02 June 2010

What the property industry needs to know about the new Scottish arbitration regime.

The Arbitration (Scotland) Act 2010 is now in force. Scotland has – at long last – a single, tidy, coherent legislative structure for arbitrations. Lots of old and probably unloved law has been swept away.

What arbitrations are caught by the new Act?

If you had an ongoing arbitration under an existing contract or lease when the new Act came into force, the old regime will continue to apply.  Any other arbitration under a presently existing contract or lease will be subject to the new regime, although the parties can agree to opt out for five years after the Act came into force.

New contracts or leases entered into after the Act took effect and which have an arbitration clause in them with a Scottish “seat of the arbitration” will be subject to the new regime.

Contracts or leases (whether existing or new) which provide for expert determination are unaffected.

How does the new regime differ from the old one?

Setting aside the great advantage of being a single, intelligible regime, the three most interesting changes are:-

1. The introduction of the Scottish Arbitration Rules, some of which (30 of them) are mandatory and some of which (54 of them) are capable of being varied.
2. Limited rights of appeal in relation to matters of jurisdiction, “serious irregularity” and errors in law.
3. Powers to award damages and interest (which didn’t previously exist unless the contract or lease expressly granted them – and how often did one ever see a lease that did that?)

And how does this affect you?

If you are about to become a party to a contract or lease with an arbitration clause, thought has to be given as to what you are signing up to.

Is the new model of arbitration appropriate (and a cost effective solution) to the type of dispute that’s likely to arise?

Could a good old fashioned expert determination be a better answer?

If arbitration in the broadest sense is an appropriate and cost effective solution, do the Rules need to be varied to suit the precise nature of the likely dispute?

For property clients and their advisors there can be a tendency to lose interest by the time one gets to the dispute resolution clause on page 56 of a lease, although more attention does get paid to the mechanism for determining rent reviews. The new regime might just encourage a rekindling of interest, at least until a standard practice emerges that most people are happy to adopt.