the part 36 offer and concluded that the monetary judgement obtained could not be said for the sake of a few pounds to be more advantageous to the appellant and the position when the offer was made. The court held the respondent was in practical terms a successful party and awarded it costs from June 2006 with no order for costs up to that date. The appellant appealed and the appeal was dismissed. The court of appeal said “it followed the judge had been correct in looking at the case broadly. He had been entitled to take into account the fact that the extra £51 gained was more than offset by the irrecoverable costs incurred by the appellant in continuing to contest the case for as long as she had and the added stress upon her in waiting for the trial and in the trial process. No reasonable litigant would have embarked on such a campaign for a gain of £51”.
It won’t be lost on the audience that the amounts claimed are very similar to many telecom industry rents.
In going through our dispute resolution machinery, I first want to look at the appointments process. The telecoms sector is unusual in that it is a relatively small sector, highly specialised and with a relatively small number of participating tenants. Other sectors where similar circumstances may arise are supermarkets, petrol filling stations, retail warehousing and licensed premises. Telecoms is perhaps unique in that it has a greater degree of polarisation between the representatives involved in the market with almost complete polarisation between landlord representatives and tenant representatives. There is virtually no crossover. I know from past conversations with the officers at the RICS disputes resolution service that small markets give them particular difficulty in making appointments of Arbitrators and Independent Experts.
Their primary concern is to get someone who is knowledgeable about the subject matter of the dispute, but one who most importantly is able to satisfy the requirements to be clear of the perception of bias. It is very easy to object to all the likely appointees apart from the one you want and this practice caused particular comment from Graham Chase when he was President. As a result you may have noticed this section of the application form has disappeared. It is worth spending a few minutes looking at this. The test for bias was considered in Porter v Magill 2002 and was expressed as being “whether the fair-minded and informed observer, having considered the facts, would conclude that there was a real possibility that the tribunal was biased.”
A prior commitment to a point of view on one set of evidence and arguments cannot in itself be fatal to future participation as an Arbitrator. What is required of an Arbitrator as of a judge is to look at each case afresh. This is illustrated by Moore Stevens & Co v Local Authorities Mutual Investment Trust (1992) where an Arbitrator was held not to be disqualified from acting because he had (as an Independent Expert) determined a rent review used as a comparable by one of the parties. This in turn is supported by Mr Justice Hoffman (as he then was) in Land Securities v Westminster City Council (1992) where it was held that a decision of an Arbitrator in another case was not admissible as evidence of value in the subject Arbitration.
As you may know when the RICS are considering making an appointment they write to a prospective appointee who has to make a number of declarations. These are that :
- the subject matter of the dispute falls within the sphere of your professional practice not merely that of your firm
- that you can undertake the task without delay or unnecessary expense
- that you have appropriate professional indemnity insurance cover.
- have you made appropriate enquiries and are you satisfied you have no current involvements that would give rise to a real or perceived conflict of interest
- have you made appropriate enquiries and are you satisfied there are no involvements within the last five years that give rise to a real or perceived conflict of interest.
- can you confirm you are not currently acting as an Arbitrator or Independent Expert in another matter which would conflict with this appointment
- do you comply with any special requirements (if stated) which may be listed in the case details.
The questions regarding conflict of interest are of real importance, and if not answered properly can lead to the whole process being set aside with consequential delay and expense. In a group of cases known as Locabail a powerful Court of Appeal comprising the Lord Chief Justice, the Master of the Rolls and the Vice Chancellor laid down a number of rules regarding recognition and treatment by judicial decision makers of situations in which bias might arise or be presumed.
