Economy, Energy and Tourism Committee,

Meeting date: Wednesday, May 27, 2009

Official Report 328KB pdf

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Arbitration (Scotland) Bill: Stage 1

Good morning, colleagues. I welcome everyone to the 17th meeting in 2009 of the Economy, Energy and Tourism Committee.

The first item of business is stage 1 consideration of the Arbitration (Scotland) Bill. We are joined by a panel of distinguished witnesses, and I ask them to introduce themselves briefly and tell us who they represent.

I am from the Chartered Institute of Arbitrators. I was president of the institute in 2007 and am a full-time international arbitrator in approximately 10 jurisdictions around the world.

I am a Queen's counsel at the Scottish bar and, for the moment, president of the Chartered Institute of Arbitrators, which is centred in London, has 12,000 members in about 90 countries and operates through 35 branches. I am a practitioner of the law in Scotland, mainly in town and country planning but in all forms of alternative dispute resolution. I am very glad to be here.

I am from the University of Stirling and, as far as I know, I am not representing anyone this morning.

I am an advocate, barrister and attorney, mediator, adjudicator and arbitrator and fellow of the Chartered Institute of Arbitrators. However, I am here in a personal capacity this morning.

I am an advocate, and along with Mr Robert Howie, I am representing the Faculty of Advocates. I practise in the commercial and construction field and have relatively long experience as a practitioner of arbitration.

I am a QC at the Scottish bar. Like Mr Borland, I practise in commercial law, tending to take on construction and shipping cases, and I have significant experience in domestic and international arbitration. Mr Borland is fortunate, in that my experience is, sadly, a lot longer than his.

I am a chartered valuation surveyor, arbiter and commissioner for the Scottish Council for International Arbitration. In 2002, I worked on the Dervaird committee and I am also the vice-chairman of the Royal Institution of Chartered Surveyors Scotland international dispute resolution faculty board, which is based in London, and the immediate past chairman of the Scotland RICS dispute resolution faculty board. As an arbiter and expert for the past 30 years or so, I have handled more than several hundred cases in the Scottish market.

I am from the Law Society of Scotland. I have about 25 years' continuous experience in domestic and international arbitration. I am a commissioner of the Scottish Council for International Arbitration, a past committee member of the Scottish branch of the Chartered Institute of Arbitrators, an honorary surveyor and convener of the Adjudication Society in Scotland.

Thank you. Because the panel is quite large, members and witnesses should keep their questions and answers as tight as possible. Members can direct questions to individual witnesses or ask a general question. If a general question is asked, witnesses should not feel that they have to answer unless they have a specific comment to make. Otherwise, we could be here all day.

I will start with a fairly general question. The Government has indicated that one of the reasons for introducing the bill is the economic benefit that it will have for Scotland. Can any of the witnesses quantify the bill's potential economic benefits?

In our submission, we have endeavoured to quantify some of the bill's economic effects. However, as you can see, certain effects cannot be quantified in any form. One difficulty is that, as arbitration is by definition more or less a private process, there are few published statistics other than those produced by bodies such as the Chartered Institute of Arbitrators that make appointments each year. We do not know, other than through anecdotal information, the number of arbitrations that take place privately between private parties and without the involvement of our institute, the RICS or others.

In its submission, the Chartered Institute of Arbitrators tried as far as it could to differentiate between domestic and international arbitrations; to quantify the value of that work to London; and then to apply a pro rata reduction to reflect the fact that professional fees in Scotland are lower. The figures that we came up with are set out on pages 4 and 5 of our submission.

Since we made the submission, we have tested the figures—privately, of course—with our colleagues and have sought their rigorous criticism. As no one has demurred materially from the figures, I am reasonably satisfied that they are fairly robust and can be relied on.

There is a lot of evidence that does not come from experience. A quite well-known PricewaterhouseCoopers report that was published in 2006 demonstrated that the economic benefits are probably less than what most people might expect, despite the fact that the number of international arbitration cases has increased.

The same theme emerged in a paper by Christopher Drahozal of the University of Kansas, who in 2004 did a study of increased legislation in a selection of countries between 1994 and 1999. Again, the number of arbitration cases increased, but the economic benefits were not quite as large as had been hoped—although that depended on how much effort was put into promoting the various new bits of legislation.

