England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
LEEDS DISTRICT REGISTRY

		29 September 2008

1. Introduction

1. By this claim Mr Thomas O'Donoghue ("Mr O'Donoghue") seeks to set aside an interim final award dated 17 January 2008 ("the Award") made by an arbitrator, Barry Crux ("the Arbitrator"), in respect of a rent review due under a lease dated 12 April 2000 ("the Lease"). The Lease is of the public house known as The Maypole Inn, 32 Warley Town, Halifax ("the Property"), which was originally made between Unique Pub Properties Limited ("UPPL") as Landlord and, David Walbank Lister and Deborah Jane Lister as tenants. The leasehold interest is currently vested in Mr O'Donoghue and the freehold reversionary interest is still vested in UPPL. Notwithstanding this, Enterprise Inns plc has been named as the Defendant to the claim and the landlord to the arbitration. Nothing turns on this and I shall refer to the landlord as UPPL.
2. As originally pleaded Mr O'Donoghue's claim was that the Award should be set aside or the rent review remitted to the Arbitrator for reconsideration after an oral hearing, during which Mr O'Donoghue should be able to cross-examine UPPL's expert witness, Mr Owens. The claim is brought pursuant to section 68 (2) (a) of the Arbitration Act 1996 ("the Act") (i.e. failure by the Arbitrator to comply with the general duty under section 33 of the Act) on the basis that the Award is affected by a serious irregularity by reason of the Arbitrator's failure to hold an oral hearing and to allow cross-examination of Mr Owens.
3. Mr O'Donoghue seeks to amend the claim to make a number of criticisms of the Interim Final Award. In particular he complains that the Arbitrator estimated a figure for wet sales of £225,000 per annum which was higher than that suggested by either Mr O'Donoghue or Mr Owens in their submissions, that he took a figure for overheads of £143,000 which was lower than that suggested by either Mr O'Donoghue or Mr Owens. Finally he asserts that in analysing the historic accounts of the property's trading the Arbitrator made adjustments to some of the figures. Mr O'Donoghue complains that the Arbitrator was not entitled to do any of these things without giving him an opportunity to deal with them or to cross-examine Mr Owens. He thus relies on these matters as evidence that he has been prejudiced.
4. UPPL contends that the procedure adopted by the Arbitrator was within the discretion afforded by section 34 of the Act; it does not accept that there was any serious irregularity by the Arbitrator; it does not accept that the procedure adopted by the Arbitrator has caused substantial injustice to Mr O'Donoghue.
5. In addition UPPL has two technical points based on sections 70(2) and 73 of the Act. It further submits that the application to amend is too late and should not be permitted.

2. Representation

6. Mr O'Donoghue was represented by Mr David Rose instructed by Ludgate Morrell of Huddersfield. UPPL was represented by Mr Wilson Horne instructed by Gosschalks of Hull.
7. Both Counsel produced full and helpful skeleton arguments and I am grateful to them.

3. Witnesses

8. The evidence is contained in the Witness Statements of Mr O'Donoghue, Mr Owens and Mr May. There was no cross-examination or oral evidence given.

4. The Lease

9. The Lease dated 12^th April 2000 is for a term of 30 years from 22 December 1999. The initial rent was £34,000 per annum with a concessionary rent for 3 months. The lease provided for rent reviews every 5 years with the first rent review on 22^nd December 2004.
10. The relevant provisions for the rent review are contained in the Seventh Schedule. The lease provides for upward only rent reviews to the open market rent (as defined). There are 3 procedural methods by which the open market rent can be determined set out in paragraph 3 of the Schedule. The only relevant method is that provided by paragraph 3(2) and (3). If no agreement is reached before the relevant review date the rent is determined by an independent surveyor acting as an arbitrator. The arbitrator is required to act in accordance with the Arbitration Act 1996 and his decision including his decision as to costs is binding on the parties.

