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Annexe E: LIST OF WRITTEN EVIDENCE

SUBMISSION FROM ACAS

1. I refer to your letter dated 23rd March 2009 and thank you for asking Acas to submit evidence in relation to Stage 1 of the Arbitration (Scotland) Bill.

2. Acas is renowned for its experience and skill in dispute resolution and has been active in this sphere of activity since 1975.

3. The dispute resolution service provided by Acas is aimed solely at the resolution of workplace disputes either of an individual or collective nature. Acas arbitration was established under the TULRA 1992 legislation [s212 and s263(6)]. These sections indicate that the Arbitration Act 1950 does not apply to Acas arbitrations or CAC decisions.

4. Acas offers a range of ADR services which include: conciliation in individual rights issues; collective conciliation in workplace disputes; arbitration and collective mediation in workplace disputes and individual mediation to resolve workplace issues. The aim of all of these services is to resolve workplace issues without the need for litigation. Acas deliver arbitration and other ADR in a variety of workplace situations. Acas collective conciliation and arbitration is sometimes specifically written into workforce agreements as the final stage in the dispute procedure.

5. Acas arbitration is morally but not legally binding. Parties have historically accepted this stricture and have implemented the arbitration awards.

6. One exception to the morally binding nature of Acas arbitration exists in Scotland. Acas is charged with resolving all collective disputes in the Scottish Prison Service. Arbitrations undertaken under this provision is contractually binding on prison officers.

7. Acas supports and delivers arbitration it is always our aim to resolve workplace issues without the need to resort to arbitration. When a request for arbitration is made Acas always first engages with the parties in collective conciliation. When discussing the issues in collective conciliation Acas has a twofold aim. Firstly to try to resolve the dispute at this stage and secondly, failing resolution, to establish agreed terms of reference for the arbitration. Engaging in this process facilitates agreement between the parties in the majority of cases and therefore arbitration is not necessary.

8. Acas would be happy to share our experience of workplace dispute resolution with the Committee should it feel our input would be of value.

9. Acas understanding is that the Arbitration (Scotland Bill) is being introduced to put the majority of general Scots law of arbitration into a single statute but that this relates to arbitration that might arise in civil legal proceedings, commercial disputes, international disputes and in domestic circumstances. It will therefore not impact on the work of Acas in the dispute resolution arena.

Frank Blair, Director, 20 May 2009

SUBMISSION FROM RICHARD N.M. ANDERSON F.C.I.Arb

INTRODUCTION.

1. This Bill, which the Sponsors have persuaded the Ministers to adopt and which has now been assigned to the Economy, Energy and Tourism Committee, has as its stated aims and objectives:- (1) the consolidation of existing arbitration case law; (2) an improvement in the use of domestic arbitration in Scotland; and (3) the attraction of international arbitration to Scotland. These are laudable aims and objectives and in my view the real issue is whether this Bill adequately meets those aims and objectives and whether or not this Bill should be brought into law in its current form. In my view, for the reasons set out below, it should not be.

IMPLEMENTATION

2. A leading international practitioner in arbitration recently said to me “Why should I put forward Scottish Arbitration as a recommendation to my clients when I do not know what that involves and I have heard no reports as to its efficacy”. That would appear to be an entirely understandable approach but it does underline what I take to be a fact of life in international arbitration which is that a country really only gets one chance at ‘making its name’ on the international arbitration scene. Accordingly, it is my view that it is vital that we “get it right” with this Bill. If the general view is that this Bill will do that job then the Bill could be implemented. If, however, there are some doubts about that then in my view the Bill should be postponed until it is in a condition whereby we are likely to “get it right”. It would be a bed, probably fatal, tactic in my view to introduce this Bill and then incessantly ‘tweak’ the legislation in an attempt to ‘get it right’. It is my view, for the reasons set out below, this Bill should be postponed for a brief period.

THE “CHAIN” EFFECT

3. It also appears to me, as a practitioner in arbitration in both Scotland, England and abroad, that there is a ‘chain’ or ‘link’ effect here in the sense that if arbitration can be seen to be very effective domestically in Scotland then that of itself is likely to attract international arbitration. I now turn, therefore, to consider the extent to which this Bill is likely to improve the use of domestic arbitration in Scotland. I do so by reference to an example.

DOMESTIC ARBITRATION IN SCOTLAND

4. I propose here to take the example of a company which undertakes to carry out a substantial body of work for another company. For their contract, they use a Standard Form which contains an arbitration clause (although the objective of the Bill, of course, is that, even without that, in the event of a dispute the Parties would chose arbitration over litigation). This particular contract represents virtually the entire turnover of the company involved. So far as the company placing the contract is concerned, their relationship with their Client alters from a fixed price to a cost plus basis and they decide to take back the work in order to make a greater profit from it. The company affected – now financially stretched in that virtually a whole year’s turnover has been expended on this job - raises a court action alleging repudiation of their contract. Because of the arbitration clause, the court action is sisted (paused) to allow an arbitration to take place (again, the objective of the Bill would be to create a situation where the Parties would have chosen this in any event).

5. From the point of view of the disinterested bystander (and society as a whole), this dispute should not have taken long to resolve. It was referred by a Court to an Arbiter who ought simply to speedily arrive at his determination which, if necessary, could be reported back to the court. From the point of view of the company placing the work, they are presumably interested primarily in obtaining natural justice and a fair decision as to whether or not they have repudiated the contract. From the point of view of the company given the work, however, this arbitration is more serious – a successful outcome would allow the company (some 50 employees) to recover its losses and continue in business. An unsuccessful outcome in the arbitration, they would have to accept, would mean the end of the business and the company. For all concerned, the objectives of this arbitration (and, through it, any international arbitration attracted) must be a reasonable procedure; a reasonable timescale; and at a reasonable cost.

How, then – using that example - are these issues to be addressed in arbitration to-day and as a result of the introduction of this Bill in its present form?

PROCEDURE

6. Believe it or believe it not, but when arbitration underwent a resurgence in the last century, it was regarded as a speedy method of dispute resolution which was far better than the cumbersome method of litigation. As the century developed, however, it was arbitration which became much more cumbersome to the point where arbitration became worse than litigation and in drawing up contracts for clients many lawyers preferred litigation in the commercial court to arbitration and struck out arbitration as a choice.

7. The reason for this, I believe, is to be found in a book recently written by J Mariott QC, a leading practitioner in arbitration in England in which he states: “There is strong anecdotal evidence to suggest that the standards in domestic arbitration in England, particularly in the construction industry, declined during the 1980’s. Despite pleas to the contrary by very distinguished judges and frequent public pronouncements to the same effect by other leading figures, Arbitrators continued to conduct proceedings slavishly following High Court procedures.” Similar pronouncements have been made by leading Judges in Scotland to no effect.

8. The fact of the matter appears to be that while litigation tends to involve something of a learning curve for all involved until the dispute is worked into a form suitable for decision, increased specialisation in the areas subject to arbitration allows for unlimited ‘nitpicking’ as to the contents of the reference to arbitration.

9. In the example given here, the Arbitrator was unable to resist adopting the mantle of a Court of Session Judge. He insisted upon detailed written pleadings in the arbitration and then pronounced those pleadings to be inadequate before throwing the whole arbitration out without a single word of evidence being heard. To some extent, situations such as this could be improved by better training of Arbiters but in my view the real solution – if international arbitration is to be attracted – is to address this problem in the legislation.

10. My own personal view is that the Arbitration (Scotland) Bill in its present form has not been well drafted. Amongst other things, I am of the view that the Arbitration Rules should be in an Act and not in a Schedule. This Bill, in my view, is a pale shadow of the excellent Arbitration Act to be found in England.

However, the point is that even with that excellent Act in England, my experience in England – supported by strong anecdotal evidence – is that there is virtually no domestic arbitration taking place in England.

11. What is required here, therefore, is for the Scottish Bill to ‘leapfrog’ the English Act. The Scottish Bill must go ‘one better’ and provide the solution to this problem which will allow domestic arbitration to take off in Scotland and to be a success there. This Bill simply does not do that. There is no shame in that, in my view. Over the 20 years of attempted reform some ‘reform fatigue’ appears to have set in. In England, the combined efforts of the best brains at the English Bar and the best Parliamentary Draftsmen in the Westminster Parliament took about six attempts before they got their Act through. It is unlikely that Scotland could achieve this in ‘one go’. This Bill, in my view, should be the subject of wider consultation and a redraft

TIME

12. A major consideration in arbitration is the time it takes. Adopting procedures such as those outlined above tends to drag matters out. In the example given – through no fault of the Claimant who has pursued his Claim as hard as he could – the matter has so far taken 16 years.

13. The best solution here, in my view, is for the legislation to specify the time involved. As a general principle, arbitration should be consensual and if the parties wish to go down the traditional route and leave the arbitration open-ended so far as time is concerned then that should be their choice. However, it is my view that for domestic arbitration to work in Scotland (and for international arbitration to be attracted to Scotland) there must be a procedure introduced within an Act itself which allows the Parties to choose a framework as regards time. It will not do, in my view, to suggest that there will later be some other regulations drafted which can be attached to this Bill. In my view, this aspect must be a ‘mainplank’ of this legislation and has to be found within the very body of any Act. This Bill, in my view, should be the subject of wider consultation and a redraft.

COSTS

14. Another major consideration in arbitration is the cost involved. Arbitration is not a free service and professional representatives require to be paid. There is nothing wrong with the principle that expenses should follow success in the outcome of the arbitration at the end of the day. However, if arbitration is to be attractive – both domestically and internationally – then the costs of arbitration must not be allowed to run away with themselves. In the example giver, the Arbiter made an award of expenses for a Minute of Amendment to the Pleadings (which did not alter the legal case made in any way and was simply a ‘tidying up’ exercise) which the Arbiter allowed to be taxed and which produced a bill of £196,000 which required to be paid before the arbitration could proceed.

