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Arbitration law to be modernised
30/01/2009
A new bill published today will encourage the use of arbitration in Scotland and will also help attract international arbitration business to Scotland.
It is hoped that it will also encourage industries, trades and professions to set up their own low cost arbitration schemes. If the use of arbitration increases in the resolution of commercial and consumer disputes, this will reduce the pressure of business on the courts.
The primary objectives of the Arbitration (Scotland) Bill are to:
- clarify and consolidate Scottish arbitration law, filling in any gaps that exist
- provide a statutory framework for arbitrations which will operate in the absence of agreement to the contrary
- ensure fairness and impartiality in the process
- minimise expense and ensure that the process is efficient
The bill will put the majority of Scots law on arbitration into a single statute. If Parliament passes the bill, anyone in Scotland or seeking to do business in Scotland, should be able to have access to the principles and rules governing the law of arbitration in Scotland.
Minister for Community Safety Fergus Ewing said:
"Some of the law on arbitration in Scotland dates back to 1695 or before that. This unsatisfactory position makes Scotland an unattractive place to arbitrate. It is clear that we need to modernise the law.
"This Government wants to develop Scotland as a dispute resolution centre which attracts international arbitration cases as well as domestic ones.
"Given the importance of world trade, there will be increasing demand for high quality arbitration services as the way to resolve cross-border commercial disputes.
"Scotland should be an easy place to do business and it needs the law and courts to back this up and make Scotland the choice for dispute resolutions.
"This bill will improve the law and enable people to resolve their disputes more quickly and effectively than going to court."
Background
Arbitration is a procedure where parties agree to submit a dispute between them to a third party, who often has special expertise or knowledge, who will act as a private tribunal to produce a final and binding determination of the dispute. By agreeing to go to arbitration, the parties voluntarily deny themselves recourse to the courts or to another method of alternative dispute resolution. The agreement to go to arbitration is often contained in a contract concluded between the parties possibly years before they come into dispute.
Apart from where there is a consumer arbitration scheme in existence, it is expected that arbitration will continue to be mainly used in the commercial sphere since firms may wish to pay for an arbitrator to resolve a dispute (over money or standard of goods or service) due to commercial pressures. They may not want to wait for resolution in the courts due to the expense but also the delay that may involve. The confidentiality offered by arbitration may be another reason to use arbitration. Companies may not want market sensitive information discussed in a private court.
Arbitration is often the method of dispute resolution of choice in property disputes, and is often cited as the method in commercial leases. There may be scope for more use of arbitration in other areas such as the maintenance of property, the management of blocks of flats and service charges.
Advantages of arbitration
Final and binding
- Arbitrator's decision or "award" is final and binding without further court hearing of the issues.
- An award may be enforced like a court decree.
- Within countries which have ratified the New York Convention on recognition and enforcement of foreign arbitral awards, agreements to arbitrate and awards made in other countries will be recognised without further review of the issues. Thus arbitration offers major advantages to those engaged in international or cross-border trade.
- The binding nature of the outcome may be an attraction over other forms of alternative dispute resolution such as mediation.
Private and confidential
- Arbitration is also a private means of dispute resolution. Parties may agree that the process will be confidential, but the Bill provides a default rule on confidentiality (i.e. the arbitration will be confidential unless the parties agree otherwise). This may be a major advantage to commercial parties who may not wish the nature of their dispute or sensitive commercial information debated openly in the courts.
Expertise of arbitrator
- The parties can choose their arbitrator, which is not possible in the courts, and they will usually choose someone who has expertise or knowledge in the area of the dispute. If a technical expert is appointed as arbitrator, this may reduce the need to lead technical evidence so that arbitration may be quick, cost effective and efficient.
Flexible
- The arbitration process can provide flexible procedures (as it is privately funded and initiated) and because it is within the parties' control, the location, timing and other arrangements can be planned to suit their particular needs. If arbitration can be reformed so as to be attractive to use instead of use of the formal court system, that would also be a helpful development in reducing pressure on the courts.