UK: Courts Decide Arbitrator Test For "Obviously Wrong" Same North And South Of Border

Last Updated: 2 September 2019
Article by Leigh Herd and Iain Drummond

Background

This case centres around the question of whether or not the court should grant leave for an appeal against an arbitrator's award based on "legal error".

A petition was lodged in the Court of Session in Scotland, requesting leave to appeal an arbitrator's award. The dispute, which was subject to arbitration, related to the validity of a notice that was either served on one individual, or that individual and his wife. Significant implications arose from which of these applied. Therefore, parties agreed to refer one question to arbitration: "whether management of the First Party's interest includes TR being the appropriate and sole recipient of any formal notice concerning the First Party's property interest in the subjects". An arbitration then took place between parties under the Arbitration (Scotland) Act 2010, with an award issued before the matter came to court.

The petitioner wished to appeal the arbitrator's award, on the basis that there was an alleged legal error. The respondent opposed the leave to appeal. The Court of Session had to determine whether leave should be granted.

Rule 69 of the Scottish Arbitration Rules (from Schedule 1 of the 2010 Act) allows a party to an arbitration to ask for leave of the Outer House of the Court of Session to appeal an award based on legal error. Leave will only be granted on the grounds specified in Rule 70, including that the arbitrator's decision was obviously wrong. The petitioner relied on this ground.

Decision of the court

The court held that the onerous test for "obviously wrong" in Rule 70 had not been met; there was "nothing obviously wrong" with the arbitrator's award; and leave to appeal was refused.

The petitioner included six proposed grounds of appeal in its petition, each of which the court rejected. The court held there was "nothing in the arbitrator's approach, reasoning and decision which is so 'wrong as to preclude the possibility that he might be right' or which amounts to 'a major intellectual aberration'" (paragraph 18). The court emphasised that its judgement did not mean it accepted the arbitrator was clearly correct, but rather that there was at least a possibility that the arbitrator could be correct.

Relevance of English case law?

In arriving at his decision, Lord Bannatyne had regard to a number of English cases. In particular, he considered the court's analysis of what constituted an award being "obviously wrong" in Braes of Doune Wind Farm (Scotland) Limited v Alfred McAlpine Business Services Limited [2008], that for the arbitrator to be "obviously wrong" it would be necessary to find a "major intellectual aberration" on their part. He also referred to Lord Diplock's comments in Antaios Compania Naviera v Salen Rederierna [1985] that the arbitrator was "so obviously wrong as to preclude the possibility that he might be right" (page 206 D-E).

Lord Bannatyne is not the first Scottish arbitration judge to consider English case law in deciding how to interpret wording in the Scottish 2010 Act. Lord Glennie in Arbitration Application No 3 of 2011 noted that the test for whether or not leave should be granted in arbitration is the same "in substance" in Scotland and England, and Scottish judges should not try and reinvent the "(arbitration) wheel" (paragraph 8). This is particularly the case for legal error, where the test "obviously wrong" is found in almost identical terms in the equivalent legislation for England and Wales, the Arbitration Act 1996.

Conclusions and implications

Once again the Scottish courts have upheld the founding principle of the 2010 Act that the court should not intervene in an arbitration, unless under a strict set of circumstances. This will comfort arbitrators and supporters of the arbitration process, and those who have less than not so fond memories of the frequent intervention of the courts prior to the 2010 Act.

It is also interesting that the Scottish courts continue to take guidance from their English counterparts in interpreting the language of the 2010 Act, given its similarities to the equivalent 1996 Act.

Therefore, while there remain distinctions between the two jurisdictions as to the arbitration process and procedure, there is unity in approach to supporting the arbitration process and minimising court intervention.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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