GENERAL

Before the enactment of the Arbitration (Scotland) Act 2010, arbitration laws in Scotland were criticised for being scattered among various elements of common law, cases and statutes dating as far back as 1695. With the aim of putting Scotland on the map of international arbitration and persuading international businessmen to choose Scotland as the place of their arbitration in order to generate revenue, the Scottish Government promulgated the Arbitration (Scotland) Act 2010 which is designed to offer a “one-stop shop” providing a single track of arbitration law corresponding with the modern trends in arbitration, covering both domestic and international arbitration.

PRE-ARBITRATION (SCOTLAND) ACT 2010

A combination of common law and piecemeal statutory provisions

Before the enactment of the Arbitration (Scotland) Act 2010, an arbitration held within Scotland or subject to the Scottish arbitration laws was subject to a dual track of arbitration law. Leaving aside international commercial arbitration, the law of arbitration in Scotland was based almost entirely on the common law, with piecemeal statutory provisions dealing with specific points.

GENERAL

The characteristics of flexibility and speed which influence disputing parties to choose international commercial arbitration as the means to resolve their disputes are credited to the adoption of the principle of party autonomy. The principle of party autonomy is manifested in the parties’ freedom in designing the arbitration procedures to suit their needs. For instance, they can agree the number of arbitrators to be chosen to decide the disputes, the format and length of the procedures shall take, the place of arbitration, the language of arbitration, the laws applicable to the arbitration agreement or the main contract, … and so on. However, it shall be borne in mind that party autonomy is not unlimited. It can be restricted by mandatory rules and public policy, which are used to make sure that arbitration is carried out according to a minimum level of standard. The first part of this chapter will provide a theoretical basis for the principle of party autonomy. Second, the discussion will be focused on how such a principle is adopted in practice, both internationally and nationally. Then it will be followed by an examination of the exceptions to the principle of party autonomy: namely mandatory rules and public policy.

THEORETICAL BASIS OF PARTY AUTONOMY

The focus of the principle of party autonomy is firmly placed on the parties’ powers /rights to determine how their arbitration procedures shall be carried out. This idea is rooted in freedom of contract originated from the philosophy of laissez-faire: that is, the doctrine invoking unrestricted freedom in commerce flourished and similarly indicated that the law should interfere with people as little as possible.

The passing of the Arbitration (Scotland) Act 2010 has brought about a revolution in dispute resolution law in Scotland. Until now, indeed for centuries, most of the law relating to arbitration has had to be found in judicial decisions, many of considerable antiquity, not all of which were sensible, and which left large gaps in a variety of places. Now, thanks to the new Act, there is a coherent and sensibly structured statutory scheme which will enable users and practitioners to see what can be done by arbitration, and to provide a new, straightforward and generally comprehensive service. To be effectively operated, the new regime requires to be properly understood and it is clear that all those liable to be involved in arbitration will have to undertake a study of the new Act and its effect on the conduct of arbitration in the future. In her book, Dr Hong-Lin Yu undertakes a splendidly focused examination of the whole. In clear and simple language she looks closely at the various aspects of the law and practice which must be appreciated for efficient operation of the system, and provides precisely the means to enable one to carry out the sort of study which is required. The book will be an invaluable tool for the arbitrator, the practitioner and the student alike.

GENERAL

To resolve disputes between the parties, it is essential to provide for how the aggrieved party should initiate the arbitration proceedings, as well as how an arbitral tribunal should be appointed. Without a clear indication on the timing for the commencement, the parties may easily argue that the arbitration proceedings have not started: consequently, this will have a knock-on effect on the relevant issues of prescription and limitation later on. It is also necessary to have a system in place to appoint the arbitral tribunal either by the parties or by default rules. Part I of the Scottish Arbitration Rules contain both mandatory and default rules governing the commencement of arbitration; the composition of the arbitral tribunal; the procedures to be followed in the failure of appointment of the tribunal; the arbitrator's duty to declare any conflict of interest which may affect the parties’ opinions on the relevant appointment; and the procedures to follow in the event of removal of the arbitrator by the parties and by the court; the resignation of arbitrators; the liability of an arbitrator when his tenure ends; and the reconstitution of the arbitral tribunal after the removal, resignation or death of arbitrators.

