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ARBITRATION (SCOTLAND) BILL 2008
Introductory
Section 1 - Founding principles
1. Section 1 sets out the founding principles of the Bill. The purpose of the founding principles is to provide principles to inform and steer the interpretation and application of the provisions of the Bill. These reflect the principles found in the Arbitration Act 1996. The intention is to make it clear that the Scots law approach to arbitration is consistent with the rest of the UK.
2. The first of the three founding principles is that fairness and impartiality are the standards by which disputes are to be resolved by arbitration. It is also made part of this principle to reinforce the imperative that resolution of the dispute is to be effected quickly and without incurring unnecessary expense.
3. Although much of the code set out in the Scottish Arbitration Rules in the Bill is made up of rules which will apply in default of inconsistent agreement between the parties, the second founding principle reinforces the idea that parties are to be free to decide themselves on procedures for the resolution of their disputes, subject only to public interest safeguards.
4. The third principle is that the courts should not intervene in the arbitration process unless it is necessary to support that process by, for example, enforcing orders by the arbitrator, or to get the process back on track. There are safeguards built into the Scottish Arbitration Rules to limit appeals to a court where appropriate, e.g. in the case of a serious irregularity by an arbitrator, an appeal will not be permissible unless a substantial injustice would otherwise be done. However, it is important to enshrine this as a cardinal principle to assist the courts to limit unnecessary intervention.
5. Whether or not the principles could be ranked in order of priority or importance is another issue for consideration. Conflicts could arise between the principles when a court has to apply them in practice, for instance setting parties' wishes that proceedings should remain confidential against a potential injustice. Given the level of generality at which the principles apply, it is not considered that a hierarchy of principles would assist the courts, but consultees may have views.
Consultation Question
Q1: In your opinion, is it valuable to set out founding principles in the Bill?
If you answered "Yes", do you think the founding principles should be ranked?
If you answered "Yes", in what order would you rank the founding principles?
Section 2 - Principal terms
6. Section 2 sets out some of the main definitions.
7. The Bill does not attempt to prescribe what type of dispute is to be arbitrable. It would be difficult to set out clearly in statute what is and what is not arbitrable, and matters such as public policy are constantly evolving. Moreover, what is arbitrable is linked to what can validly or legally be the subject matter of a contract and so it is important that the law on arbitration remains in line with general contract law on this issue. See however section 19.
8. The Bill does not distinguish between arbitration and valuation (or expert determination). This distinction is widely recognised to be difficult, but has been held in the past to exist in Scots law, although it is generally considered less clear in practice today. In England, in general terms, an arbitral tribunal must act judicially by applying the law whereas an expert decides on the basis of his or her own expert opinion. There remain however particular areas in which the distinction between arbitrators and valuers may be of importance, such as immunity from liability for negligence, where valuers may not be entitled to immunity. In England & Wales as well as in Scotland, arbitrators have been entitled to the immunity which is given to judges and arbitrators as an exception to the general rule of liability for negligence. It has been held by the House of Lords in an English case ( Arenson v. Arenson [1977] AC 405) that valuers are not entitled to this immunity. Lord Hope (writing in the Stair Memorial Encyclopaedia) doubts there is any reason this decision would not be followed in Scotland 3.
Consultation Question
Q2: Do you consider that there is a need to distinguish between arbitrations and valuations?
If you answered "Yes" what, in your opinion, should the key distinctions be?
Section 3 - Juridical seat of arbitration
9. The seat (or place) of an arbitration is the legal seat from which the law of arbitration applying to a particular case is drawn. To make provision for the seat of an arbitration is intended to help to clarify the law applicable to the procedures to be adopted.
Arbitration agreements
Section 4 - Arbitration agreements
10. As noted above, the arbitration agreement between the parties is fundamental to arbitration. Section 4 makes clear that the agreement can either be in a past agreement between the parties or in a submission to the arbitrator when the dispute arises. The concept is also defined in the Bill to include a statutory arbitration.
11. In practice, agreements to refer to arbitration, whether free-standing contracts or clauses which are part of a larger contract, are usually in writing. At present Scots law generally recognises both oral and written agreements to refer to arbitration.
