Guide to resolving disputes in Scotland Navigating dispute resolution processes can be daunting for both domestic and international clients operating in the UK. We have developed this brief Guide to provide an overview of the options available to you, and an indication of how your dispute might progress.

“Sources praise the team for its ‘very commercial’ approach.” Chambers UK 2018: Litigation – Scotland

Band 2 – Litigation (Scotland) Chambers UK 2018 Dispute Resolution options What are the main dispute resolution methods used to settle commercial disputes?

Litigation the fee for commencing proceedings disapply certain rules set down in the Raising court proceedings is the is £300 in all cases. Arbitration (Scotland) Act. Arbitration deinitive method of resolving large is often most eectively used for commercial disputes between two Arbitration international/cross-border disputes as parties who are unable to agree on Parties may agree to refer a dispute it can overcome jurisdictional issues an alternative method of settlement to arbitration and arbitrations most inherent in court proceedings. This or resolution. All claims for payment commonly arise through a provision can avoid one party having a “home” of money with a value of £100,000 in a contract between the parties. A advantage and beneiting from a or less must be raised in the Sheri tribunal consisting of one or more more extensive enforcement regime. Court. There are a number of Sheri arbitrators assesses the legal and Courts in Scotland and while there factual issues in dispute between the Negotiation are a number of mechanisms for parties and decides the outcome. Given the expense, risk and time determining jurisdiction, the default Where the arbitration is seated in involved in court and arbitration rule is that the claim should be raised Scotland, the Arbitration (Scotland) proceedings, it is common for parties in the court which is local to the Act 2010 applies to the arbitration. to attempt to resolve disputes through Defender. Where the claim exceeds An arbitration “seated” in Scotland negotiation. Where court proceedings £100,000 the party raising the action can in fact take place anywhere are raised under the commercial (the Pursuer) may choose to raise it and the dispute can be determined procedure, parties are expected to in the Sheri Court or in the Court of by a foreign law if appropriate. have fully set out their respective Session (in Edinburgh). In each of the The tribunal’s decision is binding positions in correspondence and Sheri Court and Court of Session and rights of appeal are restricted. to have disclosed any relevant a commercial action procedure is The process is similar to court documents or expert reports available. Commercial procedure is proceedings but generally more before the commencement of designed to be quicker and more lexible. Proceedings are subject to proceedings. Otherwise there is no lexible than “ordinary procedure”. strict conidentiality requirements requirement to engage in pre-action which is often attractive to the correspondence. However, parties Parties to a commercial action are parties in dispute. Arbitration may may attempt to negotiate a resolution expected to have made eorts to be less expensive and take less on a without-prejudice basis at any resolve matters before the action time than court proceedings if only point during court proceedings, commences and a pre-action because there is usually no appeal. without sharing details of any protocol applies. Court fees are The parties have the opportunity to settlement oers or discussions relatively modest compared to choose an arbitrator with industry with the court. England and Wales and are not ixed knowledge and specialist technical by reference to the value of a claim. expertise. They can also tailor the Additionally the court rules provide For example, in the Court of Session, arbitration process to their particular a mechanism for formal oers known needs by agreeing to modify or as “Defender’s tenders” or “Pursuer’s

dentons.com 3 oers”. There are strict requirements There are a number of specialist of the person of skill will ordinarily be such an oer must meet but a mediators oering this service given eect to by the court. valid and well-pitched oer can in Scotland. impose considerable pressure on an Adjudication opponent (particularly a Defender) Expert Determination Parties to a construction contract to settle, as a party who refuses An independent expert may have a statutory right to refer a the oer only to achieve a less be appointed by the parties to dispute to adjudication at any advantageous result when the court resolve the dispute. The parties’ time. The adjudicator’s decision makes a inal determination may contract may make provision for is temporarily binding on the face sanctions in expenses. expert determination but an ad parties until the dispute is inally hoc agreement to use this method determined by court proceedings Mediation may also be reached. Provided the or arbitration, though parties can This is the most commonly used parties agree, the expert’s decision choose to accept the adjudicator’s method of Alternative Dispute is legally binding. This is a quicker decision. Adjudication is a quick and Resolution (ADR). It is used by parties and more informal way of resolving cost-eective way of resolving a who wish to achieve an agreed a dispute than court proceedings. dispute as there is a standard 28- settlement but who cannot reach It is of assistance where the dispute day time period between referring an agreement through negotiation. centres on a technical issue (for the matter to an adjudicator and the example, defective products). It adjudicator’s decision (though the The parties meet with an allows for the matter to be resolved time period may be extended). It is independent, trained mediator by an expert who is familiar with speciically designed to sustain the (usually an advocate, or former the technical/specialist issues. It low of cash down the supply chain advocate or expert in a particular is unsuitable for disputes where in the short term, and facilitate the ield) who liaises between the there is a disagreement about the continuation of construction works. parties to identify issues and facilitate interpretation of a contract. It is The speed of the process means that an agreed commercial settlement also possible within the context of the level of enquiry is not necessarily which is then recorded in writing. a formal court dispute to ask the as thorough as court proceedings. The mediator does not determine court to remit the dispute to the underlying dispute and so any a “person of skill”. This is akin to agreement reached as a result of expert determination and if the remit mediation lacks precedent value. is agreed by all parties the decision

4 dentons.com Litigation and the court system What is the court structure? Are certain types of disputes allocated to particular divisions?

