Power to the Tribunal?
14 July 2008
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 contained in the Law Reform (Miscellaneous Provisions) Scotland Act 1990. Another part of government strategy 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 (i) the many and varied sources of law and practice, (ii) uncertainty as to what the law is, (iii) the scope of an arbiter's powers, (iv) the variety of arbitral codes, and (v) 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 and 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 have in advance of or because of a dispute, chosen to resolve that dispute by arbitration rather than by litigation or some other form of alternative dispute resolution.
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 give a fairly full but flexible narrative of the nature of the dispute.
The provisions for default rules (where the arbitration clause in a commercial contract 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, then default provision is made for appointment by an arbitral appointments referee. Such a referee is likely to be one of the usual nominating bodies. Provision will be made under subordinate legislation to ensure that the appointing body maintains a list of appropriate arbitrators by requiring the appointing bodies 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.
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 arbitral tribunal must act positively but be flexible enough to accommodate the reasonable wishes of the parties. The tribunal 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 parties paying for the process. The detailed rules of procedure will not matter too much. However, in many commercial disputes, one party (usually the party who has or thinks he has the better case) will be anxious to make progress while the other party may drag his feet, hoping to wear down his enthusiastic opponent and achieve an acceptable settlement.
Any codification of the law and practice of arbitration in Scotland must aim to achieve speedy and economic resolution of the highest quality. That is generally achieved by (i) the appointment of an experienced arbitrator or tribunal, (ii) the arbitrator taking full control of procedure by identifying the issues at an early stage, (iii) minimising the use of formal written pleadings, and (iv) setting a realistic but short timetable for hearing the substantive issues in dispute. How does the Bill assist at this point? The Bill, unfortunately, 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 upon 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.
The Bill gives the arbitral tribunal power to award damages, interest (including compound and back dated), 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 word "arbiter" is used in that Bill). These two Bills should perhaps be examined by the Parliamentary draftsmen together to ensure consistency and to 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)
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 grounds of serious irregularity (which are specified and are 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.
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. Thus, arbitration enduring for somewhat longer than 28 days but generally no more than say six or nine months with positive case management, focussing on succinct, short pleadings, the use of expert meetings and round table discussions (particularly as the tribunal is given power to engage its own expert) with a view to narrowing issues, clearing out the dead wood and 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, would be a good start. A compulsory procedural framework incorporating these aims is surely not beyond the ingenuity of the Scottish Parliamentary Draftsmen at Holyrood. The Scottish Government should act boldly and re-think the implementation of its worthy general policy of rationalising and consolidating arbitration law and practice in Scotland.
At the heart of any arbitration lies clarity of legal thought and commercial strategy which are critical to a successful outcome. At Axiom Advocates, a number of our members have considerable experience as counsel in heavy commercial arbitrations, as arbiters, or as decision makers in one forum or another. They are able to act as arbiters or provide a depth of legal knowledge and strategic advice which would meet the needs of the most demanding commercial clients. Professional firms such as surveyors and valuers, accountants and claims consultants may instruct counsel direct by contacting the Axiom Advocates Practice Managers.
Gordon Reid QC, Axiom Advocates
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