The Court of Session in Edinburgh has refused leave to appeal in relation to an arbitrator’s decision. Leave was sought on grounds that the arbitrator’s decision was “obviously wrong”, having regard to Rule 70 of the Scottish Arbitration Rules. In reaching this decision, the court has reiterated the approach to be taken which highlights the high hurdle that must be met before leave to appeal is granted.
This decision (Arbitration Appeal No 1 of 2019) concerned an application for leave to appeal an alleged legal error by an arbitrator under Rules 69 and 70 of the Scottish Arbitration Rules.
The dispute between the parties concerned the exercise of an option right under an agreement. The mechanism for exercising the option was service of a notice. One of the issues between the parties in the arbitration (and the only one that was relevant to the Rule 70 application) was the validity of the purported notice. This turned on questions of contractual interpretation.
Rule 70 of the Scottish Arbitration Rules provides that the court may allow a legal error appeal to proceed if it is satisfied that:
- Deciding the point will substantially affect a party’s rights;
- The tribunal was asked to decide the point; and
- Either the tribunal’s decision was obviously wrong or the court considers the point raised to be of general importance.
In this case, the petitioner/applicant submitted that the arbitrator’s decision was “obviously wrong” and set out six grounds of appeal which were described by the respondent as “a set of intricate and nuanced disagreements with the position taken by the arbitrator”.
The court refused leave to appeal. In reaching this decision, Lord Bannatyne followed the well-known case of Arbitration Application No 3 of 2011 in which Lord Glennie stated that the test for the granting leave to appeal under the Arbitration (Scotland) Act 2010 (the “2010 Act”) is the same in both Scotland and England as the 2010 Act was modelled on the English Arbitration Act.
In the circumstances, Lord Bannatyne referred to a number of English authorities that dealt with assessing whether an arbitrator’s decision was “obviously wrong”. He noted that it was very clear from these authorities that the “obviously wrong” test created a high hurdle for the petitioner to surmount before leave could be granted. It was not enough for the judge considering the application for leave to reach the view that the arbitrator’s decision was “on balance wrong”. More than that was required to meet the statutory test such as “a major intellectual aberration” (using the words of Mr Justice Aikenhead in the case of Braes of Doune Wind Farm (Scotland) Limited v Alfred McAlpine Business Services Limited  1 Lloyd’s Rep 608) or in the words of Lord Diplock in Antaios Compania Naviera A v Salen Rederierna AB  1 AC 191, something “so obviously wrong as to preclude even the possibility that the arbitrator was right.”
Lord Bannatyne found that the questions of contractual interpretation that the arbitrator had considered were precisely the sort of questions where two different decision makers could arrive at different conclusions with no “major intellectual aberration” on the part of either. Moreover, none of the six “intricate and nuanced” grounds of appeal advanced by the applicant identified any manifest legal error which might lead the court to conclude that the arbitrator’s approach, reasoning or decision were “obviously wrong” within the meaning of Rule 70.
In closing, Lord Bannatyne emphasised that his decision did not mean that he accepted that the arbitrator was correct, merely that the possibility that the arbitrator was correct could not on any reasonable basis be excluded. The fact that “respectable legal intellects” might have differing views on the rightness of the arbitrator’s decision was not enough to discharge the test set out in Rule 70.
This reiteration of the Scottish courts’ commercial and sensible approach to arbitration legal error appeals is to be welcomed.
As Lord Glennie noted in the case of Arbitration Application No 3 of 2011, Scotland and England share the same underlying philosophy to issues arising under their separate but related arbitration laws. This case once again highlights the relevance of English caselaw when considering questions of interpretation and approach under the 2010 Act (which was modelled to some extent on the English Arbitration Act).
In addition, it highlights the limited extent to which the Scottish courts will interfere in arbitration, recognising that parties who elect to use arbitration value party autonomy, privacy and finality and intend recourse to the courts to be limited. This in our opinion reinforces the confidence that parties should have when arbitrating in Scotland and under the 2010 Act.