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INTRODUCTION
1. The essence of arbitration is that it is a procedure whereby parties agree to submit a dispute between them to a third party, who often has special expertise or knowledge, and who will act as a private tribunal to produce a final and binding determination of the dispute. By agreeing to go to arbitration, the parties voluntarily deny themselves recourse to the courts or to another method of alternative dispute resolution. The agreement to go to arbitration is often, perhaps usually, contained in a contract concluded between the parties possibly years before they come into dispute.
2. The advantage of arbitration is that the arbitrator's decision or "award" is final and binding without further court hearing of the issues. An award may be enforced like a court decree. Within countries which have ratified the Geneva or New York Conventions on recognition and enforcement of arbitral awards, agreements to arbitrate and awards made in other countries will be recognised with no need - in the case of awards - for further review of the issues. Thus arbitration offers major advantages to those engaged in international or cross-border trade. The binding nature of the outcome may offer attractions over other forms of alternative dispute resolution such as mediation.
3. Arbitration is also a private means of dispute resolution. This is another major advantage to commercial parties who may not wish the nature of their dispute or sensitive commercial information debated openly in the courts. The parties can choose their arbitrator which is not possible in the courts. If a technical expert is appointed as arbitrator, this may reduce the need to lead technical evidence so that arbitration may be quick, cost effective and efficient. The arbitration process can provide flexible procedures (as it is privately funded and initiated) and because it is within the parties' control, the location, timing and other arrangements can be planned to suit their particular needs. If arbitration can be reformed so as to be attractive to use instead of use of the formal court system, that would also be a helpful development in reducing pressure on the courts.
Current law
4. Domestic Scots arbitration law derives primarily from case law and has not been codified into statute. The law is often not clear or readily accessible, nor does it reflect modern practice on arbitration. The Arbitration (Scotland) Act 1894 contains some limited provisions on the appointment of arbiters and oversmen, while the Arbitration Act 1950 contains some provisions applying to Scotland regarding the enforcement of certain foreign awards. The Arbitration Act 1975 provides for the sisting (or putting on hold) of court proceedings where an arbitration agreement is invoked and also gives effect to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.
5. Section 66 of, and Schedule 7 to, the Law Reform (Miscellaneous Provisions) (Scotland) Act 1990 adopted the UNCITRAL (United Nations Commission on International Trade Law) Model Law on arbitration for international (but not domestic) arbitration into Scots law, ie for commercial arbitration where one of the parties is not domiciled in Scotland. The UNCITRAL Model Law is widely recognised within the world of international arbitration.
Problems with current Scots law
6. As a result of gaps in the law and difficulties in establishing exactly what the law is, particularly compared to other jurisdictions where it has been codified, Scotland is not considered an attractive venue within which to conduct arbitration. For arbitration to work effectively and efficiently, arbitrators require powers to manage and decide cases. These powers can be derived from the parties' agreement or from existing law. As the existing law in Scotland is nearly all un-codified common law and difficult to access, the powers and duties of an arbitrator in any particular case may not be clear, unless they have previously been set out in an arbitration agreement, and/or until they are set down in a separate agreement among the parties and the arbitrator, known as a submission to arbitration.
7. By contrast codes or legislation in many other countries provide clear frameworks to allow arbitrations to be commenced efficiently and without delay or undue expense. For instance, the Arbitration Act 1996 which lays down the arbitration regime for England, Wales and Northern Ireland sets out in modern form the powers and duties of an arbitrator.
8. The Scottish courts have been supportive of arbitration, but their role is not as clear as in some other jurisdictions. Modern legislation in other jurisdictions sets out how courts may support the arbitration process by recognising arbitration agreements and halting court processes. They may assist by ordering the attendance of witnesses, or arbitrators may be given powers usually vested in courts to order disclosure of documents or to restrain the movement or use of assets. Courts may also recognise arbitration agreements or awards made under different legal systems.
9. The way for parties to overcome gaps in the law is for them to agree from the outset or when a dispute arises that arbitration will be conducted under an institutional code or set of rules. Various arbitration codes exist which can be used in Scotland. But these codes have no statutory backing and so will only apply if the parties adopt them when it is agreed that a dispute should be referred to arbitration. There are a number of different codes which have developed, leading to lack of consistency and potential confusion among practitioners.
10. Arbitration may also prove to be a very expensive option in Scotland at present. There are no explicit duties imposed on arbitrators in Scotland and the courts' powers of control are not explicitly stated in statute. There is little control over what fees an arbitrator may charge (or over his work quality or efficiency) and costs can quickly escalate beyond parties' control. The costs may rise further if a legally qualified "clerk" is appointed to assist the arbitrator, as is usually the case in commercial arbitrations. In contrast, other jurisdictions have laws allowing the taxation of arbitrator's costs upon the application of a party or parties.
History of proposal reforms
11. The possibility of legislation on arbitration in Scotland has been under consideration for at least 20 years. A committee was established in 1986 by the then Lord Advocate to consider the reform of the law, particularly in the light of the UNCITRAL Model Law on arbitration, which is widely recognised within the world of international arbitration. The Committee recommended the adoption of the UNCITRAL Model Law for international (but not domestic) arbitration into Scots law and this was subsequently effected by virtue of section 66 of, and schedule 7 to, the Law Reform (Miscellaneous Provisions) (Scotland) Act 1990. This has not, however, had the effect of attracting significant international arbitration business to Scotland.
12. The Committee continued work on the provisions of a modern arbitration law for domestic arbitration and produced a draft Bill in 1996. In the same year the Arbitration Act, which extended to England, Wales and Northern Ireland, was passed. Unlike the 1996 Act, however, which was very comprehensive, the draft Bill for Scotland would simply have dealt with certain specific issues, filling some gaps and making some improvements but leaving Scottish arbitration law uncodified.
13. Since then, many other countries have been reforming their arbitration laws, both domestic and international, to make them more accessible and user-friendly. Many have moved towards using arbitration codes backed by statute which set out the various stages of an arbitration procedure.
14. The Scottish Council for International Arbitration and the Chartered Institute of Arbitrators (Scottish branch) developed the Scottish Arbitration Code in 1999. This sought to set out a general framework for arbitration and the rules under which arbitration should be conducted. But this is only a voluntary code which requires all parties to agree to its adoption. Scotland is therefore at a disadvantage with other countries which have modernised, and mostly codified, arbitration systems set out in law. The Code was recently revised in 2007.
15. A further Bill, more comprehensive than the 1996 draft Bill, was developed by a working group of parties interested in the promotion of arbitration and chaired by Lord Dervaird in 2002. This was heavily influenced by legislative changes in other countries and in particular the experience in England following the 1996 Act. That legislation followed (in language if not in structure) the UNCITRAL Model Law in order to make it as accessible as possible to arbitrators and parties from other jurisdictions.
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