HMV UK v Propinvest Friar Ltd Partnership

Permission to appeal on a question of law from an arbitral award concerning a private, one-off contractual provision may be granted under section 69(3)(c)(i) of the Arbitration Act 1996 only where the tribunal’s decision is obviously wrong. An arguable error, or a conclusion from which the judge would differ, is insufficient.

The error must be transparent and clear. It should normally be apparent from studying the award itself. If competent lawyers could sustain competing constructions, or adversarial argument might establish that the tribunal was right, the statutory threshold is not met. Applications should ordinarily be decided on paper, consistently with the intended speed and finality of arbitration.

The appellant sought permission under section 69 of the Arbitration Act 1996 to appeal against an arbitral award concerning the construction of a rent review clause in a lease of retail premises. The clause required a hypothetical Prime Unit to enjoy facilities, easements and rights similar to the demised premises, while assuming full performance of the lease covenants.

The arbitrator held that the hypothetical unit should be assumed to lack a secondary fire escape but also to comply with the requirements of the relevant authority concerning fire precautions. Warren J considered that he might have construed the clause differently, but refused permission because the arbitrator’s conclusion was not obviously wrong. The central issue in the Court of Appeal was whether that statutory threshold had been satisfied.

1. The appeal was dismissed unanimously. The arbitrator’s construction of the rent review clause was not obviously wrong within section 69(3)(c)(i) of the Arbitration Act 1996. Arden LJ gave the leading judgment. Longmore and McFarlane LJJ agreed.

2. Section 69 severely restricts appeals from arbitral awards. It is insufficient that the tribunal arguably erred in law or that the judge would have reached a different conclusion. The error must be transparent and, at least, clear. The emphatic word “obviously” must not be diluted through an over-generous assessment of whether an error has been shown.

3. The approach in The Nema, [1982] AC 724, was carried into section 69. For the construction of a one-off clause, obvious error should ordinarily be apparent from studying the reasoned award itself. Permission should not be given where argument might persuade the judge that the arbitrator was right. Akenhead J’s description in Braes of Doune Wind Farm (Scotland) Ltd v Alfred McAlpine Business Services Ltd, [2008] 1 Lloyds Rep 608, of a “major intellectual aberration” usefully conveyed the demanding character of the threshold.

4. The lease supplied detailed directions for valuing hypothetical premises. The extent to which such directions should be construed narrowly was capable of sustained argument between experienced lawyers. It was open to the specialist arbitrator to conclude that the valuation did not require allowance for the practical difficulty which an actual prospective tenant would face because of the absence of a secondary fire escape. His interpretation was neither unarguable nor a false logical leap, and it had a reasonable explanation.

5. It was unnecessary to decide whether section 69(3)(d) was satisfied. Arden LJ nevertheless considered that, had the award been obviously wrong, it would have been just and proper for the court to determine the question. The arbitrator’s expertise carried weight, but the parties had chosen arbitration partly because it preserved limited rights of appeal and no countervailing factor made the issue practically unimportant.

6. Applications for permission should normally be determined on paper. Oral hearings and rolled-up procedures should be rare. A rolled-up hearing risks obscuring the anterior statutory requirement to decide whether every condition for permission is satisfied before the substantive appeal is fully argued.

• Court of Appeal (Civil Division): Dismissed the appeal from Warren J’s refusal of permission to appeal. The arbitral decision was not obviously wrong within section 69(3)(c)(i) of the Arbitration Act 1996.
• High Court, Chancery Division: Warren J refused permission to appeal from the award. Although he might have construed the lease differently, he was not satisfied that the arbitrator’s decision was obviously wrong. He granted permission to appeal that refusal to the Court of Appeal.
• Arbitration: Mr John Male QC determined the disputed rent review issues. He held that the hypothetical Prime Units should be assumed to lack a secondary means of escape but to comply with the relevant fire-precaution requirements.