Appeal against arbitrator’s decision that partnership expulsion notice was sent out of time refused by Outer House

About this case:

• Citation:
  [2025] CSOH 70
• Judgment:
  External link
• Court:
  Court of Session Outer House
• Judge:
  Lord Sandison

It was alleged by the petitioners, who were members of a farming partnership pursuant to an agreement dated 1 April 2012, that there had been a serious irregularity in the conduct of the arbitration due to the treatment of new lines of defence in the respondent’s written submissions that were not in issue at the evidential hearing. The respondent argued that the decision was a natural consequence of the limited evidence placed before the arbitrator.

The appeal was heard by Lord Sandison in the Outer House of the Court of Session. Milloy, advocate, appeared for the petitioners and R Sutherland, advocate, for the respondent.

Denied an opportunity

Under clause 19 of the 2012 agreement, the partners were obliged to be just and faithful to the other partners in all matters relating to the firm. Any material breach of the agreement, or any conduct by a partner likely to have an adverse effect upon the firm’s business or reputation, allowed for the other partners to expel the partner in breach by notice in writing under clause 22.1.

On 8 September 2022 a notice of expulsion in terms of clause 22.1 was served by the petitioners on the respondent. The petitioners considered that service of the notice was justified by what they alleged was the respondent’s conduct towards them, including two assaults on the first petitioner in late 2020 and by behaviour directed at the firm’s employees and third parties dating back as far as March 2018. The dispute went to arbitration after the respondent denied he had engaged in any conduct falling within clauses 19 or 22.

An evidential hearing took place before the arbitrator over 3 days in May 2024, followed by written submissions. The petitioners claimed the respondent’s written submissions raised new lines of defence not featuring in his pleadings, in particular that the expulsion notice was invalid due to delay in serving it once the other partners had become aware of the conduct in question. The arbitrator determined that, while the assaults did constitute breaches of clause 19, the notice of expulsion had not been issued within a reasonable time.

Counsel for the petitioners submitted that the arbitrator had decided the case based on a matter that did not form part of the dispute which had been put in issue by the parties. The petitioners had been denied a reasonable opportunity to deal with the timing argument and adduce relevant facts in response to it.

For the respondent it was submitted that the scope and nature of the evidence led was a matter which the petitioners had directed. There could be no denial of due process when a submission was made that that evidence was insufficient to justify the remedy that the petitioners sought. The petitioners had simply failed to produce the requisite evidence for a finding in their favour.

Nowhere to go

In his decision, Lord Sandison began by noting: “Serious irregularity appeals are designed as a long stop available only in extreme cases where the arbitral tribunal has gone so wrong in its conduct of the arbitration that justice calls out for correction. It follows that the court will not intervene on the basis that it might have done things differently, or expressed its conclusions on the essential issues at greater length. A serious irregularity appeal can only succeed if there has been substantial injustice.”

He added: “An arbitrator is only required to deal with the essential issues, not every point that is raised. Further, an award may be upheld, even if the reasoning is poor and unimpressive. One approach is to ask whether the award makes sense. A failure by the arbitrator to deal with a specific point need not constitute an irregularity. The question is whether, overall, matters have been dealt with by due process.”

Bearing those principles in mind, Lord Sandison said of the present arbitrator’s conduct: “The principal thing which the arbitrator was asked to do by the petitioners was, as it was expressed in the arbitral pleadings, to ‘uphold’ the notice of expulsion; in other words, to affirm that it was a valid and effective such notice. That request necessarily involved an assertion - by the petitioners, not by the respondent - that nothing in the circumstances pertaining to the notice, including the timing of its service by reference to the occurrence of the events said to justify that expedient, deprived it of such validity or efficacy.”

He explained further: “The real problem for the petitioners was that they failed to establish to the satisfaction of the arbitrator any relevant behaviour after December 2020. In that state of affairs, the question of the timing of the notice became very pertinent and was, naturally enough, made the subject of submission by the respondent. The petitioners could and did in turn make such submissions as they saw fit in relation to the question, but their real problem was not the procedure adopted by the arbitrator, but the substantive view that he had taken of the evidence they had adduced.”

Lord Sandison concluded: “Put simply, the petitioners’ failure to establish any relevant conduct on the part of the respondent after December 2020 left them with nowhere to go as a matter of law. Against that background, they were bound to fail in establishing the validity of the notice whether or not they had led evidence of the kind which they now maintain that they would have led had they appreciated the significance of the timing issue earlier than they did.”

The court therefore confirmed the arbitrator’s decision and dismissed the petition.