Metropolitan Property Realizations Ltd v Atmore Investments Ltd

Under section 68(2)(d) of the Arbitration Act 1996, the court may intervene where an arbitrator fails to deal with an issue essential to the decision and that failure causes substantial injustice. An award need not be disturbed for every error or inconsistency. However, a glaring illogicality in the central reasoning may amount to serious irregularity where the arbitrator’s own chosen commercial approach requires a factor which the calculation omits. The court should uphold arbitration awards where possible, but must ensure that the award rationally determines the basic issue referred to arbitration.

The claimant tenant applied under section 68 of the Arbitration Act 1996 to remit a rent-review award concerning a long lease of shop units and residential flats. The arbitrator adopted a valuation based on the rental income obtainable from subletting the units, subject to specified deductions, but made no allowance for profit to the notional tenant. The claimant had not advanced that criticism in the arbitration. The central issue was whether the omission constituted a failure to deal with an issue causing substantial injustice, and whether the claimant was barred from applying because it had not sought correction under section 57.

1. The claim under section 68(2)(d) of the Arbitration Act 1996 succeeded. The award was remitted to the arbitrator for redetermination of the appropriate profit element for the notional tenant and consequential recalculation of the fair yearly rent.
2. The court should not read an award with a meticulous legal eye to identify minor defects. Nevertheless, it may intervene where there is a glaring illogicality in the central reasoning. The arbitrator was required to reason through the valuation coherently and to determine the basic issue referred to him.
3. The arbitrator had adopted a commercial approach under which a notional tenant would take the lease only if it obtained a profit element. His calculation, however, equated the rent payable to the landlord with the whole value of the subletting income. It therefore omitted a factor which his own reasoning treated as relevant.
4. The omission amounted to a serious irregularity under section 68(2)(d). The profit element was essential to determining the fair yearly rent, and the resulting award was not a rationally sustainable resolution of the issue. Substantial injustice arose because the claimant might have to pay excessive rent for the extended term.
5. Section 70(2)(b) did not bar the application. The error was neither a clerical mistake nor an ambiguity capable of correction or clarification under section 57. It was an error of reasoning in a clear award.