12. Arbitration agreements are recognised by the Bill whether they are concluded orally or in writing so that all arbitrations in Scotland benefit from the provisions in the Bill. If oral agreements were not recognised, they would continue to be subject to the common law and would not benefit from the provisions in the Bill, the approach taken by the 1996 Act. While section 5 of the 1996 Act makes provision for arbitration agreements to be in writing, it also allows oral agreements by reference to terms in (or recorded in) writing.
13. While there might be a danger of unsuspecting parties signing up to arbitration agreements inadvertently, sections 89 to 91 of the 1996 Act which apply to Scotland, along with the Unfair Terms in Consumer Contracts Regulations 1999, provide protections for those who might otherwise be caught by low-value consumer arbitration clauses.
Consultation Question
Q3: Do you agree that oral agreements should be recognised by the Bill?
Section 5 - Separability
14. Although arbitration clauses are clauses of the contracts to which they refer, it can be said that they have a different character from the other clauses in the contract as they set out how any disputes arising from the other clauses are to be dealt with. In the course of such disputes, questions may arise as to the existence or validity of the contract itself. At this point, questions also arise as to the extent to which the validity of the arbitration clause can be separated from the validity of the principal contract. The Bill provides that the arbitration agreement can be separated. Accordingly, where it is alleged that the principal contract is either void or voidable or has been terminated, the arbitrator will not lack jurisdiction over the dispute in question as a result.
Scottish Arbitration Rules
Sections 6 to 8- Scottish Arbitration Rules
15. An arbitration agreement will always have to be considered by the parties alongside the Bill. Accordingly, we have decided to set out the Scottish Arbitration Rules in a single relatively straightforward code in schedule 1 in order to try to make the rules accessible for the users of the legislation.
16. Often parties may agree in a larger contract to use arbitration in the event of a dispute. But there may be no further agreement beyond the agreement to arbitrate. The effect of section 6 is to make the rules implied terms of every arbitration agreement unless the parties agree to disapply them explicitly or by implication. In this way, the Bill seeks to provide a means for the arbitration to proceed without the delay which would otherwise be caused while parties agreed on how to proceed.
17. There are some rules which we propose should take precedence over any agreement between the parties which is inconsistent with them - in effect rendering any conflicting agreed provisions unenforceable. Sections 7 and 8 accordingly categorise the rules as "mandatory rules" (which cannot be contracted out of) and "default rules" (which the parties are free to agree to deviate from). Categorising the rules in this way avoids the need for each rule to provide explicitly whether the parties are to be free to agree to an alternative procedure.
18. The mandatory rules are provided in key areas of the process to ensure the smooth and efficient running of an arbitration and to reduce the prospect of delay. If an arbitration is not conducted in accordance with the rules which apply to it (including all mandatory rules), the arbitrator may depending on the breach lay himself open to removal and any award may be liable to challenge.
19. Section 8 is crucial to the way in which the Bill is intended to operate. Parties are to be free to make their own arrangements by agreement on matters covered by default rules. The default rules will apply only where there is no such agreement. Section 8(2) to (4) makes detailed provision making clear that the parties can agree to vary any or all of the default rules (usually before or after the arbitration begins).
20. So, for example, if we take default rule 15(2) - which allows an arbitral tribunal reconstituted after a tribunal member's tenure ends to decide if any previous proceedings or awards are to stand - the parties may instead agree the extent to which matters are to stand between themselves and direct the reconstituted tribunal accordingly.
21. To assist the courts, the rules which require the court to sist legal proceedings and to enforce awards, are also applied by section 6(2) to arbitrations seated outside Scotland.
Consultation Questions
Q4: Do you agree that the structure of the Bill, and in particular the categorisation of mandatory and default rules, will be helpful to the users of the legislation?
Q5: Should any other rules be mandatory?
If you answered "Yes", which ones and why?
Q6: Should any of the mandatory rules be removed from the list to become default rules?
If you answered "Yes", which ones and why?
Q7: Should there be other consequences of failing to comply with a mandatory rule?
If you answered "Yes", what should these consequences be?
Statutory arbitration
Section 9 - Statutory arbitration: special provisions
22. The Bill interacts with various other Acts (and subordinate legislation) which provide for particular arbitration procedures for particular statutory purposes. While the Bill policy is not to interfere with this specific legislation, it is also to allow parties to those arbitrations the benefits of the procedures set out in the Bill if they augment and enhance the statutory provisions.
