Biggart Baillie Solicitors

The Arbitration Act - A New Begining In Scotland?

Tuesday, January 12, 2010

by Murray Shaw

Arbitration in Scotland

Scotland, like many jurisdictions, has a long history of arbitration being an acceptable means of dispute resolution.  Indeed a set of regulations made in 1695 (by the original Scottish Parliament) still remain valid. 

It is the position, however, in Scotland that until now there have been few statutory provisions in relation to arbitration and such guidance as there is tends to be based upon decisions of the Court.  The provisions that existed until the passing of the Act (see below) certainly did not provide any form of coherent code.  Most of these provisions and indeed much of the case law are somewhat historic and certainly not based upon modern thinking in relation to dispute resolution.  They also tend to take a fairly “conservative” approach in relation to the use of arbitration.  While it is clear that if there is a binding arbitration clause the Courts will enforce it and sist (stay) an action, the approach of the courts in seeking to interpret an arbitration clause in cases of ambiguity often seems to be to approach it in a manner which limits the effect of the arbitration clause. 

Though it is difficult to obtain empirical evidence about the position, it appears that arbitration has become less popular, certainly over recent years, as a means of dispute resolution.  Common in the construction industry twenty or thirty years ago, it is far less common there now, partly as a result of the existence of the commercial court in Scotland, partly as a result of other means of dispute resolution such as adjudication but partly also because arbitration has simply fallen out of favour.  The diminution in use in the construction industry to some extent may not have been matched elsewhere (e.g. in relation to agriculture) but certainly it is not a popular means of dispute resolution.

There are a number of reasons for this including a perception that the process is expensive (because you have to pay for the arbiter and his clerk) and the process is thought to be slow.  This in part may be due to the fact that arbiters (or arbitrators) have not tended to be robust in pushing arbitrations on. 

Scotland also had a process whereby a party can ask an arbiter to state a case to the Court of Session (remit an issue to the Court in effect) on a point of law unless that right was expressly excluded in the underlying contract.  There were different views about the worth of this provision.  Those who criticised it consider that it caused delay, the process was abused (factual disputes are dressed up as points of law) and had the potential to make arbiters “timid” as they may be concerned about the possibility of their decisions being reviewed by the Court.  Others were supportive of the process as it goes some way to ensuring that arbiters do not come out with unjustified or perverse decisions. 

Equally however arbitration brings a number of benefits including privacy, the ability to choose the decision maker (who may have specific and specialist knowledge in relation to a dispute) and easier enforcement of awards.  Even those who use arbitration are often unaware that it may be easier to enforce the decision of an arbiter under the New York Convention of 1927 than it may be to enforce a decree from a court. 

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The Arbitration Act

It has been considered in Scotland for some significant time that there needed to be a review of the system of arbitration and the whole process would benefit from being “codified”.  An attempt some twenty or so years ago to do that by introducing the Uncitral model law was not successful.  In 2002 a draft arbitration bill was produced by a working group of interested parties but the Bill was not picked up by the then government. 

The current government has accepted that it is now an appropriate time to seek to deal with matters and an Arbitration (Scotland) Bill was introduced before the Scottish Parliament in the early part of 2009 and the Act was finally passed on 18 November 2009.  The Bill was non-political and the process of considering the Bill proved to be one where interested parties worked positively to ensure that the Act which resulted was an effective one which properly dealt with the real issues. 
The Act is intended to codify arbitration law in Scotland and contains some thirty or so sections dealing with arbitration which include in a Schedule a set of rules, some of which are mandatory and some of which are discretionary. 

According to the Government the objectives behind the proposed legislation are as follows: -

1. to clarify and consolidate Scottish arbitration law;
2. to provide a default framework for arbitrations;
3. to try and ensure fairness and impartiality in the process;
4. to minimise expense and ensure the process is efficient.

Equally underlying the proposed legislation however, is the desire to try and promote Scotland as an international arbitration centre – a proposition of which was referred to in the 2007 SNP election manifesto.

This aim will require rather more than legislation.  The market for international arbitration is already competitive with England being a significant centre.  Other centres of excellence include Paris (albeit perceived to be expensive) and to a lesser extent Ireland.  It is generally considered that Scotland may have four advantages:-

1. the fact that we are an English speaking jurisdiction;
2. potentially lower fees;
3. the perceived neutrality of the Scottish legal system;
4. Scotland in itself is an attractive destination – it is interesting to contemplate a new business of arbitration tourism!

In reality if Scotland is to make progress it is likely that some form of “bespoke” centre will be necessary and Scotland would need to promote a core group of qualified and capable arbiters.  A number of bodies involved in arbitration (principally the Chartered Institute of Arbiters) are well aware of this need/requirement. 

As far as the Act is concerned it has provisions dealing with a number of issues including:-

• Confidentiality;
• Prescription and limitation;
• Jurisdiction;
• The viability of an arbitration clause, even if the balance of the contract is not valid;
• Limitations on the ability of the courts to intervene;
• The range of remedies available to the arbiter;
• Appeals and enforcement.

Clearly, the Act a significant one.  Now we have the Act the issue is whether or to what extent it will have a significant effect, particularly in relation to the promotion of Scotland as a centre for arbitration.