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Arbitration Appeal No.2 of 2019, 28 May 2020, Court of Session

R Craig Connal QC
Scotland
RCCQC@protonmail.com

Arbitration law in Scotland was, until relatively recently, largely the product of judicial decisions, some dating back to the 13th century. It was criticised for being slow and lagging behind other legal systems which had adopted modern, arbitration-friendly, legal structures. Reacting to that criticism the Scottish Parliament[1] passed the Arbitration (Scotland) Act in 2010. The Act created a single code for arbitration, complete with arbitration rules, some mandatory and some described as default and capable of being opted out of. Unusually for UK legislation, the Act sets out Founding Principles[2] against which all other provisions are to be read. Read short these are speed, economy and minimum court intervention. The Act also provides[3]  for a regime of strict confidentiality.

Prior to the 2010 Act one of the devices deployed by dissatisfied litigants or those seeking delay was to ask the arbitrator[4] to state a case under s3 of the Administration of Justice (Scotland) Act 1972, for the opinion of Scotland’s highest civil court, the Court of Session, on a point of law said to arise in the arbitration. Often this would be done once the way the wind was blowing was clear – whether from a draft award or otherwise – and off the case would drift for long periods of court process. That procedure was also regularly criticised and was removed by the Act.

Arbitration Appeal no.2 of 2019[5]

One of the unexpected side-effects of the new legislation’s strict confidentiality rules and restricted access to the Court has been to create a dearth of arbitral decisions available to the profession, and few court decisions. The numbering of this decision demonstrates the truth of that statement! Under the post-Act regime legal applications about arbitrations come before a single judge of the Court of Session (usually a judge sitting in commercial cases) who is designated as the arbitration judge. In this case the judge was Lord Clark.

The principal interest of the case lies in procedural issues and, critically, the Court’s approach to these issues. However a brief explanation is needed of the substance of the case to allow the other questions to be understood in context.  In Scottish leases of commercial property it is common[6] to find provision for the initial rent to be reviewed periodically (often every five years). Detailed drafting is then required in the lease to create a hypothetical open market rent at the review date, with adjustments to reflect that the letting is hypothetical not actual. Here the parties were at odds on how any rent-free period to allow for fitting out should be assessed. At the risk of over-simplification, one side said what the market would allow should apply, ignoring the premises. The other said the actual fitting out time should be used.

In a Partial Award, the arbitrator held that neither was entirely correct. It was the market view on fitting out which was key, but that view would take account of the nature of the particular premises. So far, so good. The parties then entered attempted settlement discussions but in the course of what transpired to be abortive exchanges became at odds over what the arbitrator’s ruling meant. The arbitrator became involved and the Petitioner argued that the arbitrator was proceeding on a basis inconsistent with the Partial Award (which he disputed).

The application to the Court

Rule 58[7] of the 2010 Act provides for correction of awards, among other reasons to ‘clarify or remove any ambiguity’. Applications to the arbitrator are to be made within 28 days. By the time the parties got to Court, 28 days was long gone. In a little-noticed part of the Rule, provision was made for an application to the Court for an extended period.  That was invoked by the Petitioner. As is immediately obvious, in any system prioritising speed, an opportunity for court extension of time could provide fertile ground for delay (especially when all that the court decides is when the challenge to ambiguity is to be made – the substantive challenge and any argument about it would then need to follow). Would the Court be generous to the Petitioner?  The short answer was a resounding no.  Lord Clark held that the arbitrator’s ruling was clear (as was the opinion of his legal assessor). The Petitioner’s position was ‘wrongly predicated’[8] on the arbitrator having to choose between two starkly contrasting interpretations, whereas in reality – as had been made plain - neither submission was completely accepted. Accordingly, the Partial Award did not need clarification.

While every case will turn on its own facts and circumstances, the judgement does not offer any hint that the Court will be unduly critical of award wording or over-inclined to support such applications. If this process had been thought to offer the opportunity for ready delay, that thought can be dispelled. If Scotland is to be successful in portraying itself as an arbitration-friendly jurisdiction that must be helpful.

