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Arbitration (Scotland) Bill Consultation Report

DescriptionAn analysis of the consultation responses for the Arbitration (Scotland) Bill.
ISBN
Official Print Publication Date
Website Publication DateJanuary 23, 2009

ARBITRATION (SCOTLAND) BILL

CONSULTATION REPORT

Acknowledgements

1. The Scottish Government would like to thank all individuals and organisations who took the time to consider and respond to the legislative proposals contained in the consultation on paper for the Arbitration (Scotland) Bill.

Responses

2. The Scottish Government issued a consultation paper along with a draft Bill on 27 June 2008. The paper identified 35 discussion points on which the views of consultees were specifically sought. Although the 12 week consultation period ended on 19 September 2008, responses were accepted throughout October and into December of that year. Around 800 copies of the paper (which included an initial Regulatory Impact Assessment) were distributed and 29 responses received. Responses were received from a range of stakeholders, professional organisations, the legal sector, religious groups and private individuals. Not all respondents completed the consultation questionnaire. Some respondents preferred to provide a narrative response. The nature of the submissions varied with some providing one word responses and others detailed technical discussion of sections of the draft Bill such as that provided by the Scottish Branch of the Chartered Institute of Arbitrators.

3. Consultation exercises like this are not numerically representative, but aim to elicit the views and experiences of a wide range of stakeholders. Any interpretation of this proportion of responses in agreement or disagreement must be undertaken with caution. Due to the small quantity of submissions, it would not be generally appropriate to present the results in percentage form. The small number of responses is thought to be indicative not only of the specialised nature of the consultation but also the dearth of arbitral activity in Scotland in recent years.

4. Where respondents gave permission, their responses have been published on the Scottish Government website at www.scotland.gov.uk/publications. All respondents are listed in Annex C and broadly came from:

  • professional organisations - 8
  • legal sector - 12
  • local government - 2
  • religious groups - 1
  • individuals - 4
  • academic/education sector - 1

5. All non-confidential responses are available in hard copy at the Scottish Government Library, K Spur, Saughton House, Broomhouse Drive, Edinburgh, EH11 3XD. Charges for photocopies are made on a cost recovery basis. To request copies by post, enquire about charges or make an appointment to view responses, please telephone the Library on 0131 244 4552.

Discussions with stakeholders

6. There was extensive engagement with stakeholders during the consultation period. The Minister for Community Safety met the Chartered Institute of Arbitrators (CIArb) and the Scottish Council for International Arbitration. Officials held an all day meeting with the CIArb to discuss their very detailed comments on the Bill and also met the Law Society of Scotland.

7. Two focus group meetings were held during the consultation process. These were attended by representatives of the CIArb, the Law Society of Scotland, the Royal Institution of Chartered Surveyors, the Faculty of Advocates, the Royal Bank of Scotland, Scottish Financial Enterprise, Edinburgh Chamber of Commerce, Professor Russel Griggs (chair of the Regulatory Review Group) and Professor Fraser Davidson, author of the Scottish Universities Law Institute textbook on arbitration law. The response to the Bill during these meetings was overwhelmingly positive.

8. Officials also undertook meetings around Scotland with six different firms to discuss the Bill in order to inform the Regulatory Impact Assessment and the Business Impact Assessment.

Findings

9. This report provides an analysis of the Scottish Government Consultation on the Arbitration (Scotland) Bill. As the responses are technical and complex in nature they are not repeated in the report. Rather, the report is in two parts: Annex A provides a summary of the key issues identified by the consultation process; Annex B sets out the questions posed in the consultation questionnaire and illustrates the number of respondents (who completed the questionnaire) who agreed or disagreed with the questions. However, as noted above the completion of the consultation questionnaire was uneven and therefore the number of responses for each question varies.

10. Overall the respondents welcomed the Bill. The points raised in response to the consultation paper and in meetings with officials were considered at length and the observations made have informed the development of policy on the Bill.

For further information, please contact
Alison Dewar
Legal System Division
Scottish Government
2W St Andrew's House
Regent Road
Edinburgh
EH1 3DG
Tel: 0131 244 5764
E-mail: alison.dewar@scotland.gsi.gov.uk

ANNEX A

SUMMARY OF KEY ISSUES

The key issues are cross referenced to the questions in the consultation questionnaire and are further discussed in Annex B where applicable.