23. The Bill provides that where a dispute on a particular matter is referred to arbitration under such legislation, the Bill will apply to any arbitration under that other legislation, as if the reference to arbitration was as a result of an agreement between the parties. But if the other legislation makes provision which is inconsistent and/or incompatible with the Bill, that other legislation should prevail.
Section 10 - Power to adapt enactments providing for statutory arbitration
24. The subordinate legislation powers in section 10 allow the Scottish Ministers to modify the rules (and other Bill provisions) as they apply to statutory arbitrations and to amend any enactment which provides for arbitration to satisfactorily apply the rules (or other Bill provisions) to arbitrations conducted under that specific legislation.
Recognition and enforcement of New York Convention awards
25. The Bill repeals and re-enacts section 2 onwards of the Arbitration Act 1975 which provide for the enforcement of New York Convention awards in Scotland. Such awards are made in pursuance of an arbitration agreement in a territory or state (other than the UK) which is a party to the New York Convention.
Section 11 - New York Convention Awards
26. The awards recognised or enforced are in pursuance of an international arbitration agreement which is in writing (unlike such agreements domestically which can be oral).
27. The award is treated as made at the seat of the arbitration regardless of where it was signed, despatched or delivered to any of the parties to avoid difficulties which have arisen in the past where the seat of an arbitration was held to be where the award was signed. The place of signing will have no legal consequence.
28. If the Queen by Order in Council laid in the Scottish Parliament declares a particular state is party to the New York Convention, so long as the relevant Order is in force, this is to be conclusive evidence that the state in question is a party either in respect of itself or any specified territory for which it is responsible. This goes beyond the similar power in section 7(2) of the 1975 Act by providing the state may also be declared to be party to the Convention in respect of any specified territory.
Section 12 - Recognition and enforcement of New York Convention awards
29. New York Convention awards are recognised as binding on the parties between which they are made. Such an award is therefore capable of being relied upon by those parties as a defence, set-off or in any other way in any legal proceedings in Scotland.
30. The court can order that such an award is enforceable in the same manner as a judgement or order of the court to the same effect.
31. As an alternative a New York Convention award will continue to be enforceable in accordance with the general law of diligence 4 by summary diligence on the back of an arbitration agreement containing consent to registration of the award in the Books of Council and Session for execution where the award is so registered.
Section 13 - Refusal of recognition or enforcement
32. The Bill allows the court to refuse to recognise or enforce the award only if the person against whom enforcement is sought can prove certain matters in accordance with section 13.
Section 14 - Evidence to be produced when seeking recognition or enforcement
33. A party is obliged to provide a duly authenticated original award and the original arbitration agreement, or duly certified copies thereof. Where the award or agreement is in a foreign language, the party is also obliged to produce a translation of it which has been certified by an official or sworn translator or by a diplomatic or consular agent.
Section 15 - Saving for other bases of recognition or enforcement
34. The Bill preserves the rights of a party to rely upon or enforce an award other than awards under the Bill.
Supplementary
Section 16 - Prescription and limitation
35. Both positive and negative prescriptive periods are interrupted by arbitration. By amending the Prescription and Limitation (Scotland) Act 1973, the Bill aligns the date deemed to be the date of judicial interruption with the 'commencement' date of the arbitration (see Scottish Arbitration Rule 1). It substitutes the definition of "preliminary notice" in the 1973 Act to that effect.
36. Currently, the running of the limitation period is not interrupted by arbitral proceedings. The Bill makes provision to alter the limitation rules so that limitation of actions is interrupted by recourse to arbitration. The Bill provides that the date of the interruption of the running of the limitation period is the "commencement" date of the arbitration. Limitation will continue as at present not to prevent recourse to arbitration.
Section 17 - Amendment of Conveyancing (Scotland) Act 1924
37. The consequential amendment allows an award ordering a decree of reduction to be recorded in the Sasine Register (see Scottish Arbitration Rule 47(3)). Note that such an award cannot be granted where a court could not grant the equivalent award - which will protect the property rights of third parties).
Section 18 - Arbitral appointments referee
38. The Scottish Ministers are given the power to specify by order subject to negative resolution procedure in the Scottish Parliament who is to be an arbitral appointments referee. That referee will have a role in relation to cases of default in the default appointment procedure for arbitrators implied by the Bill. Where an equivalent body has been specified in the arbitration agreement then this will prevail over a statutory referee.