The issue of delay in making the application.

Strictly speaking, this issue did not arise, no ambiguity requiring clarification having been found. However, helpfully for future users of arbitration in Scotland, Lord Clark dealt fully with it. As set out above, the time limit for an application for correction or clarification of an Award is 28 days.[9] That is subject to the possibility of an extension from the Courts. So far as can be ascertained, the present case is the first occasion on which a contested application has had to be considered by the Courts in Scotland.

Absent prior Scottish precedent, the Court turned to English authority. The nearest equivalent provision[10] incorporates a test of ‘substantial injustice’ which does not appear in the Scottish legislation. Accordingly, Lord Clark did not apply it. He concluded:[11]

‘...the discretion is, in my view, to be exercised in the interests of justice. This allows me to have regard to all relevant factors.’

The judge took the view that he could look to the wider consideration of other late applications in the English system. In particular he found assistance in a summary set out by Mr Justice Popplewell[12] to the following effect:

1. ...the Act requires challenges to an award ....to be brought within 28 days. This relatively short period of time reflects the principle of speedy finality which underpins the Act, and which is enshrined in section 1(a). The party seeking an extension must therefore show that the interests of justice require an exceptional departure from the timetable laid down by the Act.  Any significant delay beyond 28 days is to be regarded as inimical to the policy of the Act.

2. The relevant factors are: (i) the length of the delay; (ii) whether the party who permitted the time limit to expire and subsequently delayed was acting reasonably in the circumstances in doing so; (iii) whether the respondent to the application or the arbitrator caused or contributed to the delay; (iv) whether the respondent to the application would by reason of the delay suffer irremediable prejudice in addition to the mere loss of time if the application were permitted to proceed; (v) whether the arbitration has continued during the period of delay and, if so, what impact on the progress of the arbitration, or the costs incurred in respect of the arbitration, the determination of the application by the court might now have; (vi) the strength of the application; (vii) whether in the broadest sense it would be unfair to the applicant for him to be denied the opportunity of having the application determined.

 

(3) Factors (i), (ii), and (iii) are the primary factors.

Looking to the case before him, Lord Clark noted that the delay – 8 months – was substantial. Based on the hypothesis of the arguments the Petitioner had presented, it must have been possible to see the problem with the Partial Award shortly after it was received on 11 December 2018. Given the exchanges between the parties the Petitioner must have known by 11 January 2019, at latest, what meaning the Respondent placed on the Award.  Neither the Respondent nor the Arbitrator had contributed to the delay. The notion that the Respondent should have applied for clarification could easily be dismissed. Why should they do so? Their view of meaning was, in fact, correct. Lord Clark went on to point out that, having already decided that there was no ambiguity, it then followed that the Petitioner’s case was not a strong one.

Finally, and in this writer’s view most importantly, Lord Clark said,

‘... the Petitioner’s position runs counter to the first of the founding principles of the 2010 Act: that the object of arbitration is to resolve disputes inter alia without unnecessary delay.’

Accordingly, there was no unfairness in not allowing the application to proceed.

Conclusion

In addition to efforts to increase the deployment of arbitration in the Scottish market, Scotland has been working hard for some years to increase its profile as an arbitral seat. In a highly competitive market, dominated by long-established centres, its most notable success had been the winning of the right to hold one of the world’s largest arbitration gatherings, the ICCA[13] Congress in May 2020 (unfortunately postponed by the Covid-19 pandemic until February 2021). Clearly the creation of a modern legal framework – complete with comprehensive arbitration rules – in the Arbitration (Scotland) Act 2010 was a major step. As with all such structures, however, ‘walking the walk’ is more important than ‘talking the talk’. The Scottish Courts need to consistently demonstrate an arbitration-friendly approach if the gains are to be consolidated. On the evidence so far – including the case discussed here – there is every sign that they will do precisely that.

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