COMMENCEMENT OF ARBITRATION – r 1

The draftsmen of the Arbitration (Scotland) Act 2010 deliberately provided a simple means of commencing arbitration. According to r 1, arbitration begins on the service of notice by one of the parties submitting the dispute to arbitration or by a third party through or under a party to the arbitration agreement: for instance, a third party will gain the right to initiate arbitration through assignment or changes in a group of companies.

GENERAL

Contractualists explore the nature of arbitration from a contractual viewpoint. Although contractualists admit the fact that arbitration proceedings and arbitration agreements can be influenced by the relevant national laws, they argue that arbitration has a contractual character that originates in the parties’ arbitration agreement. Accordingly, an arbitration agreement between the parties is regarded as a contract which expressly states the parties’ wish to have their disputes resolved by means of international commercial arbitration. This kind of contract is voluntarily reached between the parties, allowing them to determine the time and place of arbitration, select the arbitrators to hear their case and choose the laws governing both procedural and substantive matters.

The proponents of the contractual theory believe that the settlement of the dispute in arbitration should not be influenced by the power of any states. The concept of pacta sunt servanda1 should prevail and it binds the parties to perform the arbitration agreement made between them without the pressure from the state. As is illustrated by Kellor:

GENERAL The principle of party autonomy affords the parties to arbitration the freedom to choose the arbitrators, the language, the substantive law, the procedural law … and so on. In order to attract more cross-border arbitration business to Scotland, the policy clearly sets the tone that the choice of procedural law can be different from the choice of the substantive law. For instance, parties to arbitration may choose Swiss law to govern disputes arising from the main contract between them but to have procedural matters governed by Scottish arbitration law. This can be seen in s 3(2) of the Arbitration (Scotland) Act 2010, which stipulates: “The fact that an arbitration is seated in Scotland does not affect the substantive law to be used to decide the dispute.” What it means is that the choice of arbitrating in Scotland in accordance with the Arbitration Act 2010 does not affect the parties’ choice of substantive law other than Scots law to determine the substantive issues.

The parties’ chosen procedural law regulates all procedural matters which have to be followed by the arbitrators in order to ensure the smooth operation of arbitration. As mentioned before, the procedural matters cover the aspects of place, language, communication between parties and arbitrators, written submissions, evidence, conduct of hearings, witnesses, expert witnesses, confidentiality, etc. Parties can choose either a set of arbitration rules, or a national procedural law, or even have a set of procedural rules tailored into their needs for this particular arbitration. However, parties’ freedom in the choice of procedural law is not unlimited. Their choice is qualified by the exceptions of mandatory rules and public policy. It is worth noting that, in some cases, the parties may fail to choose the procedural law to govern the arbitration.

SCOTTISH ARBITRATION RULES, r 26

One of the advantages of arbitration is confidentiality, which allows the parties to keep their disputes away from the gaze of the outside world. The duty of confidentiality is particularly acute in the information in relation to arbitration. Confidential information is defined as any information related to the dispute, the arbitral proceedings, the award or any civil proceedings relating to the arbitration in respect of which an order has been granted under s 15 of the Arbitration (Scotland) Act 2010 which is not, and has never been, in the public domain.

As a default rule, r 26 imposes on the arbitrator(s) and the parties a legal duty not to disclose any confidential information relating to the arbitration. A breach of the confidentiality duty is actionable by the party or parties to whom the duty was owed. In the case of a breach leading to substantial injustice, the arbitrator(s) involved will be subject to removal under r 12. A breach of confidentiality allows the party or parties to seek remedy in the forms of interdict or damages.