5. History

11. The lease was assigned to Mr O'Donoghue in February 2005, shortly after the date of the December 2004 review. The terms of the lease were varied in February 2005 but it is not necessary to refer to the variation in detail.
12. On 31^st October 2006 the Arbitrator was appointed in relation to the dispute over the rent review. Mr O'Donoghue was acting in person (with some help from his brother) although he was advised to obtain professional assistance and plainly consulted professionals from time to time; UPPL were represented by Mr Owens.
13. There was some initial delay which is not relevant to anything that I have to resolve. On 18^th May 2007 the Arbitrator re-issued directions setting out a revised timetable for Submissions and Counter Submissions.
14. On 1^st June 2007 the Arbitrator exchanged the submissions of the parties.

5.1 Mr O'Donoghue's submissions

15. Mr O'Donoghue's submissions comprised some 9 pages including the Schedule. It was unsigned and did not contain a Statement of Truth. In summary:

1. He submitted that the appropriate method of calculating the rent was the "share of profits method"

2. He submitted that there was increased competition since the granting of the lease.

3. He submitted that the wet sales at the Maypole had declined but had stabilised at 175 barrels per annum. In 50 weeks to May 2007 the Maypole achieved net sales of £331,620 with gross annual profit of £179,722 split 50:50 between wet and dry sales

4. He submitted that there should be a substantial reduction in the rent and suggested that the rent should not exceed £12,000 per annum.

5. He identified 5 public houses which he suggested were comparables with rents of between £12,000 and £40,000 per annum. He produced some financial documents.

5.2 Mr Owens' submissions

16. This is a much more detailed document totalling some 56 pages. In outline:

1. He set out the history, his qualifications, a detailed description of the property, the terms of the lease, the trading performance and the accounts.

2. He identified 8 comparables annexing evidence of transactions where available.

3. He submitted that the appropriate method was the profits method of valuation. He assessed the Fair Maintainable Trade ("FMT") for the 8 comparables at between £486k and £784k. In respect of 6 of these he calculated the rent as a percentage of FMT arriving at figures of between 10.3% and 12.5%.

4. He assessed the FMT for the Maypole at £570,000 - £199,500 for wet trade and £370,500 for the food operation. He estimated gross profit at £335,000 and total business expenses at £198,000. This gave a net profit of £131,000. After allowing a return of capital of £6,000 he arrived at a divisible balance of £131,000. He assessed the rent at £65,000.

5.3 Mr Owens' Counter submissions.

17. On 14^th June 2007 in accordance with the Arbitrator's directions Mr Owens submitted Counter submissions. In it he commented on matters in Mr O'Donoghue's report. He developed his arguments on FMT making the point that a number of the comparables in his report are in inferior positions to the Maypole and trade at significantly in excess of the £345,000 FMT suggested by Mr O'Donoghue. He repeated his view that food sales should account for between 60% and 70% of turnover. He suggests that the rent of £12,000 p.a suggested by Mr O'Donoghue stretched the credulity of his argument to breaking point. He comments in detail on the comparables put forward by Mr O'Donoghue and repeated his view that the rent should have been £65,500.