I will follow that up from a slightly different angle. Benefits might accrue to businesses in Scotland that decide to go down the route of arbitration rather than other routes, but is there any evidence that the current law deters people from using arbitration? If so, what are the main barriers in the present law that will be addressed by the bill?

I do not want to hog the floor, but a range of deterrents is apparent to anyone who studies the current scene. I should perhaps add to my previous answer that the economic benefit that might result from the bill's passage will not be accrued instantaneously but will accompany the culture change that ought to occur. The figure that we have hazarded is between £15 million and £25 million a year.

You asked about deterrents. As I see it, parties are deterred from participating in arbitrations, if it is not too trite to say so, because of the current state of the law, which is difficult to find and somewhat remote and inaccessible. In addition to that, it is possible in Scotland to derail proceedings if one is so minded by requiring an arbiter to state a case for the opinion of the court. That takes the case away from the arbitrator and puts it into court, when one becomes subject to the vagaries of court delays, which in my experience, for what it may be worth, can be highly significant. In effect, the process is rendered not useless, but clumsy, inaccessible, remote, expensive and all the other things for which people often criticise courts. The bill would mean that that deterrent would disappear.

Ordinary litigation presented a number of difficulties that were overcome by the introduction of the commercial court. I have experience in a number of areas of solicitors advising their clients to opt in their contract for use of the commercial court as opposed to arbitration.

My experience is consistent with what Mr Anderson has just said. I know of a solicitor in a major Scottish firm that practises internationally in the field of construction who follows the practice of simply deleting any arbitration clause that appears in a contract that is presented to him because, historically, he has found arbitration to be an unsatisfactory process.

A more specific answer to your question is that, for a number of reasons, arbitration has not, in my experience, presented itself or been available as a speedy and relatively inexpensive system. I think that that is the main deterrent—it has not been a quick or a cheap process.

You asked for evidence. I have been in the oil industry since 1978, both in the United Kingdom continental shelf and around the world. Until not so long ago, I was head of legal at Cairn Energy, which I believe is Scotland's fifth-largest company. Throughout those 30 years, the idea of arbitrating in Scotland has been a total no-go area, for the reasons that the submissions identify, which my colleagues have repeated this morning. The use of arbitration has been unthinkable. The oil industry might have considered arbitration in England after 1996, but it has consistently preferred litigation, given the shortcomings in arbitration here. That is my evidence from 30 years' experience in the oil business. To my knowledge, there has never been a Scottish arbitration arising out of the UKCS.

It is entirely correct that, as Mr Campbell said, the lack of a modern arbitration law for domestic arbitration in Scotland has hampered the use of arbitration. It is to be applauded that the Parliament is considering such legislation now.

The problem with stated case was not that people did not want to use it, but that it took a year and half for the appeal court to hear the cases. That is a slightly different perspective from Mr Campbell's. In my experience, if someone whose business life depends on a tribunal's decision on a dispute is asked whether they want a situation in which they can do nothing if the tribunal goes wrong on the law, their answer is invariably that they would want to do something about such a mistake. That was reflected in the consultation responses.

My experience reflects that to which Mr Kelly has just spoken. I have found that clients were interested in arbitration as a potentially private and speedy way of dealing with disputes until I told them that it was sudden death and that, if the arbiter got it terribly, horribly wrong on the law and made a schoolboy error, they would be stuck with it. Their enthusiasm then disappeared out of the window and they were desperate to keep the stated case, however long it took, because it was the one protection that they had left. Therefore, they would be concerned at the suggestion that the stated case was simply to disappear and that we would be back to Scottish arbiters being domestic despots, as they were called in the 19th century.

However, with respect to Mr Dundas, it is not quite correct to say that the oil industry has always abjured Scotland. I have been in two international oil industry arbitrations and suspect that, if I have done two, other people have done more elsewhere. Although we may know something about it and cases that indicate that something has happened sometimes pop up in the courts, nobody can really know the figures for the obvious reason that arbitration is a private process.

One problem is the dual-track arbitration system that exists between United Nations Commission on International Trade Law cases and domestic cases. The Government is to be congratulated on seeking to get rid of that. In an international shipbuilding case, I had the unhappy experience of seeing a proof to decide whether it was competent to state a case go on for a whole week with people being brought from all round Europe to give evidence. Under the old, simple domestic system, that would not have happened. There was an enormous delay of more than a year, not because of the stated case but because of the debate about whether a case could be stated, as a furious argument had broken out about whether we were under the UNCITRAL rule or domestic rule. In so far as the bill proposes to get rid of that dual-track system, it is an undoubted advance.

