Apollo Engineering v James Scott: Scottish arbitration practice

Since the advent of statutory adjudication in construction contracts in 1998, the use of arbitration as a dispute resolution mechanism has waned significantly. Arbitration is seen as being slow and costly.

In Scotland, arbitration suffers the additional disadvantage of being an uncertain process, especially in relation to the powers of the arbiter (or 'arbitrator' in England and Wales). Part of the reason for such uncertainty is the absence of a modern statutory framework. The law as it relates to arbitration in Scotland is still largely founded on common law and court decisions.

A recent case in the Court of Session in Scotland has highlighted the urgent need for legislation to codify the arbitration process north of the Border.

This case concerns the construction of a floating jetty at a submarine depot near Glasgow. Apollo, subcontractor to James Scott, was responsible for installing pipework on the jetty. Following disputes in relation to the subcontract works, the parties agreed to refer their differences to arbitration in 2005.

In September 2006, after a lengthy amendment made to Apollo's case, the arbiter advised the parties in an interlocutor that Apollo would be liable for the expenses of the amendment procedure. The arbiter also sanctioned the employment of senior counsel and certified three individuals as skilled witnesses on behalf of James Scott. In doing so, the costs of senior counsel and expert witnesses formed part of the expenses awarded against Apollo.

In addition, the arbiter issued a final draft award in May 2007 in which he indicated an intention to dismiss the majority of Apollo's case for lack of relevancy.

Not surprisingly, the matter came before the courts in the shape of an application by Apollo for judicial review. Lord Malcolm had to consider three issues, namely:

• Does the arbiter have power to award expenses other than in a final award?
• Does the arbiter have power to issue part awards?
• Does the arbiter have power to dismiss a substantial part of a case for lack of relevancy without hearing evidence?

In regard to the first issue, Apollo argued that the arbiter's implied power to deal with expenses could only be exercised in the final award. To do so in an interim manner made the award of expenses the equivalent of a part award, which the arbiter was not empowered to issue. Alternatively, Apollo contended that if the arbiter did have power to award expenses on an interim basis, that power did not extend to the additional fee for senior counsel or the certification of skilled witnesses.

Lord Malcolm dismissed these arguments. He considered that the award of expenses does not form part of an arbiter's award, but is incidental to it. The judge said the arbiter had considerable discretion as to the procedure to be followed. As far as he was concerned, that discretion logically extended to the ability to deal with expenses for particular stages of the process whenever the arbiter considered it appropriate.

Furthermore, he could see no reason why the arbiter's implied power to deal with expenses should not extend to those of senior counsel and skilled witnesses.

In regard to the second issue of an arbiter's power to issue part awards, the judge acknowledged that there was little authority on the matter. Nevertheless, he noted that in a judgement of the Inner House of the Court of Session in Lyle -v- Falconer [1842], it was accepted that an arbiter had implied power to grant interim awards.

Lord Malcolm said it would be surprising if the same implied power did not apply to part awards. He stated that such implied power falls within the broad procedural discretion that all arbiters possess.

Finally, in relation to the arbiter's power to dismiss a substantial part of a claimant's case for lack of relevancy without hearing evidence, the judge considered that an arbiter should be fully entitled to make such a decision. Lord Malcolm reasoned that it was not open to him in judicial review proceedings to consider the merits of the arbiter's decision to dismiss part of Apollo's claim.

The judge said that, other than using the stated case procedure (where the courts may be asked to consider a point of law), an arbiter's decisions are final, including the refusal to hear evidence.