WHICH COVID-19 COMMERCIAL RENT DISPUTE BODY SHOULD I USE? KEY TERMS COMPARED

The UK Government has introduced a new statutory scheme under the Commercial Rent (Coronavirus) Act 2022 (the 2022 Act) for the resolution of disputes between landlords and tenants in relation to rent arrears accrued during the pandemic. The background to the scheme and when it may be used is discussed in our earlier blog here.

Arbitration bodies must be approved by the Government in order to administer arbitrations under the scheme. The Department for Business, Energy and Industrial Strategy (BEIS) has now published a list of arbitration bodies (the Approved Bodies) that have been approved to do so. In this post, we consider the procedural requirements of the statutory scheme, the offerings of each of the Approved Bodies and how the scheme differs to the standard process adopted for arbitrations under the Arbitration Act 1996 (the Arbitration Act).

The Approved Bodies

There are seven Approved Bodies. These are:

• Chartered Institute of Arbitrators (CIArb)
• Royal Institute of Chartered Surveyors (RICS)
• London Chamber of Arbitration and Mediation (LCAM)
• The Consumer Code for Online Dispute Resolution (CCODR)
• Consumer Dispute Resolution (CEDL)
• Falcon Chambers Arbitration
• Dispute Resolution Ombudsman

The Approved Bodies each have unique offerings for resolving disputes under the statutory scheme. A table comparing the offerings of the Approved Bodies, produced by HSF, can be viewed and downloaded here.

Arbitration Fees

Requirements under the 2022 Act

The Secretary of State may make regulations concerning limits on arbitration fees (the arbitrators' fees and expenses, any oral hearing fees and the Approved Bodies' own fees and expenses (together, the Arbitration Fees)), and may make these limits dependent on the amount of protected rent in question. However, no such regulations are in force at the time of writing (s19(2)).

The applicant party must pay the Arbitration Fees (other than oral hearing fees) "in advance of the arbitration hearing taking place" (s19(4)). However, the general rule under the 2022 Act is that when issuing the award, the arbitrator will also "make an award requiring the other party to reimburse the applicant for half of the arbitration fees paid" (s19(5)). This approach can be departed from where the tribunal "considers it more appropriate in the circumstances of the case to award a different proportion (which may be zero)" (s19(6)). Guidance issued by BEIS (the Guidance) further states that the tribunal may "require the other party to reimburse a different proportion of the arbitration fees…of anything between 0% and 100% of the fees".

Approach of Approved Bodies

Because there are no regulations currently in place, each of the Approved Bodies have adopted their own approach towards setting Arbitration Fees. The general trend is for the Arbitration Fees to depend at least to some extent on the amount in dispute, although there are some other approaches which, for example, combine both value-based and hourly rate elements or depend on whether a hearing takes place.

LCAM and CIArb both provide for a fixed fee which depends on the value of the claim, offering parties clarity from the outset. RICS offers a choice of a fixed fee based on claim value or an hourly rate, with arbitrator rates subject to caps. CEDL requires an initial fee per party on a sliding scale based on the amount in dispute, with a possible uplift on a sliding scale depending on the complexity of the dispute and the time allocation. Falcon Chambers states that the fees will be set based on factors such as the complexity of the dispute and the seniority of the arbitrator appointed, but also emphasises that arbitrators are able to resolve disputes on a fixed fee basis. CCODR also offers a fixed fee, with the precise fee depending on either the amount in dispute (when the dispute is decided on the papers) or, where there is an oral hearing, whether the hearing is held publicly or privately and whether it is held virtually or in-person.

Hearings

Right to a hearing

The statutory scheme envisages that most disputes will be resolved on the papers. However, the parties have the right (either individually or jointly) to request a hearing (s20(1)), which, under the Guidance, cannot be declined. The Approved Bodies have all adopted slightly different approaches, with some presuming that the disputes will be resolved solely on the papers (e.g. "Arbitration A and B" procedures for RICS and CIArb), while others expressly provide for a hearing (either virtually or in person), usually at extra cost (e.g. CCODR, LCAM, Falcon Chambers). If requested, the hearing should take place within 14 days of the request.