Framework for the Bill (Q4)

1. The Scottish Arbitration Rules are set out in a single code in schedule 1 of the Bill to try to make the rules accessible for the users of the legislation. This framework was welcomed by the vast majority of respondents and the focus groups held to discuss the provisions of the Bill. Respondents commented favourably on the fact that the rules were set out separately from the main body of the Bill since this meant that they could be read as a relatively self-standing "code" which could be used as a guide by practitioners and users and also compared easily with the rules of arbitral institutions, for example. It was pointed out that arbitrators would not have to search for the rules in the middle of the "legalese" of the main body of the legislation.

2. Some respondents commented that the Scottish Arbitration Rules in schedule 1 may not form part of the general law because they are not in the main body of the Bill. This is incorrect. Sections 6-8 make it clear that both the main body of the proposed Act and the rules will form part of the law of Scotland, that is, as primary legislation. While they may for some purposes have that effect, they are not implied terms of arbitration agreements, but rather rules of statute. Default rules do not lose their statutory nature just because they apply only in certain circumstances (that is in the absence of contrary party agreement). There are many examples of statutory provisions which, in some way or another, apply in particular circumstances only.

3. Whether a provision is included in the body of the Act or the schedule is irrelevant to its status as part of statutory law. The placement of provisions in the Bill is dictated by whether they deal with part of the arbitral procedural process (the rules) or whether they have general effect outwith individual arbitrations.

Domestic and international arbitration (Q8)

4. The Bill proposes that the UNCITRAL (United Nations Commission on International Trade Law) Model Law should be repealed in Scotland. The policy is to remove the dual arbitration regime that currently applies in Scotland. The Bill provides a single codified set of rules that will in principle apply to domestic, cross-border (with other parts of the UK) and international arbitrations, where the Scottish courts have jurisdiction over an arbitration whose juridical seat or place is in Scotland. Accordingly, the separate treatment in Scotland of international commercial arbitrations under the UNCITRAL Model Law will be replaced by a single code informed by the UNCITRAL Model Law principles but also similar to the UK Arbitration Act 1996. There were a number of reasons for this approach:

  • The Model Law is incomplete and contains many crucial gaps (for example, no powers are given to the arbitrator to award damages, expenses or interest). It does not therefore provide a comprehensive arbitration regime and has to be supplemented by domestic law. The Bill, which (like the UK Arbitration Act 1996) is based on Model Law principles, will, however, provide a comprehensive framework for arbitration in Scotland.
  • The Model Law has not attracted any significant amount of international arbitration business for Scotland since 1990.
  • Non-Model Law venues such as London, Paris, Stockholm, Geneva/Zurich and New York are thriving.
  • Model law jurisdictions such as Germany, Australia, New Zealand, Norway and Denmark are not successful and therefore the Model Law alone cannot be considered to be a panacea for attracting international arbitration business.
  • There are Model Law jurisdictions which are successful, such as Singapore, Hong Kong and Vienna, but we believe that these are successful for other reasons, not simply because they have the Model Law. Hong Kong benefits from business from the People's Republic of China, where Hong Kong awards can be enforced under the New York Convention of 1958. Vienna is the venue of choice for central and Eastern Europe, including Russia. Vienna is also seen as neutral (also the case with Geneva/Zurich). It has been suggested Scotland might be seen as a neutral venue by, for example, a foreign party in dispute with an English company.
  • Even if the Model Law is repealed, it will still be possible for parties to adopt the Model Law for their arbitration if they so wish (apart from the procedural rules which will be mandatory under Scots law).
  • If the Model Law is not repealed, this will perpetuate the position where there are two arbitration laws in Scotland, one for domestic arbitration and one for international commercial arbitrations. It may lead to discrimination claims in EC law, in relation to other Member States - analogous case law in the Court of Appeal in England & Wales suggests at least some elements of a discriminatory regime may breach EC law, depending on any justification advanced for discriminating between the regimes.
  • The model of the Arbitration Act 1996 may be more familiar to other parties in the UK who may consider using Scotland as the seat of their arbitration.

5. Among those parties who attended focus group meetings and the 29 responses to consultation received, only two, the Scottish Council for International Arbitration and the Law Society of Scotland, have argued that the Model Law should be retained, because they consider that repeal will act as a barrier to international arbitration business coming to Scotland. Those who advocated repeal included the CIArb and the current judges in the Commercial Court of the Court of Session supported by the Judges' Legislation Committee. One senior international arbitrator commented that an informal survey of senior arbitrator colleagues around the world conducted by him failed to identify one jurisdiction which sees the Model Law as a main factor in its success as an international arbitral venue.

