Power to the tribunal?

The commendable aim of the Arbitration (Scotland) Bill is to modernise, consolidate and codify the law and practice of arbitration in Scotland, and to improve the standards of arbitral decision making. This is part of the Scottish Government’s broader strategy to support domestic arbitration in and attract international arbitration to Scotland.

A feature of this strategy is the policy decision to remove the distinction between domestic, cross border and international arbitrations seated in Scotland. This is achieved by the repeal of the UNCITRAL Model Law provisions for international arbitrations in the Law Reform (Miscellaneous Provisions) Scotland Act 1990. Another element is the development of a self-financing dispute resolution centre in partnership with interests representing arbitrators and those appearing in arbitrations.

The consultation paper identifies a number of problems with the law and practice of arbitration in Scotland, namely:

• the many and varied sources of law and practice;
• uncertainty as to what the law is;
• the scope of an arbiter’s powers;
• the variety of arbitral codes; and
• the overall expense of arbitration.

These problems are addressed by providing, in effect, a default code, which parties can contract out of (in part). The bill sets out a number of fundamental principles (fairness, impartiality etc), which will cause no surprise and have no significant effect on the way arbitrations are managed and conducted in Scotland.

I propose to consider some of the main proposals which affect the way arbitration is set up, conducted and reviewed, with particular reference to how the new provisions will assist to promote the speedy, efficient and satisfactory resolution of disputes between parties who choose arbitration rather than litigation or some other form of alternative dispute resolution.

In the beginning

A most important innovation is the amendment to the Prescription and Limitation (Scotland) Act 1973 in relation to the commencement of arbitrations and the interruption of prescription. Goodbye preliminary notice and hello notice of intention to submit. The giving of such a notice of intention interrupts prescription. At this stage, the arbiter (now called arbitrator and referred to in the bill as the “tribunal”) will not have been appointed. No guidance is given as to the content of the notice of intention. The practical advice is to give a fairly full but flexible narrative of the nature of the dispute.

The provisions for default rules (where a contractual arbitration clause is fairly basic) will assist in getting through a number of critical pinch points, namely commencement and appointment, without too great a risk of judicial intervention and delay. The parties may agree on the constitution of the tribunal, but if they do not, default provision is made for appointment by an arbitral appointments referee, likely to be one of the usual nominating bodies. Subordinate legislation will ensure appointing bodies maintain a list of appropriate arbitrators, by requiring them to have in place training, regular assessment, and disciplinary procedures. The Faculty of Advocates is likely to be eligible to become an arbitral appointments referee.

Before the tribunal

Once the arbitral tribunal is appointed, the first practical step will be to decide on the form of procedure. The success of the arbitration process depends to a large extent on co-operation. The tribunal must act positively but be flexible enough to accommodate the reasonable wishes of the parties. It may appoint a clerk. It may meet anywhere, even outwith Scotland. If the parties’ advisers co-operate with each other, the arbitration will proceed smoothly, expeditiously and economically, and generally to the satisfaction of the paying parties. The detailed rules of procedure will not matter too much. However, in many commercial disputes, one party (usually the party who has or thinks they have the better case) will be anxious to make progress, while the other party may drag their feet, hoping to wear down their enthusiastic opponent and achieve an acceptable settlement.

Any codification of arbitration law and practice in Scotland must aim to achieve speedy and economic resolution of the highest quality. That is generally achieved by:the appointment of an experienced arbitrator or tribunal;

the arbitrator taking full control of procedure by identifying the issues at an early stage; minimising the use of formal written pleadings; and  setting a realistic but short timetable for hearing the substantive issues in dispute.

How does the bill assist at this point? Unfortunately, it has little impact. It gives the tribunal a very wide procedural discretion, which an arbiter already had at common law.

The bill refers to a written statement of the party’s claim or defence. Claim includes counterclaim. This is a key stage in any arbitration. It might have been preferable to provide that a statement of claim should contain a conclusion identifying the orders sought, and a brief statement, in numbered paragraphs, of the material facts on which the claimant relies. Similar provision could be made for the statement of defence and any counterclaim.

In many cases, it may be worthwhile attempting to state the issues which have to be determined, so as to focus parties’ minds on the law and the facts which have to be proved or refuted. At this important stage, it is critical that the arbitration does not become tangled in the long grass of extended periods of adjustment of pleadings mirroring traditional court procedure. The mandatory duty on the tribunal to do its best to conduct the arbitration as quickly as is reasonably practicable points the tribunal in the right direction, but does not go far enough to make a significant difference to the way arbitrations are currently conducted.

Powers as to awards

The bill gives the arbitral tribunal power to award damages, interest (including compound and backdated), expenses including payments on account, and security for expenses (no criteria being specified), with provision for capping a party’s liability in advance. Interim and partial awards may be made, and protective measures such as the recovery and inspection of property may be granted. Power to rectify and reduce documents is also given. These are all to be welcomed. A range of unworthy arguments previously deployed by employers against deserving contractors will be eliminated. It is to be hoped that the consultation process will lead to a tightening up of the current drafting on some of these topics.

Another bill currently in circulation, the Interest (Scotland) Bill, also makes comprehensive provision for simple interest to be awarded by an arbiter (the traditional term used in that bill). These two bills should perhaps be examined by the parliamentary draftsmen together to ensure consistency and avoid unnecessary duplication. Finally, the tribunal may refuse to make an award until its fees and outlays have been paid in full. This is appealable to the sheriff court or the Outer House (see below).

