Centreland Management LLP v HSBC Bank Pension Trust (UK) Ltd (2013)
In awarding costs under the Arbitration Act 1996 s.61, an arbitrator was not under obliged to compare a Calderbank offer with a valuation under the Landlord and Tenant Act 1954 s.34 as of the date of the offer, but rather retained a broad discretion to award costs under s.61 which was totally fact dependent.
The appellant tenant (T) appealed against an arbitrator's award of costs made after a rent determination binding T and the respondent landlord (L).
During the course of rental negotiations in respect of office premises, and following a consent order that the rent be determined by an independent third party acting as an arbitrator in accordance with the Arbitration Act 1996, T made a Calderbank offer to L of £68,000 per annum. That offer, which was without prejudice save as to costs, was time-limited, after the expiry of which the offer was still open for acceptance, on condition that L pay T's costs. L did not accept the offer, and an arbitrator increased the amount previously offered to £69,000 under the Landlord and Tenant Act 1954 s.34. A costs award was subsequently made under s.61 of the 1996 Act, under which each party was to bear its own costs, together with sharing the arbitrator's costs equally. That order was made on the basis that there had been no overwhelming case in favour of either side. In his costs award, the arbitrator took the view that it was the actual awarded rent that was conclusive and there was no need to compare the Calderbank offer with a separate s.34 valuation as of the date of that offer. T appealed against the costs award under s.69 of the 1996 Act. The issue, as framed by the parties, was whether an arbitrator, in assessing the effect of a Calderbank offer, made in a rent-only arbitration, on costs, should compare the rent he awarded with that in the Calderbank offer, or whether he ought to compare the rent he would have awarded as of the date of the Calderbank offer with the rent in the Calderbank offer itself, putting the actual award of rent to one side.
L submitted that the arbitrator had asked himself the correct question, and that on appeal the court would not interfere with an arbitrator's award merely on the basis that it would have exercised its discretion differently.
At issue was the nature of the appropriate legal test to apply when dealing with an award of costs in relation to a rent determination that had been made under s.34 of the 1954 Act; a party could make an offer by way of a sealed offer, or by way of a Calderbank offer, where the question would be whether a successful party had achieved more by rejecting the offer and going on with the arbitration than would have been achieved had the offer been accepted, Tramountana Armadora SA v Atlantic Shipping Co SA (The Vorros)  2 All E.R. 870 considered. However, the object of both modes of offer was to promote settlement and justice over which the court retained an overarching discretion. In the instant case, it was common ground that T's offer had been a Calderbank offer and that the objective test was whether it ought reasonably to have been accepted; there was no material difference in the application of that test to rent determination cases and the test was the same whether it was in relation to Calderbank offers or sealed offers. Looking at the arbitrator's decision, it was unclear what comparator he was applying but he seemed to be considering T's argument as to whether L had been reasonable in rejecting its offer and going on with arbitration. However, the arbitrator had been right to not consider a comparison between the rent offered and determined adjusted back to the date of the Calderbank offer as the correct test; rather he had asked whether L had achieved more by carrying on with arbitration and declined to reach an opinion as to the position had the offer been accepted. The court should not tie an arbitrator's hands when making an award of costs as such a decision was totally fact dependent; his discretion should not be inappropriately fettered and he should be free to apply a simple intelligible legal test in different circumstances. In that decision-making process, market factors and uncertainties as to a decision date were not unique; different tests were neither necessary nor desirable. In the circumstances, the arbitrator had been entirely justified in regarding the offer made as a losing offer and in taking that into account in making the costs award.