I will add something else by way of evidence about how thinking has changed. Construction contracts traditionally used arbitration as their modus operandi for resolving disputes. The standard form of building contract in Scotland always included arbitration clauses but, in more recent times, because our law of arbitration has not been considered to be modern and up to date, the default dispute resolution provision in contracts that the Scottish Building Contract Committee issues has been for cases to go to the commercial court. That reflects the fact that, as Mr Borland said, people in construction who are looking for a speedier and more cost-effective method of dispute resolution have tended to go the commercial court.

It was pointed out that the competitive nature of lower fees in Scotland might be attractive if a simplified process was available. Does that matter much? Will it be possible for us to measure the potential value to economy?

An International Chamber of Commerce study from a few years ago shows that the costs of an international arbitration are roughly 80 per cent the parties' legal and other costs, roughly 12 per cent the costs of the tribunal and 8 per cent the costs of the ICC itself. We can assume that, for international arbitrations, arbitrators will charge much the same everywhere, although that is not exactly true.

The ICC charges scaled rates, so 80 per cent of the costs of the arbitration are the legal fees. If that cost can be cut sharply, by choosing an alternative jurisdiction to the expensive jurisdictions of London and New York, the parties can make a significant saving. To give one example—which will probably frighten my colleagues from the Faculty of Advocates—the equivalent of a QC in Singapore is on about £230 to £240 per hour. Some years ago there was a famous quotation from a fashion model, who said that she would not get out of bed for less than $10,000 a day—I invite the English bar to appear in an arbitration at a rate of £250 an hour. Significant savings are available in Scotland in comparison with some other jurisdictions.

The total cost of an arbitration in London can be quite large, if one considers the cost of the premises and hotel accommodation for a large number of witnesses and representatives. The attractions of Edinburgh, and Scotland, will be an added element if arbitration can be seen to work and is reasonably priced here.

In many international cases that present themselves for an arbitral solution, a choice needs to be made at some point about where the arbitration should be conducted. The nature of global or transnational contracts means that when arbitrators are selected, such a choice may need to be made.

Part of the reason for choosing a particular location is, of course, the cost. It is not true to say that parties simply go where their lawyers are, or, conversely, that lawyers go where the parties are. If someone would rather spend four weeks in Riga, or the Belgian Congo, or St Andrews, there may be a pretty obvious answer. Without being invidious about any other part of the world, experience tells us that that is a factor in determining the outcome of that question.

In addition—my friends have already mentioned the cost of legal help—Scotland is well equipped with decent lawyers who practise in the arbitration trade. London is too, but lawyers in each of the two countries operate at different fee rates, so the marketplaces are quite different.

I would always recommend St Andrews.

Why not come to Inverness?

We are attempting to measure the potential value of arbitration to the economy. Aside from the issues of fees and your explanation that the legal costs are a large part of the decision-making process, is there any other aspect of the potential value that we could measure to get a handle on the issue?

It is hard to measure. The convener asked about attractiveness to disputing parties, and we have all talked about the fees of professionals, representatives and arbitrators, and so on. Looking at the issue from the other side, from the point of view of the user of the process, it seems that there might be a culture change, in that this nice tidy bill—with the law in one bit and the rules in the other—might present to disputing parties a convenient home-grown way of achieving a rapid solution.

There will always be an argument—as has been ably presented by Robert Howie and Garry Borland—that it is better to go to court than to an arbitrator. That is to do with the quality of the decision maker, and it depends on the case whether one needs absolute legal certainty or whether something a bit more rough and ready will do. To sell that domestically would be an intangible economic benefit, because serious commercial competing parties would be able to say, "Well, we have a home-grown instrument that we can use." One of the beauties of the bill, of course, is that it can be used at both the consumer level and the highest commercial level.

We discussed that aspect with the Minister for Enterprise, Energy and Tourism, Jim Mather, about three weeks ago. The bill has potential social benefits in making justice available to the man in the street, who goes through life with many complaints and problems and is dissuaded from going to court to rectify them because going to court is intimidating and not an easy thing to do. If education in this country were adjusted so that children in primary school learned a bit about business, a bit about the courts and a bit about arbitration as a route, and if all that were woven into the social fabric, the social benefits would be manifest.