Simplifying appeals

The stated case procedure is repealed. In its place come restricted rights of appeal. These include appeals to the Outer House on rulings and decisions on jurisdiction. An application may also be made to the Outer House to remove a member of the tribunal on grounds of impartiality or qualification, or to dismiss the whole tribunal on somewhat broader grounds. The final award (having first been issued in draft) may be corrected where there are clerical or typographical errors, or ambiguities. The final award may be appealed to the Outer House on specified grounds of serious irregularity (mainly procedural in nature), or error of law. In relation to a legal error appeal, a form of leave to appeal is required. The decision in the Outer House on all these matters is final. There is no appeal against an interim award.

All these provisions provide practical clarification and simple procedural mechanisms for appealing. The court’s decision on an appeal against the tribunal’s refusal to make an award until paid, may, in turn (with leave), be appealed.

Bold action needed

The only way arbitration will become popular again and overtake mediation and adjudication is if arbitrators take full control of the arbitration process, and engage in some serious, intense case management. Most commercial clients complain about the length of judicial and quasi-judicial proceedings.

Adjudication has generally been a success because of the statutory time constraints. Major adjudications require a significant effort from all concerned over a relatively short period. This, at least, achieves a result with which both parties are often prepared to live. There has been some disquiet about the quality of decision writing and procedural management on the part of some adjudicators.

To make arbitration blossom again in Scotland, a compulsory framework which has all the advantages of adjudication, mediation and arbitration but none of their disadvantages is required. A good start would be arbitration enduring for somewhat longer than 28 days but generally no more than say six or nine months, with positive case management, focusing on succinct pleadings, the use of expert meetings and round-table discussions (particularly as the tribunal is given power to engage its own expert) to narrow the issues, leaving only the live factual and legal issues which matter to the clients and have sufficient commercial value for them to make the whole exercise commercially worthwhile. A compulsory procedural framework incorporating these aims is surely not beyond the ingenuity of the Scottish parliamentary draftsmen. The Scottish Government should act boldly and rethink the implementation of its worthy general policy of rationalising and consolidating arbitration law and practice in Scotland.

J Gordon Reid QC is a member of Axiom Advocates, which specialises in commercial and public law cases including commercial arbitrations.

Refurbishing arbitration for the construction industry

Construction lawyer Tricia Morrison offers a solicitor’s view

In the late 1990s alternative dispute resolution (ADR) was in fashion and no legal seminar was complete without comment thereon. With the Scottish Government’s consultation on the Arbitration (Scotland) Bill we see a revival of the traditional ADR tool of arbitration.

Arbitration was historically the favoured dispute resolution forum of the construction industry, largely because it allowed industry experts to decide disputes. The quantity surveyors who completed the standard form construction contracts tended to select arbitration rather than litigation.

The coming into force of the Housing Grants, Construction and Regeneration Act 1996 resulted in a shift away from arbitration towards adjudication, both as provided for by the Act and by the various construction industry standard form contracts. Arbitration was perceived to be lengthy, costly and overly reliant on written submissions, whilst adjudication seemed to offer a 28 day quick fix. In recent times however, anecdotal evidence is that the popularity of adjudication is on the wane. Adjudications are almost always longer than the minimum 28 day period and are rarely cheap. The adjudicator’s fees must be paid at a professional’s hourly rate. Whilst expenses including the adjudicator’s fee may not require to be borne by a winning party, their own legal fees will not be recovered unless there is some contractual provision allowing this.

The right of parties to a construction contract to adjudicate in respect of a dispute at any time, in terms of the Act, will remain. It should be hoped that the process proposed by the bill will complement the available adjudication procedure, as may be demonstrated by the following scenario (which is entirely fictional but not uncommon).

Contractor A has been on site for 12 months and is days away from completion of the construction works. The final account detailing every screw, nut and bolt is with the employer for consideration. The employer has already said that it doesn’t accept that contractor A has counted each screw properly, and also thinks that the 25 different types of bolts haven’t been properly priced. It thinks that contractor A has already been overpaid by £10,000. The employer also wants to deduct £50,000, which it says it is entitled to because contractor A has finished six months late. It thinks contractor A owes it £51,000.

Contractor A says the employer caused the delay, and in addition to £3,000 for the construction works it is entitled to payment of £13,500 as a result of the employer causing the six month delay. Both contractor A, the employer and the construction site are based in Edinburgh.

Contractor A is fed up talking and wants to pursue payment. If we assume that there is a choice of post-bill arbitration, adjudication and court, what is best?

The dispute is not sizeable and there is potential for the irrecoverable costs of an adjudication to outstrip the value of the contractor’s final recovery, if not the claim itself. This puts contractor A off adjudication. Also the delay aspect of the dispute is fairly complicated and it seems unlikely that 28 days will be enough to get a good decision.

Court action remains an option. The court could award the successful party their judicial expenses, thus reducing the irrecoverable legal costs. The courts with jurisdiction are the Court of Session and Edinburgh Sheriff Court. The low level of the sums in dispute make the Court of Session unsuitable. The lack of commercial procedure at the sheriff court may cause difficulty – the dispute will be lengthy, technically complicated and need good case management, something the sheriff court ordinary procedure cannot always accommodate.

In the pre-bill days the arbiter’s powers in relation to expenses were uncertain. However, the bill provides that the arbiter has the power to make awards of expenses. The arbiter can, like the court, reduce the successful parties’ irrecoverable expenses. The arbiter is also a QS of old, so knows the principles which are important in bolt counting disputes. Further, the arbiter has been earning his crust as an adjudicator over the last decade and knows exactly how quickly parties can provide information if they want to. He is keen to flex his case management muscles and may just use his powers in respect of expenses to prevent the delaying tactics that almost killed pre-bill domestic arbitration. With many of the uncertainties of domestic arbitration cleared up by the bill, arbitration may be attractive to both parties, even in absence of an existing contractual provision for arbitration.

Tricia Morrison is a partner and Head of Construction (Scotland) at HBJ Gateley Wareingg