15. In its present form the Bill appears to simply make the rather clumsy provision that “expenses will be taxed by the Auditor of the Court Of Session”. Why should that always be the case? Why should that high scale always be used? Why should an Arbiter not have the option to use the lower Sheriff Court scale or even employ a Cost Accountant and arrive at his own determination of costs (capped if necessary). In my view, in order to make arbitration attractive both domestically and internationally, this aspect of cost requires to be addressed. This Bill, in my view, should be the subject of wider consultation and a redraft

SUMMARY AND CONCLUSIONS

16. As noted above, the aims and objectives of this Bill are very worthwhile and the exercise should not be lost sight of. The simple fact of the matter, in my view, is that the Bill in its present form will not achieve the declared aims and objectives [bar aim or objective (1)]. In my view, it would be a major tactical error to try to introduce this Bill and then try to amend it later. The Bill itself, in my view, represents a good foundation and with further consultation and redrafting – which could perhaps be achieved in as little as six months – offers the potential for achieving its declared aims and objectives which would benefit Scotland.

Richard N.M. Anderson F.C.I.Arb
Advocate, barrister and Attorney (NY)
14 May 2009

SUBMISSION FROM JAMES M. ARNOTT

THE OBJECT OF THE BILL

1. To attract arbitration work from within and outwith Scotland by effecting procedural changes to cure long standing weaknesses in the common law powers of the arbitrator and to make improvements to eliminate other perceived defects.

THE INVITATION TO MAKE SUBMISSIONS

2. The five points identified by the Committee in its call for written evidence are a helpful statement of some outcomes and methods of curing the long standing weaknesses and defects, but in themselves do not fulfill the object which I assume has to be the only object of the bill, unless an element of compulsion is agreed as being necessary.

THE BASIC NATURE OF ARBITRATION

3. Arbitration is a consensual process of dispute disposal entered into voluntarily or not at all. Upon that hypothesis work will only come to arbitration in Scotland if it is made attractive to the customer. Otherwise, the Bill (the eventual Act) will not be used. It will not attract new work unless its provisions reflect the interests of the customer in a recognizable manner or if statutory compulsion to use it is introduced as an alternative to other forms of dispute disposal. I have referred in my letter of 14 November 2008 to Alison Dewar (attached) to the success of adjudication in the construction industry as a paradigm, and I have suggested that the reasons for its success are carefully considered. Construction arbitrations were notorious for their prolixity, complications and very heavy expense particularly in hospital contracts. A dispute disposal process such as adjudication¾you can call it what you like e.g. new, scheme or code arbitration¾would, under a new scheme, be a right exercisable by the parties but not a mandatory requirement and would give the necessary lead using the metaphoric combination of the carrot and the stick.

THE PERCEIVED WEAKNESSES AND DEFECTS OF ARBITRATION AT PRESENT

4. Arbitration at the present time is considered as being

  • Slow

  • Complicated

  • And Expensive.

  • The decision is not final.

  • It is not a one-stop shop.

  • Money does not change hands immediately upon the issue of the decision and expenses keep mounting and can run for years and any net recovery can be derisory, particularly if there is inflation¾as it is predicted there will be in the medium term¾and a challenge of the arbitrator’s decision goes to court, where crime has to come first.

In brief, the current arbitration system does not meet the customer’s cash flow needs¾which are a vital consideration.

THE PRESENT CHOICES

  • The courts

  • Mediation

  • Private negotiation

  • Arbitration

THE EXISTING BARRIERS

5. The thought of arbitration repels, instead of attracts, users. As it is a voluntary process, which is now little used, any new initiatives have to overcome ingrained opposition. Unless an impetus is injected by the Bill and followed through, that opposition will not be overcome.

DISPUTE DISPOSAL

6. For the customer, arbitration is rather like going to the dentist, only when strictly necessary and in great pain but the sooner you go the better. However that is the point at which the analogy breaks down, because there is no guarantee that arbitration will end the financial pain. The patient is not in control of the proceedings and relies upon the skill of the dentist. So it is with dispute disposal, but the arbitrator’s role ceases to be comparable with the dentist because there is another party who typically has to be dragged along. His consent is somewhat qualified by obvious reluctance or by less than full co-operation. The arbitrator has to be careful. He cannot readily assume that he is dealing with a recalcitrant respondent (for fear of challenges). Arbitration only works if there is genuine co-operation or, if, in place of the present arbitration system, a new system is put in place to which both parties will sign up, and in which it is accepted that a dispute disposal process fails unless it is dynamic.

COMPULSION

7. There has to be some degree of compulsion if a dispute disposal system is to work properly. By this, I mean eradicating the perceived defects of the present arbitration system. How can this be achieved in the interests of both parties, the arbitrator and the process itself thus restoring the reputation of arbitration?

THE REFORMS NEEDED

8. The arbitrator has to be given not just powers but obligations.

9. The parties must also be subjected to strict disciplines.

10. The parties have to accept the decision of the arbitrator.

11. Money has to change hands immediately upon the issue of the decision.

12. The parties have to accept at the outset that the arbitrator may get it wrong (as might a judge) on both the facts and the law, and that they have submitted to the process in the overriding interest of getting a decision quickly and cheaply. If that is not their real purpose, they have failed to understand the disadvantages of more traditional systems or, more seriously, they are intent upon dilatory tactics. If the parties want justice from on high i.e. after full scrutiny of the facts and the law using the law of evidence and procedure and a full opinion and judgment, they can go to court and take their turn in the queue, bearing in mind the chance of appeals, the very significant expense and delays, with much of the expense irrecoverable, even if the court action is won.

13. The Bill does not contain a self-contained code (see below) but the Government sees the advantages of having a self-contained code in the interests of accessibility and simplicity. It would be a framework binding not only the parties but also the arbitrator. I make no apology for again drawing upon the example of adjudication as a useful paradigm. As to why I see clear advantages in having a code, and why the Bill does not contain a recognizable code, see below.

14. After the money has changed hands, a challenge- on any ground- of the decision can be mounted in court as in construction adjudication which has now been up and running for over ten years and where, at least according to anecdotal evidence, the decisions of adjudicators (although not always perfect and fully acceptable) have kept the wheels turning and have proved a lot better than a long legal battle. Upon this hypothesis, neither an appeal on a point of law nor a challenge upon the blunt shortly stated grounds in the 1695 Articles of Regulation or the somewhat wider and less precise serious irregularity ground would be necessary, as the re-run in court would cover both grounds.

15. The rules upon expenses in adjudications should apply. Each party should meet its own expenses and the arbitrator should decide which party should pay his expenses in full or in part. This incentivises the parties to keep their own expenses down and reduces point-scoring procedural arguments.

16. In the 1960’s,the view was held that, at common law, the arbiter (as he was called) was obliged to deliver his final award within a year and a day or within such shorter period as had been agreed, and that otherwise his remit fell, on the ground that he had not exhausted it. It seems likely that a year and a day was regarded as being long enough in practice and it seems probable that the same view would hold to-day. However, subsequent to the 1960’s that view was departed from. In my experience the point was never raised and in practice the arbitration just went on. It is highly possible that this is one reason why arbitration got a bad name and has fallen by the wayside. On that assumption, there would be a strong case for a statutory maximum period upon the expiry of which the remit of the arbitrator would drop, the arbitrator would have no right to payment, and the parties would have to dispose of their dispute by other means. The point is reinforced, in my view, by the use of 28 and 42 day periods in adjudication only, unless both parties and the adjudicator jointly agree upon an extension prior to the expiry of the statutory periods. Arguably, that is too weak and old bad practices will revive. Much depends upon the arbitrator but it might protect and constrain him from too much pressure if provision was made that extensions outwith the statutory periods should only be agreed in exceptional circumstances with some definition of ‘exceptional’.

17. If the parties want to see the arbitrator’s reasons for his decision, he may deliver them after issuing his decision, as in adjudication.

HOW TO ACHIEVE THIS REFORM

18. For domestic arbitrations, reform could be achieved

19. By introducing a new scheme which supersedes and replaces:-

(i) All existing statutes from the 1695 Articles of Regulation

(ii) All existing common law falling within its ambit.

(iii) Apply the lessons learned from the past, and the refreshing lessons learned for adjudication.

20. By persuading potential users (customers) of its merits by introducing it to trade, industry, commercial and professional organisations in the first instance.

21. By emphasizing the recognition by Government of the crying need to introduce a system designed to meet the customer’s requirements and, obviously, to listen to their response.

22. By emphasizing that the scheme does not insist upon being used; it confers a right to do so which need not be exercised, as is the case in construction adjudication.

23. By setting limits on the application of the scheme.

24. Old-style arbitration cannot be banished, because it rests on the consent of the parties to settle their dispute privately. Use mandatory rules to tidy it up.

For international arbitrations, reform could be achieved

By providing an obvious gateway in the Bill, for the reasons which I give below.

THE COMMITTEE’S FIVE POINTS

Q1. The need for, and value of, a consolidated and codified statutory Scots arbitration law for domestic and international arbitrations

25. The Bill does not re-state and does not replace the common law which is still to be found in old case law and old text books, old with the exception of the article by The Rt. Hon. Lord Hope in The Stair Memorial Encyclopedia. Classically, the Bill as it presently stands may come to be described as a statutory intrusion and not a scheme or code, and certainly not as a self-contained all-embracing scheme. I assume that introducing such a scheme is the aim of the Scottish Government in achieving accessibility and simplicity.

26. Unfortunately, the Bill confuses procedural with substantive law. The court may competently decide points of foreign law just as an arbitrator may. See Rule 40(1) in schedule 1, part 5.

