Why the Commercial Rent (Coronavirus) Act has new challenges for arbitrators

Much has been written about the very novel Commercial Rent (Coronavirus) Bill, which is due to receive royal assent at the end of this month if all goes according to plan. The progress of the bill, from the end of the consultation exercise in August last year, to its drafting, and then its passage through all its readings in both houses, past the committee and report stages with detailed questioning and amendments, to full enactment, has been astonishingly rapid, given that most primary legislation takes more than three years from conception to delivery. It is not our purpose in this article to raise criticisms of the legislation, which for the most part is bold, clear and well drafted. However, given that our day jobs typically involve us advising arbitrators on the meaning of words, or making submissions to them on the same topic, here are a few considerations regarding the operation of the bill that have occurred to us. Legal considerations Although the task for the arbitrator will primarily involve accounting considerations, there are a number of fairly tricky points of law that may arise. We have in mind, first, the substantive ingredients of the Act which the seasoned lawyers among us appreciate are capable of involving some fairly weighty issues, such as whether the tenancy under which the arrears have arisen is a business tenancy; whether the rent falls within the description “protected rent debt”, which the Act uses; whether the business in question was “adversely affected by coronavirus”; and whether an exchange of e-mails between the parties last year amounts to an agreement to resolve the arrears which will bar the use by either party of the arbitration scheme.  Quite apart from these substantive questions, a number of procedural questions may also arise. First, a party wishing to arbitrate under the Act may not do so without first giving the other party a notification of their intention to refer their dispute as to the matter of relief from payment to arbitration. The respondent then has 14 days to respond to the notification. A reference to arbitration may not be made before either the end of 14 days after the day on which any response is received, or if no response is received, the end of 28 days beginning with the day the notification was served.  Parliamentary drafters love stipulations like these, which are designed to inject a bit of precision and certainty into the mechanism. The trouble is, in the real world, mistakes are made and time limits are missed. We foresee that the arbitrator will be asked to decide what is the consequence if a premature reference is made; or indeed if no notification was given. The Act does not itself spell out the consequence of such failures, and it is not at all clear what an arbitrator is supposed to do in these circumstances. Secondly, the very complex clause 11 of the bill makes provision for the parties to set out their cases in formal proposals, with supporting evidence signed by statements of truth, and with a statement that they are given for the purposes of that clause. Again, what if this is not done? Where a statement of truth is not provided, the clause provides that the arbitrator may disregard the party’s document – but in no other case does the bill spell out the consequences that flow from a procedural default.  Thirdly, we suspect that many parties will hang back from arbitrating their disputes, in a bid to see how the frontrunners have fared. There will then be a mad scramble of references to arbitration at the end of the six-month period laid down by the bill. Inevitably, there will be arguments as to whether a reference was made in time, which again may be difficult to resolve.  Fourthly, the Act provides not merely that one party alone may insist on the arbitrator holding an oral hearing, but also that the hearing be held in public. The award must then be published, and will be a publicly available document. Arbitrators will have to hone their skills to ensure that confidential information is redacted – not an easy task. Accounting considerations So much for the legal considerations, with which the bill bristles. These are, of course, subsidiary to the real questions for the arbitrator, which will be: (a) how to weigh up the parties’ formal proposals in line with the statutory principles of preserving the viability of the tenant’s business, so far as that is consistent with preserving the landlord’s solvency; and divining whether the tenant can pay without rental relief; (b) ascertaining whether the tenant’s business would be unviable even with rental relief; and (c) ignoring any attempts by either party to manipulate their financial circumstances.  Arbitrators will be assisted by the very useful draft Statutory Guidance to Arbitrators about the exercise of their functions, which was published by the government at the end of February, and will also have recourse to the government’s revised code of practice, which sets out a detailed non-exhaustive list of the types of evidence that tenants, landlords and arbitrators should consider when assessing the viability of a tenant’s business and the impact of any relief on protected rent debt on the landlord’s solvency. But nevertheless, these are formidably complex questions in themselves, the resolution of which will call for the use of profound accounting expertise. Assistance for the arbitrator  If the arbitrator has been appointed for his or her accounting expertise, the resolution of the legal points mentioned above may not be within the arbitrator’s comfort zone – and vice versa. It is as well that the Act incorporates many of the features of the Arbitration Act 1996, including the power under section 37 for the arbitrator to appoint experts, legal advisers or assessors.  The many valuation surveyors and lawyers who sit as arbitrators to determine rent review and development land disputes are well accustomed to using their section 37 powers, and it will be interesting to see to what extent the arbitrators appointed to decide disputes arising under the Act take the same course. Guy Fetherstonhaugh QC and Thomas Rothwell are barristers at Falcon Chambers