Arbitration Application No.1 of 2013  [2014] CSOH 83 , 9 May 2014

J. Gordon Reid QC, F.C.I.Arb. and David Bartos, F.C.I.Arb, both of Terra Firma Chambers, have successfully opposed an attempt in the Court of Session to set aside an arbitrator’s award both on the grounds of serious procedural irregularity and error of law. The judgment of Lord Woolman sitting in the Outer House has confirmed the pro-arbitration Scottish approach to:-

- setting aside arbitral awards on the grounds of procedural irregularity

- adequacy of a tribunal’s reasons

- the concept of an error of law in relation to arbitral appeals

- and the stringent tests that must be met for an appeal on the grounds of error of law.

Lord Woolman also commented on the need for a dissatisfied party to exhaust the corrective powers of a tribunal under rule 58 before making an appeal.

The appeal arose out of a rent review arbitration of a hotel. Parties had been represented in the arbitration by their surveyors. The arbitrator having issued an award of the revised rent, the tenant sought to appeal the award to the Outer House of the Court of Session. The tenant appealed on the basis of serious irregularity under rule 68 of the statutory Scottish Arbitration Rules, contained in the Arbitration (Scotland) Act 2010. The tenant also sought leave (permission) to appeal on the basis of error of law under rule 69 of those Rules.

The appeal under rule 68 was based on (a) the arbitrator having accepted the Landlord’s surveyor’s evidence even though he was a representative; (b) the arbitrator having acted as an expert; (c) inadequate reasoning; and (d) the taking into account of confidential trading information of a comparable hotel.

Lord Woolman found that on the first matter that as neither party’s representative  had used expert witnesses both representatives had used their best arguments which meant that inevitably there was some blurring of the line dividing the role of advocate and expert witness. However it was for the arbitrator to determine the admissibility, relevance, materiality and weight of any evidence. He had done this and no irregularity in his conduct had been identified.

Having concluded that there was no substance in the allegation that the arbitrator had acted as expert rather than arbitrator, Lord Woolman addressed the reasoning. He noted that the nature and length of reasons will depend on the whole context in which the decision is given. Only essential issues required to be dealt with, not every matter raised. Even if the reasoning was poor and unimpressive an award might be upheld. The context was that of a rent review arbitration which involved professional judgment by the arbitrator. Such a case was not readily was not readily susceptible to elaborate analysis and while the reasoning was very brief it was sufficient to explain the rental decision.

The taking into account of confidential evidence did not involve any irregularity which could give rise to setting aside as a serious irregularity under rule 68.

On the alleged errors of law, Lord Woolman expressed surprise that the tenant relied on the same factors, given that in terms of the 2010 Act something that was an error of law under rule 69 could not at the same time be an irregularity under rule 68. He therefore refused leave (permission) to make an error of law appeal.

He did however note that even had the complaints been errors of law, the arbitrator had not been asked to decide them which was an essential pre-requisisite for such an appeal.

Nor was the decision obviously wrong or the legal point of general importance. Following Arden LJ in HMV UK v. Propinvest Friar Limited Partnership [2011] EWCA Civ 1708, he took the view that “Obviously wrong” was something in the nature of a major intellectual aberration or making a false leap in logic or reaching a result for which there was no reasonable explanation. Nothing of that kind had been demonstrated in what was essentially a matter of the arbitrator exercising his professional judgment on the basis of the submissions made to him.

On general importance the lease was a bespoke one and any decision in relation to the rent review clause would not have wider resonance. Nor was there a lack of case law on interpretation of rent review clauses.

Lastly, but not least, Lord Woolman noted the submission made to him that the appeal was incompetent because the appellant had not exhausted the power to seek clarification of the reasoning from the tribunal. He found that while this power could not enable tribunals to change a decision, it did provide significant corrective powers beyond minor matters such as typographical errors. In this case, however, as the grounds of appeal went beyond criticism of the reasoning, and in the light of his decision on the reasons, he declined to uphold that submission.