27. The Bill omits to make good the recognized long standing weaknesses in the arbitrator’s powers in a satisfactory manner. In relation to interest, the arbitrator interprets and applies the terms and conditions of the underlying contract and calculates the interest due but he cannot award the sum so calculated because at common law he does not have power to do so. He needs statutory powers to do so. What the court has power to do is beside the point and, in any event, referring to the court at this stage buries the point in obscurity rather than expiscates the law. (Rule 47)

28. As regards damages (Rule 45(b)), an arbitrator may, at common law, find that a party is in breach of contract but he has no common law power to do the next thing, namely, calculate and award the damages. He needs a statutory power to do so.

29. As regards interim decrees, the arbitrator has no power to award them based on the common law hypothesis that the parties have appointed him to exhaust his remit, which is to decide finally all the issues submitted to him for a decision in a final award. Part awards encounter the same difficulty.

30. Provisional awards are not part of Scottish arbitration law although the same may not be true of England, and to introduce English terminology, particularly without any definitions, is to introduce a new dimension and source of debate. The introduction of any English procedure is likewise.

Q2 The economic benefits that will derive from a single statute incorporating a set of principles and rules to govern both domestic and international arbitrations

31. Statistical evidence of the economic benefits to the main centers of arbitration exists e.g. London. Professor Sir Alan Peacock delivered a paper ‘The Market for Commercial Litigation’ at a conference in Edinburgh organized by The Scottish Council for International Arbitration upon ‘International Arbitration and the Role of the UNCITRAL Model Law’ in 1993.

32. The aim is clearly desirable but is it achievable? I have felt from the start (see also my letter of 14 November 2008) that it is wise to respect the fact that that there are differences in the law and practice throughout the world, and not to lump domestic and international arbitration together. That is likely to be interpreted as a lack of openness and respect for the foreign party i.e. “If you are coming here, you will do it our way or not at all.” As I see it, all the foreign party wants to know is that the contract into which he has entered will be interpreted soundly using the legal principles of the system the parties have agreed should apply, and that the arbitrator, having done that (in accordance with rules settled upon by them and the international appointing authority, e.g. the I.C.C) and reached a decision, the local courts will support that decision. The international bodies such as the I.C.C. have their own rules which govern the procedure from A to Z and they seek assurance that their rules will be followed by the parties and that the process and decision will not be endangered by interference or worse from the local courts or organisations, so that any arbitration is not only a one stop shop but also an expeditious and final disposal.

33. On the other hand, do we really want to introduce into our domestic law a new ground of challenge, namely ‘serious irregularity’ which would now seem to be the mantra internationally? Plainly, in my view, that would be a mistake because that would open the door to challenges in court and defeat the object.

Q3. The principle of developing a set of rules based on the United Nations Commission on International Law (UNICITRAL) Model Law for arbitrations in Scotland

34. The UNCITRAL Model law on Arbitration was introduced because of a profound distrust, if not a fearful apprehension, that the local courts in a foreign jurisdiction in which the arbitration had its seat would support the home team, who would possibly be the state or an offshoot. If Scotland wants international work, so the argument runs, it has to show that it is not such a jurisdiction and that demonstrably politics and the judiciary are kept well apart. I have no objection to attracting non-Uncitral arbitrations from abroad but it has to be shown positively what Scotland offers.

35. This not just a matter of presentation but also a matter of essential, demonstrable simplicity and compatibility, which means eschewing the old Scots common law on arbitration and not introducing incompatible statutory provisions if there is any chance of them conflicting with the rules of the London Court of International Arbitration, International Chamber of Commerce, American Bar Association, or International Bar Association¾as well as the UNCITRAL model law itself.

Q4 The appropriateness of the designation of the Scottish Arbitration Rules contained in Schedule 1 as either “mandatory” or “default”

36. I do not like the use of both default and mandatory rules, nor the present selection of mandatory and default rules as set out in the bill, primarily because there may be unintended consequences which produces uncertainty and delays in securing a clean appointment. When so many bodies have their own rules, why introduce rules on an optional basis? Arguably, discussions on rules do not necessarily lead to a clear outcome. It is reasonably foreseeable that such discussions could get in the road of the appointing authority, the arbitrator and the parties, both at the outset and later.

37. My instinctive view is that the only rules should be mandatory rules, but I am content to hear submissions to the contrary to try and understand the other side of the argument.

38. For a new system with minimal rules which has apparently worked very well for the construction industry, see adjudication.

Q5. The extent to which the provisions in the Bill, particularly the Scottish Arbitration Rules, will ensure fairness and impartiality in the arbitration process, minimise the expenses of an arbitration and promote efficiency in the arbitration process

39. Existing Scots law is redolent with legal authority but the process chosen dictates what is or is not fair in the given circumstances. In the interests of efficiency, sacrifices have to be made and the parties have to understand and accept this.

40. Impartiality (and independence) can be preached but it is down to all concerned to play their part.

41. There is room for a practice manual.

CONCLUSIONS

42. Having spent many years seeking a Bill, I am delighted there is one. My personal views reflect my 40+ years of experience and now that I have fully retired and have no axe to grind, I hope my views are dispassionate and objective. The uninitiated customer is not well placed to know what is best and he will take advice, which will vary, but above all he will look for simplicity, certainty, speed and cheapness. I respectfully submit that the responsibility presently shouldered by the Scottish legislature is best discharged by facing up to the defects which I have described, by cutting through the tangled undergrowth and by introducing a new, fully fledged simple system for domestic arbitrations for Scotland where most disputes are about modest sums and where parties cannot possibly bear the costs of an old fashioned arbitration. Such a system could be honestly marketed as being to the obvious economic advantage of all concerned.

43. The market for international arbitrations as I hope I have already made clear is quite different and requires separate treatment. The reference to an appointments referee makes me wary that there is a public sector agenda and an alert foreign party might be apprehensive and turn away, thus killing the goose which lays the golden eggs.

James M. Arnott T.D.,B.L.,W.S.

5 May 2009

SUBMISSION FROM CHARTERED INSTITUTE of ARBITRATORS (CIArb)
SCOTTISH BRANCH

Introduction

1. The Committee has sought written evidence on the general principles of the Bill and this is the CIArb’s response. We strongly believe that the Bill is an important and worthwhile measure inherently designed to bring positive economic benefit to Scotland.

The CIArb has approximately 12,000 members in more than 100 countries across the world and CIArb members and/or branches have been closely involved in preparing new arbitration legislation in (among many others) England, Ireland, UAE, Malaysia and Bermuda. In addition, since the CIArb moved to a system of electing its President, two of the first five elected Presidents have been Scots.

The CIArb not only responded to the June 2008 Consultation Questionnaire, but also provided very extensive and detailed drafting and other comments covering the entire Bill. A 3-person, highly-experienced drafting sub-committee was formed and was assisted by valuable contributions from members of the Branch Committee and others. These submissions were discussed in detail with the Justice Department team in October 2008 and thereafter excellent progress was made; as a result the published Bill incorporates a great deal of the CIArb’s substantial worldwide arbitral expertise and the CIArb has already commenced the process of “selling” the Bill to domestic and international parties.

The following submission addresses, first, the five issues raised by the Committee, then other matters.

The need for, and value of, a consolidated and codified statutory Scots arbitration law for domestic and international arbitrations.

2. Scottish arbitration law suffers from numerous inherent problems, not the least of which is the difficulty of ascertaining what the law in fact is in some respects, given the antiquity of the precedents. Some Scots arbiters sit with a solicitor as Clerk to advise on the law, a process unknown in England and elsewhere.

Typical of the many shortcomings of the present law are the following1: (i) the internationally-accepted principle that an arbiter can determine his own jurisdiction including the validity of a referral to arbitration is expressly rejected in Scotland2; (ii) contrary to international norms, there is no inherent power in Scots law for an arbiter to award any of damages, expenses (costs) or interest; (iii) it is unclear in Scots law whether an arbiter has immunity from suit (as Judges do) as is the norm in most common law, and some civil law, countries; (iv) there is no legal presumption in Scots law that an arbiter may make a part (partial) or interim award3; (v) it is unclear whether an arbitration agreement is, as is the international norm, treated as a separate contract from its container contract, as recently confirmed in a landmark English case in the House of Lords; (vi) a party or his agent can be appointed sole arbiter4; (vii) the position regarding privacy or confidentiality of arbitration is unclear; (viii) whether not court rules of evidence must be applied is uncertain5; (ix) the currently-in-force (and almost universally unpopular) Stated Case Procedure is an anachronism6.

It follows, we submit, that these (and other) anomalies must be cleared up and that the law of arbitration be collected in one place, readily accessible by commercial parties and individuals. All the weaknesses, omissions and anomalies of the present domestic law have been dealt with in this Bill by modern provisions drawing on the most relevant and/or effective features of the Dervaird Bill (2002), the UNCITRAL Model Law, the UNCITRAL Rules, the UK Arbitration Act 1996 and other sources. The provisions of the Bill reflect, wherever possible, international norms in arbitration. However, importantly and as with the 1996 Act, the Bill rests on three founding principles which govern its operation, one of which is (as is the international norm) the minimisation of the role of the Court.

The Bill establishes a single regime covering both domestic and international arbitration. While some jurisdictions have separate domestic and international arbitration laws, we see no advantage and some disadvantage in this; legal advice to HMG at the time of drafting the 1996 Act7 was that to have different domestic/international regimes could infringe the UK’s obligations under the Treaty of Rome, so England has a unified regime8. In those jurisdictions with split regimes, difficulties can arise as to which one applies: for example, Daimler Benz AG is clearly German so an international regime would apply, but what about Daimler Benz (Scotland) Ltd or a Scottish-resident trading branch of Daimler Benz AG ? The far-preferable solution is, as in the Bill, to have a unified regime with a comprehensive yet flexible set of Rules allowing (for example) each of Daimler Benz AG and a private individual to choose the form of arbitration best suited to their specific individual needs.

