Up until the introduction of the Arbitration (Scotland) Act 2010, the law relating to arbitration in Scotland was considered by many to be outdated and unsatisfactory, with many parties choosing to resolve their disputes by other means. The Act, which came into force on 7 June 2010, introduced a new arbitration regime, with the aim of increasing the popularity of arbitration as a means of resolving disputes in Scotland.
The first decision of the Court of Session under the 2010 Act was issued by Lord Glennie on 5 October 2011. The case concerned an application for leave to appeal the decision of an arbitrator on the grounds of a legal error.
Background to the Act
One aspect of arbitration in Scotland under the old law that caused considerable delay was the ability of a party to apply to the Court of Session by "Stated Case" for a decision on a point of law. This procedure was easy to invoke, and Stated Case applications tended to take a long time to resolve, thereby reducing the attractiveness of arbitration as a quick, cost-effective means of resolving disputes in private. The 2010 Act effectively brought to an end the ability of parties to state a case on a point of law, and in its place introduced a more limited appeals procedure.
The Act introduces a set of Rules governing the conduct of and procedure for every arbitration seated in Scotland. The Rules are either "mandatory", which parties cannot contract out of, or "default", which will apply unless the parties agree otherwise. Rules 69 and 70 govern a party's right to appeal to the Court on the grounds of legal error. Rule 69 is a "default" Rule, meaning parties can opt out of it.
Arbitration Application No 3 of 2011
The case concerned an application for leave to appeal on grounds of legal error against the decision of an arbitrator. Under the Rules, a "legal error" appeal can only be made either with the agreement of the parties to the arbitration, or with the leave of the Court. Where there is no agreement between the parties, Rule 70 provides that the Court will only grant leave if satisfied that:
- deciding the point will substantially affect a party's rights;
- the arbitrator was asked to decide the point; and
- the arbitrator's decision (i) was "obviously" wrong, or (ii) where the court considers the point to be of general importance, the arbitrator's decision is open to serious doubt.
The dispute in this case arose out of a building contract. The employer sought a decision at arbitration on a number of preliminary issues. The arbitrator issued his decision on each of the preliminary issues, but the employer sought to challenge the arbitrator's decision on two of them. Both of the issues were considered by the Court to determine whether leave to appeal could be granted in respect of either of them.
The first issue concerned the arbitrator's decision that the onus lies on the employer to prove that any money previously paid to the contractor was greater than their contractual entitlement. The second issue concerned the arbitrator's decision that a tender from another contractor had no relevance to the dispute.
Lord Glennie granted leave to appeal the arbitrator's decision on the issue of onus of proof, but not on the second issue. He was satisfied that the requirements of Rule 70 had been met - the point of law raised was one of general importance and the arbitrator's decision on it was open to serious doubt.
As well as dealing with the application for leave to appeal, Lord Glennie set out some general guidance for parties and practitioners on the procedural aspects of such applications. In doing so he stressed that it is important that the procedure be simple and flexible, and designed to enable the dispute to be resolved as expeditiously and economically as possible. He added that, in a legal error appeal, the Court will aim to fix a hearing "within weeks of leave to appeal being granted", which reflects the founding principles of the Act.
It is also of interest to note that the parties are not named in the case. This preserves their anonymity, which was always seen as a benefit of arbitration by some parties, and is now possible under the Act.
The ability to have disputes resolved quickly and without unnecessary expense will be of benefit to a wide variety of businesses. Arbitration has traditionally been used as a means of resolving disputes in the property sector, particularly rent review and dilapidations disputes. It has, however, fallen out of favour in recent times as the features that made it an attractive means of dispute resolution have been eroded.
The new Act aims to restore the popularity of arbitration as a means of resolving disputes across a range of sectors, including the property industry. It remains to be seen whether or not the Act will achieve that aim, although it does offer a good starting point. Meantime, it is encouraging to note that the judiciary have also set off on the right foot, with a decision that emphasises the aims of speed, cost-effectiveness and privacy as a means of promoting the use of arbitration in Scotland.
To read Lord Glennie's decision in Arbitration Application No 3 of 2011 click here.