5.4 Requests for an oral hearing and events leading to the award.

18. Mr O'Donoghue did not initially provide Counter Submissions in accordance with the Arbitrator's directions.
19. In his original directions the Arbitrator gave the parties liberty to apply for an oral hearing and indicated that he would set out the manner in which such a hearing would be conducted. On 15^th June 2007 Mr O'Donoghue wrote to the Arbitrator requesting that the matter be dealt with by way of a formal hearing and asking for additional directions.
20. On 18^th June 2007 the Arbitrator indicated that it would in any event be appropriate for Mr O'Donoghue to prepare a Counter Submission in reply to Mr Owens' submission. The letter is somewhat equivocal as to whether at that stage he had decided whether a formal hearing would take place.
21. On 25^th June 2007 Mr Owens wrote to the Arbitrator objecting to an oral hearing on 3 grounds. He regarded it as unreasonable to request an oral hearing after both sides had sent submissions and he had sent counter-submissions. Mr O'Donoghue had not explained why an oral hearing was necessary. An oral hearing would add to the costs.
22. On 26^th June 2007 the Arbitrator invited Mr O'Donoghue to deal with his letter of 18^th June 2007 He made the point that if an oral hearing was to take place it would be on the basis that each side have lodged a submission and counter submission.
23. Following a number of chasing letters Mr O'Donoghue replied on 10^th July 2007. He dealt with the 3 points raised by Mr Owens. He submitted that he was entitled to cross-examine the evidence of Mr Owens and this could not adequately be done by way of counter submissions. He considered that the cost implications justified the additional costs of an oral hearing.
24. Mr Owens responded to this letter on 11^th July 2007. He still did not feel that a formal hearing was necessary in the absence of a Counter Submission. In any event he expressed concern that Mr O'Donoghue would attempt to introduce new evidence at any such hearing.
25. On the same day Mr O'Donoghue wrote a further letter in which he elected not to file a counter submission. He repeated his view that Mr Owens' evidence could not be adequately cross-examined by way of counter submission.
26. On 30^th July 2007 the Arbitrator decided that he would proceed by way of Formal Oral Hearing. He made it clear how the hearing would progress:

1. No new evidence or documentation would be admitted without good reason.

2. The hearing would comprise opening submissions from both parties, cross-examination of Mr O'Donoghue and Mr Owens, followed by closing submissions

3. The hearing would take a maximum of 4 hours.

27. On 6^th August 2007 Mr O'Donoghue wrote objecting to the procedure for the oral hearing. He stated that 4 hours was inadequate and stated that each party must be able to call its own witnesses and seek orders for witnesses to attend. He raised the question of disclosure.
28. On 10^th August 2007 Mr Owens wrote – in effect accusing Mr O'Donoghue of delaying matters and increasing costs. He objected to Mr O'Donoghue's requests.
29. On 28^th August 2007 the Arbitrator wrote to the parties proposing a preliminary meeting. He made the point that as Mr O'Donoghue had objected to the proposals in the letter of 30^th July 2007 it was inappropriate for the Oral Hearing to be held in accordance with those proposals.
30. The letter includes the following:

I had considered that the proposals that I set out …were quite fair and reasonable and entirely suitable to the circumstances of this case. I need not remind the parties that I have an obligation under section 33 of [the Act] to act fairly and reasonably between the parties and give a reasonable opportunity to put forward its case, and furthermore to adopt procedures which are suitable to the circumstances of the case, with particular regard to avoiding unnecessary delay and expense. In this context I find that I am in some difficulty I therefore wish to move matters forward as quickly as possible.

31. In his further directions he directed Mr O'Donoghue to set out what documents he required, what witnesses he wanted to call and what he wanted to examine them about.
32. On 3^rd September 2007 Mr O'Donoghue wrote 2 letters setting out extensive documents he required including the last 10 years' trading statements for 4 public houses. It also included 2 witnesses he wanted to attend.
33. At the preliminary meeting on 4^th September 2007 most of Mr O'Donoghue's requests were refused. UPPL was ordered to provide (if available) annual rent and barrelage statistics. Mr O'Donoghue was ordered to file Counter-Submissions. The question of whether witnesses were to be called was adjourned until after the Counter –Submissions were filed.
34. After a lot of further chasing correspondence and threats to proceed Mr O'Donoghue eventually provided Counter- Submissions on 26^th October 2007. The Counter Submissions comprise 6 pages. No useful purpose would be served in summarising them.
35. On 20^th November 2007 the Arbitrator inspected the Maypole. Following the meeting there was an informal meeting at which he directed that Mr O'Donoghue to set out his case as to why an oral hearing was necessary. In a letter dated 22^nd November 2007 he expressed the view that he was in a position to bring the matter to a conclusion. With regard to an oral hearing he said:

Mr O'Donoghue is to set out his case as to why he wishes to apply for an Oral hearing. This is to be provided firstly addressing the identity and position of any witness whom he wishes to call to give evidence at such oral hearing, and secondly to provide detail as to the specific matters on which he wishes to carry out an examination of the witnesses (as above) with clear reasons in support.

