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PART 6 CHALLENGING AWARDS
148. The extent to which it should be possible to challenge awards is one of the most difficult parts of the Bill. Arbitration, if it is to succeed as a method of dispute resolution, must be final and binding on the parties. The Bill therefore seeks to limit challenges to awards to assess where substantial injustice would otherwise be caused.
149. The Government did consider whether there should be no appeal or challenge to the court, as is the case in some jurisdictions. Consideration was also given to whether the parties should be allowed to agree that there should be no challenge to awards, but it was decided that it was important to make some provisions for challenge and that parties should not be able to contract out of this. It is inevitable that arbitrators will occasionally make mistakes and there must be some redress for parties. Not least supervision by the courts is an important safeguard ensuring that the whole process of arbitration, together with review by the courts, is compliant with Article 6 of the European Convention on Human Rights.
150. The Bill provides that all challenges are to be made to the Outer House of the Court of Session. The Government consider that the Commercial Court may play a valuable role here and the intention is to consider this further in detail with the Lord President of the Court of Session with a view to making court rules by Act of Sederunt making provision as to whether, and if so which, arbitration appeals and challenges should go to the Commercial Court. The Commercial Court is not a statutory creation and it is unnecessary to refer to it directly in the Bill.
151. Throughout, these provisions, an arbitration is to continue despite the bringing of an appeal.
Rule 54 - Challenging the award: substantive jurisdiction
152. Rule 54 is a mandatory rule that a party can apply to the court to challenge the arbitrator's jurisdiction and gives the court powers in relation to the award made. There is other provision in the rules (rule 19) for the arbitrator to rule on his or her own jurisdiction, and an appeal under rule 54 is also subject to the limits on review in rule 57(2) and (4) (including the requirement to use any available arbitral process of review). It is however necessary to make provision for an appeal after the final award has been made since it may only be at that stage that it becomes apparent that the arbitrator has acted outwith his or her jurisdiction.
Rule 55 - Challenging the award: serious irregularity
153. Rule 55 is a mandatory rule. It sets out comprehensive grounds on which an award may be challenged for serious irregularity. Although the general policy of the Bill is that recourse to the courts should be minimised as much as possible, it is essential to provide a remedy for the parties if the arbitrator or oversman has failed in his or her duty towards them. The Bill guards against vexatious or frivolous challenges which may be undertaken simply to delay the arbitral procedure or the enforcement of an award and so the challenge procedure is only available in cases of serious irregularity. The responsibility of the court is not to second-guess the finding of the arbitrator, but to review the process on how the arbitrator came to a decision. Any irregularity has to amount to substantial injustice. This is also subject to the limits set out in rule 57(2) and (4).
Rule 56 - Challenging the award: legal error
154. As noted, the Bill repeals section 3 of the Administration of Justice (Scotland) Act 1972 (the "stated case" procedure). Internationally some jurisdictions have no review by the courts on point of law, although this is for instance seen as important in England, given the scope of English common law throughout the commonwealth. Consideration was given to simply repealing the stated case procedure. Judicial review on the grounds of error of law is generally not competent at present. The Bill takes the approach of replacing stated case procedure with a statutory appeal for error of law, as opposed to on any question of law, to the Outer House, but only against a final award of the arbitrator on a question of law. A final award is to include a partial award.
155. As noted earlier, the stated case procedure has fallen into disrepute since it has been used simply to delay the arbitral process and appeals have been made on questions which are really matters of fact rather than of law. An appeal will only be entertained by the Outer House if the arbitrator has first considered the issue where possible, and the award - as with the appeal on any question of law under the 1996 Act applicable in the rest of the UK, is subject to a requirement to obtain leave of the Court for the review on the basis that the decision was wrong or the point is open to doubt or the court should consider it. The limits in rule 57(2) and (4) also apply here.
Consultation Question
Q21: Should appeal for error of law be permitted prior to a final award?
Q22: Should there be any appeal on questions or errors of law?
Rule 57 - Challenging the award: supplementary
156. Rule 57 is a mandatory rule setting out a number of conditions which are intended to discourage frivolous applications and appeals. Appeals must be made within 28 days of the award. It also sets out further provision about the handling of appeals.
157. One of the attractions of arbitrations as a method of dispute resolution is that it is usually confidential. This may be attractive to commercial concerns since the matters in dispute may be commercially sensitive. For this reason, rule 57(9) provides that the identities of parties to an appeal must not be disclosed.
158. The question arises as to whether the Bill should imply a confidentiality rule into the arbitration proceedings more generally where the parties do not do so. It is not clear whether Scots law does so at present, and it may of course be a matter for the interpretation of the arbitration agreement. Most jurisdictions appear to leave this to the agreement of the parties, but it would be possible to provide a bespoke rule, although care would have to be taken about this - the exceptions to any statutory rule of confidentiality, and the consequences of breaching that rule, would have to be worked out in detail.
Q23: Should the Bill contain a statutory rule requiring the parties to respect the confidentiality of the arbitral process?
If you answered "No", should this be left to the agreement of the parties?
Rule 58 - Appeal costs
159. Rule 58 is a mandatory rule that the Outer House has the power to order an appellant to provide security for the costs of the appeal. Security is at the court's discretion, exercised according to the general principles of the Bill.
160. The Bill follows the detailed provision made by the 1996 Act for the rest of the UK in providing that residence outside the UK alone should not be a reason for requiring security. It is considered that the effect of this may be unfair to those involved in international arbitration.
Rule 59 - Effect of Outer House's decision on appeal
161. Rule 59 provides that the Outer House's decision on an appeal is final. The tribunal has 3 months to make a new award unless directed otherwise.
Consultation Question
Q24: Do you agree that rules on appeal to the court should be mandatory?
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