However, the duty of confidentiality is subject to a few exceptions listed in r 26(1). In accordance with this provision, first, confidential information can be revealed with the parties’ expressed or implied authorisation. Second, confidential information can be disclosed if such disclosure is required by the tribunal or is necessary for the conduct of the arbitration proceedings.

FOUNDING PRINCIPLES: s 1

The Policy Memorandum on the Arbitration (Scotland) Act 2010 clearly recognises the main features of arbitration as “[a]rbitration is … a private means of dispute resolution”, as well as:

“[t]he essence of arbitration is that it is a procedure whereby parties agree to submit a dispute between them to a third party, who often has special expertise or knowledge, and who will act as a private tribunal to produce a final and binding determination of the dispute. By agreeing to go to arbitration, the parties voluntarily deny themselves recourse to the courts or to another method of alternative dispute resolution”.

This approach is clearly adopted in s 1 of the 2010 Act which provides that the founding principles of the Act are:

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

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

• (c) that the court should not intervene in an arbitration except as provided by this Act.

• Anyone construing this Act must have regard to the founding principles when doing so.”

Section 1 is a mirror provision of s 1 of the (English) Arbitration Act 1996. The draftsmen expected that the Scottish courts and arbitrators will refer to these three general principles when they are called on to intervene or to interpret the legislation.

GENERAL

Arbitration is a legal procedure whereby the parties submit their disputes to an arbitral tribunal for resolution. Strictly speaking, arbitration is not a self-contained mechanism, as the tribunal does not have power to force the parties, or third parties, either to take part in the arbitration proceedings or to carry out the award if they do not wish to do so. When an arbitral tribunal faces unwilling or unco-operative parties, it becomes essential for the courts to provide assistance to both the parties and the tribunal to ensure the smooth operation of arbitration and the successful enforcement of the arbitral awards. The national courts used to be overzealous in their assisting and supervisory roles. However, the current trend is to have limited judicial intervention, which allows the tribunal to have more power in managing arbitration proceedings. This can be seen in one of the founding principles listed in s 1 of the Arbitration (Scotland) Act 2010 which stipulates that “the court should not intervene in an arbitration except as provided by this Act”. Despite its intention to reduce court intervention to a minimum, the draftsman still felt the need to specify the powers of the court in relation to arbitral proceedings in the issues of referral on a point of law; variation of time limits set by parties; ordering attendance of witnesses; ordering disclosure of evidence; and others. Nevertheless, it is worthwhile noting that all these powers, provided in Pt 5 of the Scottish Arbitration Rules, can be exercised only on the application of the parties.

GENERAL

The importance of the proper law

To decide the substance of the issues submitted to arbitration, arbitrators have to apply law, or rules of law, to decide the facts of the disputes and the rights and obligations of the parties involved. This chosen law is termed proper law or substantive law in different literature. A valid choice of the proper law of the contract has its own significance in ensuring a speedy resolution of the dispute. The importance of this issue can be analysed from three aspects: the advantages of international commercial arbitration; the expectations of the parties; and the validity of arbitral awards.

As most authors have agreed, compared with national court proceedings, international commercial arbitration is a more flexible and speedy way to resolve international commercial disputes. To safeguard its reputation of speed and flexibility, this mechanism offers the parties quite a high level of freedom in deciding how they would like their disputes to be resolved. In general, arbitrators are usually required to apply the parties’ choice of proper law to the dispute. In the cases where no proper law of the contract is expressed by the parties or the choice is invalid, the arbitrators have to spend more time choosing the proper law from an examination of a large number of factors, such as the nationalities of the parties, the subject matter of the contract, the place of performance, the place of contracting, the form of the contract, the language used and the terms of the arbitration agreement. Apart from the fact that arbitrators have to spend more time in deciding the proper law, arbitration procedures can be delayed to a great extent if the parties object to the choice made by the arbitrators and resort to court proceedings. As a result, the aim of providing a speedy service through international commercial arbitration may not be achieved under such circumstances.