Arbitration appeal in dilapidations case (schedules of condition)

Is there a risk, if you take your lease dispute to arbitration, that you’ll spend more not less, since the case will end up in a lengthy and costly appeal at court? This concern is increasingly one which can be put to one side, following the latest in a string of decisions refusing leave to appeal an arbitration decision. The bar is high. 

On 23 September 2025, a decision to refuse leave (Court of Session, Scotland), yet again emphasises the limited situations in which an arbitral tribunal’s decision will be challengeable in court on the basis of “legal error” in Scotland. 

Background

The arbitration decision required the arbitrator to reach a view on the effect of a schedule of condition upon the repairing obligations and dilapidations. Reference was made to Dem-Master v Healthcare [2017] CSOH 14, often referred to as ‘the case of the missing schedule of condition’. It is noted in the judgment that “this was said to be ‘broadly similar’ to the issue before the arbitrator. 

There were two challenges in the Court of Session to the arbitrator’s decision in this case: (1), that there was serious irregularity in the conduct of the arbitration (rule 68) and (2) that the arbitrator erred on a point of law (rule 69).

The second of these, a legal error appeal under rule 69, may only be made with the agreement of the parties or with permission of the court. In some arbitration agreements, this route of challenge is excluded by the terms of the agreement entirely. 

Lord Lake heard the parties’ submissions on whether to grant permission for the legal error challenge to proceed; and issued an opinion refusing this. 

The decision

Firstly, he considered whether the lease permitted parties to challenge the decision on the basis of legal error. In this case, there were no words in the agreement clearly indicating the parties’ objective intention to exclude such a challenge, and he rejected this suggestion. 

There was in the lease an erroneous attempt to exclude an appeal process which at the time the lease was entered into had already been long gone – raising the suspicion of ‘copy and paste’ drafting from an earlier lease. (One might wonder whether this phenomenon may increase if lawyers, or parties, seek to use Chat GPT or the like to draft leases.) 

Secondly, rule 70(3) provides that the court can only give permission for a challenge to a decision to proceed on the basis of legal error if (i) that deciding the issue will substantially affect a parties rights; (ii) that the tribunal itself was asked to decide this issue; and (iii) that on the basis of the facts of the case, the tribunal’s decision was “obviously wrong” or – where the court considers the issue is of general importance – that the tribunal’s decision was open to “serious doubt”.

Here, the arbitrator had had regard to the terms of the lease as a whole together with the schedule of condition, and had then interpreted the contact using ‘business common sense.' (a test set out in the case law). The arbitrator therefore took into account everything required, and the decision could not be obviously wrong nor open to serious doubt. An important point is that where the decision is not obviously wrong, a party may be able to show that the issue is one of general importance and that the decision is nonetheless open to serious doubt. The issue in this case concerned the terms of a bespoke lease between the parties which the Lord Ordinary did not accept could be of general importance: see also Arbitration Appeal (No 1 of 2023) [2023] CSOH 78.

Thirdly, there was a challenge alleging failure of the arbitrator to give adequate reasons, characterised as a ‘legal error.’ Lord Lake expressed some doubt about whether, if there were such a failure, this ought to have been characterised under rule 69 as a “serious irregularity”. In any event, he said that there was no failure to give reasons in this case, since the reasons set out dealt with the principal issues in dispute and the parties could be in no real doubt as to why they won or lost. 

Key takeaways

The main thoughts we had on reading this judgment were:

• Draft more carefully. Given the approach of the courts which generally take a narrow view, precise drafting of any agreed exclusions is crucially important.
• Arbitration appeals on contractual interpretation rarely get past first base. Where an arbitrator takes into account the terms of the agreement and the need for their interpretation to be in accordance with business common sense, a petitioner may struggle to persuade the court that the decision is obviously wrong or open to serious doubt.
• Choose your arbitration appeals wisely. Where a decision is not obviously wrong and in appeal there is a requirement to demonstrate that the issue is one of general importance and open to serious doubt, a decision which concerns a bespoke lease between the parties will not readily be deemed an issue of general importance.

If you would like to discuss any actual or potential dispute, our market-leading dispute group is here to help. 

Related News, Insights & Events