Should Scotland not adopt the Model Law across-the-board rather than enact this Bill? The clear answer is “no”: (i) the principles of the Model Law are central to the Bill and there is nothing in the Bill which contradicts those principles; (ii) there are omissions in the Model Law requiring additional legislation to cover over9; (iv) the Model Law has been a notable non-success in its 19 years on the Scottish statute book10; (v) an informal survey of leading international arbitrators led to an 8-point list of the key features that a successful arbitration jurisdiction should have; the Model Law did not feature on this list and there is no evident causal link between application of the Model Law and the success of an arbitral venue. London, Stockholm, Geneva/Zurich and New York are all successful arbitral venues but have not adopted the Model Law; Singapore, Hong Kong, Vienna and Bermuda (all Model Law) are successful for other reasons. Germany, Australia, New Zealand, Malaysia, Denmark, India and Cyprus are all Model Law countries but see little international arbitration.

The economic benefits that will derive from a single statute incorporating a set of principles and rules to govern both domestic and international arbitrations.

3. Refer above concerning the Bill’s unified regime covering both domestic and international arbitration.

Engaging in disputes is essentially a non-economic activity; while monies might well be spent on fees and other costs, no dispute is a worthwhile or productive activity for commercial enterprises. At best, a party recovers monies to which it was entitled anyway, at worst the fruits of economic activity are lost even before the legal bills arrive. Further, for small and medium enterprises (SMEs) substantial management time, otherwise assumed to be economically productive, is wasted on conducting the dispute. It follows, we submit, that efficient, cost-effective dispute resolution processes are essential to minimise such wastage, and, therefore that one of the fundamental foundation stones of a sound economy is the availability of effective dispute resolution processes, which provide civil justice between disputing parties in the most efficient manner possible11.

In almost all countries of the world, civil justice is primarily dispensed by the courts but, equally, and since time immemorial12, all civil justice systems (and, in modern times, ECHR jurisprudence) recognise the right of disputing parties to resolve their disputes privately in a manner of their own choosing. Arbitration is the principal alternative to the courts, and the main method of choice for commercial people across the world, being widely practised, for example, in commerce, landlord and tenant disagreements, agricultural, construction and consumer disputes. Arbitration is often preferable to litigation for many reasons, including the privacy of proceedings, the confidentiality both of matters raised and of documents, cost-effectiveness, time-effectiveness, freedom from the often restrictive rules of the courts, the ability to appoint an arbitrator with subject-matter expertise, the ability to agree efficient, tailored procedures, and the ability to agree the most convenient place for arbitral hearings etc to be conducted13. This is as true for domestic cases as it is for international ones. Furthermore, when arbitrations take place, such cases are removed from the Court, freeing up Court time and therefore reducing pressure on the public purse.

In addition, and critical for international trade, arbitral awards are enforceable in 144 foreign jurisdictions whereas court judgments are, with a few exceptions (e.g. within the EU), not enforceable cross-border. Even between Scotland and England, more so within the EU, enforcement of judgements can be a difficult, time-consuming14 and expensive matter.

This Bill has two principal aspects: first, it will permit domestic parties to choose to resolve their disputes privately, away from the glare of the public eye, under agreed procedures (e.g. giving short timescales and limited costs) with a chosen arbitrator. The Bill will also enable international parties to choose Scotland as an arbitral forum. Jurisdictions such as Singapore aggressively seek international arbitration business to boost their invisible earnings and the local economy. Scotland has the almost unique combination of a pleasant place, expert lawyers, reasonable hourly rates (much lower than London or New York), good venues and, above all, (once the Bill becomes law) a thoroughly up-to-date set of Arbitral Rules. Experience elsewhere suggests that with an appropriate and attractive legal infrastructure, Scotland could become a highly attractive place for international dispute resolution business. An authoritative survey15 has reported that adopting new arbitration legislation or significantly revising one’s regime leads to a very significant increase in arbitrations beingheld in a country16.

In addition to the general principles outlined above, arbitration has two main areas of economic benefit, one relating to domestic arbitrations, the other to international ones. For economic purposes, there is a critical distinction explained below.

Domestic Arbitrations

4. In a very recent and very typical court case in England17, the economic necessity for efficient dispute resolution was very clearly demonstrated. Mead was a small but growing building contractor driven into a Creditors’ Voluntary Arrangement (CVA), and to the brink of insolvency, by its client’s non-payment of bills. Had Mead folded, jobs would have been lost (with a consequent imposition on the public purse by way of unemployment and other benefits), both income and corporate tax revenues would have decreased, and a piece of the national economy obliterated. With an efficient dispute resolution process such as arbitration, cases such as Mead’s can be resolved quickly and cost-effectively and the supplier or sub-contractor paid with no threat of CVA or insolvency and therefore no threat to its contribution to the national economy. Court time in Scotland is severely limited; proofs or trials are commonly set a year ahead whereas an arbitration could start next Monday.

Similarly, in the early 1990s, the UK’s construction industry was close to collapse because cash was not moving down the contractual chain (client to main contractor, main to sub-contractor etc) and, in 2009, we can envisage much the same happening in commerce in general in the present economic climate. Unless suppliers and sub-contractors are paid, they will be very likely to go out of business, thereby not only depriving the economy of the fruits of their activities (production, taxes, the multiplier effect), but also increasing unemployment and the burden on the State.

In all such cases, it is not only the loss through insolvency of a single supplier or a sub-contractor which matters, but also (the “multiplier effect”) the loss of the economic benefits that company creates by purchasing (and by its employees purchasing) goods and services from others.

It follows that rapid, cost-efficient, effective means of dispute resolution are essential to economic well-being.

There is another way in which we can consider the economic benefits of arbitration: at present we believe that there are approximately +/-300 arbitrations in Scotland annually, comprising +/-50 commercial disputes, and +/- 250 consumer ones. We cannot establish a precise number since, by definition, arbitration is private and there are no comprehensive reported statistics. We can reasonably envisage (based on levels in England) a starting point, within a reasonably short time after the Bill has come into force, of 200 commercial cases, 250 small business cases and 500 consumer cases. If we assume five days in arbitration for a commercial case, two for a small business case and half a day for a consumer case, that gives 1,750 days of arbitrations compared to the existing 375, an increase of 1,375 days over present volumes. That would mean an additional 6 x 1,375 hours of court time freed up, i.e. 8,250 hours. In fact this figure should be greater, since a well-managed arbitration can be inherently more time-efficient than the court, so every arbitral hour should save >1 court hour.

Further, the cost to the parties of a day in court is very approximately 8 hours x £300 for an Advocate, 8 hours x £200 for a Solicitor, or a total of £4,000; we can reasonably suppose that in many arbitrations Advocates will not be required and the daily cost therefore immediately drops to £1,600; many arbitrations (particularly construction ones) are done with Quantity Surveyors or Engineers representing the parties at (say) £100-150/hour or +/-£1,000/day. We can therefore see a saving of between £1,000 and £3,000/day compared with court. Further, arbitrations will take less time when the arbitrator acts proactively, as the Bill encourages (and see below).

We have, therefore, 1,375 days of arbitration time (court time should be longer) with a daily saving to each party of at least £1,000/day, or more, over court costs, requiring to be factored up to take account of the fact that arbitration should be more flexible and tailored to the circumstances. This is why CIArb press releases referred to savings by disputing parties of millions of pounds in costs.

Further, empowered by the Bill and the forthcoming short-form Rules (see below), any appropriately-qualified person (whether lawyer, engineer, QS, architector other) will be able to set up an arbitration practice in his/her own area. This means that the spread of new business in Scotland need not be confined to thelarger cities. Disputes readily lending themselves to arbitration will arise in Brora, Ullapool, Fort William, Lerwick and Dumfries just as they will in Edinburghor Glasgow. The CIArb’s marketing strategy and member support infrastructure (training, technical updates, quality control) will support this.

International Arbitration

5. Imagine a German main contractor with a South Korean sub-contractor engaged on an infrastructure construction project in Lesotho; if they fall into dispute, where do they go to resolve it? The courts of Lesotho? No, not least because no judgement by any such court is enforceable outside Africa (and may have very limited enforceability even within Africa). The German courts? No, say the South Koreans (who might see this as far worse than an away football game). No, say the Germans too; we cannot enforce any judgement outside the EU18.

International Arbitration? “Yes”, say both: we can agree on all the main features of the arbitration including (i) venue (ii) language of proceedings (iii) the tribunal (iv) the arbitral law (v) the arbitral rules etc. Most importantly of all, an arbitral award19 rendered in any one of the 144 countries party to the New York Convention20 can easily be enforced (with minimal grounds for challenge) in any other of the 144 countries.

Can they arbitrate in Scotland? Yes, they will be able to do so under the 2009 Act. The UK is party to the New York Convention and the Act is already seen as modern, progressive, user-friendly legislation. Why should they arbitrate in Scotland instead of London? Three main reasons: (i) legal and related costs in Scotland are approximately 40% lower than in London; (ii) the Act has some innovative features not included in the (English) 1996 Act; and (iii) Scotland has many advantages over London, including better hotels, spectacular scenery, golf, whisky, bagpipes, friendly people, good lawyers, and world-class venues for the Hearings. Scotland is accessible, user-friendly, with a good, modern court system if it is needed, and a practical, hands-on reputation for ‘getting the job done’21.

As stated above, since arbitration is a private dispute resolution process, precise data on volumes are hard to find. We have calculated a figure of £250 million/year as being the value of international arbitration to London22. This covers tribunal costs, institutional costs and the parties’ legal and other costs. This is economic turnover, in real money, generated by arbitration practitioners in London.

