Agricultural holding – Rent – Section 68 of the Arbitration Act 1996 – Arbitrator making award as to rent payable in relation to agricultural holding – Freehold owner seeking order setting aside award – Whether arbitrator giving adequate reasons for decision – Whether failure to give adequate reasons giving rise to serious irregularity – Claim dismissed
The claimant was the freehold owner of an agricultural holding extending to some 605 acres and including a farmhouse and farm buildings. The defendant was the tenant from year to year of the holding and his tenancy was within the Agricultural Holdings Act 1986. The defendant had become tenant of the holding pursuant to the succession provisions of the 1986 Act. In January 2009, an Agricultural Land Tribunal made a direction, by consent, in favour of the defendant pursuant to section 53(7) of the 1986 Act. The effect of that direction was that the defendant became tenant of the holding with effect from 25 March 2009.
The rent payable under the tenancy which preceded the defendant’s tenancy of the holding was £28,500 per annum, with effect from a date in 1999. The claimant gave the defendant a notice under section 48(3) of the 1986 Act requiring an arbitration as to the amount of rent payable under the defendant’s tenancy of the holding. An arbitrator was appointed to determine the rent payable and both parties served expert’s reports. The arbitrator delivered his award to the parties in November 2011 to the effect that the rent properly payable from 25 March 2009 was £34,800 per annum.
The claimant applied to the court for an order under section 68 of the Arbitration Act 1996 setting aside the arbitration award in its entirety, or alternatively remitting the matter to the same arbitrator for reconsideration on the basis that there were a number of irregularities affecting the proceedings or the award which had caused substantial injustice to the claimant.
The court was asked, inter alia, to decide: (i) the standard of reasons which an arbitrator should be expected to achieve in a reasoned arbitration award; and (ii) the circumstances in which a failure by the arbitrator to give adequate reasons would give rise to a “serious irregularity” for the purposes of section 68 of the 1996 Act.
Held: The claim was dismissed.
(1) A party might challenge an arbitration award on the grounds of “serious irregularity”. For that purpose it had to be shown that there was an irregularity within one of the paragraphs of section 68(2) and that the irregularity had caused or would cause “substantial injustice” to the party relying on section 68. The test of “substantial injustice” was intended to be applied by way of support for the arbitral process, not by way of interference with that process. Thus it was only in those cases where it could be said that what had happened was so far removed from what could reasonably be expected of the arbitral process that the court would be expected to take action. The test was not what would have happened had the matter been litigated. Section 68 was really designed as a long stop, only available in extreme cases where the tribunal has gone so wrong in its conduct of the arbitration that justice called out for it to be corrected: Lesotho Highlands Development Authority v Impregilo SpA [2005] PLSCS 125; [2005] 27 EG 220 (CS); [2005] 3 All ER 789 and Fidelity Management SA v Myriad International Holdings BV [2005] 2 All ER (Comm) 312 applied; Save Britain’s Heritage v Number 1 Poultry Ltd [1991] 3 PLR 17, and South Bucks District Council v Secretary of State for Transport, Local Government and the Regions [2004] 4 PLR 50 considered.
There was a difference between a failure to deal with an essential issue, which was an irregularity within section 68(2)(d), and some other failure of reasoning, which was not. A failure of reasoning might in some cases allow a party to seek clarification under section 57(3) or might allow a party to seek an order from the court under section 70(4). Further, a failure of reasoning might give rise to an irregularity within section 68(2)(f) or might mean that the form of the award did not comply with section 52(4), thereby enabling a party to contend that there was an irregularity within section 68(2)(h). The usual model of arbitration which was governed by the 1996 Act was a consensual arbitration. However, it was clear that where, as in the present case, the arbitration was governed by the 1996 Act by reason of the operation of sections 94 and 95, the 1996 Act applied to such an arbitration in the same way as it applied to a consensual arbitration: Peel v Coln Park LLP [2010] EWCA Civ 1602 considered.
(2) Section 52(4) of the 1996 Act stated that an award should contain the reasons for the award unless it was an agreed award or the parties had agreed to dispense with reasons. The duty on an arbitrator to provide a reasoned award was not less than the duty on tribunals and planning inspectors. In a case like the present, where the arbitrator had been chosen for his experience in the relevant expert discipline, there was no particular reason why the duty to explain why he had preferred one expert to another should be fundamentally different from the duty on a court in such a case. An arbitrator had to explain why he has decided the essential issues in the way in which he had and an award which did not contain such reasoning would not comply with section 52(4). That would give rise to an irregularity within section 68(2)(h).
However, there would only be a “serious irregularity” if the failure of reasoning had caused or would cause substantial injustice to a party. The burden of proof lay on the applicant to satisfy the court that he had been substantially prejudiced by the failure to give reasons. In many case there would be substantial injustice where a party did not know the reasons for an award but the court was not prepared to hold that every failure of reasoning which amounted to an irregularity for the purposes of section 68(2)(h) would automatically give rise to substantial injustice. A reasons challenge would only succeed if the party aggrieved could satisfy the court that he had genuinely been substantially prejudiced by the failure to provide an adequately reasoned decision: Benaim (UK) Ltd v Davies Middleton [2005] EWHC 1370 (TCC); [2005] 102 Con LR 1 considered.
Edward Peters (instructed by Michelmores Solicitors LLP) appeared for the claimant; William Batstone (instructed by Thrings LLP, of Swindon) made written submissions for the defendant.
Eileen O’Grady, barrister
