Sheriff Appeal Court upholds dismissal of action against package holiday company due to binding arbitration award

About this case:

• Citation:
  [2026] SAC (Civ) 18
• Judgment:
  External link
• Court:
  Sheriff Appeal Court
• Judge:
  Appeal Sheriff Ian Hay Cruickshank

Julie and Tony Finegan raised a simple procedure claim against TUI UK Ltd after being awarded £390 in arbitration proceedings, short of the £3,000 to £5,000 range of awards they had previously sought. They argued that the sheriff had erred in finding the arbitration process was binding on the parties and considered that there were irregularities during the process that resulted in their evidence being ignored or dismissed.

The appeal was heard by Appeal Sheriff Ian Cruickshank, with Mr Osborne, lay representative, appearing for the appellants and Kennedys Solicitors providing representation for the respondent.

Internal appeal mechanism

In their simple procedure claim, the appellants sought the sum of £3,130 on the basis that an all-inclusive holiday purchased from the respondent did not conform to the one that was advertised and that there were other material breaches of contract. Prior to that action, the appellants had raised arbitration proceedings under the ABTA Arbitration Scheme Rules 2024, in which they had sought the sum of £5,257.29 but were ultimately awarded £540. After deduction of arbitration fees, the appellants were left with £390.

The appellants did not appeal the sum they were awarded by means of the arbitration process. A right of appeal was available, but the appellants elected not to proceed via that route because they considered that the appeal fee of £350 plus VAT was too high and disproportionate. The appellants did seek to raise a complaint against the arbiter as they had concerns about the fairness, and independence of the process, but this was lodged internally and not via a formal review process in terms of the Arbitration Act 1996.

On behalf of the appellants, it was submitted that the sheriff erred in concluding that the appellants’ failure to appeal in terms of the arbitration process was fatal and justified upholding the plea of res judicata. The sheriff failed to examine the arbitration process and, in this case, the failure to exercise an internal appeal mechanism was not equivalent to there being a binding final determination thus justifying the plea to be upheld.

The respondent submitted that the appellants had chosen to proceed with the arbitration scheme provided for by the 2024 Rules, and the award constituted a final award in their favour. The subject matter of the present proceedings was based on the same issues raised via arbitration and, in any event, the arbitration was governed by English law, and the Scottish courts were not the correct forum for a challenge.

Substantially the same

In his decision, Appeal Sheriff Cruickshank began by summarising the requirements for a successful plea of res judicata, and added: “Whilst dissatisfied with the award made in arbitration the appellants did not appeal or seek a review of that award per the provisions available in terms of the 1996 Act. They attempted to make a complaint to the arbiter. They did not elect to follow the appeal process due to the possible expense which this would incur. The appellants did not apply to the court, as defined by section 105 of the 1996 Act, to challenge the award on the ground of ‘serious irregularity’, as defined by section 68 of the 1996 Act.”

He continued: “Looking to the five conditions which must be satisfied to sustain a plea of res judicata, the parties in the arbitration and this claim are the same. The points in controversy and the subject matter are the same or substantially the same. The arbitration was a decision made in a contested forum. For the purposes of this claim, the arbitration was concluded in a competent forum. Although the appellants did not agree with the arbitration award, they did not appeal that decision. In the circumstances, a final decision was made as between the parties. The sheriff did not err in law in upholding the plea of res judicata.”

Considering the appellants’ arguments on the fairness of the arbitration process, Sheriff Cruickshank said: “That was not of direct relevance for the sheriff. The only relevance for the purposes of the sheriff’s decision was that the arbitration had concluded at a stage of the permissible procedure which meant, absent appeal or review, the decision at arbitration was final and binding on the parties. Had the appellants considered that there were sustainable arguments in respect of either the fairness of the arbitration process or in respect of the level of award then they had remedies available to them.

He concluded: “They could have appealed the decision. Alternatively, they could have sought a judicial determination from the relevant court under the 1996 Act, on the procedural irregularities which they consider had tainted the arbitration decision as unfair. The fact that the appellants considered the fees payable for lodging an appeal were disproportionate was of no consequence to the sheriff’s decision at first instance. It is not a basis for claiming that the matter in dispute between the parties had not been extinguished by the application of res judicata.”

The appeal was therefore refused, with expenses awarded in favour of the respondent.