Examination of witness

Commercial Rent (Coronavirus) Bill – in a Public Bill Committee at 10:11 am on 7th December 2021.

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Lewis Johnston gave evidence.

Photo of Stewart Hosie Stewart Hosie Shadow SNP Spokesperson (Cabinet Office), Shadow SNP Spokesperson (Constitution) 10:44 am, 7th December 2021

Q We will now hear oral evidence from Lewis Johnston, assistant director of policy and external affairs at the Chartered Institute of Arbitrators, who is appearing in person. We have till 11.25 am on this session. Mr Johnston, could you please introduce yourself for the record? As with the previous witnesses, if you have any brief introductory remarks, please make them now.

Lewis Johnston:

Thank you, Chair. My name is Lewis Johnston and I am assistant director for policy and external affairs at the Chartered Institute of Arbitrators. We are a professional body for all forms of alternative dispute resolution. We have 18,000 members across the world, operating across all forms of ADR—arbitration, adjudication and mediation—and we have 6,000 members here in the UK. I will keep my introduction as brief as possible, following the previous witnesses.

Photo of Seema Malhotra Seema Malhotra Shadow Minister (Business, Energy and Industrial Strategy)

Q Thank you, Mr Johnston, for coming to give evidence today. In relation to the scheme being set up and the assessments that will be made, what key skills and experience will those who participate in the scheme as arbitrators need to have?

Lewis Johnston:

In common with some of the previous witnesses, I suggest that financial and accounting expertise will be quite crucial. Obviously, the Bill makes provision for some quite detailed assessments of viability and affordability. There are provisions about the kind of evidence that would have to be given regard to in reaching some of those decisions and making the award, and one of the impressions we got from digesting the Bill was that some of that analysis might require some reasonably in-depth expertise. Within the arbitration profession, there are experts across lots of different fields: there are surveyors, there are property experts who have already acted in property dispute schemes, and there are also financial experts, accountants and so on, but I would say that financing and accounting are probably near the top of the list, given the nature of the decision-making process.

Photo of Seema Malhotra Seema Malhotra Shadow Minister (Business, Energy and Industrial Strategy)

Q There has been some discussion about fee structures and the fact that the Secretary of State may be able to make regulations in this area. What would be an appropriate way to have a fee structure that is affordable and accessible?

Lewis Johnston:

The essence of this choice is about the balance between prioritising the scheme’s affordability and accessibility—obviously, it is meant to be a simple, low-cost way of obtaining redress and getting a resolution—and the need to ensure an adequate supply of suitably qualified arbitrators. As you mentioned in your previous question, some of the required skillsets would be quite specialised, and may be at premium. There are precedent models for this kind of thing. One example, which is not a direct parallel, is the business arbitration service run by the Chartered Institute of Arbitrators, which is designed for relatively low-value disputes—between £5,000 and £100,000. The costs are fixed at £1,250 plus VAT per party, and that includes the appointment fee and the fee for the arbitrator. It may differ in this regard, but there would need to be certainty and transparency, certainly for the parties involved, and one of the benefits of the business arbitration scheme is that there is no chance of the costs spiralling out of control.

The other thing to mention, which may be a pertinent lesson from the business arbitration scheme, is that it is designed to be a documents-only, very simple, quite streamlined process, which will not require representation for either party, because representation can take up quite a good proportion of the costs. It is done with an assumption against having an oral hearing. Obviously, there is always the option of having an oral hearing if the parties require it; that is in the Bill. I think it is correct that that is open to them, but I suggest that the default assumption should be against that and for it being a documents-only process. Given the simplicity of the kind of cases that are intended to go to the scheme, that would be a good way of managing the costs. I note that the Secretary of State will have the power to introduce either a cap or a sliding scale, and again I emphasise the need for really forthright clarity. It needs to be very simple so people understand how it would apply to different levels of dispute.

Photo of Seema Malhotra Seema Malhotra Shadow Minister (Business, Energy and Industrial Strategy)

Q Thank you for that. I want to pick up on a point you made about the number of those who may be qualified and have the relevant skills and experience, which may come forward in further discussions on the detail of the scheme. In your experience, is there sufficient interest for arbitrators to be involved in the scheme? One of the critical success factors will be that enough are involved so that there is not a backlog in dealing with some of the rent arrears cases. What is your view about the level of interest and the sufficiency of supply of arbitrators?