Firstly where the judge would have a direct (usually financial) interest in the case which would realistically be affected by its outcome. In such a case the existence of bias is presumed and gives rise to automatic disqualification. An example of this is in the General Pinochet case in which you may remember Lord Hoffman was required to stand down from a judicial committee of the House of Lords and their first decision was overturned because Lord Hoffman was chairman of Amnesty International Charity Ltd which was the sister organisation of one of the parties to the proceedings. It was therefore presumed to have an interest in the outcome of the case. Arbitrators should therefore decline any appointments in respect of the outcome of which they (or to a lesser extent) their families could realistically be said to have a pecuniary interest or where they are members of organisations comprising or related to parties in the Arbitration. The court went on to say that before accepting appointment Arbitrators should “conduct a careful conflict search within the firm of which they are a partner, such a search, however carefully conducted and however sophisticated the firm’s internal systems, is unlikely to be omission proof. Parties for and against whom the firm has acted and parties closely associated would (we hope) be identified the possibility must exist that individuals involved with such parties or more remotely associated may not be identified and if in the course of the trial properly embarked upon some such association comes to light… the association should be disclosed and addressed”.
The second ground is where there is a real danger or possibility of bias in the circumstances. The court stressed it would be dangerous and futile to attempt to define all of the factors which may or may not give rise to a real danger of bias but they did state that they thought it unlikely that objection could be soundly based on such matters as religion, ethnicity, age, class, etc. They also thought it ordinarily unlikely that an objection could be soundly based on membership of social or sporting bodies or on extra curricular utterances such as text books or lectures but a real danger of bias might well be thought to arise if there were personal friendship or animosity between the judge and any member of the public involved in the case or if the judge were closely acquainted with any member of the public involved in the case particularly if the credibility of that individual could be significant. In my opinion it is unlikely that the fact a prospective arbitrator acts for landlords or tenants on its own would be sufficient to constitute bias.
The final case I want to touch on in this section is Save and Prosper v Homebase 2000 where an Arbitrator was appointed to determine a rent review between Save & Prosper and Homebase who at the time was owned by Sainsburys. In response to the form of declaration in current use the Arbitrator did not disclose that his firm carried out a substantial amount of work for J Sainsbury Development Ltd which was an associated company of Homebase. The court held that this was sufficient to give rise to the perception of bias and the Arbitrator was required to stand down. One comment of the judge is particularly relevant in the field of telecoms where he said “it is urged upon me that this is a very small world with very few specialists of the calibre of (the Arbitrator) able to undertake Arbitrations in this particularly specialised field of valuing out of town retail premises. For that reason and having regard to his integrity it is by no means impossible had there been such instructions from Homebase in the office at that time and had (the Arbitrator) asked the parties whether they were none the less willing for him to act as Arbitrator then they none the less have been prepared for him so to act. But without that agreement it appears to me he was constrained by the relationship with his firm to treat himself as having an interest in the affairs of Homebase such as to constitute a real danger of bias”.
It is not for the Arbitrator to decide whether or not there is a perception of bias in such circumstances. It is for the parties to make that decision. In order to make that decision they must have full and complete information.
Having got our Arbitrator appointed then what? The next stage will be for the Arbitrator to issue directions for the matter to proceed. Most of the directions I have seen contain more or less the same information although the phraseology often appears different. Much of it is uncontroversial. However it is in the field of procedures to be adopted where there is considerable potential for cost savings to be made without reducing or affecting the quality of the real issues in dispute.
Section 34 of the Arbitration Act says that it shall be for the Tribunal to decide all procedural and evidential matters subject to the right of the parties to agree any matter. The parties are potentially the masters of the procedure and it is only if they cannot agree that the Arbitrator decides. A little later on I will look at some aspects of procedures and towards the end we will open up discussions on the possibility of the industry agreeing what might be termed “The Telecom Forum Arbitration Rules”.
One of the first steps is to determine whether the parties’ representatives are acting as advocates or expert witnesses. Previously the general guidance from the RICS has been that surveyors acting before an Arbitrator are doing so in the capacity of an Expert Witness but this is all about to change with the publication of a guidance note and practice statement. There has been long running concern amongst Arbitrators that surveyors appearing before them are in truth advocates and not expert witnesses and this holds good in all sectors of the market. The new practice statement was originally due to be published in the early part of the year, but I now believe it may now be delayed until September. Some of you may have attended the recent roadshow talks around the country given by Nick Cheffings and Geoff Wright.
