Arbitration appeals: when will the courts intervene?

In a recent Court of Session decision (Arbitration Appeal No.1 of 2019), Lord Bannatyne refused to grant a party's application for leave to appeal against the decision of an arbitrator because he did not consider that there was anything "obviously wrong" in the award.

The decision

The dispute between the parties (whose identities remained anonymous) concerned the service of a contractual notice. The petitioner, who had been unsuccessful in the arbitration, claimed that the arbitrator had made a legal error in his interpretation of the parties' contract and leave to appeal was sought in terms of Rules 69 and 70 of the Scottish Arbitration Rules (which are contained in the Arbitration (Scotland) Act 2010). In terms of those rules, the court may only grant leave to appeal based on legal error if satisfied that:

1. Deciding the point will substantially affect a party's rights,
2. The tribunal was asked to decide the point, and
3. The tribunal's decision was obviously wrong or, where the court considers the point to be of general importance, is open to serious doubt.

The petitioner's assertion was that the decision was "obviously wrong", which in Lord Bannatyne's view (having considered both English and Scottish authorities - recognising that the same test applies) creates a very high hurdle for the petitioner to surmount.

Lord Bannatyne noted that he may consider that the arbitrator is on balance wrong, but that this would not be sufficient for him to hold that the arbitrator is "obviously wrong" and grant leave. He considered it necessary to find "a major intellectual aberration" or a view which is "so obviously wrong as to preclude the possibility that he might be right". In refusing leave to appeal, he accepted the respondents' submission that, when considering the construction and proper interpretation of contractual provisions, two decision makers may often arrive at different conclusions when there is no "major intellectual aberration" on the part of either of them and, although he was not prepared to hold that the arbitrator was correct, he was unable to exclude this possibility.

Arbitration

Arbitration is a process whereby parties agree to have their dispute determined by a nominated arbitrator instead of a court and is used regularly to resolve commercial disputes. Some advantages of the process are:

1. Choice of decision maker - parties can identify an arbitrator who understands the particular sector/industry in which they operate and the commercial context of the dispute.
2. Confidentiality - the fact that there is a dispute, the details and the outcome are all confidential (to the extent determined by the parties).
3. Flexibility - much of the process can be conducted by e-mail or telephone, without the need for a physical presence in the seat of the arbitration, which is particularly advantageous in cross-border/international disputes. This will usually result in a speedier and cheaper process than if the dispute had proceeded in the courts.

Parties can also expressly agree to restrict the rights of appeal which are available (or may do so as a result of their membership of certain industry bodies) in order to ensure certainty and finality. However, Lord Bannatyne's decision and summary of existing authorities would appear to demonstrate the limited scope that the courts have for intervening in cases involving alleged legal error in any event.

In practice, it will almost always be the parties' preference to avoid a situation whereby the resolution of a dispute is taken out of their control and placed in the hands of a third party decision maker. However, where such a situation is unavoidable, arbitration has many advantages over the court process and businesses may wish to consider, when formulating their commercial contracts, whether arbitration would be a more suitable way of resolving any disputes which may arise.