“The Intrinsic-Issue Principle”: Lord Sandison Clarifies the Scope of Serious Irregularity Appeals under Rule 68

1. Introduction

Arbitration Appeal No 2 of 2024 concerns a farming partnership dispute that reached the Outer House of the Court of Session under Rule 68 of the Scottish Arbitration Rules (Schedule 1 to the Arbitration (Scotland) Act 2010). The petitioners—three partners in the farm—had expelled the respondent partner in September 2022 for alleged assaults and abusive conduct. When an arbitrator later found the expulsion notice invalid, the petitioners launched a “serious irregularity” challenge, insisting that the arbitrator (1) decided the case on an un-pleaded ground (delay in serving the notice) and (2) denied them a fair opportunity to deal with that ground.

Lord Sandison’s opinion ([2025] CSOH 70) dismisses the petition and, in doing so, sets out a significant clarification of when an issue is already “in dispute” for the purposes of a Rule 68 challenge. The judgment explains that if an issue is intrinsic to the principal remedy sought, an arbitrator may decide it even though it was not expressly trailed in pleadings. This commentary labels that proposition the “Intrinsic-Issue Principle.”

2. Summary of the Judgment

Lord Sandison held that:

• The timing of the expulsion notice was inherently before the arbitrator because the petitioners themselves had asked him to “uphold” the notice’s validity. Clause 22.1 required service “upon the partners becoming aware” of the misconduct, so timing went to the heart of validity.
• No departure from agreed procedure occurred; parties were free to lead evidence and make submissions on timing.
• The arbitrator’s reasons, albeit brief, were adequate; deficiencies, if any, did not reach the high threshold of “serious irregularity”.
• Even assuming irregularity, the petitioners failed the “substantial injustice” limb: additional evidence about their subjective reasons for delay could not have altered the 20-month gap the arbitrator deemed unreasonable.
• The petition was therefore refused and the award confirmed under Rule 68(3)(a).

3. Analysis

3.1 Precedents Cited and Their Influence

• English Section 68 Authorities – Although Rule 68 mirrors s.68 of the Arbitration Act 1996, Lord Sandison reiterated that these authorities are persuasive but not binding. Cases such as Compania Sud Americana de Vapores v Nippon Yusen Kaisha, Newfield Construction v Tomlinson and Pacol v Rossakhar served chiefly to define “serious irregularity” and the two-limb test (irregularity + substantial injustice). Lord Sandison adopted the long-stop conception from these cases but distinguished them factually.
• Scottish Contract Law Cases – Ford Sellar Morris Properties plc v EW Hutchison Ltd and James Howden & Co Ltd v Taylor Woodrow Property Co Ltd were crucial. Both state that a contractual power to rescind for breach must be exercised within a reasonable time. Lord Sandison invoked them to demonstrate that even without the explicit “upon the partners becoming aware” wording, delay is always a live issue.
• Arbitration Guidance Cases – Lord Sandison echoed dicta from Walsall MBC v Beechdale Community Housing and Arbitration Application 1 of 2013 to emphasise that Rule 68 is a “long-stop” and the Court must resist micromanaging arbitral procedure.

3.2 The Court’s Legal Reasoning

Lord Sandison’s analysis follows a structured path:

1. Identify the asserted irregularities – decision on un-pleaded ground; lack of opportunity to respond; failure to apply agreed procedure; inadequate reasons.
2. Intrinsic-Issue Identification – The heart of the reasoning lies at para 31–34. The judge holds that when a claimant seeks confirmation of a notice’s validity, all elements essential to validity are thereby put in issue. Timing was one such element; therefore, no “new ground” emerged.
3. Procedure and Fairness – The arbitrator allowed evidence and submissions. Scottish civil-court practice often permits legal issues to crystallise post-proof as long as factual scope is unchanged.
4. Adequacy of Reasons – Only essential issues require reasons (Fidelity Management). As parties knew the notice failed on delay, they were not left in doubt.
5. Substantial Injustice Test – The petitioners could not show any proof that reduced the 20-month gap; thus injustice was speculative.

3.3 Impact on Future Practice

The decision has immediate and longer-term implications:

• Pleadings vs. Intrinsic Issues – Parties can no longer safely assume that omitting a legal argument in pleadings immunises them from facing it later if it is intrinsic to the remedy sought. Arbitrators may—and arguably must—address such issues.
• Serious Irregularity Threshold in Scotland – The judgment realigns Scottish practice with the restrictive English approach, reaffirming that Rule 68 only corrects “extreme” procedural departures.
• Drafting of Arbitration Agreements & Procedural Orders – Those wishing to lock out certain defences or restrict the tribunal’s scope must do so expressly; a generic reference to “Scottish court procedure” will not suffice.
• Timing of Contractual Remedies – The opinion underscores the necessity of acting promptly (or regularly updating grounds) when invoking expulsion, termination, or rescission clauses.

4. Complex Concepts Simplified

• Serious Irregularity (Rule 68) – A rare procedural blunder that both (1) breaches listed criteria (e.g. unfairness, failure to deal with issues) and (2) causes substantial injustice. It is not about incorrect factual findings or wrong law.
• Substantial Injustice – The court asks: Could the result realistically have been different? Speculation or “might have helped” arguments are inadequate.
• Intrinsic Issue – A legal or factual matter that forms an essential component of the main claim or remedy. If you ask a tribunal to enforce a document, all conditions for its validity (even if un-pleaded) are automatically open for debate.
• Pleadings vs. Submissions – Pleadings define the factual battlefield; submissions refine the legal weapons once the facts are heard.
• Rule 24 Duty of Fairness – Tribunals must let each party address the other’s case, but they need not telegraph every possible legal inference before submissions.

5. Conclusion

Lord Sandison’s decision in Arbitration Appeal No 2 of 2024 crystallises an important procedural doctrine: where a party seeks confirmation of a contractual notice (or similar instrument), all prerequisites to that notice’s validity are inherently in dispute. Consequently, an arbitrator’s engagement with those prerequisites—timing in this case—does not constitute a procedural ambush and will not, without more, amount to a “serious irregularity”.

The ruling reinforces the high bar for judicial interference with arbitral awards in Scotland and alerts practitioners to manage timing issues proactively. Drafting precision, prompt action, and comprehensive evidence gathering remain the best safeguards against unwanted surprises in arbitration.