I have recently been reading one or two international papers that have concentrated on the financial aspects. Although financial benefits are important for the economy, they may seem a bit vulgar when compared with the benefits for the people. As Hew Dundas and John Campbell have said, the economic benefits in any country have been impossible to quantify over the past 20 years. Those benefits are a function of the commitment of Government as well as the commitment of institutions.

Last year, this committee produced a commendable report. Your sixth report of 2008 talked about "Team Scotland", about co-ordinating efforts, about the possible use of local authorities, and about arbitration. Whether the bill can take off will depend on the extent to which you promote it on the international stage. If you promote the bill, you promote Scotland. At the moment, Scotland has a fair bit of making up to do; the banking crises of the Royal Bank of Scotland and HBOS have been well publicised, and representatives from Scottish Enterprise were recently down in London to try to compensate for the problems.

The bill offers an opportunity for the Government here in Scotland. Quite apart from the opportunities for business, there is a spectrum of potential benefits. A cost benefit analysis would show that, overall, many millions of pounds would be produced. We should not consider simply the financial aspects of any one case.

If I may suggest it, gentlemen, perhaps you need to be a little cautious about making assumptions of the commercial and financial benefits that would accrue from changing the legislation. If you imagine an international dispute between, say, Indians or Chinese on one side, and people from this country on the other, the decision on where to go and arbitrate does not depend fundamentally on questions of cost or legal fees. Frequently, there is a relationship between the cost and the scale of the dispute. If your dispute is about £50 million, a legal cost of £0.5 million does not matter, but if your dispute is about £1 million, a legal cost of £0.5 million assuredly does matter.

You must accept that there will always be very large cases for which the attractions of London, or New York or Geneva, will always be greater than ours. People will say, "Yes, I know that Sir Extremely Eminent KC of the London bar will cost a great deal, but that's because he is extremely eminent. We want people who are very good, because we think we are right in our dispute. The other side is throwing up smokescreens, but Extremely Eminent will see through them and we will win." That is what litigants, or people who are going to arbitration, want to do: they want to win. In general, they will pay the price that they think they have to pay.

You must therefore be careful. Just because fees in Scotland are, as a general rule, lower than they are in England or elsewhere, you cannot assume that people will beat a path to your door if you but change the legislation. There is a limited amount that you can do in changing legislation. People will always want to assess each case and ask, "Where is it and when is it?" and then, more important, "Who will appear as the lawyers? Who will be the arbitrators? What confidence do we have in their experience and their ability at this exercise?"

The brute fact is that, if you are competing with London, you are competing with one of the major international centres that will always tend to sweep up the big and highly profitable work that would bring in money and invisible earnings of the variety that you are talking about. It is true that costs are lower here, but there has to be a degree of caution about saying, "Costs are lower here, so that will encourage work to come in, if we but change the law." I suspect that it may prove to be not quite so simple.

One will probably never be able to tell the amount of additional work that one will cause to come to Scotland by altering the law, but it will probably not be as great as one might hope.

I share those reservations and I share Mr Howie's sense of caution. However, the alternative is to do nothing. I do not think that anybody regards this bill as a mechanism for attracting the cream of arbitral business from London; London is well resourced and well established, and I do not think that anybody would disagree that it is the world centre of this trade. However, if you do not have the ability to offer an alternative, nothing will ever happen. That is what the bill is about. When I talk about culture change, that is what I mean.

I have two brief comments. First, to follow on from Mr Howie's remarks, the general counsel of Shell Exploration gave a presentation in Aberdeen last month in which he said that Shell has three fundamental requirements for considering arbitration in any country. The first requirement is that the relevant country is a signatory to the New York Convention on the Recognition and Enforcement of Arbitral Awards: Scotland is a signatory, through the United Kingdom. Secondly, Shell requires that the courts be non-interventionist: the bill will provide that. Thirdly, Shell requires that arbitration law is robust and allows for maximum arbitral efficiency: the bill will provide that.

On the original question on the quantification of economic benefit, a couple of weeks ago I circulated colleagues in more than 50 countries and asked whether anybody in their country had considered quantifying the economic benefits of arbitration. I had the sum total of zero responses on that question—nobody has ever considered that before. However, at the last count I think that I had nearly 20 responses saying, "If you know anything better than we do, please tell us." There is a real difficulty in pursuing the issue of quantification.