The main courts in Scotland are the Each action on the commercial the construction of a document, Sheri Court, the Sheri Appeal roll is allocated at the outset to a simpliied form of Summons Court and the Court of Session. a speciic commercial judge in may be used. It is service of the the Outer House. The allocated Summons which constitutes There are six Sheridoms in judge will oversee the action from commencement of the action Scotland, each with a number of commencement to conclusion and which stops the clock Sheri Courts. The Sheri Court has and takes an active role in running in relation to time bar. exclusive jurisdiction in relation to case management. Service must be eected within most commercial disputes with a a year and a day of signetting, value of £100,000 or less. A speciic Appeals are taken to the Inner House otherwise the action will cease to commercial procedure to deal with of the Court of Session and are exist and cannot be resurrected. commercial disputes is available heard before a bench of three senior Following service of the in most Sheridoms. Cases in the judges (the Inner House Judges are Summons, the action becomes Sheri Court are always heard known as “Senators of the College of live when the Pursuer returns the by a single Sheri. Appeals from Justice”). The ultimate appeal court Summons for calling. The Pursuer the Sheri Court are taken to the in respect of Scottish civil matters must return the Summons for Sheri Appeal Court which sits in is the Supreme Court of the calling no earlier than 21 days Edinburgh. United Kingdom. after service (and no later than a year and a day after service). The Court of Session is the highest Typical proceedings The Pursuer is not required to civil court in Scotland and sits in The main stages in large commercial give the Defender notice that Edinburgh. The Court of Session has cases proceeding under the Court of the Summons has been returned exclusive jurisdiction in a number Session commercial procedure are: for calling. However, the court of areas, including judicial review publishes a roll of all actions that and in relation to the insolvency • Service of the Summons have been returned for calling. of companies with a share capital The Pursuer prepares a Summons Once an action has been called, exceeding £120,000. and lodges it with the court the Defender has three days to for signetting (which is the enter appearance by informing Complex and high value commercial authority of the court to serve the clerk of court that the action disputes will usually be raised in the Summons on the Defender). is to be defended. Thereafter, the Court of Session. All actions The Pursuer should elect at this the Defender must lodge written are heard at irst instance before stage to use the commercial answers within seven days of a single judge of the Outer House procedure. The Summons must the calling date. Again, the of the Court of Session (Outer summarise the circumstances answers ought to be brief and House judges are known as “Lords out of which the action arises and contain a schedule of documents Ordinary”). The Pursuer can elect set out the orders sought and founded upon. to raise the action as a commercial the legal basis for seeking those action at the point the action is orders. A Schedule listing any • Case management commenced. Alternatively an action documents founded upon by the Following the lodging of answers, raised as an ordinary action can be Pursuer must be appended to the the court will allocate the case transferred to the commercial roll Summons. While the Summons to a particular commercial judge on the motion of either party. Any should be in abbreviated form, who will ix a Preliminary Hearing. dispute “arising out of, or concerned it must give fair notice of the The same commercial judge will with, any transaction or dispute of a Pursuer’s case to the Defender. oversee all stages of procedure commercial nature” is eligible to be Where the purpose of the action in the case and has lexibility dealt with on the commercial roll. is to obtain a decision only on to make such orders as he (or

dentons.com 5 she) thinks it for the speedy often made at the Preliminary will take the form of a Debate determination of the action. Hearing stage. Following the (hearing on legal arguments At the Preliminary Hearing, the preliminary stage, a Procedural only), a Proof (an evidential commercial judge will determine Hearing is ixed. hearing) or a Proof Before Answer what further speciication of the (a hearing combining legal and claim and/or defences is required • Parties are required to lodge a evidential issues). and will ix a timetable for the written statement of proposals adjustment of the pleadings. for further procedure in advance • Disclosure Parties are often ordered to lodge of the Procedural Hearing. At There is no prescribed disclosure speciic documents required the Procedural Hearing the exercise as there is in England to determine further procedure commercial judge will appoint and Wales. It is always open to (such as expert reports and the case to a substantive hearing a party to an action to obtain witness a¡idavits). Orders for to determine the issues in an order for the disclosure the disclosure of documents are dispute. The substantive hearing of documents by way of a procedure commonly referred to as “Speciication of Documents”. In commercial actions, the judge may also require parties to disclose certain documents such as expert reports.

• Witness statements of fact Where witness evidence is required, parties are ordinarily required to exchange and lodge witness statements in advance of the Proof and there is usually an opportunity to lodge rebuttal statements.

• Preparation for Substantive Hearings Each party will require to prepare for the Substantive Hearing by: agreeing and lodging joint bundles of documents; preparing and exchanging witness statements; preparing written submissions and lodging Notes of Argument (as appropriate). An Advocate or Solicitor-Advocate is usually instructed to conduct Substantive Hearings. Following the Substantive Hearing, the judge issues a written judgment, and a court order known as a “Decree”.

6 dentons.com Limitation periods Unless otherwise speciied in a contract between the parties, the Prescription and Limitation (Scotland) Act 1973 sets out the periods for bringing a claim. If a claimant fails to raise and serve a claim within the relevant time period, the claim will, in principle, be time-barred. In Scotland, this time-frame is commonly referred to as “the prescriptive period”.

