Judge blocks party’s right to appeal in construction contract dispute

A judge dismissed the bid for a proposed “legal error appeal” in terms of rules 69 and 70 of the Scottish Arbitration Rules after ruling that the arbitrator’s decision was “not open to serious doubt”.

Lord Doherty heard that in 2008 the petitioner and the respondents entered into a contract in terms of which the respondents undertook to carry out certain construction works for the petitioner at the petitioner’s business premises.

In 2009 a series of disputes arose in relation to the parties’ rights and obligations under the contract and after two separate adjudications the parties submitted their dispute to arbitration.

Following a legal issues hearing the arbitrator issued a First Part Award, followed by a Second Part Award and later a Third Part Award, after which a proof was held and a Fourth Part Award was issued.

However, the petitioner sought to challenge parts of the Fourth Part Award on the ground of legal error, claiming that the arbitrator erred in law in three different respects, and applied for leave to appeal under the Arbitration (Scotland) Act 2010.

It was averred that as a result of the first error the award made in respect of waste disposal exceeded (by £183,737.50) the award which ought to have been made; that as a result of the second error the award made in respect of payments for lagging was at least £400,000 greater than it ought to have been; and that as a result of the third error the award made in respect of civil works exceeded (by £808,795.42) the award which ought to have been made.

The petitioner claimed that the arbitrator “plainly erred” in finding that the contract contained no fixed price for any element of the works and no effective brake on possible over-expenditure by the contractor. It maintained the correct contractual position was as summarised in the petition and that the arbitrator’s findings were “obviously contrary” to that.

The respondents submitted that the arbitrator’s construction of the relevant provisions of the contract was correct; that the point which the petitioner made in was not one which the arbitrator was asked to decide; and that in any even the arbitrator’s decision did not raise a point of general importance.

The judge considered that the arbitrator’s construction of the contract, and his decision, appeared to be “arguably correct” and he was not satisfied that the proposed appeal raised a point of general importance.

Lord Doherty’s opinion stated: “For the petitioner to show that the arbitrator’s decision is obviously wrong involves the petitioner overcoming a stringent test. I am very far from persuaded that such a finding can be made here.”

The petitioner also averred that the arbitrator erred in law in making the award which he did for lagging work in so far as the award exceeded £90,094.96, but the respondents argued that the arbitrator had not erred in construing the contract terms.

The judge said: “I am satisfied that the sum involved in this part of the claim is sufficiently large – even when viewed in the context of the total award made by the arbitrator in the Fourth Part Award – that deciding the point will substantially affect a party’s rights. I am not satisfied that the petitioner has demonstrated that, on the basis of the facts which the arbitrator found, his decision was erroneous in law and obviously wrong.

“Further, I am unconvinced that the proposed appeal on this point raises a point of general importance. Rather, it appears to me that the decision turns on the rather unusual terms which the parties have agreed. In any case, in my view the correctness of the arbitrator’s decision is not open to serious doubt. I go further than that. In my opinion the arbitrator was correct to decide as he did.”

The petitioner further contended that the arbitrator erred in law in making the award for civil works which he made, and that the financial consequences was said to amount to more than £808,000.

The legal error was said to have been that the arbitrator’s finding was “not supported by the evidence”, and was in fact “contradicted” by the valuation evidence of a Mr S, but the judge accepted the respondents’ argument that there was no error of law.

Lord Doherty said: “I am satisfied that the petitioner did not contend before the arbitrator that it was not legally open to him to accept Mr S’s approach. It follows that the arbitrator was not asked to decide the point which the petitioner now advances. The requirement in Rule 70(3)(b) is not satisfied. I am also satisfied that this challenge is essentially a challenge to the basis of the findings in fact in the award rather than a true legal error appeal falling within the ambit of Rule 69.

“In any case I am not satisfied that this aspect of the arbitrator’s decision is vitiated by any error of law which results in the decision being obviously wrong. It was open to the arbitrator on the evidence before him to accept Mr S’s valuation approach. I do not accept that he was legally bound to reject that evidence and to prefer the approach contended for by the petitioner.”