Taking the population ratio as between England and Scotland, this suggests a potential for up to £25 million in new business in Scotland, but that would be at London’s legal rates; applying a 40% discount to convert London to Edinburgh/Glasgow rates brings us back to a potential for at least £15 million of new international arbitration business. Of course this will not happen overnight: international competition for this business is fierce, most notably the aggressive competition of recent years between Singapore, Hong Kong and Kuala Lumpur.

This new business opportunity for Scotland requires zero investment by the Scottish Government or taxpayer.

The principle of developing a set of rules based on the United Nations Commission on International Law (UNCITRAL) Model Law for arbitrations in Scotland.

6. As stated above, the principles, and much of the drafting, of the UNCITRAL Model Law have been incorporated into the Bill, much as into the 1996 Act. However the Bill will repeal the Model Law as it presently applies to international arbitration in Scotland, a decision which might appear controversial. In particular it might be argued that repeal will drive international arbitration business away from Scotland. We submit quite the contrary, because (i) there is almost no international arbitral business at present anyway, perhaps only 1 case/year (ii) there is no causal connection between a country’s adoption of the Model Law and its success as an international arbitral venue (see above) and (iii) international parties will respond positively (some have expressed interest already) to the availability of an effective arbitral venue with a sophisticated modern arbitration law and rules.

The appropriateness of the designation of the Scottish Arbitration Rules (SAR) contained in Schedule 1 as either “mandatory” or “default”.

7. Arbitration is, as stated above, an inherently flexible process offering the significant advantage of procedures being tailored to the requirements of each case. However, there are certain fundamental principles (e.g. those which flow from ‘natural justice’ or from ECHR Art.6 which cannot be ignored and, as a matter of public policy, are necessarily mandatory and this is common across the world. It follows that there must be mandatory and non-mandatory (i.e. “default”) rules, the latter to apply in the absence of agreement to the contrary by the parties, so that if the parties agree nothing or do nothing, they will still acquire a complete and comprehensive set of rules for the conduct of their case. However, if the parties have already agreed something else (except as to the mandatory rules) either by express agreement or by adoption of some other set of rules (e.g. ICC, LCIA or the Scottish Arbitration Code 2007), then that agreement will, where applicable, supersede the default rules in the SAR.

The division mandatory/non-mandatory derives from the UNCITRAL Model Law and is replicated worldwide e.g. in England, Hong Kong, New Zealand and Ireland.

The CIArb will shortly submit any revisions it recommends concerning which rules should be mandatory and which should be default rules.

The extent to which the provisions in the Bill, particularly the Scottish Arbitration Rules, will ensure fairness and impartiality in the arbitration process, minimise the expenses of an arbitration and promote efficiency in the arbitration process.

8. The Bill has numerous provisions in this regard, in part flowing from Section 1 which states clearly: ” The founding principles of this Act are (a) that the object of arbitration is to resolve disputes fairly, impartially and without unnecessary delay or expense, ...”. Examples of the application of these principles include the following rules (all mandatory)

8(2) An individual to whom this rule applies must, without delay, disclose to the parties any circumstances known to the individual (or which become known to the individual before the arbitration ends) which might reasonably be considered relevant when considering whether the individual is impartial and independent.

12 The Outer House (of the Court of Session) may remove an arbitrator if satisfied on the application by any party (a) that the arbitrator is not impartial and independent23, (b) that the arbitrator has not treated the parties fairly, ...

23(1) The tribunal must (a) be impartial and independent (b) treat the parties fairly, and (c) conduct the arbitration (i) without unnecessary delay, and (ii) without incurring unnecessary expense.

24 The parties must ensure that the arbitration is conducted (a) without unnecessary delay, and (b) without incurring unnecessary expense.

Extensive experience around the world, particularly in England, has put much flesh on these bones and, for example, CIArb training programmes hammer home these key messages. Further, the CIArb’s “gold standard” worldwide qualification, “Chartered Arbitrator”, not only guarantees the effective and proper conduct of arbitrations but reinforces that by rigorous quality control, complaint and disciplinary procedures.

Other Issues Not Addressed Above

CIArb Short-Form Rules

9. The Bill covers the entire spectrum of arbitrations and, at first sight, might seem unfriendly to small businesses and consumers. It is, of course, essential that the Bill benefit the entire community at all levels and be seen as a user-friendly process, both domestically and internationally. The CIArb Scottish Branch has begun drafting new Short-Form Rules to cover smaller arbitrations, and these will be launched in parallel with the Bill and will form a key element of the benefits the Bill will bring the whole community in Scotland.

Comparison to Arbitration Act 1996

10. The Bill has a number of features which, we believe, improve on the 1996 Act; these include:

(i) Under the Bill Ministers may by order make any provision which they consider appropriate for the purposes of giving full effect (subject to due parliamentary process) to any provision of the Bill. This is intended to preclude the need for primary legislation to rectify any minor problems (including transitional matters and obvious absurdities or inconsistencies) that may come to light, thereby permitting a rapid response.

(ii) Section 18 of the 1996 Act brings in the Court to deal with any failure of the appointment process but the question may be asked - with respect, what experience does the Judiciary have of appointing arbitrators? Would it not be more logical to have an experienced arbitral appointing body sort out such failures? Section 22 of the Bill creates “Arbitral Appointments Referees” (AARs) who will resolve such failures.

(iii) Consistent with ECHR Article 6, the Model Law, the UNCITRAL Rules and extensive recent international developments, the Bill requires arbitrators to be independent as well as impartial; further, prospective arbitrators and arbitrators post-appointment are placed under a clear and continuing disclosure requirement concerning conflicts of interest.

(iv) The Bill is fully consistent with the Model Law; further, the Scottish Arbitration Rules (SAR) are intended to be both “cutting edge” and consistent, as far as practicable, with the UNCITRAL Rules. To preserve these consistencies, section 24 of the Bill provides that Ministers may by order modify (a) the SAR or (b) any other provision of the Act, in such manner as they consider appropriate in consequence of any amendment made to the UNCITRAL Model Law; it is proposed that the final draft of the Bill will add reference to the UNCITRAL Rules here since they are under revision at present.

(v) Rule 25 provides an express confidentiality/privacy obligation as a default rule (i.e. from which the parties can opt out), as is given in England by case law; the draftsmen of the 1996 Act considered this area too difficult to draft; the proposed Scottish solution is novel and has been seen and warmly approved by international colleagues.

These (particularly (v)) and other such features have already been noticed by the international community

Conclusions

11. Significant benefits to the Scottish Economy can be achieved for no outlay from the public purse.

At a time when our Courts and the public purse are under so much pressure, the time is right for this Bill to take its place in the armoury of dispute resolution tools available to commercial people, public authorities and consumers.

At the same time, the Bill brings the law in a key area of economic activity right up to date (in world terms), applies to both domestic and international disputes, saves time and money (both private and public) in the Courts and will enhance the image of Scotland in the developed world. This Bill contains the very best of modern international practice and will be much imitated.

The CIArb is confident that the Committee will see the force of these arguments.

CHARTERED INSTITUTE of ARBITRATORS (CIArb)
SCOTTISH BRANCH
6th May 2009

SUBMISSION FROM THE COMMERCIAL JUDGES OF THE COURT OF SESSION

1. The Commercial Judges submitted a detailed Response to the Consultation on a draft of the Bill. Some of the points we made have been taken up in the Bill as introduced into the Scottish Parliament. For example, some of the language has been made more accessible (e.g. the dropping of the word “oversman”) and the Bill now makes it clear in section 11 (which was not the case with the earlier draft) that there is no right to raise legal proceedings otherwise than in accordance with the Act. We welcome this. Other points have not been accepted. For example the Bill retains the proposal that “Arbitral appointments referees”, rather than the court, should make arbitral appointments in default of agreement between the parties, despite our concern that it would simply add a layer of unnecessary expense to the process. It also does not take up our suggestion (at pp.3-4 of out Response) that some discretion whether or not to sist proceedings should be retained in the case of domestic arbitration1. Such matters reflect a deliberate policy choice by the sponsors of the Bill in light of other representations, and we do not think that we should seek to address this point further.

2. We remain enthusiastic in our support of the Bill, which should put arbitration in Scotland on a more secure and up-to-date footing and provide the framework within which arbitration in Scotland could flourish. That said, as the proposers of the Bill recognise, the Bill alone will not increase the use of arbitration in Scotland either by domestic users or by parties who presently arbitrate elsewhere.

3. Notwithstanding the above, there are some provisions of the Bill which we consider call for comment. We list them below:

4. One of the aims of the Bill, as is said in para.27 of the Policy Memorandum

accompanying publication of the Bill, is to

“put the vast majority of the general Scots law of arbitration into a single statute. … replace most of the few existing statutory provisions relative to arbitration in Scotland and codify and aim to improve the existing law, both common law and statutory. In future anyone in Scotland, or seeking to do business in Scotland, should be able to access relatively easily the principles and rules governing the law of arbitration in Scotland in language which can be readily understood.”

This is clearly to be welcomed. However, para.75 of the Policy Memorandum states (as is the case) that sections 85-87 of the UK Arbitration Act 1996 continue to apply to arbitration in Scotland. These are the only sections of that Act which have any application to Scotland and may well be overlooked by persons seeking to know the law relating to arbitration in Scotland. We consider that greater clarity would be achieved by re-enacting them as part of the new Arbitration (Scotland) Bill.

