Andrew Mackenzie: Arbitration – the flexible alternative to civil litigation – Scottish Legal News
Andrew Mackenzie: Arbitration – the flexible alternative to civil litigation
Arbitration is a commercial, cost-effective and confidential method of resolving disputes. However, with the COVID-19 lockdown impacting court business and creating a backlog of litigation work, arbitration’s flexibility might now be its most valuable attribute, writes Andrew Mackenzie.
Arbitration, a form of dispute resolution, is a legal technique for the resolution of disputes outside the courts, where the parties to a dispute refer it to one or more persons by whose decision they agree to be bound. Aside from statutory arbitration, the process requires the agreement of the parties, often provided for in a contract. Parties can agree at any time to arbitration, but the contract drafting stage is often crucial in determining the approach to any future dispute.
With the Arbitration (Scotland) Act 2010, Scotland has a modern and innovative arbitration regime. From a relatively low starting point in 2010, arbitration continues to grow in respect of commercial disputes in Scotland. It remains the dispute resolution method of choice in respect of commercial leases and rent review disputes use arbitration. It also appears to be making a comeback in construction contracts and is being used in renewable energy contracts. Arbitration is also popular in consumer, employment, and partnership disputes, and is being promoted for personal injury matters, and by FLAGS for certain aspects of family law.
There is good reason for the growth in arbitration.
Arbitration is often faster than litigation. Disputes can be dealt with very swiftly if the matter in dispute is focused and can be disposed of in a matter of weeks with sufficient cooperation of the parties. It is also possible for parties to limit the duration of the arbitration by agreement. Plus, unlike with mediation, parties are guaranteed a decision on their dispute at the end of the process.
Arbitration can be more cost effective than litigation. There are various strands to potential cost savings, such as the ability to resolve the dispute quickly. It is also difficult to challenge an arbitral award in Scotland, the three possible grounds for such a challenge being jurisdiction, serious irregularity and error of Scots law, so the restrictions on the right of appeal limit costs. There is no requirement to have a substantive hearing, so again there can be further savings where matters are determined on the papers. However, there are costs involved, including the arbitrators’ fees and expenses; any expenses incurred by the arbitrator when conducting the arbitration including the fees of any clerk, agent or expert, and facility costs; the parties’ legal and other expenses; and the fees and expenses of any arbitral appointments referee or any other third party to whom the parties give powers in relation to the arbitration. The arbitrator has discretion to make an award allocating the parties’ liability for the recoverable arbitration expenses though and costs follow success, unless that is inappropriate in the circumstances.
Unlike litigation, arbitration is confidential. There are detailed provisions regarding confidentiality and the related question of anonymity in the act and the related court rules. Unless altered by agreement, all parties to the arbitration have a duty to maintain confidentiality in respect of confidential information. A breach of confidentiality is actionable and can be prevented by interdict if caught in time. If a breach of confidentiality can be shown to have caused loss, that loss can be recovered through the courts. The confidentiality rules are subject to certain exceptions though, mostly relating to the public interest. If there is an application to the court in respect of arbitral proceedings, anonymity is often sought, so parties’ names are anonymised, the case does not appear on the rolls of court and all hearings are held in private. Accordingly, in published decisions, details of the case likely to give away the identity of the parties have been redacted. These strict provisions on confidentiality, extending to references to the court, are particularly advantageous in respect of sensitive disputes, such as matters involving intellectual property.
In addition to these benefits, arbitration is a very flexible process allowing parties to drive matters forward where there is agreement.
Firstly, unlike in litigation, arbitration allows parties to select the judge. Parties can appoint an arbitrator with an appropriate degree of practical experience, such as an engineer or a surveyor. In the absence of agreement, the arbitration agreement will normally provide the mechanism for the appointment of the arbitrator, often involving a professional body or arbitral institution, such as the Scottish Arbitration Centre. Parties should have confidence in our arbitrators in Scotland, as the vast majority of arbitrators belong to professional bodies and are accordingly subject to ethical codes or codes of conduct.
Secondly, parties can also agree on the procedure. Where that is not possible, procedure and the degree of discovery permitted is a matter for the arbitrator. The arbitrator must have regard to his or her duty to act fairly, impartially and without unnecessary delay and expense.
Thirdly, there is also flexibility on approach to hearings. Some arbitrations do not involve hearings, with decisions taken on a papers-only model. Where a substantive hearing is required it can be arranged quickly and in suitable business premises, ensuing a more commercial and less formal approach than in court.
Of course, with the COVID-19 lockdown a physical hearing is not possible. This has not posed a problem for arbitration though, as substantive hearings have moved online in recent months. Arbitral institutions have adapted, where required, at very short notice to this new and different way of working. The Scottish Arbitration Centre is an appointing body, rather than an administrative one (private court), and its appointment service continues despite lockdown. Hearings are also being conducted virtually. Some international institutions are proposing the use of commercially available services, such as FaceTime, Skype, Microsoft Teams and Zoom, while other institutions are offering more bespoke online services. Guidance has also been developed by various arbitral bodies and law firms on the use of video conferencing for hearings. Indeed, a new website has been launched in collaboration with arbitral bodies and practitioners. ‘Virtual Arbitration’ is a forum for news and recent developments in the law and practice of arbitrating on web-based meeting platforms using online communications technology.
The ability of arbitration bodies and professionals to adapt so quickly to lockdown has been impressive and allowed dispute resolution to continue, but it also again demonstrates the flexibility that arbitration offers.
Andrew Mackenzie is chief executive of the Scottish Arbitration Centre