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Expert Insights

18 July 2022

And the Award goes to...? First decisions published under pandemic arrears scheme

The first two Awards under the binding arbitration scheme introduced by the Commercial Rent (Coronavirus) Act 2022 have been published this month by Falcon Chambers Arbitration (“FCA”).  

H Samuel case

The first Award relates to H Samuel (Signet Trading Limited) and can be found here.

The premises in question were not a retail shop but concerned H Samuel’s registered office.  The arrears accrued during the protected period totalled around £450,000.

H Samuel argued that its registered offices were affected by a closure requirement within the meaning of section 4(1) of the Act. However, the landlords disagreed, arguing that at no stage was there a requirement for offices to close.

This point was decided as a Preliminary Issue and the key question for the Arbitrator was whether a closure requirement applied to the business carried on by the tenant from the specific premises (i.e. offices).

Decision

The Arbitrator determined that the Applicant’s business did not fall within the 26 March 2020 Regulations (The Health Protection (Coronavirus, Restrictions) (England) Regulations 2020) in terms of being a business which fell within a closure requirement.

The Arbitrator also noted that, whilst there were requirements in Regulation 6 of the 26 March 2020 Regulations that no person could leave the place where they were living without reasonable excuse, the non-exhaustive list of excuses included travel to work.  The indirect effect was that many offices and other places of work remained empty for a significant period, but that did not mean there was a requirement for offices to close.  The Award confirms that office accommodation remained capable of occupation during the protected period.

Accordingly, the business carried on by H Samuel at this particular property (being the subject of the arbitration) was not subject to a closure requirement and not adversely affected by Coronavirus under section 4 of the Act.

There was therefore no protected rent debt and the reference to arbitration was dismissed.

Procedural Award in KXDNA Limited v 60 SA Limited

The second Award is a partial one, largely focused on procedure, and can be found here.  The key point from this decision is the Arbitrator's approach to what is likely to be regarded as a "proposal" for the purposes of the Act. 

The parties are agreed that the tenant's debt should be repaid via instalments, with the tenant's expert claiming that it could only afford £407,000 and remain viable.  The landlord's initial proposal was for the tenant to pay just over £1.35m, with expert evidence supporting that view. 

After it transpired that there were some errors in the landlord's expert evidence, the landlord was given a limited permission to amend its initial proposal - to correct only specific arithmetical and/or input errors which had been identified (rather than adjusting for a proposed change in methodology).  The Arbitrator's Order allowed the landlord to serve an amended initial proposal to show the changes resulting from the limited corrections permitted.  

The landlord filed its amended expert report on 1 July, with a covering letter setting out its "amended initial proposal".  The tenant contended that the landlord had gone beyond the amendments permitted by the Arbitrator's Order so that its proposal was, in fact, a "revised proposal" under section 11(4) of the Act.  The tenant challenged this on the basis that the landlord would otherwise have "three bites of the cherry" rather than the two per party permitted by the Act. 

Decision

The Arbitrator agreed that the landlord's amended proposal did not accord with the Order she had made and that the landlord therefore did not have permission to amend its initial proposal, which should remain in original form.  However, she did not consider that the landlord's letter of 1 July was a "revised proposal" for the purposes of section 11(4).

The Arbitrator felt that the landlord's letter of 1 July was not a clear "formal proposal" under the Act.  The Arbitrator highlighted the fact that section 11(7) of the Act requires any "formal proposal" to be "expressed to be made for the purposes of this section", inferring from this a need for parties to be clear as to what is and is not a formal proposal within the statutory scheme.  In the Arbitrator's view, this requirement should be interpreted strictly.  

Since the landlord's letter of 1 July did not say that the proposal was made for the purposes of section 11 - or indeed mention section 11 at all - the Arbitrator felt that it could not amount to either an amended initial "proposal" or a "revised proposal".  This will therefore allow the landlord to make a revised proposal within the arbitration process in due course. 

Comment

Whilst the H Samuel Award is perhaps more the "headline grabbing" of these two decisions, the procedural matters covered by the second Award will be important to bear in mind for anyone handling a reference under the Act.  

It remains to be seen how many more Awards will appear during the upcoming weeks/months.  In a recent article by Helen Thomas in the FT (which can be found here behind a paywall), it seems that there has been no flood of arbitration cases and none of the arbitration bodies they contacted had broken into double figures for confirmed cases (as at late June 2022).  This matches our expectations prior to the introduction of the legislation and it remains to be seen whether the government will extend the current deadline of 23 September 2022 for making a reference to arbitration under the scheme.

 


For more information on the above, please contact Emma Humphreys or your usual Charles Russell Speechlys contact.

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