5. We expressed some concerns in our earlier Response about the legislative technique in section 6 of the Bill, which says that the Scottish Arbitration Rules “are to govern every arbitration seated in Scotland”. This is followed by the identification of Mandatory and Default rules in sections 7 and 8. We were concerned that this wording did not make it clear that the rules operated as part of the general domestic law, rather than (as had been suggested in para.17 of the Consultation paper) as implied terms of the arbitration agreement. This matters, because many of the provisions giving powers to the court are included in the rules rather than in sections of the Bill. Para.80 of the Policy Memorandum says that in the view of the proposers the wording used in sections 6-8 is sufficient to make the rules part of the substantive law, but we have our doubts. Our concern is addressed to some extent by section 11, which is new, but any doubt on the matter could easily be resolved by altering s.11(1) so that it provides:

“(1) ... Legal proceedings are competent in respect of

(a) …

(b) …

to the extent that they are provided for in the Scottish Arbitration Rules (in so far as they apply to that arbitration) or in any other provision of this Act, but not otherwise.”

6. Section 13 of the Bill is new. It provides for anonymity in legal proceedings. Subsection (1) states:

“Where an arbitration is the subject of legal proceedings, the identity of a party in the arbitration must not be disclosed outwith the court—

(a) by the court, or

(b) in any report of the proceedings.”

There are qualifications to (b) in subsection (2), but no qualifications to the prohibition on disclosure by the court. This would appear to mean that any Opinion issued in respect of an arbitration challenge would have to be anonymised (i.e. “X against Y”). Can this really have been intended for all cases? Although this regularly occurs for good reason in, for example, children cases, in other cases it would appear to conflict with principles of open justice to which the courts now strive to adhere. We are aware that, in the English courts, judgments on arbitration appeals name the parties and are reported under the names of the parties. We would also question whether it is realistic in the commercial world to suppose that the identity of the parties to a dispute will not be gleaned, by those interested, from the facts of the case narrated in an Opinion, even where the parties are not named. Further, in so far as the prohibition applies to any report of the proceedings, this would appear to apply to a Law Report in Session Cases or the SLT, SCCR etc. and to raise the same difficulties. We would suggest that the position be re-considered and/or clarified.

7. Section 14 of the Bill applies to statutory arbitrations. These are defined in section 14(1). Section 14(4) provides that “every statutory arbitration is to be taken to be seated in Scotland”. The consequence is that, unless excluded or inconsistent, the Scottish Arbitration Rules apply. On the face of it the provisions of clause 14(4) appear to apply to every statutory arbitration, including, for example, one held in England between English parties and wholly unrelated to Scotland. We do not think that this can have been intended. We would suggest that either the definition of “statutory arbitration” in section 14(1), or the terms of section 14(4), be amended so as to make it clear that the section and the Rules apply only to statutory arbitrations held in Scotland or held under the provisions of enactments relating to Scotland.

8. We are troubled by the concept, referred to in Rules 9 and 10 of the Scottish Arbitration Rules, of the tribunal revoking the appointment of an arbitrator. On the face of it, in a three arbitrator case, party A could apply to the tribunal objecting to the arbitrator appointed by party B. This might be either before or after the two of them had appointed a third arbitrator. In the case of such a challenge before they had appointed a third arbitrator, the tribunal might find itself split and therefore unable to reach a decision. In such a case, in terms of Rule 10(4), the appointment of B’s arbitrator would be revoked. There is scope for mischief in these provisions. Further, it is surely invidious to ask another member of the tribunal to remove a co-appointee for bias or unfairness. Surely the proper course would be to leave these matters to the court, which has the default power in any event under Rules 12-14.

9. Rule 29 of the Scottish Arbitration Rules attempts to address the question of what is to happen where the tribunal cannot reach a decision by unanimity or by a majority. Rule 29(2)(a) provides for the decision to be made by the arbitrator nominated to chair the tribunal. Rule 29(2)(b) deals with the case where no person has been nominated to chair the tribunal. In that case the decision is to be made by an umpire appointed by the tribunal (if they can agree) or by an arbitral appointments referee (if they cannot). This does not seem sensible or cost effective. Why bring another person in, who might have to acquaint himself with all the facts of the case, rehear submissions, etc.? Will the umpire, once appointed, withdraw when the decision has been made, or will he remain in place, though “in the wings”? Surely the more sensible course is to stipulate that in the absence of agreement as to who is to chair the tribunal, it shall be the arbitrator last appointed – in the case of a tribunal of three, which is likely to be the norm, if the tribunal goes beyond a single arbitrator, that is the natural choice, since that will be the arbitrator appointed by the two party-appointed arbitrators. That would avoid the need for the introduction of an umpire.

10. Rule 46(2) allows the tribunal to award compound interest. Rule 47, however, states that the tribunal’s award may not grant a remedy or award interest which the Court of Session would be unable to grant in deciding the same dispute in the same way. If Rule 46 is intended to refer to compound interest permitted by the contract, the provision is unnecessary. If it is intended to give the tribunal additional powers as regards interest apart from those conferred by the contract, it does not seem to succeed, since the Court of Session has no power (apart form where the contract so provides) to award compound interest. We consider that these provisions require clarification.

11. We have no other specific comments on the Act or proposals for evidence before

the Parliamentary Committee at Stage 1

12. Our views have also been sought on one additional matter raised in a letter from

Hamish Goodall of the Scottish Government dated 30 March 2009. He asks this:

“We understand that at present a stated or special case on a decision of an arbiter can be made to the Court of Session on a point of foreign law. The Bill as drafted adopts the approach of restricting appeals for error of law to Scots law in line with the Bill policy of keeping appeal opportunities limited, but we would welcome the views of the Lord President and the Court more widely.”

13. We were not aware that at present a stated or special case can be made to the Court of Session on a point of foreign law. Section 3 of the Administration of Justice (Scotland) Act 1972 allows the tribunal to state a case for the opinion of the court “on any question of law arising in the arbitration”. Foreign law is treated as a question of fact in the Scottish Courts and would therefore not give rise to a question of law: see, as regards the identical point in England under the Arbitration Act then in force, SAIL v. Hind Metals [1984] 1 Lloyd’s Rep. 405, at 408 col.1 and 409 col.2. We would not have thought that there should be a right of appeal under the new Act, when it comes into force, on points of foreign law.

14. Our only qualification is this, and it is really a matter on which a policy decision has to be taken. One of the stated aims of the Bill is to encourage people to come to Scotland to arbitrate, who might otherwise arbitrate in London or elsewhere. It is envisaged that parties to an English law contract might, if the new Act is a success, wish to arbitrate in Scotland. They can do so confident in the knowledge that on contractual matters Scottish and English law is very similar. But would they wish to come to arbitrate in Scotland under an English law contract if their rights of appeal were constrained by the fact that any question of law was technically one of English law and therefore not susceptible of the same rights of appeal as they might have enjoyed had the arbitration taken place in London? We do not know the answer to this. If it were thought that that was a material consideration, it might be possible to stipulate that, for the purpose of the provisions of the Bill providing for a right of appeal to the court for error of law, all questions of English law should be treated as questions of law, not fact. But we are not much attracted to this idea.

15. The Lord President has seen this submission and approves of and supports the views expressed herein.

Lord President, Commercial Judges
Court of Session
13 May 2009

SUBMISSION FROM CONSUMER FOCUS SCOTLAND

1. Consumer Focus Scotland started work on 1 October 2008. Consumer Focus Scotland was formed through the merger of three organisations – the Scottish Consumer Council, energywatch Scotland, and Postwatch Scotland.

2. We work to secure a fair deal for consumers in both private markets and public services, by promoting fairer markets, greater value for money, and improved customer service. While producers of goods and services are usually well-organised and articulate when protecting their own interests, individual consumers very often are not. The people whose interests we represent are consumers of all kinds: they may be patients, tenants, parents, solicitors’ clients, public transport users, or shoppers in a supermarket.

3. We have a commitment to work on behalf of vulnerable consumers, particularly in the energy and post sectors, and a duty to work on issues of sustainable development.

4. The Scottish Consumer Council (SCC), one of Consumer Focus Scotland’s predecessor bodies, had a longstanding interest in ensuring that consumers who become involved in disputes have access to appropriate and affordable means of resolving them, and we continue to work towards this aim. We are particularly interested in the potential benefits to consumers of alternative dispute resolution, including mediation and arbitration. While most people agree that the courts are an important way for people to enforce their rights, on the whole those involved in disputes are more interested in finding a resolution to their problem or obtaining compensation for harm or loss than enforcing their legal rights.2 We also know that people would generally prefer to avoid becoming involved in legal and court processes.

5. They are apprehensive about involvement with lawyers and also the potential costs, formality, delay and trauma they associate with legal processes.3

6. While our main focus to date has been on the benefits of mediation, we believe that the increased availability of a variety of alternative methods of dispute resolution, including arbitration, would be an important step towards achieving better access to justice for consumers in Scotland.

7. We welcome the Arbitration (Scotland) Bill, which will clarify and codify the law of Scotland in this area, bringing it into line with that in England and Wales, encouraging Scottish businesses to have their disputes arbitrated in Scotland rather than in other jurisdictions, and reducing the costs involved. We do not, however, intend to respond in detail to the provisions contained within the Bill, as the Bill’s main focus is on dealing with commercial disputes, rather than those involving consumers.

8. We understand that the Bill does not expressly encompass consumer arbitration schemes because consumer protection is reserved to the UK parliament. Such schemes have an important contribution to make to the civil justice system in Scotland, however, and we are keen to see existing consumer arbitration schemes used by Scottish consumers more than at present. The Chartered Institute of Arbitrators, through its Independent Dispute Resolution Services, provides a wide range of arbitration and adjudication services for business to consumer (including small business) disputes, which cover the whole of the UK. These are largely sector-specific, such as the ABTA scheme for package holidays, the Motor Industry Code of Practice and Repair scheme and the scheme governing disputes between surveyors and their clients.

