New Arbitration Act for Scotland

The Arbitration (Scotland) Act 2010

There is a new Arbitration Act. Why is that important? The answer is because it creates a new structure for arbitration. It impacts not only on those considering arbitration but also on every party who has an agreement with arbitration among its dispute resolution clauses or is drafting such an agreement.

The General Approach

The Act consolidates pre-existing law, and seeks to improve it. It contains a very detailed set of Arbitration Rules, some of which are compulsory (Mandatory Rules) and some of which can be opted out from (Default Rules).

Founding Principles

For the first time, principles are laid down which are to underlie anything done under the Act. In short, these are:

• the object is to resolve disputes fairly, impartially and without unnecessary delay or expense;
• generally, parties should be free to agree how to resolve disputes; and
• the court should not intervene (except as specifically provided).

It is anticipated that the Act will come into force in April/May this year. It will, however, apply to an agreement to arbitrate made before it comes into force unless (during a transitional period to be specified and not to exceed five years) the parties agree that it should not.

What Changes Are Mandatory

These range from the major to the minor. There are now general duties on the arbitrator (Rule 23) to conduct the arbitration without unnecessary delay and without incurring unnecessary expense. The parties are obliged to co-operate (R24). An arbiter can rule on his own jurisdiction (R19), award damages (R44a) or interest (R46). He can make a provisional award (R50) and deal with expenses (R61). He can be removed or dismissed by the court in specified circumstances (R12 and 13).

The Role of the Courts

Where parties have agreed to arbitration (a system intended to lead to a final and binding decision), the role of the courts has always been controversial. At present, unless the right to do so has been expressly excluded, an arbiter can be asked to "state a case" for the Inner House of the Court of Session on any question of law said to arise in the arbitration. This entitlement has been abused; it is often used as a disguised mechanism for appeal.

Under the new Act, the courts (now the Outer House) can consider an appeal against an arbitrator's ruling on his own jurisdiction (R21). A decision by an arbitrator can be challenged on grounds of lack of jurisdiction (R65) or serious irregularity (R66). It remains to be seen how these provisions will be interpreted in practice. There is provision for reference of a point of law arising in the arbitration but this can be contracted out of (Rule 40). The same is true of appeal for error of law (67).

Default Rules

As the name suggests, the default position will be that the rules apply. They have to be specifically contracted out of. That can be done in the "arbitration agreement", by agreement of parties thereafter or if they are inconsistent with any other rules adopted. If a detailed agreement is being entered into to put a dispute to an arbitrator, the issue of default rules can no doubt be discussed and agreed at that time (whether or not this follows on from a general arbitration clause, eg. in a lease or contract). However, there is no guarantee there will be such a separate agreement (or that parties will agree on exclusions!). The only way to ensure that a default rule does not apply is to insert that in the original arbitration clause. Existing exclusions of stated case procedure are automatically treated as opting out of Rules 40 and 67.

By way of example, default rules provide for

• when an arbitration process interrupts time bar (always something which makes lawyers nervous!) R(1);
• allowing an arbitrator to appoint an expert himself R(33);
• the arbitrator to deal with delay R(37);
• when a court might order security for a claim R(43); or
• an arbitrator might order security for costs R(62).

Conclusion

Some of the Act may initially be contentious. One person's unnecessary delay may be another person's fair hearing. The list of mandatory and default Rules will repay close scrutiny. There may be cases in which parties find themselves bound by rules they would not have themselves selected voluntarily had they thought about it!

Proponents of the Act argue that it will promote arbitration. It remains to be seen how the virtue of flexibility to suit the case will operate under the new regime. Critically, the new provisions regulating how the courts can - or cannot - intervene may be central in determining how acceptable the system becomes.

In the meantime, you have been warned!

Craig Connal
Partner, Litigation & Dispute Resolution
Tel +44 (0)141 567 8633
Email craig.connal@mcgrigors.com

Joanne Gillies
Partner, Litigation & Dispute Resolution
Tel +44 (0)141 567 8638
Email joanne.gillies@mcgrigors.com