Lewis Johnston:

There is a degree of uncertainty around that, based purely on the pipeline of cases. As the previous witnesses alluded to, most of these cases, most of these disputes over the ring-fenced rent, will be or already have been settled through negotiation, so you are talking about a relatively small proportion, although it is still going to be quite a high number. There is a margin of error to take into account. On the supply side, in terms of the level of interest, there are lots of very well qualified arbitrators out there who would be forthcoming to handle cases like this. As I say, there is quite a strong precedent of arbitrators with the requisite level of skills and experience taking on fixed-fee or low-fee cases like this, but again I point out that the low fee would still have to take account of and cover the fact that a certain skillset and investment of time would be required. It is important that quality is not compromised. I think, overall, there is a good level of interest and there would be a healthy pipeline of arbitrators to take these cases.

Photo of Seema Malhotra Seema Malhotra Shadow Minister (Business, Energy and Industrial Strategy)

Q What is your view on how arbitrators should be guided in going through the process? What needs to be in place, in terms of guidance or otherwise, to make their role clear, so that there is some consistency? I imagine that confidence will come with clarity and consistency. Do you have any concerns or any message for us about what you want to see in place—what kind of guidance needs to be brought forward? Could I extend that to how assessments might need to be made of viability and ability to pay, with other costs—business rates and other costs, like the jobs tax—that might be coming on stream for businesses as well?

Lewis Johnston:

Certainly. I was pleased to see, in clause 21 of the Bill, that guidance will be provided. There are several areas in which guidance might be necessary. The first is something that I know will be coming when applications open for approved bodies to appoint arbitrators, and that is around the precise skillsets needed. We have a reasonably good idea of what that would entail, but a bit more detail would be helpful. For the arbitrators themselves, I think the crux point is around viability and affordability. The Bill and the code of practice go into a bit of detail about the kind of evidence that could be assessed as part of that. I think there should be clarity over exactly how much power the arbitrator will have to be inquisitorial as part of the process, the extent to which they can order discovery and so on, and the kind of evidence they can ask for from the parties.

The Bill is very clear about its intention to balance the interests of tenants and landlords and to maintain the viability of otherwise viable businesses, while also having regard to the solvency of the landlords. There may need to be more guidance, and I appreciate that that might come when cases start to go through the system, about balancing the request of the tenant on what is viable for them with what is consistent with maintaining the solvency of the landlord, when those are at odds. Exactly how that could be decided is a bit of a moot point at this stage.

Photo of Peter Dowd Peter Dowd Labour, Bootle

Q Partly linked to this one is clause 7(2) and (3). Subsection (2) sets out the requirement for the Secretary of State to approve those bodies suitable to become approved arbitration bodies to carry out the functions under section 8. The disapproval of arbitration bodies is in subsection (3). Have you had any conversations with the Department about the parameters of approved arbitration bodies—who they should be associated with, registration and all the rest—given that there may well be substantial amounts of arbitration going through the process?

Lewis Johnston:

That is a good question, and the discussions we have had with the BEIS team initially focused on the question of capacity, because obviously we are talking about quite a large number of cases. The decision to go for more of a market-based approach, with a list of approved bodies rather than a single monolithic provider, was probably the right one. I appreciate that the Bill is taking more of a principles-based approach than saying that the arbitrators have to be accredited in a certain way. It is more about having the competency and impartiality.

Each of the bodies, if they are to be approved, will have to meet the criteria in one way or another. Speaking just for the Chartered Institute of Arbitrators, all our members are bound by our code of ethical and professional conduct, which covers issues such as integrity and fairness, disclosing conflicts of interest, ensuring that you are competent to take on the appointments you are given, trust and confidence in the process, and transparency around fees. That would address a lot of things.

Also, anyone that we were to appoint—should we become one of those approved suppliers—would have to make clear and sign a declaration at the outset, which disclosed any potential conflicts of interests or anything that might be perceived as such, as well as declaring they were competent and had the capacity to take on these cases. That would mitigate the risk of them having to resign or of delays in processing the case.

