We have waited some time to see Arbitration Awards being made under the new Covid rent arrears arbitration scheme and they now appear to be trickling through. So far, however, the awards all seem procedural rather than substantive in nature.
The most recent award, by Martin Dray of Falcon Chambers Arbitration (FCA) on 18 July, is similar. However, this case is made more interesting by the fact that the tenant (Rush Hairdressing) went into creditors' voluntary liquidation in between the landlord making its reference to arbitration, and the award being made. Moreover, the tenant (or rather its liquidators) actively refused to participate in the arbitration. The landlord, essentially the owner of Westfield White City, had made the reference based on information available to it at the time, which indicated that the tenant's hairdressing business was viable, but it quickly became apparent that, behind the scenes, the tenant's finances were in real trouble.
The arbitrator accordingly took the view that the reference failed on the final 'gateway', namely that s13(3) of the Act requires the arbitrator to dismiss the reference if the tenant's business is not, or would not be, viable even if relief were to be given from the protected rent debt. This seems an inescapable conclusion in light of the dire financial information which was obtained in the course of the reference, and the fact that the liquidation meant that the business would shortly be wound up and the tenant had already ceased trading.
The award is useful in its confirmation that utter disinterest or lack of engagement on the part of one party will not prevent the arbitration from going ahead, though it does of course place the non-involved party at a disadvantage if they refuse to put forward evidence or arguments in their own favour. Those who believe that stubbornly refusing to engage in the process will help them would be wise to take heed.
The other practical point which arises, to my mind, is the impossible situation a landlord might be faced with when trying to recover arrears under the arbitration scheme. A landlord can only put forward a proposal based on information available to it. If a tenant has refused to share up to date financials, the information available at Companies House might be woefully outdated (as was the case here), and the landlord may find itself locked out of the arbitration scheme through no fault of its own (and no doubt out of pocket on legal costs).
On the other hand, the landlord is now theoretically better off having failed in its reference, as the debt now falls outside the jurisdiction of the arbitration scheme and presumably falls to be claimed as an unsecured debt in the tenant's liquidation. The alternative would have been that the award might have given some degree of relief on the protected debt, followed by the tenant going bust in any event, leaving the landlord to suffer a double haircut in arrears (pun very much intended).
In the light of the liquidation, there is presently no meaningful ongoing business of the Respondent, certainly at the Premises, for the company is in the course of being wound up. Further, there will plainly be no such business (viable or otherwise) at all down the line, i.e. when the liquidation has concluded.
https://www.falcon-chambersarbitration.com/images/uploads/news/CRCA_Final_Award_(Signed)_18.7.22.pdf
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