Watergate Properties (Ellesmere) Ltd v Securicor Cash Services Ltd

On an appeal under section 69 of the Arbitration Act 1996, leave requires a substantial effect on the parties’ rights, a question determined by the tribunal, an obviously wrong decision or a question of general public importance open to serious doubt, and a just and proper basis for court intervention.

For rent review, the hypothetical letting is assessed at the review date. Its incidents are those then subsisting between the parties. An obligation which has expired cannot be recreated as a new obligation for the hypothetical term. Doing so may produce a self-cancelling deduction and rewrite the bargain.

The claimant landlord sought permission to appeal under section 69 of the Arbitration Act 1996 against a rent review arbitration award. The dispute concerned an underlease of a security centre and the proper construction of the market-rent provision.

The arbitrator valued the land and building but deducted a supplementary rent which had been payable only during the first 15 years of the actual lease and had ceased before the relevant review date. The central questions were whether the deduction was required and, if so, whether the statutory conditions for an appeal and court determination were satisfied.

1. Leave to appeal was granted. The difference in rent was substantial, particularly because the decision might create an issue estoppel affecting the parties throughout the remaining term. The question was not one of general public importance, since it concerned the construction of a one-off lease. The applicable section 69(3) test was therefore whether the arbitrator was obviously wrong.

2. The arbitrator was obviously wrong. The rent review clause required the market rent to be assessed at the beginning of the relevant period, by reference to the then-unexpired residue of the term and the incidents then applicable. The supplementary rent had ceased to be payable before the relevant review date. It was therefore not a subsisting term which could be included in the hypothetical lease.

3. The hypothetical lease had to reproduce the actual terms as they operated in reality. Transposing an obligation payable during the first 15 years of the actual lease into an obligation payable during the first 15 years of the hypothetical lease would rewrite the parties’ bargain. Including the deduction also produced a self-cancelling result while the supplementary rent remained payable, contrary to the consistent approach illustrated by Guys & Dolls Ltd v Sade Brothers Catering Ltd [1984] 1EGLR 103.

4. It was just and proper for the court to determine the question. The arbitrator’s error was discrete, and the award could stand once the erroneous deduction was removed. Under section 69(7) of the Arbitration Act 1996, the appropriate order was therefore to vary the award rather than remit it.

5. The appeal was allowed and the arbitrator’s award was varied by removing the deduction for supplementary rent.

This was a first-instance application to the High Court for permission to appeal an arbitration award under section 69 of the Arbitration Act 1996. Permission was granted, the appeal was allowed, and the award was varied.