EI Group Plc v Clarke & Anor (Rev 1)

For the statutory “no worse off” principle, the relevant comparison is between the tenant’s position under the proposed market rent-only tenancy and that of a free-of-tie tenant. It is not a comparison with the tenant’s existing tied tenancy. Differences from the existing lease may nevertheless be relevant to whether proposed terms are reasonable in the particular circumstances. At the leave stage under section 69(3) of the Arbitration Act 1996, the court must distinguish an express error of law from an alleged error inferred from a mixed question of fact and law. Leave may be refused where independent grounds show that correcting the error would not substantially affect the parties’ rights.

The claimant sought leave under section 69(3) of the Arbitration Act 1996 to appeal an award concerning the defendants’ market rent-only option under Part 4 of the Small Business, Enterprise and Employment Act 2015 and the Pubs Code etc. Regulations 2016. The arbitrator had found that the claimant’s proposed tenancy was not MRO-compliant, partly relying on a comparison between the proposed tenancy and the existing tied lease.

The claimant argued that the arbitrator had misconstrued the statutory “no worse off” principle and sought remittal. The central issues were whether there was an error of law, whether the statutory leave criteria were satisfied, and whether the error would substantially affect the parties’ rights.

1. Application dismissed. The claimant established an obvious error of law, but failed to satisfy the requirement that determination of the question would substantially affect the parties’ rights.
2. Under section 42(3)(b) of the Small Business, Enterprise and Employment Act 2015, the “no worse off” comparison is between the proposed MRO tenancy and the position of a tenant who is not subject to a product or service tie. The Act does not require each proposed term to be compared with the corresponding term in the existing tied tenancy.
3. The existing tied tenancy may still be relevant to whether proposed MRO terms are reasonable. That relevance is fact-sensitive and does not make the existing lease a general benchmark for compliance.
4. The arbitrator had treated changes from the existing tied tenancy as a benchmark and had therefore applied the wrong legal test. That constituted an obvious error of law. The defendants’ attempt to invoke the more restrictive approach applicable to substantive appeals involving mixed questions of fact and law was rejected. The authorities relied upon for that submission did not justify importing that approach into a section 69(3) leave application.
5. The court read the award commercially and fairly. On the important issues, the arbitrator had relied on independent and sufficient grounds unaffected by the error. These included the proposed form of deed of variation, the uncommon wording of a repairs provision, and the unreasonableness of the proposed rent-indexation provisions. Correcting the error would therefore not substantially affect the parties’ rights.
6. The court did not need to decide whether it would be just and proper to determine the question under section 69(3)(d). The application was dismissed.

The application was made directly to the High Court for leave to appeal from the arbitrator’s award under section 69(3) of the Arbitration Act 1996. No appeal was heard because leave was refused.