As previously indicated … I am prepared to consider further application from Mr O'Donoghue or Mr Owens if appropriate for an Oral hearing but I stress that this will be in my sole discretion following on receipt of the above information.

36. Mr O'Donoghue replied on 27^th November 2007. The letter did not really address the clear directions of the Arbitrator. He simply said that unless the Arbitrator felt that Mr O'Donoghue's case should prevail in its entirety he maintained that his case could only be fairly presented by having an oral hearing. He also wrote on 27^th November complaining about the disclosure by UPPL. In fact Mr Owens had provided to the Arbitrator the documents that were the subject of his order.
37. On 8^th January 2008 the Arbitrator wrote to the parties enclosing his decision that nothing further could be achieved by holding such a hearing. He gives a number of reasons for his decision:

1. He had received submissions and counter submissions with a considerable amount of documentation from the parties.

2. Mr O'Donoghue had not been able to identify specific matters which would justify the holding of an oral hearing such as the identity of witnesses.

3. The cost implications and the delay caused by an oral hearing were not justified.

38. He continued by stating that he intended to proceed by dealing with the documentation and publishing his award as soon as possible.
39. On 18^th January 2008 the Arbitrator wrote to the parties informing them that his Award could be taken up by payment of his fees in full. The fees were paid in full by UPPL and the award was issued on 27^th February 2008.

6. The Award

40. The award is a lengthy document of some 47 pages in length. In summary:

1. After setting out the history and the documents he relied on the Arbitrator analysed both cases. In so doing he analysed the various comparables that had been put before him

2. He accepted that the profits method was appropriate for valuing the Maypole. He also made the point (paragraph 6.4) that Mr Owens had extensive experience and had produced evidence of actual transactions of similar types of public house.

3. He assessed the FMT at £450,000 being £225,000 for catering and £225,000 for wet sales. This gave a gross profit of £245,250. After capping wages at 20% he assessed the expenses at £143,500. After deducting expenses of £143,500 and £12,000 return on capital he arrived at a divisible balance of £89,750. After dividing this by two he assessed the rent at £45,000.

4. As a cross check he took the Fair Maintainable Trade and multiplied it by 10.5% to arrive at a figure of £47,500. The figure of 10.5% was derived from his analysis of the comparables.

7. The legal principles

7.1 The Act

41. I was referred to sections 33, 34, 57, 68, and 73 of the Act

33. General duty of the tribunal.

(1) The tribunal shall—

(a) act fairly and impartially as between the parties, giving each party a reasonable opportunity of putting his case and dealing with that of his opponent, and

(b) adopt procedures suitable to the circumstances of the particular case, avoiding unnecessary delay or expense, so as to provide a fair means for the resolution of the matters falling to be determined.

(2) The tribunal shall comply with that general duty in conducting the arbitral proceedings, in its decisions on matters of procedure and evidence and in the exercise of all other powers conferred on it.

34. Procedural and evidential matters.

(1) It shall be for the tribunal to decide all procedural and evidential matters, subject to the right of the parties to agree any matter.

(2) Procedural and evidential matters include—

…

(c) whether any and if so what form of written statements of claim and defence are to be used, when these should be supplied and the extent to which such statements can be later amended;

(d) whether any and if so which documents or classes of documents should be disclosed between and produced by the parties and at what stage;

…

…

(h) whether and to what extent there should be oral or written evidence or submissions.

…

57. Correction of award or additional award.

(1) The parties are free to agree on the powers of the tribunal to correct an award or make an additional award.

