The Scottish Arbitration Centre and the Advantages of Arbitration

Brandon Malone Partner, McClure Naismith Chairman, Scottish Arbitration Centre Advantages of Arbitration

• Confidentiality • Commerciality • International enforceability • Limited rights of appeal • Control of costs Confidentiality

• Arbitration is a private • Litigation is a public process process • In Scotland, under the • Court reports are Arbitration (Scotland) published online and Act 2010, arbitration in legal journals is confidential • A breach of confidentiality is actionable Commerciality

• Arbitrators can be • Judges, whilst expert selected on the basis in the law, are unlikely of industry experience to have day to day • An industry arbitrator experience of the comes to the process issues with an understanding • The function of a of the wider judge is to decide commercial context between the cases presented International Enforceability

• Arbitration • Litigation – New York Convention – Few countries have a 1958 comprehensive – Every significant system of reciprocal commercial country in enforcement treaties the world is a party to – Some sovereign states the Convention will claim immunity – Sovereign states can from litigation submit to arbitration Limited Rights of Appeal

• Arbitration under the • Litigation 2010 Act – An unsuccessful party – Parties can agree to can appeal as of right limit appeals to the Court of – Appeals in respect of Session, and with the points of law can be consent of two excluded Counsel to the UK Supreme Court – Where an appeal is competent the Court must consent – No appeal to London Control of Costs

• Arbitration • Litigation – Parties can agree to – Expenses follow cap recovery of costs success – Parties can agree to – There is no cap on exclude recovery of recoverable expense legal costs – The lack of a right of appeal will necessarily restrict cost A Scenario

• A Service Company sues your organisation for £14m in the Commercial Court • The subject matter of the dispute is highly commercially sensitive • The contract contains no arbitration clause and the Service Company won’t agree to arbitrate – so the litigation proceeds • What if there had been a properly drafted arbitration clause? Bad Publicity v No Publicity

• Court • Arbitration – Public Process – Private Process • Case appears on the • No public rolls of Court announcement of the • Press alerted existence of the case • Hearings are open to • Duty of confidentiality the public • Breach of confidentiality • Decisions of the court is actionable are published online – Can be interdicted – Damages if it causes loss Success

• Court • Arbitration – The Court rejects the – If this had been an Service Company’s arbitration the claim against your arbitrator could have organisation awarded expenses on – Awards costs on the an indemnity basis if judicial scale in favour those expenses were of your client – considered reasonable typically 40 to 70% of – 100% recovery actual costs Success?

• Court • Arbitration – The Service Company – If Rule 69 of the appeals to the Inner Scottish Arbitration House of the Court of Rules is excluded, no Session appeal on an error of law is allowed – Even if Rule 69 is left in place, and appeal on an error of law is only allowed if parties agree or if the Court consents Appeal

• Court • Arbitration – Delay of 12 to 18 – If appeals are months to get an excluded, the matter is appeal hearing in the at an end Inner House – If not excluded and the Court permits an appeal (which it will be slow to do), the appeal goes to the Outer House – a single judge Further Appeal?

• Court • Arbitration – The Inner House – If appeals were rejects the Service excluded by contract: Company’s appeal no further procedure and upholds the – if not excluded, and an decision of the judge appeal to the Outer – The Service Company House was allowed can still appeal to the and refused, there is a UK Supreme Court right of appeal to the (formerly the House of Inner House with leave Lords) – No appeal to the UK Supreme Court Final Victory?

• Court • Arbitration – Decision of the UK – If appeals have been Supreme Court is final, but excluded in the arbitration … clause the arbitration would – The process will have have concluded at stage taken two to four years at one, at a fraction of the enormous expense in the cost, with no adverse full glare of the public eye publicity – Even with the limited right of appeal allowed by the act, the process would have been quicker and cheaper A duty to advise

• Solicitors in Scotland now have a duty to consider arbitration as a serious alternative to litigation • A failure to advise of the potential advantages of arbitration at the contract stage, and at the stage that a dispute arises is at best a failure to give full advice, and at worst a failure to comply with professional standards which may give rise to a claim for negligence Developments since introduction • Arbitration (Scotland) Act 2010 came into force 7th June 2010 • Arbitral Appointment Referees and Panels • Court Rules and Cases • Scottish Arbitration Centre • Promoting Scottish Arbitration Founding principles

(a) the object of arbitration is to resolve disputes fairly, impartially and without unnecessary delay or expense,

(b) parties should be free to agree how to resolve disputes subject only to such safeguards as are necessary in the public interest,

(c) the court should not intervene in an arbitration except as provided by this Act. Rules of the Court of Session

• Chapter 100 – Arbitration 100.2 All proceedings in the Outer House in a cause to which this Chapter applies shall be brought before a judge of the court nominated by the Lord President as an arbitration judge or, where no such judge is available, any other judge of the court (including the vacation judge).

