David Nicholls has successfully defended an application challenging a rent review arbitration.
The application was made under section 68(2) of the Arbitration Act 1996 by the tenant of a hostel and bar in Shoreditch on the grounds that the arbitrator had exceeded his powers.
In the award, the arbitrator determined the rent under an upwards only review provision in the lease. However, he diverged from the parties’ experts’ agreed approach to the treatment of the floor areas at the bar. The landlord invited the arbitrator to correct this and other errors under the slip rule in section 57. The arbitrator considered that he had power to correct the award and he made an amended award, which had the effect of increasing the amount of rent payable by about £5,500 per annum.
The tenant applied to the court to have the amended award set aside under section 68 on the ground that there was a serious irregularity because the arbitrator had exceeded the extent of the statutory power to correct mistakes.
There were two principal issues in the case. First, had the arbitrator made an accidental slip or omission? Secondly, if the arbitrator had exceeded his power, had the claimant suffered a substantial injustice?
The court concluded that the arbitrator had not made an accidental omission that was capable of correction under section 57. It therefore followed that there was a serious irregularity.
But the court went on to accept the landlord’s submission that this serious irregularity had not caused the tenant to suffer a substantial injustice. This was because the correction of the mistake by the arbitrator had the effect of ensuring that his decision then accorded with the agreed approach of the parties’ experts to valuation.
In other words, had the mistake not been corrected, then the parties would have been left with the original award, which was based on a departure from the task given to the arbitrator (namely to make his decision based on the agreed approach of the experts). Thus, the original award would have been based on a serious irregularity in breach of the arbitrator’s general duty of fairness, which would have caused substantial injustice to the landlord. Contrary to received wisdom, in this case two wrongs did make a right.
The court applied the approach adopted by Burton J in CNH Global NV v PGN Logistics Limited  1 CLC 807 and emphasised that section 68 is a long stop only available in extreme cases.
David acted for the successful landlord.