Author
Stephen Burke

Stephen Burke

Senior Associate

Read More
Author
Stephen Burke

Stephen Burke

Senior Associate

Read More

10 October 2022

RED Alert - October 2022 – 1 of 5 Insights

Arbitration in action

Summary

At the time of writing, there have only been 7 published awards since the arbitration scheme created by the Commercial Rent (Coronavirus) Act 2022 (the Act) came into effect. Although each award will hinge on the individual facts and circumstances, it is useful to understand how arbitrators are applying the statutory principles.  We have examined these awards and set out the takeaway points.

Awards

Signet Trading Limited Applicant and (1) Fprop Offices (Nominee) 4 Limited (2) Fprop Offices (Nominee) 5 Limited

  • The registered office of the parent company of H Samuels and Ernest Jones was not subject to a closure requirement and therefore not adversely affected by coronavirus for the purposes of the Act. Although its retail stores were adversely affected, this did not extend to its head office.
  • The consequence of this was that the reference to arbitration was dismissed.

KXDNA and 60 SA Limited

  • An interim award prevented the respondent from relying upon an amended initial formal proposal that did not comply with the procedural order made by the arbitrator in respect of methodology.
  • Turning to the final award, the parties agreed that the tenant's business was viable. Had there been no agreement, the arbitrator had doubts as the applicant was a dormant company and it was an associated company that was in occupation.
  • The specific figures are outlined below. The arbitrator held that the tenant's proposal was inconsistent with the statutory principles because the sum offered was too low. The landlord's proposal was consistent with the statutory principles and great emphasis was placed on forecasting.
Total Arrears Landlord proposal Tenant proposal Award
£1,805,820.30 Pay arrears in full or, alternatively, pay £1,023,284. £407,000 with remainder debt written off. Pay £1,023,284 in 8 instalments i.e. 57% of the total arrears.
Commerz Real Investmentgesellschaft mbH and RHL Realisations 2022 Limited (formerly Rush Hair Limited)
  • The respondent tenant entered into creditors' voluntary liquidation after a reference to arbitration was made.
  • The arbitrator determined that the tenant's business did not satisfy the statutory test of being a viable business and the reference was dismissed.
  • The relevant time to assess viability is the time of the arbitrator's assessment; it is not fixed in time when the formal proposals are made. 
  • Horsham District Council and Bills Restaurants Limited

    • The arbitrator held that the landlord's proposal was consistent with the statutory principles but the tenant's proposal was not because the financial information provided did not evidence that the tenant was not capable of paying the arrears in full. The specific figures are outlined below.
    Total arrears
    Landlord proposal
    Tenant proposal
    Award
    £111,233.97, subsequently reduced to £80,000
    Pay arrears in full with 12 month payment plan.
    £40,000 payable immediately with remainder debt written off.
    Pay £80,000 with 12 month payment plan i.e. 100% of the total arrears.

    Stratford City Shopping Centre (No.2) Nominee A Limited and Stratford City Shopping Centre (No.2 ) Nominee B Limited and Newspoint (Stratford) Limited

    • As a preliminary issue, the arbitrator determined that a rent concession had not been agreed because:
      • It was made on a without prejudice basis and subject to contract;
      • It was conditional and the conditions were not complied with by the tenant;
      • The individual corresponding with the landlord on behalf of the tenant did not have the requisite authority to enter into a binding agreement.
    • The arbitrator held that the landlord's proposal was consistent with the statutory principles but the tenant's proposal. It was also indicated that, had the arbitrator not been bound by the landlord's proposal, he may have determined that all arrears should have been paid immediately. The specific figures are outlined below.
    Total arrears
    Landlord proposal
    Tenant proposal
    Award
    £49,297.27 plus interest.
    Pay arrears in full with monthly payment plan spread over 6-12 months. Immediate interest payment of £5,894.
    £20,729.74 with reminder debt written off.
    Pay £55,191.81 (inclusive of interest) in 9 monthly payments.

     

    Our comment

    As there have only been 3 substantive awards published that deal with the award of relief, it is difficult to establish any consistent principles in the application of the statutory principles by an arbitrator.

    As the deadline to refer a dispute for arbitration under the Act elapsed on 23 September 2022, it is yet to be seen how many further awards are to be made.

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