Judges: Initially the Commercial Court Judges:

Lord Glennie Lord Hodge Lord Woolman Lord Malcolm

Lord Glennie is no longer a Commercial Judge but remains an arbitration judge Interpreting the Act

• The Courts have held that despite minor differences in wording, cases on the Arbitration Act 1996 can be used for guidance when interpreting the 2010 Act Application No 3 2011

• Lord Glennie – Since the Act was closely and unashamedly modelled on the English Act, and reflects the same underlying philosophy, authorities on the that Act (and its predecessor, the Arbitration Act 1979) in relation to questions of interpretation and approach will obviously be of relevance. Procedure

100.3 Subject to the provisions of the Scottish Arbitration Rules and this Chapter, the procedure in a cause under the Scottish Arbitration Rules shall be such as the judge dealing with the cause shall determine. Challenges to Awards.

• Challenging an award – Jurisdiction • the tribunal did not have jurisdiction to make the award – “Serious irregularity” – Legal Error Rule 67 Challenging an award: substantive jurisdiction • 67 (1) A party may appeal to the Outer House against the tribunal’s award on the ground that the tribunal did not have jurisdiction to make the award (a “jurisdictional appeal”). • (2) The Outer House may decide a jurisdictional appeal by— – (a) confirming the award, – (b) varying the award (or part of it), or – (c) setting aside the award (or part of it). Rule 67 Challenging an award: substantive jurisdiction • (3) Any variation by the Outer House has effect as part of the tribunal’s award. • (4) An appeal may be made to the Inner House against the Outer House’s decision on a jurisdictional appeal (but only with the leave of the Outer House). Rule 67

• (5) Leave may be given by the Outer House only where it considers— – (a) that the proposed appeal would raise an important point of principle or practice, or – (b) that there is another compelling reason for the Inner House to consider the appeal. • (6) The Outer House’s decision on whether to grant such leave is final. • (7) The Inner House’s decision on such an appeal is final. Rule 68 Serious Irregularity – mandatory rule • “Serious Irregularity” means: • (a) the tribunal failing to conduct the arbitration in accordance with— – (i) the arbitration agreement, – (ii) these rules (in so far as they apply), or – (iii) any other agreement by the parties relating to conduct of the arbitration, • (b) the tribunal acting outwith its powers (other than by exceeding its jurisdiction), • (c) the tribunal failing to deal with all the issues that were put to it, • (d) any arbitral appointments referee or other third party to whom the parties give powers in relation to the arbitration acting outwith powers, Serious Irregularity

• (e) uncertainty or ambiguity as to the award’s effect, • (f) the award being— – (i) contrary to public policy, or – (ii) obtained by fraud or in a way which is contrary to public policy, • (g) an arbitrator having not been impartial and independent, • (h) an arbitrator having not treated the parties fairly, Serious Irregularity

• (i) an arbitrator having been incapable of acting as an arbitrator in the arbitration (or there being justifiable doubts about an arbitrator’s ability to so act), • (j) an arbitrator not having a qualification which the parties agreed (before the arbitrator’s appointment) that the arbitrator must have, or • (k) any other irregularity in the conduct of the arbitration or in the award which is admitted by— – (i) the tribunal, or – (ii) any arbitral appointments referee or other third party to whom the parties give powers in relation to the arbitration. Serious Irregularity

• Appeal is to the Outer House • A further appeal may be made to the Inner House with leave Legal Error

• Unlike the right to challenge on jurisdiction and serious irregularity, parties can choose whether to allow appeals on ‘legal error’ Rule 69 Challenging an award: legal error • 69 (1) A party may appeal to the Outer House against the tribunal’s award on the ground that the tribunal erred on a point of Scots law (a “legal error appeal”). • (2) An agreement between the parties to disapply rule 51(2)(c) by dispensing with the tribunal’s duty to state its reasons for its award is to be treated as an agreement to exclude the court’s jurisdiction to consider a legal error appeal. Legal Error Appeals – Rule 70

