Court of Session issues first decision on an application for leave for appeal against an arbitration award under the Arbitration (Scotland) Act 2010

Practical Law UK Legal Update 3-511-5928 (Approx. 5 pages)

Court of Session issues first decision on an application for leave for appeal against an arbitration award under the Arbitration (Scotland) Act 2010

by Douglas Stewart, Shepherd and Wedderburn LLP

Background

The Arbitration (Scotland) Act 2010 (AA 2010) came into force on 7 June 2010. The Scottish Arbitration Rules apply to arbitrations seated in Scotland (AA 2010). Rule 69 of the Scottish Arbitration Rules provides for appeals from awards on the grounds of error of law.

In terms of the AA 2010, the court may only review an arbitrator's award on the grounds that:

The tribunal did not have jurisdiction to make the award (Rule 67).
There was a "serious irregularity" in the conduct of the arbitration (Rule 68).
The tribunal erred on a point of law (Rule 69).

Rules 67 and 68 apply to any arbitration proceedings under the AA 2010. However, Rule 69 applies only insofar as the parties have not agreed to modify or disapply it (section 13). The right to appeal under Rule 69 is also constrained by Rule 70, which provides that an appeal may only be made with the agreement of the parties or with leave of the court.

Rule 70(3) further provides that the court will only grant leave to appeal where (among other requirements), on the basis of the arbitrator's findings of fact, the arbitrator's decision on the point:

Was obviously wrong.
Is open to serious doubt, where the court considers the point to be of general importance.

For further discussion of the key features of the AA 2010, see Practice note, The Arbitration (Scotland) Act 2010.

Alongside the coming into force of the AA 2010, the Court of Session Rules Council introduced Rule 100 of the Rules of Court, which deals with the procedural aspects of the court's role in the arbitral process, including Rules 67, 68 and 69. Under the Rules, applications and appeals are to be made by petition, with the aim of making the procedure as flexible as possible and designed to enable the dispute to be resolved as expeditiously and economically as possible. The court's stated aim, in the case of appeals (on the grounds of legal error at least), is to fix a hearing to enable the dispute to be decided within weeks of leave to appeal being granted.

Facts

Arbitration Application No 3 of 2011 relates to an application for leave to appeal in an arbitration between an employer and a building contractor. The employer sought to recover an alleged overpayment to the contractor. The contractor claimed for additional sums under the building contract. The claimant employer sought to appeal an interim award issued by the arbitrator on the grounds that the arbitrator had erred in:

Holding that the onus of proof lay on the claimant employer on certain issues.
Striking out certain allegations made by the claimant employer.

Decision

At the outset, Lord Glennie recognised the founding principles of the AA 2010 (included in section 1) and the philosophy that underpins them, namely:

Party autonomy.
Privacy.
Finality.

In doing so, Lord Glennie emphasised the limited role for court intervention in the arbitral process.

Comparisons with the English Arbitration Act 1996

Lord Glennie noted slight differences in the precise wording of Rule 70 of the Scottish Arbitration Rules (allowing leave to appeal on the grounds of legal error) and the equivalent provisions of the English Arbitration Act 1996 (AA 1996), applicable in England and Wales. He concluded that the differences are of little significance. Therefore, the test for the grant of leave is substantially the same in both jurisdictions.

Lord Glennie indicated that English authorities on questions arising under the AA 1996 will be of relevance to questions of interpretation and approach to the AA 2010 on the basis that the two Acts reflect the same underlying principles and philosophy. This included the view that "[arbitral] awards should not be readily transferred to the courts for appellate review" (paragraph 7, judgment), quoting from Rix LJ in CGU International Insurance plc v AstraZeneca Insurance Co Ltd [2007] 1 Lloyd's Rep 142, at paragraph 3).

