Lease – Dispute arising over upward-only rent review – Parties referring dispute to arbitration – Arbitrator issuing final interim award – Whether award affected by serious irregularity – Whether claimant suffering substantial injustice – Application dismissed
The claimant was the tenant of a public house by assignment of a lease dated April 2000 for a term of 30 years from December 1999. The defendant company was the landlord. The initial rent was £34,000 pa with a concessionary rent for three months. The lease provided for upward-only rent reviews to the open market rent every five years. If no agreement was reached before the relevant review date, an independent surveyor acting as an arbitrator was to determine the rent. The arbitrator was required to act in accordance with the Arbitration Act 1996 and his decision, including as to costs, was binding.
In October 2006, an arbitrator who had been appointed to deal with the rent review dispute made an interim final award. The claimant challenged the award and applied to set it aside, pursuant to section 68(2)(a) of the 1996 Act, on the basis that the award was affected by a serious irregularity by reason of the arbitrator’s failure to hold an oral hearing and to allow cross-examination. In particular, he complained that the arbitrator had estimated a figure for wet sales of £225,000 pa, which was higher than that suggested by either the claimant or the expert witness and that he had taken a figure for overheads of £143,000 which was lower than that suggested. Finally, he asserted that, in analysing the accounts of the property’s trading, the arbitrator had adjusted some of the figures.
The claimant contended that the arbitrator had not been entitled to do those things without giving him an opportunity to respond to them or to cross-examine the expert witness. He thus relied upon those matters as evidence that he had been prejudiced. The defendant contended that the procedure that the arbitrator had adopted fell within the discretion afforded by section 34 of the 1996 Act; it did not accept that there was any serious irregularity.
Held: The application was dismissed.
The arbitrator’s decision had been open to him on the material before him. He had given both parties the opportunity to make submissions and he had given reasons for the exercise of his discretion. In those circumstances, it was difficult to see that the failure to hold an oral hearing had created an irregularity. The arbitrator’s conclusions were based upon the evidence submitted to him and he had not gone outside the evidence or sought evidence of his own without informing the parties. It followed that there was no serious irregularity on either the original or the amended basis of the claim, which accordingly failed: Sinclair v Woods of Winchester Ltd [2005] EWHC 1631 (QB) considered.
It was always necessary for an applicant in the claimant’s position to show substantial injustice as a result of the alleged serious irregularity. Substantial injustice could be demonstrated only where what had happened could not be defined as an acceptable consequence of the choice that the parties made to arbitrate. Adopting that test, it could not be said that the arbitrator’s decision not to hold an oral hearing was an unacceptable consequence of the parties’ decision to arbitrate the rent review.
Furthermore, the claimant had lost his right to object under section 73 of the 1996 Act since he had failed to object to the arbitration or the award forthwith. He did not object to the decision not to hold an oral hearing and although he took no active steps thereafter, he permitted the arbitrator to deliberate and to make the award, objecting only after it had been published and he had known its contents.
David Rose (instructed by Ludgate Morrell, of Huddersfield) appeared for the claimant; Wilson Horne (instructed by Gosschalks, of Hull) appeared for the defendant.
Eileen O’Grady, barrister