• A legal error appeal may be made only— – (a) with the agreement of the parties, or – (b) with the leave of the Outer House. Legal Error – test for Leave to Appeal • Leave to make a legal error appeal may be given only if the Outer House is satisfied— – (a) that deciding the point will substantially affect a party’s rights, – (b) that the tribunal was asked to decide the point, and – (c) that, on the basis of the findings of fact in the award (including any facts which the tribunal treated as established for the purpose of deciding the point), the tribunal’s decision on the point— • (i) was obviously wrong, or • (ii) where the court considers the point to be of general importance, is open to serious doubt. Petition under the Act

• (3) The following matters should be identified— – (a) the parties to the cause and the arbitration from which the cause arises; – (b) the relevant rule of the Scottish Arbitration Rules or other provision of the 2010 Act under which the petition or note has been lodged; – (c) any special capacity in which the petitioner or noter is acting or any special capacity in which any other party to the proceedings is acting; Petition under the Act

– (d) a summary of the circumstances out of which the application or appeal arises; – (e) the grounds on which the application or appeal proceeds; – (f) in the case of an appeal under rule 67(1), whether the appellant seeks the variation or the setting aside of an award (or part of it); – (g) in the case of an appeal under rule 69(1), whether the appeal is made with the agreement of the parties to the arbitration; – (h) any relevant requirements of the Scottish Arbitration Rules which have been met. • Legal Error appeals Rule 100.8 – (4) The application for leave to appeal shall be dealt with without a hearing unless the court considers that a hearing is required. – (5) Where the court considers that a hearing is required, it may give such further directions as it considers necessary. Legal Error Appeals

• Detailed pleading in legal error appeals is not encouraged. – See Arbitration Application No 2 of 2011 Application No 2 2011

• Lord Glennie • I would not wish to encourage detailed pleading on a legal error appeal. In a legal error appeal, unless one party or the other wishes to assert facts relevant to the exercise by the court of any of its powers under the Act, for example the power under Rule 71(8) of the SAR to order the tribunal to state its reasons in greater detail to enable the appeal to be dealt with properly, there is no scope for either party to make averments of fact about the underlying dispute, and extensive pleading will be unnecessary and, being unnecessary, is likely to be conducive of unnecessary delay. Application No 2 of 2011

• It will normally be sufficient for the respondents in their answers to make clear that they seek to support the award. Adjustment to the petition and answers will seldom, if ever, be required. • The hearing of the appeal itself will usually proceed on a basis of written notes of argument lodged in advance of the hearing, rather than on the basis of the formal pleadings. Legal Error Appeals

• Arbitration Application No 3 of 2011 • Legal Error appeal – application for leave to appeal • Lord Glennie – “In so restricting the right of appeal on legal error grounds, the Act "enacts a concern, in the interests of party autonomy, privacy and finality, that such awards should not be readily transferred to the courts for appellate review" Application No 2 of 2011

• Where parties have agreed to the appeal proceeding, and no application for leave is required – The ‘obviously wrong’ test does not apply – The court is simply deciding whether there has been a legal error • Confidentiality – The rules – Application in case law – Practical consequences Confidentiality Provisions

• Rule 26 (Default) • (1) Disclosure by the tribunal, any arbitrator or a party of confidential information relating to the arbitration is to be actionable as a breach of an obligation of confidence unless the disclosure— – (a) is authorised, expressly or impliedly, by the parties (or can reasonably be considered as having been so authorised), – (b) is required by the tribunal or is otherwise made to assist or enable the tribunal to conduct the arbitration, Confidentiality Provisions

– (c) is required— • (i) in order to comply with any enactment or rule of law, • (ii) for the proper performance of the discloser’s public functions, or • (iii) in order to enable any public body or office-holder to perform public functions properly, – (d) can reasonably be considered as being needed to protect a party’s lawful interests, – (e) is in the public interest, – (f) is necessary in the interests of justice, or – (g) is made in circumstances in which the discloser would have absolute privilege had the disclosed information been defamatory. Confidentiality Provisions

• (2) The tribunal and the parties must take reasonable steps to prevent unauthorised disclosure of confidential information by any third party involved in the conduct of the arbitration. • (3) The tribunal must, at the outset of the arbitration, inform the parties of the obligations which this rule imposes on them. • (4) “Confidential information”, in relation to an arbitration, means any information relating to— – (a) the dispute, – (b) the arbitral proceedings, – (c) the award, or – (d) any civil proceedings relating to the arbitration in respect of which an order has been granted under section 15 of this Act, • which is not, and has never been, in the public domain. Confidentiality

• What if there is a court application/challenge? • How is confidentiality maintained? Confidentiality

