Summary

An arbitration award in respect of a rent review was remitted for reconsideration where a serious irregularity had occurred because the arbitrator in applying a discount for onerous lease terms had departed from the agreed basis upon which the case was put to him.

Facts

The claimant landlord (S) applied for the remission of an arbitration award for reconsideration under the Arbitration Act 1996 s.68 on the basis that a serious irregularity had occurred in the course of the proceedings before the arbitrator. S had granted an underlease in respect of office premises to the defendant tenant (G). The premises were the lower ground floor of an office building. The parties had failed to agree on the level of the reviewed rent payable in December 2001. The matter was referred to an arbitrator. Written representations were made by S and G to the arbitrator through their expert valuers. The third floor of the premises was also demised to G by a separate lease on similar terms which had been the subject of a December 2001 rent review. S submitted that the rent of the lower ground floor should be discounted by 30 per cent from the adjusted third floor figure of £55 and G submitted that the rent should be discounted by 65 per cent. The arbitrator used a discount of 40 per cent as the starting point for his rent calculation. He then made a further discount of nine per cent adjusting for the onerous features of the lease. S submitted that the arbitrator had produced a result which had not been the subject of submission before him and which it had no opportunity to answer by making the additional discount of nine per cent for the onerous lease terms, thereby departing from the agreed basis upon which the case was put to him. G submitted that there was no serious irregularity because the issue of the onerous lease discounts was in the arena before the arbitrator and that in any event no substantial injustice had occurred.

Held

1) It was clear that the arbitrator started with the third floor discount method put forward by the parties. The award in respect of the third floor did not include any discount for onerous lease terms. The onerous lease terms discount was inconsistent with the third floor discount method and involved double counting. It was not a discount which was to be applied in determining the discount between an upper floor and a lower ground floor. The onerous lease terms discount was not in the arena for decision by the arbitrator because the parties had made their representations to the arbitrator on a totally different basis. It appeared that the arbitrator had made his calculation on a basis which was contrary to the agreed assumptions between the parties and which appeared to confuse the two methodologies of valuation. Consequently, there had been a serious irregularity. Zermalt Holdings SA v Nu-Life Upholstery Repairs Ltd, Checkpoint Ltd v Strathclyde Pension Fund (2003) EWCA Civ 84, (2003) 08 EG 128 (CS) and Warborough Investments Ltd v S Robinson and Sons (Holdings) Ltd (2003) EWCA Civ 751, Times, July 9, 2003 applied. (2) The irregularity had caused substantial injustice to S and the award was remitted in whole to the arbitrator for reconsideration.

Application granted.

Chancery Division
John Jarvis QC

References
​[2005] 1 EGLR 5