Background
The new annual rent shall be the annual rent payable by the Tenant immediately prior to the relevant review date increased by the amount of the proportionate increase in the Consumer Price Index (all groups) during the period which corresponds as nearly as possible to the immediately prior twelve month period.
The Consumer Price Index (CPI)
Central to the dispute were the mechanics of the Consumer Price Index (CPI).[2] The tenant argued that the review was to discuss the rent change in terms of a percentage. The landlord disagreed.
The award
The arbitrator made a finding on how the rent review formula should be operated, preferring the landlord’s reading of it:
where the inputs ‘C’ and ‘D’ are the CPI index numbers. Accordingly, the new rent ‘A’ equates to $307,168.27, calculated as follows:
A= B x (C/D), where:
A= the CPI reviewed rent
B = the annual rent payable before the review date
C = CPI (index) for the quarter year immediately before the relevant review date
D = CPI (index) for the quarter year before the last review date
ie, $307,168.27 = $286,486.12 X (1203/1122)
Interpretation of clause 2.1(ii)
For the above formula to be correct, clause 2.1(ii) had to be read a particular way. The arbitrator gave her reasons for preferring the landlord’s reading:
- The clause only referred to the previous 12-month period. It would be a strained interpretation of the clause if the word “proportionate” also required consideration of the 12 months prior.
- The tenant’s approach to the formula was not mathematically workable.
- The tenant’s interpretation was uncommercial. In fact, it would have led to a rent increase in 2021 that was higher than it actually was.
Notice for correction
After the arbitrator issued the award, the tenant sent a “notice for correction” under sch 1, art 33 of the Act. The arbitrator declined the request for correction because the correction went beyond a request for correction of an arithmetical error and went to the heart of the award.
The Court explains how the arbitrator got it right
The appeal
The tenant appealed to the Court under sch 1, art 34(2) of the Arbitration Act 1996 (the Act). Under art 34(2), the Court can set aside an award if there are quality issues.
The tenant argued that the arbitrator:
- breached natural justice by not considering the “correction”;
- dealt with issues that were not included within the referral to arbitration; and
- decided in a way that conflicted with public policy.
The Court found that:
- A “notice for correction” is designed for minor errors such as basic arithmetic mistakes or for grammar errors. In other words, “simple, uncontested and obvious mistakes.” However, the tenant’s notice was improperly used to invite the arbitrator to consider the underlying matter again. In any event, the arbitrator had correctly treated the CPI as index numbers, not as a percentage.
- The agreed issue at arbitration was the proper interpretation of the rent review clause. The tenant made arguments to this point, and that was precisely what the arbitrator had considered.
- The Court did not address the tenant’s public policy argument in detail as the tenant had not established a fundamental requirement – it needed to establish that the award was wrong. However, the Court stressed that it was not.
The Court agreed with the arbitrator about the mechanics of the formula and the sum produced. The Court stressed that the CPI was not to be expressed as a percentage. The arbitrator understood this despite the tenant’s insistence otherwise. As the Court reiterated, “the arbitrator treated the mathematics correctly. It was her decision to make, and in my view, she made it carefully and reasonably.”
