Can a real estate agent be an arbitrator?

12 March 2015

In the case of Crowther v Rayment [2015] EWHC 427 (Ch) it was held amongst other things an agent involved with the management of the property could not act in a judicial capacity as arbitrator.

The claimant lessors sought an order under the Arbitration Act 1996 (the “Act”) s.18 for the appointment of an arbitrator since disputes had arisen under a series of three leases relating to a property in France. The leases each provided for a deposit to be paid by the lessee and held by the lessor's agent, RV, as security. The legal nature of RV was unclear, but it appeared to be a legal rather than a natural person. The parties concluded a further agreement which contained provisions dealing with the treatment of the deposits and provided:

"In the event of any dispute between the Lessor and the Lessee regarding proposed deductions from the deposit, then the Agent's decision shall be final and binding on all parties".

Disputes arose soon after the start of the third lease. In 201 the lessors issued proceedings in the French courts seeking an order for eviction. The lessees, in turn, claimed damages and repayment of rent. In September 2013, the French court upheld the lessees' claims in part.

In April 2014, the lessors sought to appoint RV as arbitrator pursuant to the dispute provision in the further agreement, but no appointment was made. The lessors then applied to court under section 18 for appointment of an arbitrator.

Section 18 of the Act presupposes the existence of a valid arbitration agreement and confers on the court a supportive power to intervene where the arbitral appointment process has failed. Under s.18, the court may make or revoke appointments, or make directions with a view to constituting a tribunal.

Andrew Smith J dismissed the application, holding that he had no power under s.18. He went on to decide that, if he did, he would not have exercised it in any event on the basis that:

  • the principle of kompetenz-kompetenz required the court to refrain, as far as possible, from anticipating a decision that the tribunal was empowered to make. Therefore, the lower test of "no real prospect of success" was more appropriate. On the facts, the applicant failed to satisfy even this lower test and the application was refuse;
  • There were three clear indications both in the background to the agreements and the agreement that that the parties did not intend to arbitrate:
  1. only a natural person could be an arbitrator. RV was not a natural person;
  2. the provision contemplated a decision by a person working as an estate agent. Such persons were more commonly appointed as experts or adjusters, not arbitrators; and
  3. RV had been involved in the management of the property. This was not consistent with the judicial role played by an arbitrator.
  • Even if the provision amounted to an arbitration agreement, Part I of the Act did not apply. The provision did not designate England, Wales or Northern Ireland as the juridical seat, and on the evidence there was no sufficient connection with England, Wales or Northern Ireland. It was noted by way of example, that it would not suffice, to show that the parties were English;
  • Nor, on the evidence, had there been any failure in the procedure for an appointment within the meaning of s.18. Even if  the provision could be interpreted as requiring the appointment of one of RV's directors (contrary to the judge's view), the lessors had never asked RV to make such an appointment; and
  • Finally, the dispute provision did not, on its true construction, cover the disputes between the parties. In their claim form, the lessor had stated that the dispute was “as to the existence of outstanding bills, damage, repair and/or restoration works to be carried out on the Property”. Accordingly, on the face of it the dispute was not in respect of proposed deductions from the deposit.

Interestingly the judgment explores the issue of the standard of proof. Andrew Smith J considered that any test higher than "no real prospect of success" would, or might, infringe the principle of kompetenz-kompetenz. The judge noted that, although the lessors had accepted the higher "good arguable case" test, they had set the hurdle too high for themselves. The test of "good arguable case" was "easier to state than define" and it was important to ensure that the court did not infringe the tribunal's area of competence.

Further it provides a helpful reminder to practitioners to consider carefully the drafting of such ‘dispute resolution clauses’ and the requirements of an arbitrator. 

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