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Petition Arbitration Application No 2 of 2026 (Court of Session)
Factual and Procedural Background
The Petitioner (landlord successor) and the Respondent (tenant) were parties to a 15-year lease of office premises in The City, expiring in October 2024. Disputes arose at the expiry concerning the condition of the premises, including whether the Respondent should remove certain works it had carried out on the third floor and reinstate that part of the premises. Clause 6.19 of the lease contained the relevant contractual provisions concerning landlord consent, tenants' alterations and the landlords' option to require reinstatement by expiry.
On 16 February 2024 the Petitioner, through its solicitors, sent a written notice accompanied by a schedule of dilapidations which, among other things, required reinstatement of the third floor. The Respondent replied on 14 March 2024 disputing the relevance of clauses 6.19.2 and 6.19.3 except in relation to minor third-floor works.
The dispute over the validity and meaning of the 16 February 2024 letter was referred to arbitration. Following a debate on 12 November 2025, the arbitrator issued a determination on 3 February 2026 dismissing the contention that the letter was a valid notice under clause 6.19.2 and that a reasonable recipient would have understood it to invoke clause 6.19.2. The Petitioner applied to the Outer House under rules 69 and 70 of the Scottish Arbitration Rules for leave to appeal the alleged legal error; the Respondent did not consent. The application was considered on the papers and determined without a hearing by Judge Sandison.
Legal Issues Presented
- Whether the letter of 16 February 2024 was a valid notice under clause 6.19.2 of the lease requiring removal of the Respondent's works on the third floor and reinstatement by the expiry of the lease.
- Whether a reasonable recipient of that letter would have understood the Petitioner to be invoking the specific provisions of clause 6.19.2.
Arguments of the Parties
Petitioner’s Arguments
- The 16 February 2024 letter plainly met the requirements of clause 6.19.2: it was written and served more than six months before the lease expiry and the accompanying schedule required reinstatement of the third floor.
- The arbitrator wrongly required the letter to refer expressly to clause 6.19.1 as a precondition to validity under clause 6.19.2.
- The reference to carrying out works "within a reasonable period" should be read as meaning by the contractual expiry date; the arbitrator was wrong to treat that as fatal.
- The arbitrator erred in treating the letter as a claim for damages rather than an exercise of the option in clause 6.19; the tenant in any event read the letter as invoking clause 6.19.2.
- Accordingly, the arbitrator's decision was legally wrong and leave to appeal should be granted so that the substantive arbitration claims may proceed.
Respondent’s Arguments
- The arbitrator's determination followed full analysis of authorities on contractual interpretation and notices and was not obviously wrong.
- The matter concerned interpretation of a bespoke lease and did not raise a point of general importance; even if it did, the arbitrator's conclusion was not open to serious doubt.
- Accordingly, leave to appeal under rule 70 should be refused.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Grove Investments Ltd v Cape Building Products Ltd, 2014 Hous LR 35 | Definition and character of "dilapidations". | Used to explain that the notice treated works as dilapidations (physical defects) and thereby supported the arbitrator's view that the letter sought damages rather than specific implement under clause 6.19. |
| Antaios Compania Naviera SA v Salen Rederierna AB [1985] 1 AC 191 | Standard for identifying an "obvious" error on appeal from arbitration. | Cited for the proposition that an appellate court must see something like a major intellectual aberration or a result for which there was no reasonable explanation before finding obvious error. |
| Arbitration Appeal No 1 of 2023 [2023] CSOH 78 | Authority on arbitration appeal standards and the test for obvious error. | Referenced by parties and by the court in discussing the limited scope for non-consensual legal error appeals. |
| Arbitration Application No 2 of 2024 [2024] CSOH 83 | Precedent concerning arbitration appeal standards. | Cited by parties and relied on in the court's consideration of whether the point raised was open to serious doubt or of general importance. |
| CGU International Insurance Plc v AstraZeneca Insurance Co Ltd [2006] EWCA Civ 1340 | Policy rationale (party autonomy, privacy, finality) underpinning restrictive approach to appeals from arbitration. | Quotated to explain the policy context that underpins the restrictions in rule 70 of the Scottish Arbitration Rules. |
| HMV UK Ltd v Propinvest Friar Ltd Partnership [2012] 1 Lloyd's Rep 416 | What constitutes an "obvious wrong" (major intellectual aberration/no reasonable explanation). | Adopted in setting out the threshold the Petitioner must meet to obtain leave. |
| Arbitration Application 1 of 2013 [2014] CSOH 83 | Context on appellate review of arbitrator decisions. | Used to illustrate the standard required for obvious error in arbitration appeals. |
| Arbitration Appeal No 1 of 2019 2019 SLT 1309 | Discussion of difficulty of showing obvious error where reasonable minds could differ. | Referred to in explaining that only a conclusion so plainly wrong could satisfy rule 70(3)(c)(i). |
| Arbitration Appeal No 1 of 2021 [2021] CSOH 41 | Further authority on the standard of review on legal error appeals. | Used to support the court's exposition of the limited grounds for overturning an arbitrator's construction. |