One area in which cost savings can be made is if the parties want a preliminary meeting and for such a meeting to be held by way of conference call and I have done this very successfully in the past with solicitors based in Liverpool and Manchester respectively while I was in London, as the subject property was in London. Frequently of course directions are agreed in writing without the need for a meeting. Much of the procedure concerns the production of comparable evidence and a most powerful tool for keeping costs in bounds is for the comparable evidence to be included within the Statement of Agreed Facts. In almost every case where I have sat as an Arbitrator and I have not had a proper Statement of Agreed Facts including all of the comparable evidence, it has resulted in a considerable increase in the size of the parties submissions and of the costs I have incurred in making a decision. This is even more so in the case of a telecoms Arbitration where a large number of comparables are likely to be used.
The normal burden of proof is on the party proposing a fact or piece of evidence to prove it. The purpose of a Statement of Agreed Facts is to include all of those matters on which the parties are entitled to rely and which do not have to be otherwise proved. While frequently where there is no Statement of Agreed Facts the facts themselves are not challenged only illustrates the pointlessness of not agreeing a proper Statement. In a typical case on a main stream property there are likely to be a limited number of comparables of any significance, usually about 10 or 15 at most. In the telecoms cases I have been concerned with the numbers have been vastly greater. In one recent case I had over 60 primary comparables with further schedules to illustrate other points in the background. It would assist me as Arbitrator if all of the pro-formas were in the same style rather than similar but with slight variations and to this end I would like to propose that there is a single industry wide pro-forma brought into general use. Such things are not unusual and in the office and retail sectors for example standard pro-formas have formed part of the red book for many years. The second means of presenting information which would also be of considerable benefit to me as Arbitrator, and I believe also to you as party representatives is to put all of the comparable information onto a common schedule in excel format which would be electronically submitted. Attached to the papers you will get later is a form of schedule I have used previously which has the big benefit of allowing me to sort the data by whichever factor I choose such as distance from the subject property, operator, transaction date, assumed term or any other piece of information such as equipment rights or mast height. It shows up very quickly any correlation between the factor and level of rent.
Apart from the administrative convenience for me as Arbitrator of having information in this form it also means that both parties are considering all of the evidence which either party wishes to put into the Arbitration in their initial submissions. This means there should be no surprises as to the evidence to be introduced. The parties will be required to concentrate on the valuation differences. It also means that allegations of cherry picking of evidence should not arise. If my suggestion of a Telecom Forum set of Arbitration rules is adopted, I would propose that it includes a requirement that each party must disclose to the other party full details of the comparables on which it wishes to rely and that no other comparable evidence will be admissible without leave of the Arbitrator. This would help to overcome the virtually unique problem in the telecoms industry of comparables being used from a wide geographical area and with there being literally thousands of them it reduces the scope for argument over anybody’s selection.
Such an approach has the added benefit that it adds weight to each parties expert opinion in that it is based on a consideration of all of the evidence in the case and not merely part of it. Without that any opinion evidence is virtually worthless and hardly worth the paper it is written on. As an Arbitrator I do not start to consider the evidence until I have looked at all of the evidence not just what one party chooses to put before me. In those cases where there is a partisan selection of evidence it is rare that either case stands up to scrutiny once both sets of evidence are put together. The use of schedules of evidence is not unique to telecoms, and I use a schedule in virtually every case I have containing the appropriate information.
There is incidentally no rule of law, evidence or valuation that a comparable where one party is not represented carries less weight than a comparable where the party is represented. It is a matter to be demonstrated or proved in the circumstances of the case. So for example it might be a relevant explanation as to why one comparable appears out of line with the general body of evidence.
