Saturday, June 07, 2008

Dodds v West Register (Public Houses III) Ltd

Cite: [2008] All ER (D) 246 (May)

Court: Chancery Division

Judge: David Donaldson QC (sitting as a deputy judge of the High Court)

Hearing date: 19 May 2008

Summary: Arbitration / Award / Appeal / Defendant landlord leasing public house to claimant tenant . Arbitrator determining rental value of property . Claimant challenging basis for arbitrator's award . Whether failure to address particular issue in claimant's trading accounts amounting to serious irregularity on part of arbitrator - Arbitration Act 1996, section 68(2)(d)

The claimant was the tenant of public house premises (the property) leased from the defendant landlord. The property was a tied house and the lease contained a beer tie. The lease also contained the mechanism for rent review. An arbitrator was subsequently appointed to determine the rent payable pursuant to the rent review provisions. It was common ground that free of tie tenants obtained benefits by way of discounts on alcohol supplies from wholesalers that were not available to tied tenants. As a preliminary issue the arbitrator was asked by the claimant to determine whether the claimant's personal trading accounts and associated documents were admissible in the rent review determination. The claimant's position was that they were admissible on the basis that a tied tenant should not be worse off than a tenant who was free of tie. The arbitrator accepted that idea, but determined the preliminary issue in the defendant's favour, finding that the claimant's actual trading accounts were inadmissible (the first award). The arbitrator went on to determine the rental value of the property (the second award).

The claimant relied on its actual trading accounts for each of the elements in the valuation, whereas the defendant advanced a comparable method of valuation, arriving at the rental value of the property from comparables, which were also tied houses. In arriving at the rental valuation for the property, the arbitrator considered each line of entry in the claimant's trading accounts. The claimant's actual trading accounts included an entry by its accountant called "open market discounts", which showed discounts that the claimant would have been able to obtain if he had not been tied. However, the arbitrator failed to consider that entry, with the effect that he failed to consider the impact on his assessment of the claimant's "open market discounts" on the rental value of the property. The claimant challenged the second award pursuant to section 68(1) of the Arbitration Act 1996, which provided that a party to arbitral proceedings might (upon notice to the other parties and to the tribunal) apply to the court challenging an award in the proceedings on the ground of serious irregularity affecting the tribunal, the proceedings, or the award. Pursuant to section 68(2), "serious irregularity" meant an irregularity the court considered had caused or would cause substantial injustice to the applicant, including, as set out in section 68(2)(d), a failure by the tribunal to deal with all the issues that were put to it.

The claimant argued that when making his assessment, the arbitrator had failed to take account of the price differential between the wholesale prices available to "free of tie" tenants and those imposed by the beer tie. The appeal would be allowed.

In the instant case, the absence of a decision on the claimant's "open market discounts" amounted to a serious irregularity pursuant to section 68(2)(d) of the Act, resulting in substantial injustice to the claimant, which had arisen as a result of the arbitrator's failure to address that entry in the claimant's trading accounts. In the circumstances, the matter should be returned to the arbitrator so that he could address that point and give his ruling on it.

The award would be remitted to the arbitrator for reconsideration.

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