Photo of Peter Dowd Peter Dowd Labour, Bootle

Q Would you welcome further, more detailed discussions with the Department on these matters? It is important that we try to get this right, because we do not want to create more problems down the line. I think we have been here before in relation to those people who are regulated—whether that be social workers, doctors or nurses—so it is important that we get that right. Would you welcome more significant or more substantive discussions with the Department about how this should pan out?

Lewis Johnston:

I would welcome more detail on exactly what the approval criteria would be and what the role of the approved suppliers under the scheme would be. There has been a good degree of engagement from the Department so far, but what the criteria would be has not yet been published. However, I know that they are coming shortly. That will be the crucial point in terms of assessing what the role of these appointing arbitration bodies would be.

Photo of Paul Scully Paul Scully Parliamentary Under-Secretary (Department for Business, Energy and Industrial Strategy), Minister of State (London)

Q In the last sitting, Melanie Leech expressed concern about having a system like this set up for small landlord and tenant issues, compared with some of the bigger and more complex ones. How do you think arbitration services could cater for both sides?

Lewis Johnston:

I understand the intention is that it would be the simpler, perhaps smaller party cases going through to the scheme, and I think that is correct. Given that the emphasis is on simplicity, accessibility and managing the costs, any scheme that had to accommodate the intricate, large-scale cases would encounter some problems in terms of balancing the two. Again, I point to precedents with things like the business arbitration scheme. It is difficult at this point to assess exactly what the appropriate fee level would be, because you would have to properly assess exactly how much work will be involved in each case—obviously not until they had come through—but I think that in the simpler cases that could be set at a level that was affordable. As some of Melanie’s members had made clear, it needed to be at quite a modest level for it to be accessible to them.

In terms of how the arbitration bodies would manage a variation in the complexity of cases, even it was perhaps the smaller, more simpler end of the spectrum, there will still be variation. We would maintain—this would apply to other bodies as well—lists and databases of arbitrators who would be suitable. Based on the nature of the case that came through, there would be a shortlist drawn up based on who had the requisite skill sets to handle that case. The pool that we would draw from should be broad enough to be able to cater to different types of cases and different sectors and so on.

Photo of Sara Britcliffe Sara Britcliffe Conservative, Hyndburn

Q In the simple case that you talked about, from your perspective what is the likely cost of that, including the legal fees of the tenants and landlords?

Lewis Johnston:

I would not want to commit to exactly what it would involve until we got to that stage, but I refer again to the precedent set by our own business arbitration service, which is designed to produce an award within 90 days. It is meant to be documents only, and that is £1,250 plus VAT per party. If it was a very straightforward case—if it was documents only and it followed the same processes—I imagine it could be in the same ballpark in terms of fee level. The best thing would be to have real clarity around what the fees were and how they apply to each case, and for there to be perhaps an assumption against having a hearing, and, if there was a hearing to be requested, very clear guidance on what fee that would entail. Perhaps for a half-day hearing, a certain level. For the business arbitration scheme, there is an option for that. It is £500 for a half-day hearing. Again, the assumption is that the cost could be fixed at those initial costs per party, and that a hearing would not be necessary. It would be documents only.

Photo of Sara Britcliffe Sara Britcliffe Conservative, Hyndburn

Q Can I clarify that, in answer to a previous question, you stated that you would want documents only?

Lewis Johnston:

I think so. I think that would be the assumption. I think it is right that there is an option to go for a hearing if it is requested, but I think that the default assumption should be that it is documents only. That is most in keeping with the intention and aim of the Bill, which is to have very clear, rapid-fire means of redress.

Photo of Stewart Hosie Stewart Hosie Shadow SNP Spokesperson (Cabinet Office), Shadow SNP Spokesperson (Constitution)

Q Given that there are no further questions and we are not pressed for time, Lewis, do you have any other observations that have not been drawn out in the questions that you have received so far?

Lewis Johnston:

No, that has covered most of it. The Chartered Institute of Arbitrators will be making a written submission to the Committee later this week as well, so that might clarify or refine some of the points that I have raised. We are very pleased to have been invited to give evidence here today, and we will be pleased to engage with the Committee as you continue with the work of refining exactly what the scheme and the process will be.

Ordered, That further consideration be now adjourned.—(Felicity Buchan.)

Adjourned till this day at Two o’clock.