9. While it may not always be the best option - it may be less flexible than mediation in terms of the outcomes it can achieve, for example, and some schemes can be relatively expensive – arbitration can offer an accessible, quick and low cost means of dispute resolution to consumers in appropriate cases.

10. It is important that any scheme aimed at consumers is as straightforward, quick and low cost as possible. We welcome the Bill’s recognition that such principles are also important in commercial litigation. Most of the existing consumer schemes are provided free of charge or at low cost to the consumer. These schemes are mainly used by people in England and Wales at present. It is thought that consumer awareness of these schemes is generally low in Scotland, and the Chartered Institute of Arbitrators is looking at ways of raising awareness in Scotland, which we support. In our response to the Scottish Government consultation, we suggested that the Scottish Government should consider how consumers in Scotland might be encouraged to use consumer arbitration schemes to resolve their disputes, and we would be happy to be involved in any discussions on this. It is critical, however, that current protections, such as those contained in sections 89 to 91 of the Arbitration Act 1996 and the Unfair Terms in Consumer Contract Regulations 1999 protecting consumers against low-value consumer arbitration clauses, be maintained.

11. While the main focus of the Bill is on commercial disputes, we very much welcome it as an important step towards a culture within which the courts are viewed as a last resort, as recommended by the SCC’s Civil Justice Advisory Group chaired by Lord Coulsfield in its 2006 report.4

I hope that these comments are helpful.
Martyn Evans

Director
14 May 2009

SUBMISSION FROM THE LAW SOCIETY OF SCOTLAND

1. The Law Society of Scotland welcomes the introduction of the Arbitration (Scotland) Bill, which is a progressive step towards very welcome reform of the current law of arbitration in Scotland.

2. The Society fully supports the object of the Bill in helping to promote arbitration, both from within and outwith Scotland, by effecting procedural changes to cure long-standing weaknesses in the common law powers of the arbitrator and to make improvements to eliminate other perceived defects. We wish to make the following comments and suggestions and may wish to submit amendments at a later stage.

General Comments

3. The Society approves of the approach of the Bill to include founding principles provisions about Arbitration Agreements and the Scottish Arbitration Rules. The Society believes that the Bill would be enhanced if it introduced a self-contained, all-embracing code of arbitration. This would achieve accessibility and simplicity. However, a number of issues remain and these are addressed below.

Section 13 Anonymity in legal proceedings

4. The Society agrees with the terms of section 13. It is appropriate that, in arbitrations, privacy is respected. Section 13 (2) states that disclosure is to be “treated as a breach of an obligation of confidence”. The Society is of the view that any such breach should be expressly actionable. It is suggested that the question of anonymity needs to be further considered in relation to enforcement proceedings.

Sections 15 Power to adapt enactments providing for statutory arbitration;

22 Arbitral appointments referee; and 24 Amendments to UNCITRAL Model Law or New York Convention

5. These provisions provide powers for Ministers to make certain orders. The Society suggests that the Bill should be amended to include an obligation to consult with interested parties in creating such orders.

Section 17 – Recognition and enforcement of New York Convention awards

6. This section demonstrates that the Bill is dealing with separate markets for arbitration – domestic arbitrations (predominantly in the construction industry); and international arbitration. The Society welcomes the focus which this provision gives to international arbitration and the capacity of the Scottish Legal System to respond to the needs of the international business community for arbitrations. The Society believes that rules for international arbitration must demonstrate simplicity and compatibility.

Section 27 (and Schedule 2) – Repeals

7. In its response to the Scottish Government’s consultation on the Arbitration (Scotland) Bill, the Society expressed concerns about removing the internationally recognised UNCITRAL Model Law, which was enacted in Scotland by the Law Reform (Miscellaneous Provisions) (Scotland) Act 1990. The Law Society believes that parties to arbitration should be permitted the option of applying the UNCITRAL Model Law if they so wish.

Section 33 – Commencement – Retrospective Effect

8. The Society is concerned that the Bill may have retrospective effect by applying to arbitrations under contracts which contain arbitration clauses where those contracts were entered into prior to commencement of the Act.

9. The Society believes that the provisions should only apply to agreements to arbitrate entered into after the coming into force of the Act, which would allow parties to have the choice of whether or not to arbitrate based on the new regime and this should be made clear in the Bill. There has to be clarity about ongoing arbitrations and the application of the Bill to them. Transitional provisions may be necessary.

10. The principal reason for the concern about retrospective effect is that it is common for many contracts such as construction contracts to contain arbitration clauses which will apply in the event that a dispute arises under those contracts at some point in the future. Disputes may of course arise many years after the parties have concluded such a contract. Many such contracts will exist at present. Legislation with retrospective effect may be challenged in certain circumstances and the potential for this should be avoided.

11. The Society suggests that the Bill should be amended to clearly indicate that the provisions would apply only to agreements to arbitrate entered into after the coming into force of the Act. It should, however, be available to parties who made an agreement to arbitrate prior to commencement, to opt in to the new rules. This would better preserve the current nature of arbitration as an option parties may choose in the mediation of their disputes.

Rule 40 – Referral of point of law

12. It has always been the case that Scottish arbiters (arbitrators) deal with questions of law and fact. Rule 40 allows for any points of Scots law arising during the arbitration in the arbitration to be referred to the Court before the decree arbitral. Whilst the Society agrees that a mechanism must be in place to allow challenge of a decision based on legal error, as below, the correct approach is for the arbitrator to deal with all legal questions in the first instance, to avoid undermining the arbitration process. Rule 40 will encourage reference to Court on points of law, which will (a) increase pressure on the Courts and (b) allow the possibility of undesirable parallel processes of arbitration and Court proceedings.

Rule 45 – Remedies available to tribunal

13. The Society believes that these provisions are an opportunity to rectify one of the major deficiencies in the current common law, but that further amendment is required in order to achieve this.

14. The Scots common law of arbitration traditionally does not allow an arbitrator to have the power to assess and award damages. This means that, where there is no express power in an arbitration agreement for an arbitrator to award damages, the claiming party will have to go to Court to make a claim in damages. The defending party can force the claiming party to arbitrate the other claims that are not for damages and deny an alternative claim in damages in the arbitration. This can lead to an undesirable multiplicity of proceedings.

15. Rule 45 potentially confers appropriate powers on the arbitrator to avoid this. Rule 45 is, however, a default rule, which will apply unless the contracting parties remove it. In practice, it is often the case that one party has a commercial negotiating advantage and may seek to delete the power to award damages, if there is any perceived tactical or commercial reason to do so.

16. The Society therefore suggests that there is a need for a clear and express power on the part of the arbitrator to assess and award damages, and that this should not be left to default rules that can be altered. Given the significant difficulties to which the common law rule has given rise in Scotland, in our view, this matter is important enough to be included in the mandatory rules and the Bill should be amended accordingly.

Rule 46 – Interest

17. Under Scots common law, an arbitrator has no power to award interest from a date before the date of the decree arbitral. The Society suggests that this does not meet modern commercial needs. Rule 46 seeks to address this by allowing the arbitrator to award interest, however it is a default rule and could be deleted for similar reasons to those cited above in relation to damages.

18. The Society therefore suggests that Rule 46 or a revised version of it should be a mandatory, rather than a default rule, which would allow the arbitrator always to award some interest from an appropriate date before the date of the decree arbitral (the date the sum was due), until the date of payment.

Rule 50 – Provisional awards

19. The Society believes that the term in the Bill, “provisional awards”, appears to cover, among other things, what are currently known as ‘interim awards’.

20. Interim awards are one of the most controversial areas in dispute resolution, where the Courts have developed very complex rules to ensure that they are granted only in appropriate circumstances before the final award. The Bill does not contain equivalent rules and the Society believes that the legislation must be made clearer in this regard, drawing clear distinctions between interim, part and terminating awards. The Society believes that unless this is addressed it will prove to be a major disincentive for many possible users of arbitration.

21. The Society suggests amending the Bill so that provisional awards come under the default, rather than mandatory rules.

Rule 51 – Part awards

22. Part awards can be used to deal with some of the matters in a dispute on a final basis – in some cases this can lead to a speedier, fairer and final determination of unconnected elements of a dispute.

23. The Society suggests that the Bill should be amended so that the power to make part awards in appropriate circumstances is included in the mandatory rules, rather than in the default rules.

Rule 67 – Challenging an award: legal error

24. The Society accepts the need for judicial control to avoid this process being abused in inappropriate circumstances but it believes that the mechanism for challenging an award on grounds of legal error should be made clearer and simpler. The Society believes that unless this is addressed it will lead to difficulties and it will prove to be a major disincentive for many possible users of arbitration.

25. We suggest that on the rare occasions when a party might seek to challenge an award based on legal error, the Bill should be amended to include a simpler rule, under which, where the Court is satisfied that there is a real issue, an error of law can be referred to a judge of the Commercial Court in the Outer House of the Court of Session. The matter could be dealt with under the expedited procedure available there, with an appeal only to the Inner House at the discretion of the judge concerned.

The Law Society of Scotland
19 May 2009

SUBMISSION FROM THE ROYAL INSTITUTION OF CHARTERED SURVEYORS (RICS)

1. A global organisation, the Royal Institution of Chartered Surveyors (RICS) is the principal body representing professionals employed in the land, property and construction sectors. In Scotland, we represent over 10,000 members comprising chartered surveyors (MRICS or FRICS), technical surveyors (AssocRICS), trainees and students. Our members practise in sixteen land, property and construction markets and are employed in private practice, central and local government, public agencies, academic institutions, business organisations and non-governmental organisations.

2. As part of its Royal Charter, RICS has a commitment to provide advice to the government[s] of the day and, in doing so, has an obligation to bear in mind the public interest as well as the interests of its members. RICS Scotland is therefore in a unique position to provide a balanced, apolitical perspective on issues of importance to the land, property and construction sectors.