6. Professor Fraser Davidson of Stirling University who is the author of the Scottish University Law Institute textbook on arbitration said that the Model Law "does not provide a comprehensive arbitration regime. It is thus much better to look to the example of states such as England which used the Model Law as the basis for the creation of a comprehensive, modern arbitration statute. Little will be lost by Scotland ceasing to be known as a country which has adopted the Model Law. Its adoption has not seen significant numbers of international arbitrations attracted to Scotland." He concluded: "If Scotland is going to attract international arbitrations….being able to boast an effective, comprehensive, modern arbitration statute is going to be more of an incentive than being one of a large number of states across the globe which has adopted the Model Law."

Arbitral appointments referee (Q9)

7. Respondents overwhelmingly accepted the proposal for arbitral appointments referees, but concern was raised about the role of such a body. It was suggested that the arbitral appointments referee should appoint the arbitrator rather than direct the parties to appoint an arbitrator.

8. Some respondents argued that the courts should retain a role in appointing an arbitrator or arbitral tribunal, if the parties have failed to appoint. But in practice the court usually refers an application to a body like the Chartered Institute of Arbitrators which made over 2,000 appointments in the UK in 2007: the courts made only a handful. Others have contended that reference to the court for the appointment of arbitrators should be minimised. The evidence would appear to suggest that this is what happens in practice and the provision in the Bill regularises this by removing an unnecessary step.

9. Some respondents also argued that there should be a role for the courts where the parties cannot agree on the identity of the arbitral appointments referee or if the arbitral appointments referee, for whatever reason, fails, refuses or declines to appoint an arbitrator.

10. It was also argued that the fees and expenses of the arbitral appointments referee should be part of the expenses of the arbitration.

Rules 17 and 18 (principal duties of the arbitral tribunal) (Q10)

11. In the consultation draft of the Bill, the duties on an arbitral tribunal in rule 18 of the Bill (to conduct an arbitration in accordance with the parties' wishes, as quickly as is reasonably practicable and without incurring unnecessary expense) are subordinate to a principal duty in rule 17 (duties of impartiality and fairness, including allowing the parties reasonable opportunity to put its case and deal with the other party's case).

12. Some respondents argued that the two duties should be amalgamated since they do not believe that the duties on the arbitrator to act expeditiously or to avoid unnecessary expense should be secondary to the duties of impartiality and fairness. This might encourage arbitrators to lose sight of the importance of quick resolution. Those who were interviewed for the Business Impact Assessment were also of the view that arbitrators did not have the power to move the arbitration along. CIArb claimed that it has been possible for arbitrators in practice to reconcile the equivalent duties in the Arbitration Act 1996.

Rule 56 - Challenging the award: legal error (Q22)

13. In the consultation draft of the Bill, rule 56 is a mandatory rule which gives parties an automatic right to challenge an arbitral award on grounds of error in law, though subject to many restrictions (drawn from the Arbitration Act 1996) requiring leave of the court etc to limit court challenges. In many arbitration jurisdictions there is no appeal at all on such grounds. Respondents were overwhelmingly of the view that, while there should be a procedure for challenging an award on grounds of legal error, the parties should have the option of agreeing that they will choose to deny themselves this right. This is to promote the finality of the arbitration process. They therefore suggested that rule 56 should be made a default rule to allow parties the option of choosing whether or not to allow the possibility of an appeal on grounds of legal error. Some respondents noted that if this change were not made it would conflict with the rules of the International Chamber of Commerce Arbitration and the London Court of International Arbitration.

Confidentiality (Q23)

14. The consultation version of the Bill proposed that the identity of the parties to an appeal to the court (which includes appeals on lack of jurisdiction of the arbitrator, serious irregularity or legal error) must not be disclosed. There was, however, nothing further in the Bill to provide for the confidentiality of the arbitral proceedings themselves.

15. Scots law on arbitration and confidentiality is undeveloped and unclear on whether it implies confidentiality into an arbitration at present. Research by Justice Analytical Services Division into recent arbitrations in Scotland revealed that all of those analysed were conducted on a confidential basis, irrespective of whether the case was commercially sensitive.

16. A narrow majority of respondents (11-7) who responded on the point disagreed with the proposal that the Bill should contain a statutory rule requiring the parties to respect the confidentiality of the arbitral process. Those who took this view preferred to leave the matter to the agreement of the parties. The CIArb, however, favoured clarifying the law in the Bill to try to ensure that arbitration is private in Scotland and to move the law in the direction of that taken by the courts in England. They suggested that the rule should be default only, however, so that parties who do not wish to have their arbitration subject to a confidentiality rule can so agree and thus contract out of the rule. Stakeholders interviewed by officials were almost unanimously in favour of the introduction of a confidentiality rule.

Rule 7 Duty to disclose any conflict of interests

17. Rule 7 only requires an arbitrator to disclose to the parties to the arbitration anything likely to give rise to justifiable doubts about the member's impartiality. Respondents were in favour of requiring an arbitrator to disclose also any issue which might call into question his or her independence.