| Doune Wind Farm (Scotland) Ltd v Alfred McAlpine Business Services Ltd [2008] EWHC 426 | Example that respectable intellects may reach different contractual constructions. | Recited to show that divergence of opinion alone does not establish obvious legal error. |
| Arbitration Application No 2 of 2016 [2017] CSOH 23 | Application of appellate review principles in arbitration contexts. | Referenced when discussing that an arguable correct decision cannot be treated as obviously wrong. |
| Arbitration Appeal No 3 of 2024 [2025] CSOH 7 | Authority on review standards for arbitration awards. | Used to support the court's description of where an incorrect application of identified legal principles may not amount to an error of law. |
| Benaim (UK) v Davies Middleton & Davies [2005] EWHC 1370 | Incorrect application of correct legal principles may not be an error of law. | Cited to explain that even if an arbitrator misapplies principles to facts, that does not automatically found a legal error under rule 70. |
| Arbitration Appeal No 4 of 2019 [2020] CSOH 46 | Further discussion of mixed fact-and-law nature of construction decisions. | Referred to in the court's analysis of the difficulty of establishing legal error where factual elements are significant. |
| Arbitration Application No 3 of 2011 2012 SLT 150 | When issues of construction in standard-form contracts may be of general importance. | Referenced in considering whether the present lease clause, if standard, might raise a point of general importance. |
| Delta Vale Properties Ltd v Mills [1990] 1 WLR 445 | Standard for clarity required in notices (reasonable recipient test). | Applied to explain that a notice must be sufficiently clear for a reasonable recipient exercising common sense in context not to be left in doubt. |
| Carradine Properties Ltd v Aslam [1976] 1 WLR 442 | Authority on interpretation of notices and contractual communication. | Cited in support of the reasonable recipient approach to notice construction. |
| Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749 | Formal/technical notice requirements and objective approach to construction. | Used to explain that the lease did not prescribe the communication of specific information beyond the writing and timing requirements and that the objective reasonable recipient test governs substance. |
| Micrografix v Woking 8 Ltd [1995] 2 EGLR 32 | Support for the objective approach to how notices are understood. | Referred to in explaining that subjective understanding of the recipient is irrelevant to the reasonable recipient test. |
| Pioneer Shipping Ltd v BTP Tioxide Ltd (The Nema) [1982] AC 724 | Observation on the classification of construction as a question of law (English law context). | Quoted to contrast English law's historical position with Scots law's mixed fact-and-law approach to contractual construction. |
Court's Reasoning and Analysis
The court began from the restrictive policy governing non-consensual legal-error appeals under rules 69 and 70 and set out the high threshold for "obvious" error: something amounting to a major intellectual aberration or a result for which there was no reasonable explanation. The court observed that contractual construction in Scots law is a mixed question of fact and law and that where factual elements are clear and undisputed, a court may more readily assess correctness but still must be confident before finding an obvious legal error.
The court analysed the arbitrator's determination and the 16 February 2024 letter. Although the formal and technical notice requirements (writing and six-month minimum period) were satisfied, the arbitrator identified four substantive defects that together made the letter unclear as an exercise of the option in clause 6.19:
- the letter wrongly founded on clause 6.19.2 for repair obligations (where clause 6.19.1 contained the primary repairing/reinstatement obligations) and made no reference to clause 6.19.1;
- internal inconsistency — the letter assumed the landlord had already carried out works in one part yet purported to require the tenant to carry out the same works "within a reasonable period", a timetable not aligned to clause 6.19's requirement that reinstatement be by lease expiry;
- the letter in substance sought payment/damages for remedial work rather than the specific implement (reinstatement) that clause 6.19 provides; and
- the schedule encompassed extensive works beyond the third floor, whereas clause 6.19 (as framed) related only to tenants' alterations such as those on the third floor, making the notice's ambit unclear.
Applying the reasonable recipient test (objective construction in context), the court agreed with the arbitrator that a reasonable recipient exercising common sense in the relevant context would not have been left without doubt that the letter was invoking the options in clause 6.19.1/6.19.2. The court held that the arbitrator's detailed reasoning provided a reasonable explanation for his conclusion and did not amount to any major intellectual aberration. The court further considered and rejected the Petitioner’s contention that the matter raised a point of general importance open to serious doubt, noting the clause's clarity and that the problem arose from the particular letter's deficiencies rather than the clause as such.
Holding and Implications
Leave to appeal is refused.
Implications: The Petitioner is not permitted to pursue a legal-error appeal from the arbitrator's determination. The decision ends the proposed route of judicial review under rule 70 in respect of the arbitrator's findings on the validity and meaning of the 16 February 2024 letter. The opinion does not purport to establish a new broadly applicable precedent beyond reaffirming the established standards for legal-error appeals and the application of the reasonable recipient test to contractual notices; the court treated the question as specific to the facts and wording before it.
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