3. RICS Scotland’s Dispute Resolution Service (DRS) retains information on specialist problem-solvers around the country, and is able to respond to enquiries concerning all types of dispute involving property (both residential and commercial).

4. Arbitration is used by chartered surveyors to settle disputes with regard to the rent review values of commercial properties in Scotland and to settle legal, technical and commercial disputes within the construction industry. Currently RICS Scotland process around 500 applications for rent review arbitration in a year and is the biggest appointing body in Scotland.

5. RICS Scotland recently attended the ‘conversation’ meeting with the Minister, Jim Mather, and we found this to be a beneficial way to interact with the government and to debate more fully the fundamentals of the proposed bill.

6. On the whole, RICS Scotland is broadly supportive of the bill and we wish to make no further additional comments.

Sarah J Speirs
Head of Communications
RICS
14 May 2009

SUBMISSION FROM THE SCOTTISH COUNCIL FOR INTERNATIONAL ARBITRATION

1. The Scottish Council for International Arbitration has been urging reform of the Scottish law of arbitration many years, and has welcomed the decision of the present government to introduce an Arbitration Bill. The Council participated in the consultation process which preceded the introduction of the present Bill, and has had the opportunity, for which it is grateful, to meet with Mr. Fergus Ewing and others who have been concerned in the preparation of the bill from the government side. Regrettably, however, the members of the Council are convinced that the Bill in its present form will not achieve at least one of the objectives which they consider vitally important and which, it is understood, the government also regards as of major significance, that is to equip Scotland with a system of arbitration law which is capable of attracting international arbitration business and playing a part in presenting Scotland as a modern environment for international business generally. The Council would therefore request an opportunity to give oral evidence to the Committee considering the Bill in order to explain its anxieties.

2. Very briefly, the principal reason for anxiety is as follows. The Law Reform (Miscellaneous Provisions) Act 1990 adopted the Model Law on International Commercial Arbitration, known as UNCITRAL, as the law of Scotland applying to international arbitrations. The Model Law was prepared under the auspices of the UN and, as its name implies, provides a code for the conduct of international arbitrations. This code has been adopted in more than sixty jurisdictions worldwide, and will be familiar to anyone involved in international commerce. Since 1990, it has provided the framework for international arbitrations in Scotland. The Bill, however, proposes to repeal the relevant part of the 1990 Act, the effect of which will be that the provisions which the Bill makes for Scottish arbitrations will apply also to international arbitrations under Scots law. The only positive reason suggested for this change is to achieve simplicity and avoid confusion. There is, however, no reason whatever to think that the existence of special provision for international arbitrations has caused the slightest confusion or difficulty for anyone, whether concerned in international or in Scottish arbitrations. If the law is changed in the way proposed, the result will be to discourage international business from coming to Scotland. It must be understood that the international environment is very competitive indeed. Many jurisdictions have set up arbitration centres, often extensively funded by governments, and are anxious to advertise their expertise. Any parties who might consider arbitrating in Scotland are much more likely to do so if they can be assured that the rules which will be applied are those with which they are already familiar, and that they do not have to come to terms with new rules, even if those rules might in themselves be acceptable. The repeal of the Model Law will therefore be really damaging to the prospects of success in one major objective of the Bill, and the Council hopes that it may be permitted to elaborate on this disadvantage in oral evidence.

3. The Council has also a number of suggestions for technical improvements in the provisions of the Bill, which will be submitted in writing, and would be prepared to deal with any other aspect of the Bill on which the Committee might invite comments.

Peter Anderson
Secretary
15 May 2009

SUBMISSION FROM THE SOCIETY OF MOTOR MANUFACTURERS AND TRADERS LTD

1. Our subsidiary, Motor Codes Ltd, incorporates arbitration within our self regulatory process to support and facilitate the resolution of disputes between consumers and businesses, under our New Car Code and the motor industry’s Service & Repair Code. The arbitration offered is in accordance with the Arbitration Act 1996.

2. Details of our Codes and how arbitration is used are available at http://www.motorindustrycodes.co.uk

3. Therefore we would support the introduction of equivalent legislation to facilitate the development of low cost qualitative dispute resolution in Scotland.

4. You may be interested in these statistics:

New Car Code Statistics        
    Total Contracts 2006 Total Contracts2007 Total Contracts 2008

Total Contacts
(Calls: Letters, Emails)

  4315 3871 4038
Conciliation Cases   353 342 527
Arbitration Cases   4 9 16
2006 Arbitration Cases  
Outcome 2 of the 4 Claimants Successful
Rewards £1,330.00
  £5,500.00
   
2007 Arbitration Cases  
Outcome

2 of the 9 Claimants Successful

Rewards £1,944.70
  £375.00
   
2008 Arbitration Cases  
Outcome 3 of the 16 Claimants Successful– Cases still ongoing
Outcome

£523.34

  £1,680.00
  £1,495.00

5. This Code launched in August 2008 and has two active cases referred for arbitration (in March) as yet undecided.

Seftton Samuels, Company Secretary & Head of Legal, 13 May 2009

Pervious

Footnotes:

1 An article in the CIArb’s Journal “ARBITRATION” Vol. 70/2 details the many shortcomings, some serious (e.g. in that they cannot be contracted out of), in Scottish arbitration law (with full citations and references) so we submit only a selection here.

2 In a decision in 1872 !

3 Typically, the relevant precedents date from the early 19th century.

4 This astonishing legal proposition derives from two cases in the late 18th century.

5 The international norm is that the parties can agree what rules to apply, failing which the arbitrators will decide.

6 It was expressly removed in England by the Arbitration Act 1979

7 It should be noted that the Arbitration Act 1996 applies in full in Northern Ireland.

8 ss.85-88 create a separate domestic regime but these sections were never brought into force and now never will be.

9 The Singapore Act needs 7,000 words, New Zealand 11,000, of additional bolted-on language necessary to make the Model Law work in practice in a common law jurisdiction.

10 Arbitration being private, there are no public statistics; as best CIArb can establish (from anecdotal evidence) there have been <20 cases in the 19 years since 1990.

11 In addition, access to civil justice is guaranteed by Article 6 ECHR.

12 In Scotland, an Act of 1598 reinforced the freedom to choose.

13 For example, in a hypothetical arbitration concerning an extension to a private residence, the arbitration could be conducted in the new extension, in a shirtsleeve environment (no wigs and gowns !) with all the evidence immediately to hand. Similarly, an agricultural arbitration can be conducted at the farm, an oil refinery one at the refinery, etc.

14 Taking 10 years or more in certain EU countries.

15 Drahozal, Regulatory Competition and the Location of International Arbitral Proceedings; (2004) 24 International Review of Law and Economics 371

16 The SPICe Briefing cites an article (Anderson) suggesting that the 1996 Act made little difference to the volume of arbitration business in England; that article misunderstands (i) the position of the 1996 Act in the sequence of legislation 1950/1979/1996 (ii) the significant effect on the volume of arbitration business of the Housing Grants, Construction and Regeneration Act 1996 which diverted a large number of construction arbitrations (the mainstay of UK domestic arbitration) into a different dispute resolution process called adjudication.

17 Mead General Building Ltd (In Creditors’ Voluntary Liquidation) vs Dartmoor Properties Ltd; (2009) EWHC 2000 (TCC); judgment given 4th February 2009.

18 The South Koreans would also take this view since any US dollar bank account held by the Germans in New York would be untouchable.

19 The equivalent of a court judgment.

20 The New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958; this includes almost all relevant trading countries of the word; the few non-parties include Angola, Chad, Iraq, Namibia, Nauru, North Korea, Myanmar, Tajikistan, Tanzania, and Yemen. The Convention has been widely and frequently described, particularly last year around the time of its 50th Anniversary, as the most important trade treaty ever created by the United Nations since, without the enforceability of arbitral awards, international trade would be massively more risky, complex and expensive. There is a strong analogy here with the position in Scotland.

21 It might seem odd to insert a touristic element here, but place yourself in the position of a party to an arbitration faced with a choice of four weeks in Edinburgh, Glasgow or Aberdeen (on the one hand) or four weeks in Lagos, Riyadh, Düsseldorf or Moscow (on the other); which would you choose ?

22 In 1978the Commercial Court Committee believed that international arbitration generated hundreds of millions of pounds for the English economy - see its Report on Arbitration (1978) Cmnd 7284, para 18.

23 Rule 74 defines “independence”

1 We suggested that “there may be something to be said for giving the court some discretion in the case of domestic arbitration. We can think of a number of situations in which it might be undesirable to sist a cause. For example, in construction disputes there are frequently a number of interrelated contracts and disputes. If the disputes are raised in court, they are often conveniently conjoined or at least heard together, to avoid duplication of expense and the risk of inconsistent fact findings. However, it may be that only one of the contracts contains an arbitration clause. A mandatory sist in the case of a claim under that contract would prevent this efficient disposal of the whole dispute. There may be other situations where it might be argued that a sist is undesirable, for example where it is clear that arbitration is being insisted upon solely for purposes of delay. We note that for England and Wales, s.86 of the Arbitration Act 1996 reserves to the court discretion to refuse to stay an action for domestic arbitration if there are “sufficient grounds for not requiring the parties to abide by the arbitration agreement”. Examples are given in s.86(3). Although ultimately the matter is one of policy, we think it should be for consideration whether a similar distinction between international and domestic arbitration should be made in Scotland.”

2 Paths to Justice Scotland: what people in Scotland do and think about going to law, Hazel Genn and Alan Paterson, Oxford University Press, 2001

3 See Note 1

4 The Civil Justice System in Scotland – a case for review?: the final report of the Civil Justice Advisory Group, published by the Scottish Consumer Council, November 2005.