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Mon September 28 2020

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Leave to appeal against an arbitrator's decision for alleged error of law

10 Oct 11 This was an application for leave to appeal against an arbitration award on the basis of legal error, and the first case of its kind to be brought under the Arbitration (Scotland) Act 2010, which came into force on 7 June 2010, and concerned a building contract

Section 13(2) of the Act states:

“A tribunal’s award is not subject to review or appeal in any legal proceedings except as provided for in Part 8 of the Scottish Arbitration Rules.”

Part 8 of the Rules is entitled “Challenging Awards”. It provides for three distinct types of challenge to an award:

(i) A “jurisdictional appeal” under Rule 67, on the ground that the tribunal did not have jurisdiction to make the award;

(ii) A “serious irregularity appeal” under Rule 68, on the ground of serious irregularity, generally, but not exclusively, in the conduct of the arbitration; and:

(iii) A “legal error appeal” under Rule 69, on the ground that the tribunal erred on a point of Scots law.

Rules 67 and 68 are “mandatory rules”, which cannot be modified or disapplied by the parties Rule 69, on the other hand, is a “default rule” which applies only in so far as the parties have not agreed to modify or disapply it. The parties in the present case had not agreed to modify or disapply it. The proposed appeal in this application was concerned with a legal error appeal under Rule 69.

The right to make a legal error appeal was constrained by Rule 70, and such an appeal can only be made with either the agreement of the parties or the leave of the Court. The Court drew a comparison with the English Arbitration Act 1996 sections 68 and 69, and continued to discuss the provisions and procedures of the new Scottish Act and the Scottish Arbitration Rules in some detail.

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The present case concerned a building contract; the employer under the contract was the petitioner and the contractor the respondent. The arbitrator was asked to decided a number of issues, and found that the burden lay with the employer to show that the contractor had been overpaid. The employer maintained that this was at odds with the detailed payment provisions in the contract where the approval of the project manager was provisional and for the purpose of only assessing the amount of any interim payments, which were, in any event, themselves subject to subsequent correction.

The Court was satisfied that, under Rule 70(3), the appeal raised a point of law both generally and on the proper construction of the contract. The tribunal had been asked to decide the matter and its decision substantially affected the rights of both parties. Whilst the result of the decision could not presently be expressed in financial terms, placing the onus on one party rather than the other was likely to have a significant impact on the whole conduct of the arbitration and might well affect the final result. In addition, the point was one of general importance arising as it did under a standard form of building contract. In the judge’s view, the arbitrator’s decision was open to serious doubt. Not only was there a potential difficulty in squaring the arbitrator’s decision with the essentially provisional nature of the assessments made for the purposes of triggering interim payments, but there was also a possible mismatch with the burden being placed upon the contractor to justify its claims to additional sums.

The second issue concerned the arbitrator’s finding that the petitioner’s averments about a tender from another contractor was irrelevant. The judge did not consider that this raised a point of law. Pleadings in arbitration need not, and indeed normally should not, follow the form of pleadings in common use in the Court of Session. It was for the arbitrator to decide questions as to the admissibility, relevance, materiality and weight of any evidence. Even if the matter were a question of law, the judge was not persuaded that the arbitrator had been obviously wrong.

Opinion of Lord Glennie in Arbitration Application No. 3 of 2011, [2011] CSOH 164

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