Field and another v Network Rail Infrastructure Ltd and another

Arbitration – Rent review – Business tenancy – Claimant tenants applying to set aside arbitral award for serious irregularity pursuant to section 68(1) of Arbitration Act 1996 – Whether arbitrator failing to conduct arbitration in accordance with agreed procedure – Whether arbitrator exceeding powers – Claim dismissed By an underlease dated 21 September 2012, the second defendant landlord demised licensed premises at Stalybridge railway station to the claimants for a term of 15 years from 17 September 2012 at a rent of £13,000 plus VAT per annum subject to upwards-only review. The review dates were at intervals of three years in September 2015, 2018, 2021 and 2024. The parties were unable to agree on the rent at the first review. Accordingly, it was determined by a rent review arbitration. The arbitrator directed the parties to deliver a statement of agreed facts, expert reports and written replies. He further directed that the parties agree that he was entitled to take the initiative in ascertaining the facts on a point, and that he would inform the parties in advance of what he intended to do and give them the opportunity to make observations on his findings before making his award. The parties’ experts advanced different methodologies for assessing the appropriate rent. Following a review of the expert evidence, the arbitrator accepted the defendant’s profits method of valuing the premises. He applied his own expertise to that approach and arrived at a rent figure of £43,000 per annum, adopting a different value for fair maintainable trade (FMT) to that advanced by either party. The claimants sought to challenge that award on the ground of serious irregularity under section 68(1) of the Arbitration Act 1996. They maintained that the arbitrator failed to conduct the arbitration in accordance with the agreed procedure (section 68(2)(c)); or exceeded his powers (section 68(2)(b)). Thus, they sought an order setting aside the award or a declaration that it was of no effect. The first defendant was joined as a party to the proceedings as superior landlord but did not actively participate. Held: The claim was dismissed. (1) There was no room for a section 68(2)(c) challenge based on putative breaches of clause 3.4 of the letting conditions. Clause 3.4 set out the basis of valuation, not the agreed procedure for conducting the valuation. If the claimants were able to demonstrate that the arbitrator misinterpreted or failed to value the premises consistently with clause 3.4, that would be capable of amounting to an error of law. However, that did not merit a challenge under section 68(2)(c). Although the arbitrator had made the award without first advising the parties of his method of calculation, that did not furnish the claimants with grounds for statutory challenge under section 68(2)(c). He was fully entitled to conduct the arbitration as an adversarial process using his own knowledge and experience to evaluate the evidence presented before him. The arbitrator’s directions did not derogate from that principle. They merely provided that he was entitled, if he so wished, to take the initiative in ascertaining the facts on a point provided that, if he did so, he would inform the parties in advance of what he intended to do and give them a reasonable opportunity to make representations before making his award. In fact, the arbitrator chose to conduct the arbitration on an adversarial basis relying upon the evidence adduced by the parties. In doing so, he made directions for the parties to deliver a statement of agreed facts followed by expert reports and written replies. The parties availed themselves of the opportunity to do so. In making the award, the arbitrator evaluated the evidence that had been presented to him, deploying his own professional knowledge and experience. However, there was nothing to suggest that he supplied or otherwise relied on specific facts that were not provided to him in the arbitration. Since he was content to rely on his own assessment of the evidence adduced in the arbitration and thus did not take the initiative in ascertaining the facts, the arbitrator was not under a duty to inform the parties about his intentions before delivering the award: Warborough Investments Ltd v S Robinson & Sons [2003] EWCA Civ 751; [2003] 2 EGLR 149, Checkpoint Ltd v Strathclyde Pension Fund [2003] EWCA Civ 84; [2003] 2 EGLR 1 and Lesotho Highlands Development Authority v Impregilo SpA and others [2006] 1 AC 221 considered. (2) Section 68(2)(b) was limited to action taken by the arbitrator exceeding his powers. Contrary to the claimant’s particulars of claim, it did not apply to challenges for want of substantive jurisdiction. In such a case, awards could be challenged under section 67. An arbitrator might exceed his powers for the purposes of section 68(2)(b) if he acted contrary to an agreement in writing with the parties. However, there was no suggestion of that in the present case. The arbitrator was appointed as arbitrator, under the provisions of clause 3.4 of the letting conditions, to determine “the rent at which the premises might reasonably be let in the open market…”. At no point was it ever agreed that the arbitrator was limited to a choice between the precise amounts specified in the professional valuations. Had an unusual provision been intended on those terms, the parties could have been expected to provide for it expressly and unambiguously. They did not do so. It followed that the arbitrator was not limited to the amounts specified in the experts’ reports and he was entitled to make an award within the range of valuations before him. (3) The court was not satisfied that there was any irregularity in the award. There was thus no room for serious irregularity. However, on the hypothesis that such an irregularity could be discerned, it would not be of such a nature as to cause substantial injustice to the claimants within the meaning of section 68(2) of the 1996 Act. Although, by virtue of the award, the rent was reviewed at a sum far higher than might reasonably have been expected, that did not in itself amount to a substantial injustice. Anthony Edwards (instructed by Ramsdens Solicitors LLP) appeared for the claimants; Matthew Hall (instructed by Hill Dickinson LLP) appeared for the second defendant. Eileen O’Grady, barrister Click here to read a transcript of Field and another v Network Rail Infrastructure Ltd and another