Irregular awards
Landlords and tenants feeling the pressure in the economic downturn are more likely to appeal against rent review arbitration awards but the courts have set high hurdles to such challenges, warns Stephen Bickford-Smith
Most rent review arbitrations under the Arbitration Act 1996 are conducted on the basis of written submissions and counter-submissions. Oral hearings and disclosure of documents are not routinely ordered. Whatever the procedure, the arbitrator remains under a duty under s.33 to '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'.
There are two main ways to challenge the award. These are (i) appeals on points of law under s.69 and (ii) applications to have the award set aside or remitted for serious irregularity under s.68.
The court will only grant leave to appeal under s.69 if five tests are met, which are that the point at issue: a) is a point of law; b) which will substantially affect the rights of the parties; c) which the tribunal was asked to determine; d) on which the arbitrator was obviously wrong; e) which it is just and proper for the court to determine.
The court should consider only the award and necessary explanatory documents (Newfield Construction v Tomlinson [2004] EWHC 3051 (TCC)). Hence it is not possible to dress up a point of fact as a point of law.
Serious irregularity
Section 68 provides apparently broader grounds of challenge. Most are brought under subsection 2(a) and/or (d). Subsection (a) covers 'failure by the tribunal to comply with section 33 (general duty of tribunal); (d) covers failure by the tribunal to deal with all the issues that were put to it'.
Section 68 is however restricted in four ways as set out by Lord Steyn in Lesotho Highlands Development Authority v Impreglio SPA [2006] 1 AC 221:
'First, unlike the position under the old law, intervention under s.68 is only permissible after an award has been made. Secondly, the requirement is a serious irregularity. It is a new concept in English arbitration law. Plainly a high threshold must be satisfied. Thirdly, it must be established that the irregularity caused or will cause substantial injustice to the applicant. This is designed to eliminate technical and unmeritorious challenges. It is also a new requirement in English arbitration law. Fourthly, the irregularity must fall within the closed list of categories set out in paragraphs (a) to (i).'
In Bandwidth Shipping v Intaari [2007] EWCA Civ 998, the Court of Appeal stated that s.68 imposed a high hurdle to a party seeking to set aside an award.
A common complaint in rent review cases is the arbitrator using his own expertise on rental values. An arbitrator is entitled to make use of his own experience in reaching his conclusions, provided that it is of a kind and in the range of knowledge that one would reasonably expect the arbitrator to have, and providing that he uses it to evaluate the evidence called and not to introduce new and different evidence (Checkpoint Ltd v Strathclyde Pension Fund [2003] EWCA Civ 84).
But an arbitrator cannot use his expertise to introduce new evidence which he then fails to allow the parties to address (see Eastcheap Dried Fruit & Co v NV Gerbroedus Catz Handelsvereeniging [1962] 1 Lloyds Rep 283; or make an award based upon arguments or evidence that were not presented to him, or upon a basis that is contrary to the common assumption of the parties as represented to him: see the judgment of Bingham J (as he then was) in Zermalt Holdings SA v Nu-Life Upholstery Repairs Limited [1985] 2 EGLR, 14 at page 15 K-N.
He may however deploy the evidence that he has heard in a way that is materially different from the way in which the parties' valuers did, provided that the parties have raised the issue and/or that it is a point with which they have had an opportunity to deal (see Bulfracht (Cyprus) Ltd v Boneset Shipping Ltd (The Pamphilios) [2002] 2 Ll Rep 681).
Under s.68 substantial injustice must have been caused for a challenge to succeed. Having chosen arbitration the parties cannot validly complain of substantial injustice unless what has happened simply cannot, on any view, be defended as an acceptable consequence of that choice. Provided a party has not been deprived of his opportunity to present his case properly and would have conducted his case in a similar way with or without the irregularity, the award would be upheld.
An arbitrator is not obliged to deal with each and every point in dispute. It is sufficient if he deals with the main issues.
The court has wide discretion whether to remit or set aside the award, but subject to s.68 (3). In general it will remit the matter, unless it is clear what the correct answer is.
Challenging rent review arbitration awards is not easy, but as the economy tightens more attempts may occur.