Statutory Limitation Type of Claim What triggers a limitation period? Period

An obligation arising from a breach The date on which the act constituting the Five years of contract breach occurred

The date on which the damage is suered Negligence (i.e. breach of duty not which is calculated by reference to the irst contained within a contract) excluding Five years point at which loss was suered, even if the personal injury and latent damage party suering the loss was unaware that the loss arose from negligence

Damages for latent damage (i.e. The date on which the party suering loss damage which is not discoverable Five years irst became aware, or could with reasonable immediately) diligence have become aware of the damage

The date of the fraudulent act or, in certain circumstances, the date the party suering the Liability arising from fraud Five years loss became aware, or could with reasonable diligence have become aware of the damage

Personal injury (excluding certain Three years The date of the injury claims relating to childhood abuse)

The date on which the defamatory statement Defamation (equivalent of libel/slander) Three years irst came to the notice of the person defamed

Liability arising from the Consumer Ten years The date on which the product was supplied Protection Act 1987

Pre-action conduct documents which they intend to rely Should a party fail to comply with Before raising a commercial action on as part of the pre-action protocol. the Pre-Action Practice Direction or in the Court of Session, parties are Parties are also expected to obtain an applicable Protocol, the court will required to comply with the pre- and disclose any expert report on take that conduct into account when action protocol set out in the court’s which they intend to rely before the awarding costs of the action. For practice direction which requires action commences. example, a claimant who fails to send parties to engage in Pre-Action a letter explaining its claim may be Communication. This requires a The Practice Direction stipulates penalised in terms of costs even if it potential Pursuer to set out its claim that unless there is real urgency is ultimately successful. in writing and in su¡icient detail to and/or exceptional circumstances, enable the other party to understand cases should not be placed on and respond to it. The potential the commercial roll unless and Defender is also expected to set until the parties have had careful out its defence in substantial terms. discussions as to whether the action Parties are expected to exchange the is truly necessary.

dentons.com 7 Conidentiality Class actions of Session (where the solicitor Court hearings are public unless There are currently no procedures has day-to-day conduct of the there is a good reason for them to for the bringing of class actions case generally). Solicitors with full be heard in private. in Scotland. However, the Civil practising certiicates have full rights Litigation (Expenses and Group of audience in all Scottish tribunals, Details of all cases calling in the Proceedings) Scotland Bill the Sheri Courts and the Sheri Court of Session, and most cases was introduced to the Scottish Appeal Court. Solicitors do not have calling in the Sheri Court, appear Parliament in June 2017. The Bill rights of audience in the Court of on the Rolls of Court which are proposes the introduction of a Session unless they have achieved displayed in court and published class action procedure in terms of the status of “Solicitor Advocate” on the Scottish Courts and Tribunal which parties (including individuals which requires specialist training. Service’s website. Judgments and third party groups such as pronounced by the court are often consumer rights or environmental European lawyers can be instructed published on the court website. organisations) will be able to opt-in in relation to cases before the to actions brought in the Court Scottish courts provided they are Arbitration proceedings subject of Session. The procedure is yet to instructed along with a solicitor or to the Arbitration (Scotland) be inalised. advocate who is entitled to practise Act 2010 are subject to strict before that court. conidentiality requirements. Audience rights Advocates (the Scottish equivalent Non-EU lawyers have no rights of of a barrister) have full rights of audience in Scotland and cannot audience in all courts and tribunals conduct cases (or appear as in Scotland (and the Supreme Court advocates) in Scottish courts. in Scottish appeals) and typically conduct the advocacy in the Court

8 dentons.com Evidence How should evidence be presented?

Disclosure not be used as a ishing exercise. civil proceedings and to There is no prescribed disclosure Disclosure under a Speciication proceedings which are exercise in Scotland (as there is in of Documents is usually satisied likely to be brought. While a England and Wales). However, it is by way of a voluntary procedure Speciication of Documents always open to a party to an action in terms of which the disclosing order only applies to disclosure to seek an order for the disclosure party lodges a certiicate and of “documents”, a Section 1 of documents: any applicable documents with Order applies to documents the court. Mechanisms are in and other property (including • Speciication of Documents place to protect conidential land) and orders can be made A party to an existing action can and privileged documents. If for the production, inspection, seek an order for the disclosure of documents are not disclosed detention, preservation or documents (including electronic voluntarily the court may photographing of such property. documents) by way of a appoint an o¡icer, known as Again, mechanisms are in procedure commonly referred to a Commissioner, to recover place to protect conidential or as “Speciication of Documents”. the documents. privileged material. This mechanism is commonly used to obtain disclosure from • Section 1 Orders In commercial actions, the judge another party to the action or a It is also possible to obtain may also require parties to disclose third party. For a Speciication of an order under Section 1 of certain documents such as Documents to be granted it must the Administration of Justice expert reports as part of the case be speciic and relate to the case (Scotland) Act 1972. This management procedure. set out in the pleadings; it must Act applies both to existing

