A great leap forward

Hew R Dundas, Edinburgh-based international arbitrator and mediator, looks at why Scotland could soon become a viable venue for arbitration

SCOTLAND and its people are justifiably proud of their history and traditions, even if they can sometimes appear quaint and somewhat removed from the modern world. Take men in ‘skirts’ throwing tree trunks, for example.

Scotland does not spring to mind as a leading maritime nation, but it has a long and highly distinguished maritime history beginning with the arrival of the Scots and Gaels by sea and the early development of inter-island and island-mainland commerce.

Much of the development of West Africa, the Caribbean and the Far East was via Scots shipping. More recently, we have witnessed the magnificent achievements of the Clydeside and other Scottish shipyards in building some of the world’s largest ships, not to mention the development of a large and vigorous fishing fleet.

Regrettably, both the shipbuilding and fishing industries have been substantially destroyed in recent years, one by foreign competition, and the other by bureaucratic assassination. Albeit a shadow of its former self, a modern maritime industry still exists in Scotland. Vessels are built, launched, ply their trade, are sold, resold and scrapped. Much of this activity is carried out pursuant to Scots law contracts and subject to Scots litigation or arbitration as chosen by the parties. So far as can be ascertained, no London-based arbitrator claims any expertise in Scots law or Scots arbitration, leaving many maritime arbitrations in Scotland to be handled by one highly distinguished local arbitral practitioner.

Scots law has its strengths and weaknesses, the latter including what, to the outsider, appears to be excessive reliance on old authorities, ancient Scots and Latin words and phrases, and court procedures which have not yet undergone any Woolf-style reform. That said, Scots commercial law is fully responsive to the requirements of the modern commercial world and provides a comprehensive range of legal solutions to disputes in Scotland and beyond.

It is, however, difficult to be enthusiastic about current Scots arbitration law. Although the UNICTRAL Model Law was introduced in 1990 as the law for international arbitration in Scotland, it has not been used in a single case. Scots domestic arbitration law (parties can opt in to the Model Law if they so agree) is, regrettably, one of the most antiquated areas of law currently applicable in Scotland – a combination of case law dating back almost a thousand years and a highly limited amount of statute law, including Acts of 1427, 1598, 1695 (which interestingly anticipates Section 68(2) (g) of the Arbitration Act 1996), 1894 and some very limited subsequent statutory amendments.

None of this statutory material represents any attempt to codify the law and this can only be determined by reference to the authorities, none of which are at all recent (the oldest being from the 14th century), and other sources dating back to the 16th century. Curiously, in the 15th century, arbitrators could hear criminal cases, even those involving the death penalty – this could be a useful addition to any modern arbitration law.

Much of the current law dates either from the late 18th century, from which there are a number of judicial decisions still held as good law notwithstanding that fact that the circumstances they relate to bear no relation whatsoever to the modern world, or from the mid-19th century, where the judiciary conspired to exercise extremely tight control of arbitrators.

The unfortunate effects of this are still visible today, e.g., an 1852 decision that an arbiter cannot award damages absent express argument thereto by the parties; an 1872 decision that an arbitrator cannot determine his own jurisdiction; a 1902 decision whose effect is that a party, or his solicitor, can be sole arbitrator in his own dispute; and decisions in 1988 and 1994 respectively whose effect is that an arbiter has no power to award interest or costs absent express provision in the arbitration agreement. As a consequence of these and many other anomalies, the law is considered so complex and difficult to ascertain that it is wholly usual for an arbiter to sit with a clerk (i.e., a solicitor) to advise him on the law.

In an attempt to get round these antiquated and wholly unwanted anomalies, a Scottish Arbitration Code was launched in 1999 representing a succinct model set of modern rules available for any disputant parties to take up voluntarily. Standard forms of contract, e.g., in the construction sector, are beginning to come through with the code specified as applicable, a highly laudable and valuable development.

And in December 2002, a private group (including the author) drawn from the Scottish Council for International Arbitration and the Chartered Institute of Arbitrators (Scottish branch), and led by the erudite and immensely distinguished Lord Dervaird, completed the drafting of the Arbitration (Scotland) Bill. This is currently under consideration by the Scottish Executive and the applicable Parliamentary Committee. It is hoped that the bill will arrive on the statute book in 2005.

The bill achieves many objectives:

1. For the first time in Scots law, it codifies the law of arbitration in one place;
2. Recognising that the Model Law continues in force for international arbitration in Scotland, the bill’s provisions regarding domestic arbitration are as consistent with the Model Law as is practicable (recalling that there are many issues not covered in the Model Law, for example costs);
3. The code is incorporated in the bill on an opt-out basis, it being considered that the excellent progress made in propagating the code since its launch should not be thrown away;
4. As most of the likely users of arbitration in Scotland will be large commercial companies, which also operate in England, the bill is consistent with the English Arbitration Act 1996, even to the point of copying some of the drafting. Fractional differences in tracking would be counter-productive;
5. By tracking the English Act closely, the DAC report and post-1997 English jurisprudence will provide valuable assistance in interpreting the bill’s provisions;
6. The opportunity has been taken to modify a small number of sections taken from the English Act based on jurisprudential developments since 1997 (e.g., Section 38(3) is inconsistent with a 2001 Court of Appeal decision);
7. It removes the need for arbiters to sit with a clerk.

So what will Scottish arbitration have to offer the maritime community from 2005? Many advantages. Putting national fervour aside, once the bill becomes law, Scotland will offer a serious alternative to arbitrating in London with significant advantages, including a supportive and rapid- response judiciary, first-class local legal and other expertise, and, particularly in respect of solicitors, significantly lower fee rates than would be encountered in London or another major English city.

But the appeal of Scotland to arbitrating parties goes far beyond fee rates and a supportive judiciary, extending to local distilleries, golf courses, cuisine, and historical and cultural sites. There is in existence a not entirely spoof amendment to the Arbitration Rules of the Chartered Institute (Scottish Branch), which mandates that all arbitrations adjourn at lunchtime on Wednesdays for all parties to visit a local distillery together in the afternoon, and that no hearings will be held on Fridays but that the parties instead adjourn to the nearest golf course and settle their differences at the 19th hole.

As soon as the Arbitration (Scotland) Bill arrives on the statute book in 2005, there will be significant and excellent reasons to conduct maritime arbitrations in Scotland. Will it require bravery on the part of the parties to agree to arbitrate in Scotland? No. They can be wholly reassured and completely confident that Scottish arbitration will deliver a highly cost-effective service at significantly lower cost than in London.