Crafting clarity: take care with your arbitration drafting

By Ross Taylor, partner, dispute resolution, Gillespie Macandrew

THE Arbitration (Scotland) Act 2010 was introduced around 15 years ago, bringing with it a set of mandatory and default rules to govern arbitrations seated in Scotland as found in Schedule 1 of the Act). The mandatory rules will always apply to Scottish arbitrations, whilst the default rules will only apply if they are not disapplied or modified by the parties within their agreement.

By those rules, the Act permits recourse to the court in only express and limited circumstances, and the court robustly supports the arbitration process in Scotland. The right to appeal to the court on the ground that the arbitrator has erred in law is a default rule. The parties can agree that there will be no such right of appeal at all. If the default rules subsist, an appeal to the court on the ground of error in law requires either the agreement of the parties or the permission of the court.

Arbitration Appeal No. 3 of 2024

In the recent case of Arbitration Appeal No. 3 of 2024, Lord Braid reminded us that it is challenging to convince a court to grant an appeal based on a legal error. Parties’ written submissions must be persuasive and the court will look to those first when deciding on leave.

Following an arbitration, one party tried to appeal against the award of the arbitrator, on the basis that he had erred on several points of Scots law. The other party did not agree to the appeal, therefore, the aggrieved party was required to seek leave of the court. The matter was determined based on the written submissions of the parties alone, and in line with the rules, without a hearing.

In brief, to give permission to appeal, the court must be satisfied that:

• Deciding the point will substantially affect the parties rights;
• The tribunal was asked to decide the point;
• The tribunal’s decision on the point was either:
  1. obviously wrong; or,
  2. where the court considers the point of general importance, is open to serious doubt.

Lord Braid’s decision 

The argument before Lord Braid focused on the extent to which the arbitrator’s decision on the law was open to serious doubt.

Lord Braid began his decision by reminding us that the court must try to uphold arbitration awards. He then explored whether the party had satisfied the ‘serious doubt’ test. He explained that neither party referred him to any authorities on the interpretation of that test and remarked that seriousness was a value judgement. A bespoke contract is unlikely to be of general importance size and scale of the project will not be an influencing factor either.

In light of all this, Lord Braid refused leave to appeal.

Arbitration Appeal No.2 Of 2024

Lord Braid’s decision came after the decision of Lord Sandison in Arbitration Appeal No.2 Of 2024.

This was another legal error appeal.  In this case, however, the Court interpreted the agreement to arbitrate to disapply the default right. The partnership agreement contained the following wording: ‘The decision or award of such arbiter shall be final and binding upon all the partners’ (emphasis added).

Lord Sandison remarked that this phrasing confirmed that the parties had agreed to exclude the right to appeal the decision of an arbitrator on any question of law. Accordingly, he refused the party’s request for leave to appeal.

Conclusion

Application No.2 emphasised the importance of being careful when drafting arbitration clauses. This decision reminds us that you can exclude your right to appeal against the decision of an arbitrator – and this is an avenue that you may wish to keep open. As well as exploring other important issues, Application No. 3 highlighted the importance of parties’ written submissions at the stage of seeking leave to appeal. The court will only allow a hearing when satisfied that one is required, and so in most cases, the court will rely solely on your written submissions.

A key takeaway from both cases is that care must be taken in drafting your court submissions. Before that, though, care must be taken to frame your agreement to arbitrate. Consider the default rules and decide which rules you want to include or exclude. These choices should be clearly stated in your written agreement using precise language.

It is important to seek specialist advice about the suitability of arbitration and its operation at the contract negotiation stage. Our dispute resolution team are equipped to help.