Procedural aspects of court intervention under the Arbitration (Scotland) Act 2010

Lord Glennie went on to discuss the procedural requirements and timeframes under Rule 100 of the Rules of Court (paragraphs 9-20, judgment). He noted that applications for leave to appeal on the grounds of legal error will generally be determined by one of the designated arbitration judges on the basis of documents alone (including the petition, any relevant documents and any grounds of opposition), without a hearing. The judge's decision is final. Lord Glennie noted that, whether the application is granted or refused, the judge should give reasons (again, similar to the English position following North Range Shipping Ltd v Seatrans Shipping Corp [2002] 1 WL 2397) (see also Practice note, Arbitration claims: obtaining permission to appeal to the English Court of Appeal: The North Range Shipping principle).

Anonymity

Lord Glennie also underlined the confidentiality of the process under the AA 2010. A party may make an application for anonymity by the date on which the application for leave to appeal is heard. Until then, the petition will be unavailable for inspection and will be referred to publicly as "Arbitration Application" or "Arbitration Appeal" and by number and year.

The present case

As noted above, Lord Glennie considered that the test for the grant of leave under Rule 70(3) of the Scottish Arbitration Rules is, in substance, the same in Scotland as in England and Wales. Lord Glennie's holdings on the two grounds relied on by the claimant employer are set out below.

Onus of proof

The first issue concerned a finding by the arbitrator on the onus of proof. The contract, which was based on a standard form construction contract, included a detailed payment mechanism that regulated the manner in which payment sums were assessed, approved and paid. The mechanism provided for a series of interim valuations and payments on a provisional basis, involving a continuing and cumulative assessment of the value of work carried out from one period to the next. The employer claimed that it had overpaid the contractor compared with the sums that were actually due.

The arbitrator held that, although the onus was on the contractor to prove that further monies were due to it, the employer had the onus of proving the extent of its alleged overpayment. Seeking leave to appeal, the employer argued that this conclusion was inconsistent with the provisional nature of the assessment and valuation provisions of the contract.

Lord Glennie held that the appeal did concern a point of law and that the decision on that point would substantially affect the rights of the parties. He found that the issue, relating as it did to the payment provisions of a standard form construction contract, raised a question of general importance. Accordingly, the only question that remained was whether the arbitrator's decision was open to serious doubt.

Without expressing a concluded view on the parties' respective arguments, Lord Glennie found that there was sufficient doubt to satisfy the test. He noted that there was a potential difficulty in squaring the arbitrator's decision with the provisional nature of the interim payments under the contract, and also the potential mismatch with the burden being placed on the contractor to justify its claim for additional sums (which also meant that the contractor was required to prove how much was due on a cumulative basis).

Therefore, Lord Glennie granted the employer leave to appeal on the first issue.

Strike out

The second issue concerned a decision by the arbitrator to strike out averments by the employer on a tender issued by another contractor as irrelevant. However, Lord Glennie was not convinced that this raised a point of law. Having considered the parties' written submissions and the arbitrator's award, he considered that this was an evidential point. In terms of Rule 28 of the Scottish Arbitration Rules, the admissibility, relevance, materiality and weight of any evidence is a matter to be determined by the arbitrator. Even if the averments were excluded, the evidence of the alternative tender could still be admitted.

The employer argued that the arbitrator had misunderstood the potential relevance of the evidence. However, Lord Glennie found that this was a complaint that the court could not entertain. Lord Glennie further considered that, even if this matter was one of law, he would not grant leave to appeal, as the point was not of general importance and, in his opinion, the arbitrator was not obviously wrong. Therefore, leave to appeal was refused on the second issue.

Comment

This is the first reported case to consider the provisions of the AA 2010. Lord Glennie's decision provides useful practical guidance for arbitration practitioners in terms of the procedure and timescales involved in any application for leave to appeal. The decision also underlines that the court will respect the arbitral process that the parties have contracted for and will only intervene where necessary in terms of the AA 2010. Where intervention is necessary, the court will seek to resolve the issues as expeditiously and as economically as possible.

Case

Arbitration Application No 3 of 2011 [2011] CSOH 164.

Court of Session issues first decision on an application for leave for appeal against an arbitration award under the Arbitration (Scotland) Act 2010 | Practical Law