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Lawbite: Protected Rent Debt: What Rent?

  • United Kingdom
  • Consumer
  • Retail


Will references to arbitration under the Bill get bogged down in legal argument about whether any rent is payable at all?

Section 6 of the Bill states that whether there exists “a protected rent debt” is a matter for the arbitration (See section 6(1)(a)). Therefore the entire gamut of legal arguments which tenants have put forward so far to argue that no rent is payable during required closure periods could be made to the arbitrator. If it could be successfully argued that no rent was payable at all then the reference must be dismissed as the Bill currently stands as fundamentally there will, in those circumstances, be no rent debt on which to base the referral. 

Arguments including construction of the rent cesser clause, insurance provisions, implied terms, whether the lockdowns were frustrating events or led to a failure of consideration have not been successful at first instance.  However, London Trocadero and Bank of New York Mellon are both listed for appeal in June of this year (the Bank of New York Mellon appeal was due to be heard in February but has been relisted, probably with no coincidence, for June when the London Trocadero appeal is also to be heard).

The Bill is due to become law by the 25 of March 2022. Allowing time for the mandatory pre-arbitration stages set out in the Bill we could see references as early as the end of April or beginning of May, with arguments being made about whether any rent is payable at all against a back drop of settled first instance authorities. Later references could be against a different back drop if the decisions cited are overturned on appeal.  So what should the arbitrator do in such circumstances? 

The arbitrator can only make decisions on questions of law on the basis of the authorities as they stand at the date the question falls to be determined.  So it seems clear that whether or not any rent is payable would have to be decided as the first point (see section 13 (2)) and a decision made on the basis of the settled first instance authorities that rent is payable notwithstanding periods of enforced closure. The reverse would apply if the cited decisions are overturned on appeal. 

Court decisions on discretionary matters such as the exercise of some civil procedure case management powers or considering the grant of injunctive relief have in the past taken into account anticipated changes in the law such as planned legislation. But it would seem entirely wrong for an arbitrator to make a determination on a question of law other than in accordance with the law as it stands at the relevant point in time. Whether an arbitrator decides to use its powers to extend procedural deadlines to allow time for the decisions in the London Trocadero and Bank of New York Mellon to be released before reaching it reaches its final decision remains to be seen. 

An arbitrator who was to depart from the settled authorities at a particular time may have their decision subject to an appeal pursuant to section 69 of the Arbitration Act 1996 which will apply to arbitrations under the CR(C) Bill. That said, the extremely high threshold that needs to be met to successfully appeal under section 69 is well understood by practitioners and has been the subject of much judicial comment, perhaps leaving scope for argument as to whether a departure from the first instance decisions on the point would be “obviously wrong”, which is the required threshold for an appeal.

It certainly should not be assumed that arbitrators who are appointed will be from a legal background.  The usual provisions which allow an arbitrator to appoint an assessor or take legal advice pursuant to section 37 of the Arbitration Act 1996 are modified by the Bill.  The arbitrator will only have the power to appoint experts, legal advisers or assessors where it is agreed by the parties (effectively reversing the statutory presumption that they can, unless otherwise agreed by the parties).  This, presumably, is at least in part to try and prevent costs being loaded into the arbitration process by a party urging the arbitrator to refer legal points to such assessors or advisers. However, at the same time it could be a limitation to the options available to an arbitrator who lacked confidence or the relevant expertise to confidently determine the “complete defence” type arguments put forward in Bank of New York Melon and other cited cases.  Parties who are faced with such arguments in the pre-action process may want to carefully consider the background of the arbitrator or perhaps seek a panel of arbitrators in a relevant matter, so as to have legal and commercial expertise in the tribunal.

Tenants who wish to advance these “complete defence” arguments may, having regard to the state of the first instance authorities, decide to delay from referring matters of relief from payment to arbitration until the outcomes of the appeals are known, but there remains uncertainty as to when exactly that will be. A decision of the Court of Appeal may be handed down some considerable time after the hearing of an appeal itself.

The sun is rising on the dawn of the mandatory arbitration process. It is hoped the court of appeal decisions will follow as swiftly as possible once they have been heard, so that we will see a plethora commercial arbitration decisions to resolve the pandemic rent arrears problem (or, alternatively, to offer further incentive to the parties to reach agreements between themselves as to the matter of commercial rent arrears), rather than fertile ground for satellite legal and procedural disputes. 

Key points:

  • the matter of relief from payment which is to be referred to arbitration under the Bill includes “whether there is a protected rent debt” of any amount.  Therefore it is highly likely the tenants may run “complete defence” arguments in arbitrations.
  • non-lawyer arbitrators may be required to make decisions on complex questions of law as to why no rent should be payable due to periods of forced closure.
  • arbitrators will need to make decisions on questions of law on the basis of the law as it stands on the date of any particular decision. That position which may vary during the lifetime of the arbitration process under the Act (six months from date the Bill is enacted, subject to possible statutory extensions) due to extant appeals which will not be heard until June 2022.