39. To be designated as an arbitral appointments referee, it is intended that bodies will have to demonstrate (a) a track record in supplying arbitrators; (b) the provision of suitable training courses; (c) the regular assessment of arbitrators' procedures; and (d) the provision of disciplinary procedures. In this way, the quality of arbitrators will be assessed and maintained.
Section 19 - Arbitrability of disputes
40. See paragraph 7 above. The Bill makes clear however that it does not make any dispute arbitrable which would not otherwise be capable of arbitration under Scots law.
Final provisions
Section 20 - Transitional provision
41. The Bill will not apply retrospectively to either voluntary or statutory arbitrations. Further detailed savings and transitional provisions may be set out in subordinate legislation.
Section 21 - More definitions
42. Section 21 sets out more definitions. A comprehensive list is set out in the index at the end of the Bill.
Section 22 - Ancillary provision
43. The Bill gives the Scottish Ministers power to make supplementary, incidental, consequential or transitional provision by freestanding order to implement the Act.
Section 23 - Orders
44. Any Ministerial power under the Act to make orders will be exercisable by statutory instrument. This section makes further provision for the relevant powers and procedures.
Section 24 - Crown application
45. The Act will bind the Crown.
Section 25 and schedule 2 - Repeals
46. Most of the repeals reflect the consolidation and re-enactment of equivalent provisions in the Bill. The Arbitration Act 1950 which provided for the enforcement of the older Geneva Convention on the enforcement of foreign arbitral awards is repealed insofar as it continues to extend to Scotland. It is now superseded by New York Convention, and the provisions implementing that Convention in sections 11 to 15 - every contracting state to the Geneva Convention has now ratified the New York Convention.
Stated case procedure
47. The ability to state a case on point of law at any stage of an arbitration under section 3 of the Administration of Justice (Scotland) Act 1972 is to be repealed.
48. Ease of access to the Stated Case procedure has caused parties to view arbitration in Scotland as a process where delays can occur frequently since it is thought to be too easy to identify possibly spurious points of law for referral, thus delaying the arbitral process. The costs of the Stated Case procedure have also led to concerns, involving as it does recourse to the Court of Session. Lord Hope, in ERDC Construction Ltd v HM Love & Co Ltd (No 2) (1997 SLT 175), gave the view that: "Excessive use of this procedure is liable to bring the whole process of arbitration into disrepute". He went on: "If arbiters are to have the confidence which they require to simplify and accelerate procedure in such cases, they ought not to be exposed to the risk of challenge to their decisions by means of the cumbersome and time consuming procedure of a stated case". A limited appeal procedure to challenge an award for error of law is proposed instead (see rules 56 and 57). There are also two minor repeals as a consequence of the repeal of Stated Case procedure.
The UNCITRAL Model Law
49. Among the repeals are the UNCITRAL Model Law provisions contained in section 66 of and Schedule 7 to the Law Reform (Miscellaneous Provisions) (Scotland) Act 1990.
50. Alternate approaches were considered. Instead of the repeal it might be possible to amend the 1990 Act to allow parties to continue to be able to opt in to the existing 1990 Act provisions ( i.e. the Model Law as modified for Scotland), but no longer to apply them automatically to international commercial arbitrations. We have not proposed this approach because we consider it would be confusing to allow the Model Law to remain on the statute book. The important thing is that the Bill retains the principles behind the Model Law. Parties will of course be able to use their arbitration agreements to adopt the Model Law as the basis for their arbitration in preference to the default Scottish Arbitration Rules in the Bill (and which should also in future fill some gaps in the Model Law such as the lack of powers to award damages and interest). Parties could also adopt the adaptation of the Model Law in the 1990 Act even if it has been repealed.
51. An equivalent of the 1990 Act provisions could be set out in a schedule to the Bill. But again this could lead to confusion between provisions, as might for instance the inclusion of a non-statutory code such as the Scottish Arbitration Code.
Consultation Question
Q8: It is proposed that section 66 of, and Schedule 7 to, the Law Reform (Miscellaneous Provisions) (Scotland) Act 1990 be repealed so that the UNCITRAL Model Law will no longer explicitly be part of the law of Scotland. Do you agree?
Section 26 - Commencement
52. The Bill makes provision for commencement of the provisions.
Section 27 - Short title
53. The Act will be called the Arbitration (Scotland) Act 2008.
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