Parties to arbitral proceedings can challenge the arbitrator’s award on the ground of a serious irregularity, which the court considers has caused or will cause substantial injustice, or on a point of law, under sections 68 and 69 of the Arbitration Act 1996.
Eric Wright Group Ltd v Council of the City of Manchester [2020] EWHC 2089 (Ch) concerned a Grade II listed nineteenth century brick building, comprising 20,000 sq ft or thereabouts, spread over several floors. It was let to the council for 125 years from 11 February 1988 at an initial rent of £96,130 pa, which was subject to review at five-yearly intervals.
The rent review provisions required the arbitrator to determine the “best rental value”, which was defined as being “such sum as is equal to 71.7% of the best rental figure per square foot achievable for prime office accommodation within the city of Manchester (including for the avoidance of doubt the city centre itself) multiplied by the total lettable area in square feet of the premises”. But what did this mean?
Was the reviewed rent to be benchmarked against the rent achievable for prime office accommodation in Manchester? Or was it to be benchmarked against prime office accommodation in Manchester which was “like the property”? The tenant’s construction – which was that the valuation should reflect the reality that the property was a period building with fairly basic services – had the effect of reducing the annual rent by £240,000 pa, and the value of the reversion by about £5m.
The arbitrator sought an opinion from a legal assessor as to the construction of the lease. The opinion favoured the tenant (although the assessor implied a term into the rent review provision, rather than applying the presumption of the reality), and it was circulated for comment. The legal assessor then dealt with the parties’ comments in a further opinion, after which the landlord asked to be allowed to adduce further evidence as to why “prime office accommodation” could not be “like the property” (because accommodation like the premises in character and specification would plainly not be “prime office accommodation” in Manchester). But the arbitrator rejected the landlord’s application, saying that, if the evidence was relevant, then it could and should have been adduced already – and made an award in favour of the tenant.
The landlord asked the court to set aside the award. It claimed that there had been a serious irregularity, depriving it of the opportunity of putting its case, which, given the financial consequences, had caused substantial injustice. But the court reminded the parties that section 68 of the Arbitration Act 1996 is a long stop – only available in extreme cases, where the tribunal has gone so wrong that justice calls out for it to be corrected – and was satisfied that the arbitration had been conducted fairly.
The legal assessor’s opinion did not raise a new issue in respect of which further evidence became relevant. The issue remained what it always had been and the landlord could and should have argued the whole of its case when it had had the opportunity to do so, consistently with the procedure that had been agreed. Consequently, the landlord’s challenge to the award based on the arbitrator’s refusal to allow it to submit fact and circumstance evidence was unsuccessful.
Allyson Colby, property law consultant
