Hansard

I am delighted to open the debate on the principles of the long-awaited Arbitration (Scotland) Bill. I say "long-awaited" because the possibility of legislation on arbitration in Scotland has been under consideration for at least 20 years.

For the benefit of members who are unfamiliar with the concept, it may be helpful if I take a moment to explain how arbitration works. It is a private form of dispute resolution that takes place outside the public civil courts and in which one or more arbitrators give a binding ruling on a dispute that the parties to the dispute have agreed to refer to arbitration for decision. When parties choose arbitration, they give up their right to go to court and court proceedings that arise from the dispute are suspended. Arbitration therefore complements other forms of alternative dispute resolution such as mediation.

The position of arbitration as the dispute resolution mechanism of choice for Scottish commerce has been eroded in recent years, partly as a result of the unsatisfactory state of the law, which is outdated and lacks a modern framework. Consequently, I believe that there is a clear need for the bill. We need to restore arbitration as an efficient and effective method of dispute resolution, which is attractive to potential users. The bill provides a modernised, codified law for Scotland that is in line with generally accepted international standards and aims to capture the best of international practice.

The Chartered Institute of Arbitrators has described the bill as a "landmark piece of legislation" and the commercial judges of the Court of Session have said that the bill will

"provide the framework within which arbitration in Scotland could flourish."

I have been told that arbitrators in other countries are

"amazed at the elegance and economy of this Bill".

This is a highly technical bill that has been developed in close consultation with stakeholders. From the outset, the level of engagement has been second to none. Indeed, our parliamentary draftsman has said that he has never known such detailed drafting suggestions to be made on a bill. I would therefore like to thank everyone who has been involved. The process of stakeholder engagement will continue over the summer. On 18 August, I will host an event with people who are interested in the technical detail of the bill and, on 6 August, I will hold a separate event with commercial organisations that operate consumer arbitration schemes.

To put the bill into a general context, I say that it supports the Government's key priority of developing and enhancing sustainable economic growth to generate wealth and prosperity in Scotland. To that end, particularly in the current economic climate, when businesses are increasingly choosing to resolve their disputes out of court to save time and money, we need methods to be available that will facilitate the speedy and effective resolution of those disputes at a viable cost. It is clear to us that the flexibility and specific utility of arbitration make it just such a method.

The bill will put the majority of the general Scots law of arbitration into a single statute. It aims to take an approach to arbitration that is consistent with the approach that is taken in the rest of the United Kingdom under the Arbitration Act 1996, where that is appropriate. Of course, we believe that we have taken every opportunity to augment and update the 1996 act in line with modern arbitral practice. Under the bill, the same rules will apply, in principle, to domestic, cross-border and international arbitrations that are seated in Scotland—in other words, to those arbitrations that are governed by the Scots law of arbitration. That approach has been welcomed by the vast majority of stakeholders.

The Scottish arbitration rules that will govern the conduct of arbitration are set out in schedule 1. We deliberately put the procedural rules in one place. During the consultation process, many consultees commented favourably on the fact that the rules were set out separately from the main body of the bill. That approach means that the rules can be read as a relatively self-standing code that can be used as a guide by practitioners and users. It also makes it easier to compare the rules with those of arbitral institutions and those that are agreed between parties. The rules are designed to be as accessible as possible to anyone who finds themselves involved in arbitration or who is considering using it.

Before I address some of the issues that the Economy, Energy and Tourism Committee raised in its stage 1 report, I will touch briefly on the potential economic benefits of the bill. At this stage, it is impossible to make a meaningful estimate of any future benefit to the Scottish economy but, in a recent discussion of the bill's potential economic benefits that I facilitated with about 30 enthusiastic and informed people, many matters arose, from the economic benefits to small businesses of pursuing bad debts using arbitration to the spin-off benefits for hotels, restaurants and the retail trade. I fully accept that, as the committee said, we should not

"overstate the economic benefits of this Bill"

particularly

"in terms of attracting high net-worth individuals to Scotland for international arbitration cases."

However, without the bill, it is likely that arbitration would continue to be badly neglected in Scotland and to perform at a relatively low level.

I very much welcome the detailed scrutiny that the committee provided in its stage 1 report, its broad agreement to the need for the bill and its support for the bill's primary objectives. I welcome the committee's comments on the bill's proposal that the United Nations Commission on International Trade Law model law for international commercial arbitrations should be repealed in Scotland. The bill, which is based on model law principles, will provide a comprehensive framework for arbitration in Scotland. It will fill in crucial gaps, such as the lack of powers on the part of the arbitrator to award damages, expenses or interest.

Nevertheless, the model law provides a valuable international baseline standard for arbitration, and we need to fully address the Scottish Council for International Arbitration's concerns that the bill should not unduly interfere with international arbitration. However, during the consultation, the overwhelming body of opinion was that the model law should be repealed. Those bodies that were in agreement with that proposal included the Royal Institution of Chartered Surveyors, the commercial judges of the Court of Session, the Chartered Institute of Arbitrators, whose members conduct international arbitrations across the world, and the Faculty of Advocates.

I am happy to give the assurance that the committee sought whereby, even if the model law is repealed, it will still be possible for parties to adopt it for their arbitration if they so wish. That is effected by section 8(4), subject to the mandatory rules, as the committee noted in its report.

Meanwhile, we are considering further how the mandatory rules will interact with the model law. I can confirm that every substantial provision in the model law has an equivalent in the bill and there is no conflict between the model law and the bill. The differences are relatively minor and are in details such as time limits for court appeals, express rules on immunity and the ban in rule 61 on pre-dispute liability on expenses to protect the economically weaker party. What we want for Scotland is the best of the model law, with the crucial gaps filled, and clarity delivered that those arbitrating internationally need have no fear of arbitrating under Scots law.

The committee suggested that the Government should reconsider the default nature of rules 45 and 46, which allow the arbitrator to award damages and interest, and consider making them mandatory instead. The Law Society of Scotland and the Faculty of Advocates thought that economically stronger parties may seek to persuade weaker parties to delete those rules from any subsequent arbitration. It should be borne in mind that a default rule in the bill can be overridden only with the agreement of both parties and that it otherwise applies as a matter of law. However, we recognise that the parties, for their own reasons, may not wish to have rules on damages and—particularly in the case of members of the Muslim community—interest.

Nevertheless, I am happy to confirm that we will discuss that and a number of other technical points that are set out in the committee's report at the meeting with stakeholders that I mentioned earlier, which has been arranged for 18 August. The aim is to engage further at that meeting with representatives of the Law Society, the Faculty of Advocates, the Chartered Institute of Arbitrators, the Scottish Council for International Arbitration, the commercial judges of the Court of Session, members and clerks of the Economy, Energy and Tourism Committee and others to address outstanding technical comments on the bill. I therefore hope that members will see that progress continues to be made.

However, we also recognise that simply reforming the law on arbitration in Scotland will not in itself have the effect of increasing the use of arbitration domestically or attracting international arbitration business to Scotland. To a large extent, that will be up to arbitration practitioners and those who see benefits in using arbitration as a method of commercial dispute resolution. Meanwhile, the Government will play its part in seeking to advance the use of arbitration as it seeks to make it easier for parties, particularly commercial bodies, to access methods of dispute resolution that are time and cost efficient, particularly in these difficult economic times. I commend the bill to members.

I move,

That the Parliament agrees to the general principles of the Arbitration (Scotland) Bill.