dentons.com 9 Privileged documents Privilege applies to both private Role of experts In both the Speciication of practice and in-house solicitors Opinion evidence from a witness Documents procedure and Section (providing the in-house lawyer holds with particular skills or expertise is 1 orders, parties must disclose the a current practising certiicate). Note admissible where it is necessary existence of all documents covered that the position of in-house lawyers to assist the court to determine by the order. However, a party can is not protected in relation to EU technical matters which are outwith mark certain items as conidential or competition law investigations. the court’s expertise. An expert privileged. In that case, documents must explain the basis of his or are usually placed in a sealed Examination of witnesses her evidence where it is not based envelope and disclosed to the other Where a proof is required, witnesses upon personal observation. Where party only if ordered by the court (or of fact are almost always required conlicting expert evidence is led it a Commissioner, where appointed). to give oral evidence. In commercial is for the court to determine which actions, common practice is to evidence it prefers. The most common forms of lodge written witness statements in privilege are: advance. The witness would usually Expert Fees be required to adopt the witness The person instructing an expert • Legal advice privilege: applies to statement as their evidence in chief is liable for his or her fees, which conidential information passed and there will be limited scope to usually include a day rate for between solicitor and client expand upon that in oral evidence. appearing as a witness. The for the purposes of providing successful party can only recover legal advice; Right to cross-examine the costs of instructing their expert When a witness is called to give if the court certiies the expert as a • Litigation privilege: applies evidence it is always open to the skilled witness. The court must be to communications when opposing party to cross-examine. satisied that the witness is a skilled litigation has commenced The party calling the witness then person and that it was reasonable to or is in contemplation. As a has an opportunity to re-examine employ the person for the purposes general rule all material which is but this is limited to clarifying of the action. prepared or gathered by a party matters raised in cross-examination. in preparation of its own case is privileged. Reports and records Third party experts of accidents prepared by a party Appointment procedure are usually always privileged even Standard practice is for each party if prepared before litigation is to instruct its own expert witness. in contemplation. The expert’s duty is to the court. The role of the expert is to assist the court • Privilege in aid of settlement on matters within his expertise. This negotiations: documents created duty overrides any obligation to the in a genuine attempt to settle an party from whom the expert receives existing dispute are protected instructions and fees. The court from disclosure. Note that the use does not supervise the appointment of “without prejudice” wording is of expert witnesses, save that not of itself su¡icient to render a consideration to the suitability of an document privileged. expert may be a factor in relation to an award of expenses. Additionally, apologies made in accordance with the Apologies As noted above, it is also possible in (Scotland) Act 2016 are not appropriate circumstances for the admissible in civil proceedings for court to remit the determination of the purposes of determining liability certain technical matters to an expert or in any manner which is prejudicial known as a “person of skill”. to the party who made the apology.

10 dentons.com Remedies What remedies can be employed, and when?

Dismissal of a case before trial there is no compelling reason Where the Pursuer is an individual, • Summary Decree why Summary Decree should a common law test applies and This is a mechanism whereby not be granted. As in the Court the threshold for obtaining an an action can be determined in of Session, the court will have order for caution is much higher. a summary manner (i.e. without regard to the written pleadings and It is not su¡icient simply to show detailed examination of the facts can also consider documentary that the Pursuer may be unable and law). The availability of the or a¡idavit evidence. Where the to pay the Defender’s expenses remedy and the test is dierent motion is made by the Pursuer, if successful and, as a general in the Court of Session and the the Sheri may grant Summary rule, caution will only be ordered Sheri Court. Summary Decree Decree against the Defender in against an individual Pursuer in is not a substitute for a legal relation to all or part of the action. exceptional circumstances. One debate and is primarily intended Where the action is brought by a instance where caution is more for use where a party’s case is Defender, the court may dismiss likely to be granted is where the fundamentally defective. all or part of the Pursuer’s claim. Pursuer (whether an individual or The Sheri may also order any a company) is not resident within • Summary Decree party (or a partner, director or other the United Kingdom, particularly in the Court of Session o¡ice-bearer of a party) to produce if resident in a jurisdiction where A Pursuer in a commercial action documents or lodge a¡idavits in the enforcement of an award of in the Court of Session may make support of any assertion of fact expenses is likely to be di¡icult a motion for Summary Decree. upon which it relies. (however, caution will not be The court may grant the motion ordered on this ground alone if there is no defence disclosed Security for costs in respect of a Pursuer resident to the action or any part of it to A court in Scotland can order a party within the European Union). which the motion relates. The to ind “caution” (pronounced kay- procedure requires a hearing at shun) for expenses. The grounds • Orders for Caution which the court will consider the for caution depend on whether an against a Defender written pleadings and can also order is sought against a Pursuer or The general rule is that caution have reference to documentary a Defender. should not be ordered against a or a¡idavit evidence. Summary Defender (whether the Defender Decree will not be granted unless • Orders for Caution is an individual or a company). the court is satisied that the against a Pursuer The rationale behind this is defence is bound to fail. As an Where a Pursuer is a UK limited that a person called to court is alternative to granting the motion, company, an order may be entitled in all cases to defend the court may order any party (or made under section 762 of himself. Caution will only be a partner, director or other o¡ice- the Companies Act 1985. The awarded against a Defender in bearer of a party) to produce Act provides that caution may exceptional circumstances such documents or lodge a¡idavits in be ordered where “it appears as where there is a substantial support of any assertion of fact by credible testimony that the counterclaim or abuse of process upon which it relies. company will be unable to pay the by the Defender. Defender’s expenses if successful • Summary Decree in his defence”. Relevant factors An alternative to caution is the in the Sheri Court will include the publicly available sisting of a “Mandatary”. This is In a commercial action in the accounts (or failure to lodge applicable where a party (either Sheri Court either party may them with Companies House as a Pursuer or Defender) is resident move for Summary Decree. The required) and available statements outwith Scotland. In such cases test is whether the opposing regarding the solvency of the court may order that party to party’s case (or any part of it) has the company (for example, introduce a party based in Scotland no real prospects of success. statements from suppliers who to be responsible for the proper The court must be satisied that have not been paid timeously). conduct of the action and to be