ANNEX B

RESEARCH FINDINGS

Question

Yes

No

Number of responses to specific question

Q1: In your opinion, is it valuable to set out founding principles in the Bill?

19

1

20

Q1 b: If yes, do you think the founding principles should ranked?

1

17

18

Q2: Do you consider that there is a need to distinguish between arbitrations and valuations?

8

9

17

Q3: Do you agree that oral agreements should be recognised by the Bill?

14

4

18

Q4: Do you agree that the structure of the Bill and in particular the categorisation f mandatory and default rules will be helpful to the users of the legislation?

14

3

17

Q5: Should any other rules be mandatory?

9

6

15

Q6: Should any of the mandatory rules be removed from the list to become default rules?

7

8

15

Q7: Should there be other consequences of failing to comply with a mandatory rule?

4

10

14

Q8: Model Law repeal

16

3

19

Q9 When the parties have failed to appoint an arbitrator, either party may refer the matter to the arbitral appointments referee. The arbitral referee will nominate and direct the parties to appoint such eligible individuals as arbitrators. Do you agree?

11

3

14

Q10: Do you agree that there should there be a hierarchy of the arbitrator's duties?

7

12

19

Q11: Section 1 of the Bill - further duties.

3

14

17

Q12: The arbitrator should be able to determine his or her own jurisdiction. Do you agree?

18

1

19

Q13: The arbitrator should be able to determine challenges to his or her own jurisdiction. Do you agree?

18

1

19

Q14: The period of notice proposed for any hearing or meeting is 14 days. Do you consider this period to be:

Too long 1

About Right 11

Too Short 2

14

Q15: Do you believed that the use of legal representations should be at the discretion of:

Arbitrators 3

Parties 14

17

Q16: Should the default rule be that tribunals can consolidate different arbitrations on their own initiative?

6

12

18

Q17: The mandatory rule requires the seat or arbitration to be stated but the parties to an arbitration can generally vary the procedural law applicable from the seat of arbitration: Do you agree that they should be able to do so?

15

1

16

Q18: Do you agree that the arbitrator should be able to make interim awards of relief?

15

4

19

Q19: Fees and Expenses: Do you agree?

15

4

19

Q20: Further protection for party?

7

8

15

Q21: Should appeal for error of law be permitted prior to a final award?

4

13

17

Q22; Should there be any appeal on questions or errors of law?

14

4

18

Q23: Should the Bill contain a statutory rule requiring the parties to respect the confidentiality of the arbitral process?

7

11

18

Q24: Do you agree that rules on appeal to the court should be mandatory?

13

6

19

Q25:Postponement/Cancellation. Should there be mandatory provisions for this in the Bill?

5

12

17

Q26: If there is no written agreement, should payment for time reserved but not used be reviewed by the Auditor?

8

8

16

Q27: Nominating/appointing. Do you agree?

14

3

17

Q28: The same immunity will be extended to employees or agents of nominating or appointing bodies. D you agree?

11

5

16

Q29: It is proposed that witnesses and legal representatives in arbitration will have the same immunity as they would in civil proceedings. Do you agree?

16

2

18

Q30: Challenging the decision of an arbitrator? Do you agree?

17

17

Q31: The ability for judges to act as arbitrators should be removed. Do you agree?

3

14

17

Q32: Do you think that there is any provision which Ministers should consider adding to the Bill? (Low Cost Arbitration Schemes)

1

13

14

Q33: Do you think that Ombudsman schemes might be a better way forward for dealing with such disputes?

2

13

15

Q34: Asked for information held on usage of arbitration
Q35: Asked for views on expert determination


ANNEX C

RESPONDENTS

Professional Organisations

Agricultural Industries Confederation

Association of Residential Letting Agents

Chartered Institute of Arbitrators Scotland

Institution of Civil Engineers

Royal Institution of Chartered Surveyors in Scotland

Scottish Consumer Council

Scottish Property Federation

Traprain Consultants Ltd

Legal Sector

Institute of Trademark Attorneys

Judges' Legislation Committee

Judges of the Commercial Court

Law Society of Scotland

David Bartos

Kenneth Campbell

R Craig Connal QC

David Sturrock WS

1 x anonymous

3 x confidential

Local Government

East Renfrewshire Council

1x confidential

Religious Groups

Scottish Council of Jewish Communities

Individuals

Richard NM Anderson

James Arnott

Jane Irvine

Bryan Porter

Hong-Lin Yu

Academic/Education Sector

Professor Fraser Davidson