(2) If or to the extent there is no such agreement, the following provisions apply.

(3) The tribunal may on its own initiative or on the application of a party—

(a) correct an award so as to remove any clerical mistake or error arising from an accidental slip or omission or clarify or remove any ambiguity in the award, or

(b) make an additional award in respect of any claim (including a claim for interest or costs) which was presented to the tribunal but was not dealt with in the award.

These powers shall not be exercised without first affording the other parties a reasonable opportunity to make representations to the tribunal.

(4) Any application for the exercise of those powers must be made within 28 days of the date of the award or such longer period as the parties may agree.

(5) Any correction of an award shall be made within 28 days of the date the application was received by the tribunal or, where the correction is made by the tribunal on its own initiative, within 28 days of the date of the award or, in either case, such longer period as the parties may agree.

(6) Any additional award shall be made within 56 days of the date of the original award or such longer period as the parties may agree.

(7) Any correction of an award shall form part of the award.

68. Challenging the award: serious irregularity.

(1) A party to arbitral proceedings may (upon notice to the other parties and to the tribunal) apply to the court challenging an award in the proceedings on the ground of serious irregularity affecting the tribunal, the proceedings or the award.

A party may lose the right to object (see section 73) and the right to apply is subject to the restrictions in section 70(2) and (3).

(2) Serious irregularity means an irregularity of one or more of the following kinds which the court considers has caused or will cause substantial injustice to the applicant—

(a) failure by the tribunal to comply with section 33 (general duty of tribunal);

(f) uncertainty or ambiguity as to the effect of the award;

(i) any irregularity in the conduct of the proceedings or in the award which is admitted by the tribunal or by any arbitral or other institution or person vested by the parties with powers in relation to the proceedings or the award.

(3) If there is shown to be serious irregularity affecting the tribunal, the proceedings or the award, the court may

(a) remit the award to the tribunal, in whole or in part, for reconsideration,

(b) set the award aside in whole or in part, or

(c) declare the award to be of no effect, in whole or in part. The court shall not exercise its power to set aside or to declare an award to be of no effect, in whole or in part, unless it is satisfied that it would be inappropriate to remit the matters in question to the tribunal for reconsideration.

(4) The leave of the court is required for any appeal from a decision of the court under this section.

Section 73 (1) provides:

"(1) If a party to arbitral proceedings takes part, or continues to take part, in the proceedings without making, either forthwith or within such time as is allowed by the arbitration agreement or the tribunal or by any provision of this Part, any objection—

(a) that the tribunal lacks substantive jurisdiction,

(b) that the proceedings have been improperly conducted,

(c) that there has been a failure to comply with the arbitration agreement or with any provision of this Part, or

(d) that there has been any other irregularity affecting the tribunal or the proceedings,

he may not raise that objection later, before the tribunal or the court, unless he shows that, at the time he took part or continued to take part in the proceedings, he did not know and could not with reasonable diligence have discovered the grounds for the objection."

7.2 Serious irregularity

42. It is immediately to be noted that for an application under section 68 to succeed there must be a serious irregularity. Serious irregularity must fall within one of the classes set out in section 68(2). Furthermore it has to be such that it will cause or has caused substantial injustice to the applicant.
43. In this case it is said that the failure to hold an oral hearing and to allow cross-examination was a serious irregularity and a failure to act fairly and impartially within section 33. It is, however, to be noted that under section 34(2)(h) one of the matters specifically placed within the discretion of the Arbitrator is whether and to what extent there should be oral evidence and submissions.
44. In Sinclair v Woods of Winchester [2005] EWHC 1631 Judge Coulson QC (as he then was) summarised the principles relevant to this area of the law in paragraph 20 of his judgment. I make no apology for setting out his judgment in full:

a) Perhaps the best summary of the applicable principles relating to section 68 generally, which lies at the heart of these applications is by His Honour Judge Humphrey Lloyd QC in Weldon Plant Ltd. v. The Commission for the New Towns [ 2000] BLR 496, approved by Colman J. in World Trade Corporation v. Czarnikow Sugar Ltd. [2004] 2 All E.R. Comm: " 28. I do not accept the proposition that simply because the award contains an error which is unfair to a party there must have been a failure to comply with s 33 of the 1996 Act on the part of the tribunal and thus a serious irregularity for the purposes of s 68(2)(a). First, there is nothing in the 1996 Act to suggest that it is intended to allow the court to intervene to put right mistakes of fact or of law which could not have been put right under earlier legislation. The 1996 Act was intended to ' restate and improve the law in relation to arbitration' , and in view of the well-established policy of the courts to intervene only in cases where there had been some unfair treatment or result which warranted intervention, the grounds must remain limited. Secondly, such a proposition, if correct, would enable a dissatisfied party to challenge an award on the grounds of an error of fact or of law under s 68(2) and thereby to open up the whole course of the arbitral proceedings so as to invite the court to conclude that there was some unfairness, whereas it is in my view plain from the Act that the only method of appealing against a decision, as such, is provided by s 69 of the 1996 Act (appeal on point of law). Whilst there will be occasions when there is an overlap between an appeal under s 69 and a challenge under s 68 of that Act the latter should not be used as an indirect method of appealing against a decision of fact, other than in an exceptional case. Thirdly, s 33 is primarily concerned with the tribunal's failure to conduct the proceedings fairly and impartially, and although a failure to comply with s 33 is placed first in s 68(2), it is in reality more in the nature of a general provision of which section 68(2) contains further examples …

29. Similarly, s 68(2)(d) of the 1996 Act is not to be used as a means of launching a detailed inquiry into the manner in which the tribunal considered the various issues. It is concerned with a failure, that is to say where the arbitral tribunal has not dealt at all with the case of a party so that substantial injustice has resulted, eg where a claim has been overlooked or where the decision cannot be justified as a particular key issue has not been decided which is crucial to the result. It is not concerned with a failure on the part of the tribunal to arrive at the right answer to an issue. In the former instance the tribunal has not done what it was asked to do, namely to give the parties a decision on all the issues necessary to resolve a dispute or disputes (which does not of course mean decisions on all the issues that were ventilated but only those required for the award). In the latter instance the tribunal will have done what it was asked to do (or will have purported to do so) but its decision or reasoning may be wrong or flawed. The arbitral tribunal may therefore have failed to deal properly with issues but it will not have failed to deal with them."

b) The most recent authority under section 68 is the decision of the House of Lords in Lesotho Highlands Development Authority v. Impregilo SPA and Ors [2005] UKHL 43. The proper operation of section 68 is summarised by Lord Steyn at paragraph 28 of his speech: " First, unlike the position under the old law, intervention under s 68 is only permissible after an award has been made. Secondly, the requirement is a serious irregularity. It is a new concept in English arbitration law. Plainly a high threshold must be satisfied. Thirdly, it must be established that the irregularity caused or will cause substantial injustice to the applicant. This is designed to eliminate technical and unmeritorious challenges. It is also a new requirement in English arbitration law. Fourthly, the irregularity must fall within the closed list of categories set out in paragraphs (a) to (i)."