dentons.com 11 liable for expenses. Again, such an Other interim remedies • Inhibition on the Dependence order is more likely to be granted In certain circumstances a Pursuer The eect of an interim inhibition where the party is resident in a can take steps to ensure the once registered is that the debtor jurisdiction in which an award Defender’s assets are preserved cannot sell heritable property of expenses would be di¡icult pending determination of the action. without the consent of the to enforce. It would therefore by This process is know in Scotland Pursuer. unlikely to be considered appropriate as interim diligence or diligence on where a party is resident elsewhere the dependence. The Pursuer may • Interim Attachment in the United Kingdom or in the apply for an interim order at any time Interim Attachment provides European Union. including before the action is served a form of interim security over on the Defender. There must be corporeal moveable property (i.e. Interim injunctions reasonable grounds for the granting any property other than land or Interim Interdict of an interim order and the court intellectual property rights). There A party can petition the court for must be satisied: are a number of exceptions to the interim interdict. Interdict is a Scottish type and value of property which remedy which is broadly comparable • that the Pursuer has a prima facie can be attached. to the English injunction. However, case on the merits; interdict is available only as a negative Caveats order (i.e. it is an order of the court • that there is a real and substantial It is possible for an individual or prohibiting a party from taking certain risk of the debtor becoming company to lodge a document actions). Interdict is not available as a insolvent before any decree known as a caveat with the Scottish positive order (i.e. an order compelling in the Pursuer’s favour could courts. The eect of a caveat is that a party to take particular actions). be satisied; or that there is a an interim order will not be granted There are two essential tests which likelihood of the debtor removing, before the Defender is given the the petitioner must meet in order to disposing of, burdening or opportunity to address the court. obtain interim interdict: concealing assets; and A caveat is therefore an extremely useful tool and parties in disputes, • the petitioner must demonstrate • that it is reasonable in all the particularly if in inancial di¡iculties, that it has a prima facie case. circumstances, including the should consider lodging caveats to Essentially the court must be eect on the debtor and any prevent interim orders being granted satisied that there is at least other party having an interest in against them without notice. Note some prospect that the petitioner the assets which would be caught that caveats do not prevent orders will ultimately be successful; and by the order. for the inspection of documents or other property in terms of Section • the balance of convenience The following types of interim 1 of the Administration of Justice must favour the making of the diligence are available: (Scotland) Act 1972. order. The court’s aim is usually to maintain the status quo. • Arrestment on the Dependence Final remedies This is essentially a freezing The most common remedies sought Speciic Implement order which prevents third in commercial actions are: A party to a contract can seek a parties who hold money to the positive order compelling the other Defender’s order from paying • Damages. The court may party to perform its contractual it to the Defender or any other order the payment of damages obligations. It is competent to party. Interim arrestments are and interest. seek an interim order for speciic commonly served on the main implement. The test is similar to that clearing banks and on any other • Speciic Implement. The court for interim interdict. party suspected of holding cash may order a party to a contract which is payable to the Defender. to perform its contractual The sums which can be arrested obligations. are capped by reference to the value of the claim plus interest.

12 dentons.com • Interdict. The court may order a as an alternative (for example, an The court will generally enforce a party to refrain from committing alternative to speciic implement). straightforward liquidated damages certain acts, either for a speciied In contract cases, the aim is to clause when freely agreed by the period or indeinitely. compensate the innocent party parties, provided these are a genuine for the loss suered as a result of pre-estimate of loss. If the contract • Declarator. The court may the breach. The damages awarded provides for a more complex remedy make binding determinations, should put the party in the position it for breach (for example, disentitling for example as to the correct would have enjoyed had the contract the party in breach from deferred interpretation of a contract been performed. So a claim for consideration), the court will enforce or as to the ownership of breach of contract would ordinarily this if persuaded the claimant had a certain property. be limited to loss of proits (as legitimate interest in performance of opposed to turnover) and incidental the relevant obligation and that the Damages under Scottish law are costs arising from the breach. sanction for breach is not extravagant, generally compensatory and Contracts can provide for liquidated exorbitant or disproportionate rarely, if ever, punitive. Most civil (or pre-ascertained) damages for when compared with that interest. claims involve claims for damages speciied breaches. Otherwise, such a clause will be either as the principal claim or struck down as a penalty.

dentons.com 13 Fees, funding and costs What should you expect, and budget for?