Once I have all of the evidence in a format that I can work with, the next step is to start considering the weight to be applied to any piece of evidence. In this regard the normal hierarchy of evidence which can be discussed by any APC candidate comes into play. Clearly the best is an open market letting followed by lease renewals and rent reviews followed by Independent Expert determinations, Arbitration awards and court decisions. However in order to carry weight not only must a comparable be higher up the chain, but it must be physically similar in a similar location at a similar date and with similar rights. The less adjustments that have to be made the better. However in this ideal world comparables very rarely arise which are so perfect, or if they do the dispute does not get to me. Having ranked the evidence in that way I can then start to apply it and come to my decision.
In looking at the number and location of comparables, can I remind you of a Court of Appeal decision arising out of a Lands Tribunal case Purfleet Farms Ltd v The Secretary of State for Transport, Local Government and the Regions. This case concerned a compulsory purchase order for the purpose of constructing the channel tunnel rail link. The claimant obtained an award from the Lands Tribunal above the level of the Secretary of State’s sealed offer. Ordinarily the claimant would have received their costs. However the Lands Tribunal reduced the costs awarded by 25% because the Tribunal considered the proceedings were unnecessarily complicated and lengthened by submissions made by the appellant’s Expert Witness and comparisons that were made to other sites were found to be lacking in utility and were rejected. The Tribunal’s decision was upheld by the Court of Appeal.
As an aside attacks upon the credibility of the other parties expert witness rarely succeed. Usually they are a smoke screen for a weak case.
Returning to the hierarchy of evidence, there is a tendency in telecoms cases to cite a small number of Arbitrator’s Awards. It should be remembered these carry little weight and are not binding upon any other Arbitrator. Indeed following Land Securities v Westminster City Council, Arbitrator’s awards were held not to be admissible at all in other Arbitration proceedings. Following the Arbitration Act 1996 there is a tendency to admit them as evidence, subject to considerations of weight. In Land Securities the judge specifically warned against entering into a collateral enquiry into the correctness of another Award.
Another area where there is a considerable potential for saving in costs is to consider whether or not a fully reasoned Award is required. If there are no points of law in dispute there is no right of appeal in any event. You should consider whether a fully reasoned Award is required, an explanation of the valuation or merely a breakdown of the valuation. You should also give clear directions to the Arbitrator as to which comparables if any he should inspect. In one recent case dealing with a mast in the south east I had comparables in Yorkshire, Scotland, The Lake District, Wales and the West Country. I am quite happy for the parties to pay for me to have a fortnights holiday driving around the country but I’m not sure your clients would be so keen.
Finally a consideration for potential Arbitration rules is that of a costs cap under section 65 of the Arbitration Act. It would be better if such a cap were in place long before the case gets to Arbitration as this would then help to concentrate the parties minds on the real issues. The argument against a cap is that it might encourage more disputes, but all that a cap does is limit the recoverable costs so each party knows what its risk of payment of costs to the other party may be, a cap does not restrict the amount that either party spends, but it does encourage both parties to keep them within sensible limits.
If there is to be an oral hearing time limits can be imposed on each stage of the process. Jonathan Gaunt QC wrote an article in the EG in March 2002 on how this worked in one case he was involved with.
Any set of Arbitration rules should also deal with such matters as disclosure and production of evidence and make provision for determinations of points of law. A set of rules need not be lengthy but an agreed set incorporated into leases may help to take some of the heat out of telecom rent review disputes.
I hope you find these comments to be of help, and I look forward to some constructive feedback from the users of Arbitration as well. One of the problems of being an Arbitrator is you very rarely get any.
Finally
- Get the procedures right
- Prepare a Statement of facts to include all the evidence
- Consider ALL the evidence
- Value based on the evidence
Download
John Wood
Head of telecoms
T: 020 7647 7232
john.wood@cluttons.com
