Up until the introduction of the Arbitration (Scotland) Act 2010, the law relating to arbitration in Scotland was considered by many to be unsatisfactory, with many parties choosing to resolve their disputes by other means. The Act introduced a new arbitration regime, with the aim of increasing the popularity of arbitration as a means of resolving disputes in Scotland.
The new regime came into force on 7 June 2010 and parties are slowly starting to get to grips with the provisions of the 2010 Act, with there now being three reported decisions in the Court of Session.
March this year saw the opening of the Scottish Arbitration Centre, which seeks to “promote arbitration to the Scottish business community as an effective alternative to litigation, and Scotland to the world as a place to conduct international arbitration.”
The provisions of the Act potentially impact on a wide variety of parties including landlords, tenants, employers and contractors. Eighteen months on, how has the Act affected the way arbitration is being used in practice?
The arbitration regime
The underlying principle of arbitration is unchanged under the 2010 Act. Arbitration involves parties agreeing to submit a dispute to a third party, who to all intents and purposes acts as a private judge in order to produce a determination which is binding on the parties. The theory at least is that by choosing arbitration, the parties will largely give up their right to go to court, or use some other means of dispute resolution.
The Act itself has two component parts. The enabling provisions are in the main body of the Act and the Scottish Arbitration Rules are contained in a Schedule to the Act. The rules themselves are further broken down into mandatory rules, which cannot be contracted out of, and discretionary rules, which can be disapplied with the prior agreement of both parties to the contract. Parties agreeing to use arbitration will need to consider to what extent the discretionary rules contained in the Act should be amended. In the absence of agreement to the contrary, the discretionary rules will apply by default.
In cases where an arbitration clause exists, for example in a lease, the rules in the Act will be imposed on the parties. Transitional provisions in the Act mean that the rules will not apply to an arbitration begun before commencement of the Act. However, they will apply to an agreement to submit a present or future dispute to arbitration whether made before or after commencement of the Act. Such provisions are often contained within the body of a lease or contract, and the Act and Rules will apply retrospectively to contracts entered into prior to the Act coming into force.
The principal provisions of the Act
The following are some of the key provisions of the Act:
- The Act allows arbitrators to rule on their own jurisdiction, a provision common to many international arbitration regimes and designed to limit outside interference from the courts.
- The Act effectively brings to an end the ability of parties to state a case to the courts on a point of law under Section 3 of the Administration of Justice (Scotland) Act 1972. The general view was that this was too easy to invoke and therefore undermined the whole purpose of arbitration. The Act sets out instead a much more limited appeals procedure to challenge an award on the grounds of an error in law – an appeal can only be made either with the agreement of the parties or with the leave of the Outer House of the Court of Session (and then only in limited circumstances).
- One of the mandatory rules is the power of the arbitrator to order payment of a sum of money. The arbitrator can also order interest to be paid. The default/discretionary rules include additional powers - an arbitrator can make an award of a declaratory nature, order a party to do or stop doing something, and make an order for the reduction of any deed or document.
- The intention is that arbitration will be final and binding on the parties. This was always the intention with arbitration, but the pre-2010 Act reality was somewhat different. The Arbitration (Scotland) Act 2010 sets out a much more limited set of circumstances in which an arbitration award may be challenged. The grounds of challenge are restricted to the following: (a) the arbitrator not having jurisdiction to make the award; (b) cases of "serious irregularity" which have resulted in substantial injustice; and (c) legal error by the arbitrator (as noted above).
- The Act provides that the parties may apply to the Scottish courts to have an arbitral award enforced, and an award will also continue to be separately enforceable if the parties have agreed to the arbitration agreement being registered "for execution" in the Books of Council and Session.
- Neither the arbitrator nor the parties to the agreement must disclose confidential information in relation to the dispute, the arbitral proceedings or the arbitrator's award. This is a default rule and can be varied. It reinforces current arbitration practice.
- The regime protects the anonymity of the parties by providing that, where arbitration becomes the subject of court proceedings (for example in the case of appeal), the identities of the parties to the arbitration are not to be disclosed outwith the court.
A future for arbitration
The promoters of the new legislation and the accompanying Rules have argued that they will bring a much needed impetus to arbitration as a means of dispute resolution in Scotland, making it a more attractive option for resolution of a range of disputes.
In the commercial field, particularly, traditionally disputes relating to construction contracts, property and lease disputes, including disputes about service charge, dilapidations and rent review, have been resolved by arbitration, but its popularity had waned in recent times, partially because of the popularity of adjudication in the construction field, but also because the features that might make it an attractive option – privacy, expertise of the arbiter, etc – were outweighed by other factors, such as arbitration lasting as long as, and costing as much as, if not more than, litigation.
With only three decisions having been issued by the Court of Session on applications under the new regime, there is little evidence on which to judge its popularity, and it could be some time before reliable evidence is available indicating whether there has been an upturn in the attractiveness of arbitration. Continued promotion of the benefits of arbitration by the Scottish Arbitration Centre and its other supporters will be an essential part of the process, as well as experience of the new regime in practice which is a positive advertisement for the benefits of arbitration as a means of dispute resolution.