Legal fees • Damages-based • After the event (ATE) insurance In dispute resolution matters, law agreements (DBAs) This legal expenses insurance irms often charge clients for the A DBA is another type of policy, obtained after the dispute time spent on the claim on an contingency fee agreement has arisen, covers a party’s hourly rate basis. where the fee paid to the solicitor potential liability in the event it is based on a percentage of the loses its case. The policy usually Other potential fee structures compensation received by the covers the other side’s legal costs include: client (this is usually a settlement and disbursements. As a result, it sum or damages from the other is often combined with another • Success fee arrangements party). DBAs are currently not form of litigation funding in respect These are arrangements in permitted in Scotland. of the party’s own costs. ATE which the solicitor will not insurance is becoming increasingly receive its fees (or may receive In June 2017, a bill seeking to available for Scottish disputes. less than normal) if the client reform the law relative to civil legal loses the case. The solicitor will expenses was introduced to the • Before the event often receive normal fees plus Scottish Parliament which proposes, (BTE) insurance a “success fee” if the case is among other things, to cap success These are policies purchased successful. The success fee is fees and to introduce DBAs. Its prior to a dispute arising and calculated as a percentage uplift outcome is awaited. usually cover legal fees and of the agreed hourly rate or by disbursements up to a speciied reference to the fee element of a Funding and insurance for costs limit. Examples include motor judicial award of expenses (with Litigation in Scotland is primarily insurance and residential the success element capped at funded privately. However, forms of landlord cover. 100% of the fee element of the litigation funding and insurance are judicial award). Success fees are becoming increasingly common. • Third party funding not recoverable against the This is an arrangement where a losing party. third party agrees to pay some or all of the claimant’s legal fees

14 dentons.com • and disbursements in return for • the importance of the case to with the Auditor of Court (within four a fee payable from the proceeds the client; months of the date of the order). The of the claim (whether following Auditor ixes a “Diet of Taxation” at a judgment or settlement). If the • the value of the case; which the successful party’s account case is unsuccessful, the funder and any objections lodged before the is generally unable to recover any • the steps taken in attempt to other side are considered. Following sum. While the market for third settle the case. the taxation, the auditor determines party funding is not as developed the expenses and outlays payable to The court will also be told about any in Scotland as it is in England the successful party. formal settlement oers made by and Wales, third party funding is the parties when determining costs. becoming increasingly available. Cost interest Either the Pursuer or Defender may Generally, post-judgment interest Cost award make a formal oer known either as on costs orders is awarded at a rate The default position is that the a “Pursuer’s Oer” or a “Defender’s prescribed by regulation, calculated successful party is entitled to recover Tender”. These formal oers are made from the costs order’s date. However, its costs from the unsuccessful party. by intimating it to the other party and courts retain discretion to: lodging it with the court. The clerk of As a general rule, the successful court lodges the oer but does not • disallow post-judgment interest; party usually recovers around 60% advise the judge of its existence until of its costs from the unsuccessful it is either accepted or the action is • vary the rate of interest; party. In certain circumstances, the determined. These formal oers can court may order an additional fee. have a potentially signiicant impact • allow interest for a shorter period The factors to be taken into account on the expenses position. where it is considered just to when determining whether to award do so. an additional fee include: It should be noted that the Scottish position is distinct to the English “Part • the complexity/novelty of the 36 Oers” and careful consideration issues in dispute; requires to be given to formal oers depending on the circumstances of • volume of documents involved; each case.

• the place and circumstances Expenses are awarded “as taxed”. of the case (for example, where Following an award of expenses, evidence requires to be obtained the party in whose favour the award from another jurisdiction); is made must prepare an account of legal expenses and lodge these

dentons.com 15 Appeals How does this process evolve, and on what ground?

Which courts Appeals to the Supreme Court. on an error of law or that the judge Appeals to the Inner House. Decisions of the Inner House may be misdirected himself; or that the Decisions of commercial judges appealed to the UK Supreme Court. judge at irst instance has not in the Court of Session are heard Leave to appeal is always required properly considered or assessed the before a bench of three judges of and must be obtained either from evidence. It is also possible to bring the Inner House. The process of the Inner House or from the Supreme an appeal on procedural grounds, appealing to the Inner House is Court itself. Applications for leave to for example if the irst instance judge known as “reclaiming”. Any judgment appeal to the Supreme Court must has not given adequate reasons for which constitutes a inal disposal of be made within 28 days. the decision. the action, or part of the action, can be appealed without leave. Appeals Grounds for appeal must be lodged within 21 days Broadly speaking the available (though, in some speciied cases, grounds of appeal are: that the a shorter period applies). irst instance decision was based

16 dentons.com Enforcement of judgment What options are available?

