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In a rare successful challenge under s.68 of the Arbitration Act 1996, the English High Court found that the tribunal’s decision to reverse the burden of proof, without inviting submissions from the parties, constituted a serious irregularity (Punch Partnerships (PTL) Ltd and another v Jonalt Ltd [2020] EWHC 1376 (Ch)).
Background
This case concerned an arbitration under UK legislation regulating leases of public houses. In essence, the legislation gives tenants of “tied” pubs (where rent is linked to an obligation to buy drink from the landlord) an ability to require the landlord to offer a tenancy free of the tie, but at market rent (a “MRO”). The statutory criteria for a valid MRO include a condition that terms are reasonable.
Against that background, Jonalt (the “Tenant”) commenced an arbitration against both its landlord (“PTL”) and the relevant pub-owning business (“Star”). The dispute centred around a term Star had included in the MRO, requiring the Tenant to have at least 60% of its keg taps dispensing drinks produced by companies associated with Star. The Tenant argued this was unreasonable.
In the directions for the arbitration, both sides were asked to set out their position on reasonableness (which they did). The arbitrator subsequently asked if they wished to serve evidence and whether a hearing was required. The Tenant declined and Star took a similar position.
In his award, the arbitrator determined there was no evidence to support Star’s 60% requirement, nor had the Tenant submitted any evidence to rebut it. However, the Tenant had accepted a 20% requirement in its submissions. As such, the arbitrator found the 60% requirement to be unreasonable and accepted the Tenant’s proposed 20% requirement.
Issues before the High Court
PTL and Star challenged the arbitrator’s award on the grounds of serious irregularity under s.68 of the Arbitration Act 1996 (the “1996 Act”). Regarding the finding of unreasonableness, they argued the arbitrator had proceeded on the basis that the burden was on Star to prove the reasonableness of the keg stocking requirement, rather than it being for the Tenant (the claimant in the arbitration) to establish unreasonableness. The arbitrator had reversed the normal burden of proof without it being suggested by either party and without inviting submissions on the point.
PTL and Star also relied on an argument concerning the award being ultra vires of the statutory framework. However, we do not further examine this here.
Burden of proof and serious irregularity
The serious irregularity test under s.68 requires:
The Court agreed with PTL and Star that the reasons given by the arbitrator indicated the assumption it was for Star to prove the reasonableness of the 60% keg stocking requirement. The usual rule however, is that the burden of proof lies upon the party who asserts the affirmative of an issue, which in this case was the Tenant. This should not be departed from without strong reasons.
The Court found that the arbitrator was required to decide the matter based on submissions before him, applying the normal burden of proof rules, unless he considered (after taking submissions from the parties on this point) that it should be reversed. The arbitrator’s failure to invite such submissions did not comply with s.33 of the 1996 Act; he neither acted fairly nor gave the parties a reasonable opportunity to present their cases. Equally, the “substantial injustice” element was satisfied as the arbitrator may well have been persuaded by Star to follow the usual rule, had he invited submissions on the point.
Accordingly, the s.68 claim succeeded, with the Court ordering that the findings of unreasonableness in the award be remitted to the arbitrator for reconsideration in light of this judgment and any submissions he may invite on the burden of proof question.
Comment
Successful challenges under s.68 of the 1996 Act are relatively uncommon. This case serves as a noteworthy reminder of the scope of the tribunal’s duty under s.33 of the 1996 Act and the importance of inviting submissions from the parties if a departure from established and fundamental principles is proposed. It equally reminds parties and arbitrators alike of the burden of proof rule and parties’ powers when an arbitrator acts inconsistently with this.
Click here for the judgment.
Charlotte Cartwright would like to thank Lucy Hodgkinson for her contribution in preparing this article.
24 July 2020
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