Arbitration Why?

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”).

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