45. Mr Rose made a number of wide ranging submissions as to why the failure to have an oral hearing was a serious irregularity. He pointed to a number of areas of the award that might have been different if Mr Owens had been cross-examined. He made the point that figure for wet sales adopted by the Arbitrator was higher than that suggested by either Mr O'Donoghue or Mr Owens, he made the point that the figure for expenses was lower than that suggested by either of them. He complained that the figure of 10.5% taken by the Arbitrator in his cross check was inconsistent with two comparables suggested by Mr O'Donoghue. He complained that the Arbitrator chose to analyse the accounts of Mr O'Donoghue's predecessor in title in a way which was difficult to follow and which was not suggested in any of the submissions. All of these matters could have been investigated if there had been an oral hearing. Mr Rose also suggested that in carrying out his duties the Arbitrator strayed from the role of arbitrator into the role of expert.
46. To my mind there are a number of answers to Mr Rose's submissions. First, the fact that the Arbitrator might have come to a different conclusion if there had been an oral hearing does not begin to establish that the Arbitrator was not acting fairly and impartially as between the parties. Second, as already noted, the Act expressly gives the Arbitrator a discretion on whether to hold an oral hearing. Third, the Arbitrator in his letter of 22^nd November invited Mr O'Donoghue to set out his case as to why he wanted an oral hearing. Mr O'Donoghue failed to do this. It is plain from the correspondence I have summarised above that the Arbitrator has been conspicuously fair in giving the parties the opportunity to put their case before coming to a decision. It is true, of course, that the Arbitrator had provisionally decided to hold an oral hearing in the form he set out in his letter of 31^st July 2007. However this proposal was not accepted by Mr O'Donoghue and it was in any event open to the Arbitrator to change his mind after receiving Mr O'Donoghue's Counter-Submissions and viewing the premises. Importantly he gave the parties an opportunity to make representations on the point before reaching his conclusion on 8^th January 2008.
47. Mr Rose sought to rely on the fact that Mr O'Donoghue was a litigant in person. There are 2 answers to this. It was the choice of Mr O'Donoghue after advice from the Arbitrator. Furthermore, it is perfectly plain that Mr O'Donoghue did in fact have the benefit of legal advice throughout the rent review. Indeed many of the letters sent by Mr O'Donoghue have all the hallmarks of being drafted by or with the assistance of lawyers.
48. Fourth the Arbitrator gave reasons for his decision not to hold an oral hearing. Whether or not I would have exercised my discretion in that way is not a matter I need to decide. In my view the decision he made was one that was open to him on the material before him. He gave both sides the opportunity to make submissions before he made it. He gave reasons for the exercise of his discretion. In those circumstances it is, to my mind, difficult to see that there was any irregularity at all in the failure to hold an oral hearing.
49. Whilst it is true that the figure for wet sales adopted by the Arbitrator was above that suggested by either Mr O'Donoghue or UPPL, the overall figure for FMT was well within the range suggested and in line with the comparable evidence before him. It may be that the split adopted by the Arbitrator as between wet and dry sales can be criticised but in my view it is not a fair criticism to assert that the figure for FMT was outside the bracket suggested by the parties or justified by the comparables. Similarly in looking at the expenses one has to remember that some at least of the expenses will be dependent on the FMT. In this case the Arbitrator adopted a figure for FMT of £450,000 some £100,000 less than the figure suggested by Mr Owens. It is thus not surprising that his figure for expenses was less than that suggested by Mr Owens. In any event these sort of criticisms do not constitute material irregularities within section 68 of the Act.
50. In my view the Arbitrator's conclusions were based on the evidence submitted to him. This is not a case where he has gone outside the evidence and sought evidence of his own without informing the parties
51. It follows in my view that there was no serious irregularity on either the original or the amended basis of the claim and the claim accordingly fails.

7.3 Substantial Injustice

52. In paragraph 23 of his judgment H H Judge Coulson QC dealt with this matter:

a) It is always necessary for an applicant in the position of the Claimants to show substantial injustice as a result of the alleged serious irregularity. Substantial injustice can only be demonstrated where what has happened simply cannot on any view be defined as an acceptable consequence of the choice that the parties made to arbitrate: see paragraph 280 of the DAC Report of February 1996; Egmatra A.G. v. Marco Trading Corporation [1999] 1 Lloyd's Rep 862; Petroships Pte Ltd. of Singapore v. Petec Trading and Investment Corp. [2001] 2 Lloyd's Rep 348 and Checkpoint (supra).

b) In his speech in Lesotho (supra) Lord Steyn said on this point: " Counsel observed that it must have been assumed that there was a substantial injustice. This is not good enough. The burden is squarely on the application who invokes the exceptional remedy under section 68 to secure if he can findings of fact which establish the precondition of substantial injustice. The employer did not satisfy this requirement. In these circumstances I would rule that the precondition of substantial injustice has not been established and that on this ground alone the challenge to pre-award interest should fail."