If the Decree is not satisied • Attachment of movable property contributions. After deduction of voluntarily, the creditor must apply The creditor can in certain the costs of the sequestration, for an “Extract Decree” (this is the circumstances seize the debtor’s the trustee then distributes the o¡icial copy of the Decree which can moveable assets (for example sums realised proportionately be used for enforcement purposes). vehicles, cash and goods). There among all creditors, including Usually an Extract Decree will be are detailed rules governing the petitioning creditor. Secured issued seven days after the judgment attachment and a number of creditors are repaid from any is pronounced. Once in possession restrictions on the ability to secured assets before any ordinary of an Extract Decree, the judgment attach goods. creditors can be repaid. Once the creditor can instruct court o¡icers insolvency is concluded the debtor known as “Messengers at Arms” • Inhibition in Execution is released from all pre-insolvency to serve a document known as a A creditor can register an debts. Sequestration has a “Charge for Payment” which is an Inhibition in the Register of damaging eect on the debtor’s o¡icial demand for payment. The Inhibitions. The eect of a credit rating and reputation. debtor has 21 days to make payment registered Inhibition is that the The threat of sequestration is in accordance with the Charge debtor cannot sell heritable therefore a powerful tool for for Payment, failing which further property without the consent of persuading a debtor to satisfy enforcement action can be taken: the creditor. the decree voluntarily. There is, however, a risk that the creditor • Arrestment in execution • Land Attachment will recover signiicantly less than The creditor can serve a Schedule The Bankruptcy and Diligence etc the sum owed. There can also of Arrestment on any person (Scotland) Act 2007 introduced a be a signiicant delay before any holding property on behalf of new right of enforcement known recovery is made. the judgment debtor. Most as a “Land Attachment”. As at commonly, arrestments are 2017, the relevant provisions of • Liquidation served upon the major clearing the act have not been brought Where the debtor is a company, banks to arrest funds held in a into force. When in force, the act the creditor can ultimately petition bank account in the name of will permit a creditor to register a the court for it to be wound up. the debtor. The property will be Notice of Land Attachment in the If the petition is granted the automatically released to the Land Register. The creditor will court will appoint an insolvency creditor after 14 weeks unless ultimately be able to apply to the practitioner, known as a liquidator, the debtor signs a mandate court for a warrant to sell the land to wind up the company’s aairs authorising its release in advance and to apply the proceeds of sale and the company will ultimately be of that date. It is also possible to to the outstanding debt. dissolved. The liquidator realises arrest other types of property (for the company’s assets and, after example, for fees payable by a • Bankruptcy deduction of the costs of the third party to the debtor or shares Where the debtor is an individual, liquidation, distributes the sums held by the debtor). the creditor can ultimately realised proportionately among all petition the court for their creditors, including the petitioning • Arrestment of earnings bankruptcy (technically known as creditor. Secured creditors are The creditor may serve a Schedule sequestration). If the petition is repaid from any secured assets of Arrestment on the debtor’s granted the court will appoint an before any ordinary creditors can employer (providing the employer insolvency practitioner, known as a be repaid. As with sequestration, is subject to the jurisdiction of the trustee in sequestration, to manage the threat of winding-up can be Scottish courts). The employer the debtor’s inancial aairs. The very eective in encouraging is required to pay a prescribed debtor may be required to make voluntary settlement. Equally, there part of the debtor’s salary to a contribution from income is a risk that the full sum will not be the creditor until the decree for a period of up to four years. recovered and that there will be is satisied. The trustee realises the debtor’s signiicant delay before any funds assets and collects income are received.

dentons.com 17 Choice of law in a contract an alternative choice of jurisdiction The procedure for enforcing foreign The Scottish courts will respect the clause and claim jurisdiction for itself. judgments covered by these choice of governing law in a contract arrangements varies depending subject to limited exceptions In relation to claims arising out of on the underlying treaty and the relating to: contracts that have a jurisdiction speciic statutory rules applicable clause naming a jurisdiction outside in Scotland. Generally, the party • Unfair Contract Terms Act 1977; the EU or Lugano Convention wishing to enforce the judgment • Financial Services and Markets countries, the Scottish courts will lodges the paperwork speciied by Act 2000; respect the chosen jurisdiction the relevant treaty and an a¡idavit in the contract unless the court • mandatory rules of law (or provisions that it is entitled to enforce the considers that the “ends of justice” that cannot be derogated from decree in Scotland. If this is in order, would be best served by applying a by agreement) including those the Court of Session registers the dierent jurisdiction. relating to employment and foreign judgment and makes an order permitting enforcement. consumer contracts; Rights of service for foreign parties • situations where applying the The usual methods of service in Judgments which are subject to choice is manifestly incompatible Scotland include: the Administration of Justice Act with public policy; and • personal service by court o¡icers 1920 or the Foreign Judgments • the quantiication of damages (Sheri O¡icers or Messengers (Reciprocal Enforcement) Act 1933 will usually be determined by at Arms); may be enforced provided they are Scottish Law. inal and conclusive and for a sum of • service by irst-class recorded money (but not for taxes, a ine, or delivery post (from within the UK). Forum selection in a contract other penalty). The jurisdiction of the Scottish It is not possible to serve Judgments issued by EU member courts is governed by EU proceedings using email or fax. legislation and domestic law. states are treated as if they were an enforceable Scottish judgment and Scotland is a party to the EC Service so the creditor can simply serve a Where EU legislation, or the Lugano Regulations and the Hague Service Charge for Payment on the debtor Convention, applies (for example, Convention. These treaties provide (together with a certiied translation where a jurisdiction clause names a further procedures for overseas of the original judgment and a court in, or the defendant is domiciled service into Scotland, which the certiicate from the issuing court) in, the EU or within a country signed Scottish courts recognise as valid. up to the Lugano Convention) the without the need for a further order. Scottish courts will generally respect Scotland is party to the EU Taking of Judgments issued in other choice of jurisdiction clauses. The Evidence Regulation and the Hague jurisdictions are more di¡icult to main exceptions relate to: Convention on the Taking of Evidence enforce and require the creditor to Abroad in Civil or Commercial Matters. • matters over which other courts raise an action of “decree conform” If a foreign court (from any territory) have exclusive jurisdiction (for in the Court of Session. example, in relation to immoveable requests assistance with a witness, property, some questions as to and makes an application, the Court Enforcing Foreign Arbitration Awards company law, insolvency law, of Session may make an order The Scottish courts will recognise public registers, registered IP rights compelling a witness to submit to an arbitration award made in and enforcement of judgments); examination either orally or in writing. accordance with the New York Convention. Convention awards • situations where a party submits Enforcement of a foreign judgment to the jurisdiction of a court other can be directly enforced in Scotland General principles than the one speciied in any without the requirement of any Scotland, as part of the United clause; and additional procedure. Kingdom, has bilateral treaties for the • instances where there are special reciprocal enforcement of judgments rules in relation to the types of with numerous countries including: contract, such as employment, • The EU; consumer or insurance contracts. • EFTA (European Free Trade In cases that fall within these Association) countries; exceptions, it is possible that the • Commonwealth countries; and courts of Scotland may disregard • Hague Convention countries.

