Flip flop, or just a flop

December 3, 2021
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Any increased use of arbitration to resolve private disputes must be something to be welcomed. There is an arbitration model which allows the Arbitrator to make just one decision: is Party A’s position preferred, or is Party B’s position preferred. The Commercial Rent (Coronavirus) Bill is about to enshrine such arbitrations, known as “flip flop arbitrations” into statute: but is there a better alternative?

The Bill introduces concept of “relief from payment”, by which is meant writing off the whole or part of what is termed a Protected Rent Debt. If the Arbitrator determines that the tenants business is not viable, or would not be viable even if the tenant were to be given relief from payment, the Arbitrator must make an Award dismissing the reference. This would not be a flip flop, because the reference has been dismissed.

However, when both parties put forward proposals, and if the Arbitrator thinks that both proposals are consistent with certain principles in the Bill, the Arbitrator must make an Award on the terms of the proposal which he considers to be the most consistent with those principles. This would be a flip flop award.

In assessing the viability of the tenants business, the Arbitrator must have regard to the assets and liabilities of the tenant, previous rental payments and the impact of coronavirus on the tenants business. In assessing the viability of the landlords business, the arbitrator must have regard to the assets and liabilities of the landlord, including any other tenancies to which the landlord is a party. Any Award must be aimed at preserving or restoring the viability of the tenants business, so far as that is consistent with preserving the landlords solvency.

The Arbitrator must publish the Award together with the reasons for making it, although he must exclude information which he is satisfied is commercial information the disclosure of which would, or might, significantly harm the party’s legitimate business interests.

In conjunction with the Bill, a Code has been issued with guidance on how parties should negotiate and resolve rent disputes. It also purports to promote good practice within landlord and tenant relationships, particularly regarding the negotiation process. The guidance goes so far as to recognise that there will be cases where landlords and tenants are unable to reach agreement, but might feel that a negotiated outcome could still be achieved. It recommends that they should consider alternative means of resolving their dispute, such as a mediator to help facilitate negotiation.

The issue of confidentiality may well be a substantial impediment to the use of arbitration pursuant to the Bill. The cost of the process may also be a significant factor in the level of take up, as well as the time that it will take to prepare proposals and for the Arbitrator to make an Award, especially if there is an oral hearing, which one party is entitled to insist on.

Mediation has the advantage of being far more likely to result in an outcome satisfactory to both parties, and an outcome that both parties have signed up to, rather than one imposed on them. That is not to say that this new arbitration scheme is going to be a flop, but even the Governments own guidance gives the parties a firm push in the direction of mediation, with the arbitral process as a final resort. Coming so soon after the Governments own proposals for mediation and other forms of alternative dispute resolution, this is perhaps a lost opportunity to promote mediation even more vigorously.


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