Hearing costs

Where one of the parties requests a hearing, the 2022 Act provides that that party must pay the hearing fees in advance of the hearing (s20(5)). Where the parties jointly request a hearing, they will be jointly and severally liable for the hearing fees in advance of the hearing (s20(4)). As with Arbitration Fees, the expectation is that the party paying the hearing costs will be reimbursed for half of these costs by the other side, although the tribunal is again able to depart from this general rule and allocate these costs in different proportions if it considers more appropriate in the circumstances (s20(6) and (7)).

Confidentiality and privacy of the hearing

The default position under the 2022 Act is that hearings will be held in public (s20(8)), although the parties may agree to a hearing in private. The Guidance also notes that the 2022 Act "does not in and of itself dilute the arbitrators' power in s34(1) of the [Arbitration Act 1996]" in respect to procedural and evidential matters, and therefore an "arbitrator would be able to sit in private when hearing the evidence or submissions on confidential or sensitive matters".

Timing of the hearing

In terms of the timing of the hearing, the 2022 Act further provides that hearings must take place within 14 days of the tribunal receiving the hearing request (unless the tribunal considers in all the circumstances that it shouldn’t, or the parties otherwise agree) (s20(2) and (3)).

Awards

Timing

Awards must be made by the tribunal "as soon as reasonably practicable" (s17(1)). Where an oral hearing has taken place, the tribunal must issue the award within 14 days (beginning on the day that the hearing concludes), although this time limit can be extended at the agreement of the parties or where the tribunal considers that it would be reasonable in the circumstances to do so (s17(2) and (3)).

Publication and confidentiality

The 2022 Act provides that awards (together with the reasons for making it) "must" be published, although this is subject to the caveat that the tribunal must exclude "confidential information" (as defined by the 2022 Act) unless it has "been notified by the person to whom it related that the person consents to its publication" (s18). The parties are unable to waive or otherwise exclude this provision.

The Guidance states that "in practice, the arbitrator will likely be reliant on the parties to state which parts of the award they think should be redacted or excluded" and further makes it clear that awards are not being made publicly available in order to establish binding precedent. Instead, they are being made public in redacted form to (a) enable stakeholders to see the outcomes of the process; (b) enable the market to establish expectations as to what is a fair outcome; and (c) assist arbitrators with industry expectations. As a matter of practice, awards are expected to be published on the Approved Bodies' websites. This is recognised by many of the Approved Bodies in their published procedures.

Challenges and Appeals

While awards issued by a tribunal under the scheme are final and binding, they can be challenged under s67 (lack of substantive jurisdiction) and s68 (on the basis of serious procedural irregularity and as modified by the 2022 Act) of the Arbitration Act and appealed on a point of law under s69 of the Arbitration Act.

Other notable aspects of the scheme

The statutory scheme differs from traditional arbitration proceedings under the Arbitration Act in a number of respects. Of particular note are:

Form of submissions

Rather than making use of traditional statements of case or memorials, the statutory scheme makes use of "proposals" of how the parties consider the tribunal should resolve the matter of relief from payment. The applicant submits a proposal when making the reference to arbitration, with the respondent then having the opportunity to submit its own proposal and further rounds of submissions. Supporting evidence should also be included with proposals.

Consolidation

Departing from the default position under the Arbitration Act, arbitrators have the power under the statutory scheme to order the consolidation of proceedings or concurrent hearings. As is the case with proceedings under the Arbitration Act, the parties to the arbitration under the 2022 Act are also free to agree that proceedings should be consolidated or that concurrent hearings should be held on such terms as they agree. As noted in the Guidance, consolidation can lead to "a reduction in the costs of the arbitration, an increase in the speed of resolution and a reduction in inconsistent arbitration awards" and may be appropriate where "the tenant and landlord are in dispute in relation to protected rent debts for multiple business tenancies".

Comment

The decision to create a statutory scheme to resolve certain Covid-19 related commercial rent disputes affirms the hallmarks of arbitration as a flexible and cost-effective means of dispute resolution. The various offerings of the Approved Bodies provide a number of different procedures which can be used by both landlords and tenants to resolve their dispute effectively, catering for a wide variety of disputes in terms of both claim value and complexity.

For more information about the statutory scheme, the offerings of any of the Approved Bodies and procedural and tactical steps which can be taken, please contact Craig Tevendale, Partner, Matthew Bonye, Partner, or your usual Herbert Smith Freehills contact.

The authors would like to thank Luke Hard for his assistance in preparing this blog post.