Forum of choice?

On 18 November 2009, the Scottish Parliament passed the Arbitration (Scotland) Bill, which reforms and modernises the law of arbitration in Scotland. Discussion of the bill (now the Arbitration (Scotland) Act 2010) during its passage provides a good example of how parliamentarians of all parties and those with a stake in operating legislation can work together to improve the law.

This is innovative legislation which aims to incorporate the best of arbitral practice from around the world, but also an Act that Professor Fraser Davidson of Stirling University has described as “a beacon for the future [of arbitration], with particular emphasis to the bold and radical approaches it has taken to a number of issues”.

New for 2010

The Act broadly brings the law into line with the modern framework in the Arbitration Act 1996, which applies in the rest of the UK. Some commentators have pointed out that the new Act offers a number of improvements, for example:

• The new Act uses modern and international terminology – “arbitrators”, not “arbiters”, and places its procedural arbitral rules together in a schedule to make the law more user-friendly, particularly for non-lawyers involved in arbitrations.
• A confidentiality rule puts into statute the position governed by case law in the rest of the UK – unless the parties agree otherwise. Few other legislatures in the world have made clear that arbitration is usually a confidential business. Confidentiality is of course one of the attractions of arbitration to parties whose dispute is commercially sensitive.
• Where the process the parties have agreed for appointment of an arbitrator fails, recognised persons or bodies (“arbitral appointments referees”) can resolve the failures, thus reducing recourse to the courts. The 1996 Act provides that this is a role for the court. The new Act misses out this unnecessary step, but retains the courts as a backstop only in the event of irreconcilable disputes over the appointment process.
• Subject to issues of proof, oral as well as written arbitration agreements are recognised by the Scottish Arbitration Rules in the Act. Otherwise, they would remain subject to the old (unsatisfactory) common law. They are excluded from the substantive provisions of the 1996 Act.
• Reflecting modern arbitral practice, the 2010 Act requires arbitrators to be independent as well as impartial.
• Prospective and post-appointment arbitrators are placed under an explicit continuing disclosure requirement concerning conflicts of interest.
• It is clear in the Act that experts, witnesses or legal representatives have immunity in respect of acts or omissions as if the arbitration were civil proceedings.
• The Act includes express provision covering the resignation of the arbitrator. The 1996 Act does not provide for the process of resignation.
• To reduce unnecessary court challenges, the new Act limits appeals from the Outer House. There is no appeal to the Supreme Court.
• Where a correction of an award has a consequential effect on another part of the corrected award or any other award, whether on some part of the substance of the dispute or on expenses or interest, the tribunal may make consequential correction of that award.
• The Scottish Ministers have the power, by order subject to affirmative resolution procedure in the Scottish Parliament, to amend and update the Act in consequence of changes to the UNCITRAL Model law, the UNCITRAL Arbitration Rules or the New York Convention.

The 2010 Act therefore places Scotland at the forefront of modern arbitration law and procedure. We can be proud of the legislation and the process by which it was created.

What now?

The Act is expected to be brought into force in spring 2010, except in relation to statutory arbitrations. This will allow those who will wish to make use of the new legislation time to become familiar with it.

This period of familiarisation is extremely important. Whereas Scotland previously had arbitration law which was incomplete, out of date, obscure and discredited, we now have legislation which is at the cutting edge of modern arbitral practice. Practitioners need to become familiar with the new law. In particular this familiarity will also make them well placed to promote its advantages to clients.

However, the passing of the Act will not of itself increase usage of arbitration in Scotland, either domestically or internationally.

We believe that the Act provides Scottish arbitrators with a once-in-a-lifetime chance to promote arbitration in Scotland as a method of dispute resolution which is flexible, confidential, quicker and thus cheaper than litigation. It is for potential arbitrators – whether members of one of the professions or none – to seek to exploit this opportunity.

This will not simply be a matter of marketing the advantages of arbitration: those involved in drawing up contracts will also have to consider using dispute resolution clauses, and if so whether to specify the use of arbitration seated in Scotland. In future, any dispute in which an arbitration clause is invoked will be dealt with under the new comprehensive, modern arbitration regime.

Why Scotland?

Legal advisers to commercial parties must set out the advantages of arbitration to their clients. I would expect that professional bodies whose members practise arbitration would wish to contact bodies such as the CBI in Scotland, the Institute of Directors, the chambers of commerce and others to make the case for arbitration, particularly since businesses are increasingly choosing to resolve disputes out of court to save time and money in the current economic climate.

The Business Experts Law Forum set up by the Cabinet Secretary for Justice recommended that the Law Society of Scotland and the Faculty of Advocates should encourage their members to train as arbitrators. We therefore expect that the pool of available arbitrators in Scotland will broaden in years to come.

We also hope that many trades, professions and industries will create low-cost consumer arbitration schemes to emulate the schemes operated by the Association of British Travel Agents, the Scottish motor trade and the Institute of Chartered Accountants in Scotland.

In relation to international arbitration, there are we believe a number of reasons why parties may be attracted to Scotland:

• the new state-of-the-art law;
• arbitration in Scotland is anticipated to cost probably only 40% of the cost of arbitration in London or New York;
• we are an English-speaking jurisdiction;
• we are, in arbitration terms, separate from England – this neutrality may be attractive to foreign parties in dispute with English firms;
• Scotland is a very attractive venue in which to arbitrate, with good transport links and accommodation;
• we have a mature legal system to back up arbitration, with judges who appreciate the need to support the arbitral process.

The Scottish Government will play its part in trying to publicise the advantages of arbitration alongside other forms of dispute resolution. But ultimately it will be for those who wish to provide and thus profit from the provision of arbitral services to promote arbitration.

I hope arbitrators and those interested in arbitration will take this opportunity to “sell” arbitration in Scotland both domestically and internationally. We have a great product to market.

Jim Mather MSP is Minister for Enterprise, Energy and Tourism in the Scottish Government