18 dentons.com Alternative (appropriate) Dispute Resolution How can disputes be resolved out of court?

ADR procedures Evidence in ADR lose conidentiality if required to ADR can be highly successful Where parties voluntarily engage enforce the adjudicator’s decision in settling commercial disputes in ADR, it is usual for them to at court. The parties can agree to either: (i) without commencing agree that the process will be use documents produced in the court proceedings; or (ii) after conidential and that any documents adjudication for the purpose of commencing proceedings but produced or admissions made will subsequent court proceedings. before a substantive hearing. be protected from disclosure in future proceedings. • Mediation ADR methods are split between non- Conidentiality is integral to the binding and binding processes: • Arbitration mediation process, which is The form of evidence can be usually conducted on a without- • the non-binding processes agreed between the arbitrator and prejudice basis. Mediation include negotiation, mediation, the parties, though it generally agreements will usually include conciliation and early neutral follows similar principles to court express provisions regarding evaluation. Negotiation and proceedings with (usually limited) conidentiality (for example, that mediation are by far the disclosure of documents, witness no party (including any third party most popular; statements and expert reports. who attends the mediation) may Arbitrations (and the documents disclose any information arising • the binding processes include produced for the purpose of out of or in connection with the appointing an expert to determine the arbitration) are recognised mediation for any purpose, without a technical issue (expert as conidential and hearings the consent of the other party). deter-mination), adjudication generally take place in private. and arbitration. The scope of the conidentiality • Negotiation obligation may dier depending If negotiations are conducted on ADR does not form part of the court on the circumstances of the a without-prejudice basis, written procedure in Scotland. While courts case and the obligations can correspondence and documents encourage parties to explore extra- be modiied by agreement. The produced for the purpose of judicial settlement (and are likely arbitrator has lexibility as to negotiation/settlement are usually to allow parties time to engage where and how evidence is given prevented from being put before in ADR, particularly mediation or (for example, witnesses may give a court, provided the negotiation settlement negotiations), the court evidence remotely by way of is a genuine attempt to settle the will not order parties to engage in video-conferencing). Arbitration dispute. The court distinguishes ADR (the only exception to this is is governed by the Arbitration between admitting without- in relation to the simple Procedure (Scotland) Act 2010 unless prejudice communications as Rules introduced in 2016 for claims otherwise speciied by the parties. evidence (which is not allowed) with a value of less than £5,000 in and admitting that without- which the court can direct parties • Adjudication prejudice communications have to attend mediation). There is no express duty of taken place (which is allowed). conidentiality in adjudications Without-prejudice protection does under the Scheme for Construction not protect an admission of fact Contracts (Scotland) Regulations unless that is speciically agreed 1998, but they are generally treated by the parties. as conidential. The parties will

dentons.com 19 Costs in ADR Mediation or negotiation Additionally there are a number This depends on the type of ADR. Costs are a matter for commercial of private irms oering mediation agreement between the parties. services, including specialised Arbitration Parties often share the mediator’s fees commercial mediation. The arbitrator is under no obligation and agree to bear their own legal fees. to order that one party pays another’s Legal costs can, however, be used as ADR Reform costs, but often does so if the parties a tool in negotiations. If a settlement There are a number of proposed do not agree otherwise. If the arbitrator is not reached, costs will usually reforms before the Scottish is to decide, this depends on the become part of the costs of the Parliament’s 2017/18 session. relative success or failure of the award. litigation and will be dealt with by the These include: court in the usual way after trial (i.e. Adjudication loser pays the winner’s costs subject • the introduction of class actions; The usual rule is that each party to other factors such as conduct, • the reform of the law of bears its own costs. The costs are not albeit that the costs recovered prescription and limitation usually recoverable from the losing in relation to a mediation will be of actions; and party and the adjudicator has no substantially less than the actual costs power to make costs orders. Costs incurred). However, it is always open • the reform of the law on legal will not be recoverable even if there to the parties to agree otherwise. is subsequent litigation between the expenses in civil claims. parties on the same dispute. The ADR organisations Additionally, the Scottish Law adjudicator’s fees are usually borne • The Chartered Institute of Commission is currently undertaking by the losing party, but are often split Arbitrators; a review of the remedies for breach between the parties where there has of contract which may result in been mixed success. The adjudicator • The Royal Institute of Chartered substantial reform of the law. decides who should be responsible Surveyors; for his costs but the parties are often jointly and severally liable. • The Faculty of Advocates (Arbitration Service).

20 dentons.com dentons.com 21 Notes

22 dentons.com Key contacts

Malcolm Gunnyeon Douglas Blyth Aberdeen Glasgow +44 122 435 6140 +44 141 271 5685 [email protected] [email protected]

Tim Edward Gareth Hale Edinburgh Edinburgh +44 131 228 7241 +44 13 1228 7243 [email protected] [email protected]

Kirsti Olson Edinburgh +441312287211 [email protected]

Scotland

Aberdeen

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CSBrand-7838 Global QA Guide Scotland_14 — 08/08/2018