• S.15 (1) A party to any civil proceedings relating to an arbitration … may apply to the court for an order prohibiting the disclosure of the identity of a party to the arbitration in any report of the proceedings • Does not apply to proceedings to enforce an arbitrator’s award • Anonymity in legal proceedings • 100.9—(1) Where a petition or note is lodged under the 2010 Act, any application to the court under section 15 of the 2010 Act (anonymity in legal proceedings) shall be made not later than the hearing of a motion for further procedure under rule 100.5(5). • R100.9(2) Until an application under section 15 of the 2010 Act has been determined or, where no such application has been made, the time at which a motion for further procedure is made under rule 100.5(5) and, thereafter, if the court grants an order under section 15 of the 2010 Act— – (a) the petition or note shall not be available for inspection, except by court staff and the parties; – (b) the petition or note shall be referred to publicly, including in the rolls of court, as “Arbitration Application” or “Arbitration Appeal” (as the case may be) and by reference to a number and the year in which it was lodged; – (c) the court proceedings shall be heard in private.

• (3) Unless the court grants an order under section 15 of the 2010 Act, all applications and appeals made under the 2010 Act shall be heard in public. Application No 3 of 2011

• Lord Glennie – Anonymity

In giving my decision I have tried to avoid setting out any details which might betray the identity of the parties. Explanation of the points at issue is necessarily lacking in particulars. Application No 2 of 2011

• Lord Glennie – In setting out an explaining my decision, I have attempted to respect both the letter and spirit of this requirement for anonymity

Application No 2 of 2011

• Lord Glennie: It was agreed at the end of the hearing that in the first instance I should issue my Opinion to the parties without publishing it more widely, to enable them to make representations as to whether there should be publication and, if so, whether any details could be omitted without removing from my decision such sense as it might otherwise have Procedural Guidance

• Pleadings • Evidence Application No 3 of 2011

• Lord Glennie: – Pleadings • Pleadings in arbitration need not, indeed normally should not, follow the form of pleadings in common use in the Court of Session.

Application No 3 of 2011

• Lord Glennie: – Evidence • It is for the arbitrator to decide questions as to the admissibility, relevance, materiality and weight of any evidence: Rule 28(1)(b). • It is not to be assumed that the absence of averments directly on the point will mean that evidence relating to it is inadmissible. • Even if the averments are excluded, the evidence may still be admitted. That is for the arbitrator. Brandon J Malone Partner, McClure Naismith Solicitor Advocate Chairman, Scottish Arbitration Centre [email protected] Scottish Arbitration Centre

Andrew Mackenzie, Chief Executive Background

• Not for profit company limited by guarantee • All Arbitral Appointment Referees invited to participate

Member organisations

• Chartered Institute of Arbitrators • Faculty of Advocates • Law Society of Scotland • RICS Scotland • Scottish Government Structure

• Board: – Comprised of two directors from each member organisation • Chief Executive – Andrew Mackenzie – Seconded from Scottish Government • Honorary President and two Vice Presidents • Arbitral Appointments Committee Arbitral Appointments Committee

• David Carrick, Senior Vice President, Hill International, Edinburgh • Teresa Cheng SC, Des Voeux Chambers, Hong Kong • Vincent Connor, Head of Asia Pacific, Pinsent Masons, Hong Kong • Thomas Halket, Partner, Halket Weitz, New York • Kaj Hobér, Mannheimer Swartling, Stockholm • Elie Kleiman, Partner, Freshfields, Paris • Lindy Patterson QC, Dundas and Wilson, Edinburgh

Objectives

• Promotion of Scottish arbitration • Promotion of Scotland as a place to arbitrate Our arbitration suites

• Dolphin House

Activities

• Discussing Scottish arbitration at domestic conferences and events • Representing Scotland at international arbitration events • Working with Arbitral Appointment Referees on education and standards in Scotland Events so far

• Media launch • Scottish Parliament event • London launch • New York launch • Attendance at domestic and international arbitration conferences and events Key projects

• Institutional rules • Domestic promotion • International promotion • Individual and corporate membership • Focus on energy arbitration The role of the Centre

• Today and the future – The voice of arbitration in Scotland – The face of Scottish arbitration abroad – Government consultee and policy shaper – Future coordinator of arbitration training amongst the Scottish professions – Future facilitator of serviced arbitrations Conclusion

Scottish Arbitration Centre

The voice of arbitration in Scotland The face of Scottish arbitration abroad Media launch