53. Mr Rose submitted that the substantial injustice arose because of the possibility that the Arbitrator would have reached a different result if there had been an oral hearing. He relied on the points set out above in relation to the proposed amendment. Whilst I accept that it is possible that there might have been a different result if there had been an oral hearing I do not accept that submission. In particular I do not accept that the possibility of a different result amounts to substantial injustice within section 68. I prefer the views of Judge Coulson QC. Adopting the test formulated in paragraph 23(a) of the judgment it cannot be said that in all the circumstances of this case on any view the Arbitrator's decision not to hold an oral hearing was an unacceptable consequence of the parties' decision to arbitrate the rent review.

7.4 Loss of the right to object

54. In paragraph 17 Judge Coulson QC deals with the right to object:

a) An aggrieved party in an arbitration must raise its objections to the arbitration or the award forthwith or lose its right to object. ' Forthwith' was defined by Coleman J. in Margulead Ltd. v. Exide Technologies [2004] EWHC 1019 (Comm) as follows: " In this context ' forthwith' means as soon as reasonably possible. That clearly involves raising an objection immediately following the arbitrator's procedural ruling. In a case where there is knowledge or reasonable means of knowledge of the grounds for objection, the point must be raised at the hearing. To wait until after publication of the award or indeed until after continuing to participate in the hearing as in this case will be fatal to the right to mount a s 68 application."

b) " If the Respondent can show that the Applicant took part in or continued to take part in the arbitration proceedings without objection after the grounds of objection arose, the burden passes to the Applicant to show that he did not know and could not with reasonable diligence have discovered those grounds at the time. Moreover, the expression ' continue to take part in the proceedings' in section 73 is broadly worded and is designed to ensure that a party who believes he has grounds for objecting on the basis of serious irregularity should raise that objection as soon as he is or reasonably ought to be aware of it. He is not permitted to allow the proceedings to continue without alerting the tribunal and the other party to a serious irregularity, which in his view renders the whole arbitral process invalid. As Moore-Bick J. points out in Rustal Trading Ltd. v. Gill & Duffus [2000] 1 Lloyd's Rep 14, pp 20– 21, this is not only to avoid a waste of time and expense but is based upon a more fundamental point of fairness and justice. It cannot be right for a party to participate in proceedings which he believes to be fundamentally irregular with the intention of taking advantage of any decision in his favour whilst keeping up his sleeve an objection to an irregularity which he will only produce in the event of an unfavourable decision" : Cooke J. in Thyssen Canada Ltd. v. Mariana Maritime SA and Anr. [2005] EWHC 219 (Comm).

55. Despite the arguments of Mr Rose it is, to my mind, plain that Mr O'Donoghue did not object to the decision made on January 8^th 2008 not to hold an oral hearing. Whilst it is true that he took no active steps thereafter he permitted the Arbitrator to deliberate and to make the award only objecting after it was published and he knew its contents.
56. In my view Mr O'Donoghue has lost the right to object within section 73 and the claim must fail on these grounds as well.

7.5 Failure to exhaust remedies

57. Mr Wilson Horne raised a further point under section 70 to the effect that Mr O'Donoghue should have referred ambiguities back to the Arbitrator under section 57. I regard this point as being more difficult and in the circumstances prefer to express no view on it.

8. Conclusions

58. For these reasons the application to set aside the award under section 68 fails and will be dismissed.

JOHN BEHRENS

Monday 29 September 2008