I am interested in exploring further a number of questions that have arisen from the evidence, in relation to how the bill is constructed.

What we have heard during the meeting reinforces what is shown in the written evidence: there is broad support for the thrust and the principles of the bill. Mr Anderson, among others, raised a couple of points on which I would like him to expand and others to respond. First, should the rules be incorporated in the body of the bill or contained in a schedule? The second point, which we discussed with the bill team at last week's meeting, concerns the essential nature of limiting cost and avoiding unnecessary delay. Should there be a statutory limit on delay? Or do we simply express in the bill the warm wish that there should be no unnecessary delay, without explaining how that is to be achieved?

The third point, which I think that the Scottish Council for International Arbitration raised—from their introductions this morning, I know that Mr Reeves and Mr Kelly have a connection with the council—concerns the model law and whether its repeal is the appropriate way of ensuring that we do not deter international customers from coming here. Perhaps Mr Anderson will expand on the first two points, then we could hear from others.

To link up with the previous point, if the bill could be made so good that, say, an additional 50 arbitrations came to Scotland that would not previously have come, and assuming that those who came to Scotland to arbitrate tacked a holiday on the end and brought their families with them, presumably there would be appreciable indirect earnings for hotels and tourism in general.

However, the key matter, as has been said, is making the bill better than any other form of arbitration that is currently available. I believe that that could be done. Personally, I am not too happy about going down the schedule route. My preference would be to have two or three stated arbitration procedures that the parties could select, depending on complexity and on their wishes, and which would be enshrined in principal legislation and address the problems that face arbitration everywhere, which are procedures, costs and time. I believe that Scotland can leapfrog the problems that exist elsewhere to make Scottish arbitration better than that which is offered anywhere else. In that case, international parties and others will beat a path to Scotland's door.

In your written evidence, you raise the level of compulsion or time limiting that the bill might additionally offer.

I am firmly of the view that there should be a compulsory time limit. The present trend in England is that adjudication, which is a successful interim dispute resolution procedure, happens within 28 days, with a slight extension in most cases. That is regarded as being inappropriate for larger cases involving amounts of the order of £4 million or £5 million. At present, a voluntary 100-day limit for arbitration is in place. I believe that, if that was enshrined as a primary legislative requirement for an option that parties could choose, in a large number of cases, it would be an attractive option. The parties would know that they could come to Scotland, get a good arbitrator—as they are to be called—and good legal representation and achieve a result within 100 days. That would trump anything in England and would make the system here very attractive.

My response to that is that, under the act that we hope the bill will become, parties will have scope to impose time limits on the tribunal if they want to do so, by adopting sets of institutional rules that impose time limits. In different sorts of arbitration, the parties might adopt different time limits, depending on the type of arbitration that is involved. I might be corrected, but I am not aware of any national legislation that imposes a universal time limit for all arbitrations of whatever type. If that was done, we would have to answer the question of what happens if the time limit is not adhered to. If the whole proceedings are not to be a nullity, a mechanism would have to be created to dig the parties and the tribunal out of sticky situations.

The obvious way of doing that would be to say that if things go wrong, the parties can always apply to the court to extend the time limit. However, that would add a source of possible delay, cost and uncertainty to the proceedings. If that was to happen in Scotland, international parties in particular might not be too sure about arbitrating in Scotland. They might stop for a minute and think that the 100-day time limit seemed extraordinary, especially for the sort of cases that they would bring to Scotland. They would know that, if they could not adhere to the time limit, they would have to go to the Scottish courts, but they would not know anything about the Scottish courts. They would know roughly how the courts in England deal with time limits, but the Scottish courts would be an unknown quantity, so they would decide that it would be better to leave it alone. That is my fear about the implications of imposing a time limit.

I will give examples from my practice that illustrate the issue. Lewis Macdonald asked about delay. At present, I am chairing an arbitration in London in which the claimant is German and the respondent is a Canadian company that is in liquidation. The liquidator has indicated that it will not submit a defence. The time runs out on Friday of this week—29 May. On Monday, the tribunal will move the arbitration forward. In England, we have a statutory obligation to proceed "without unnecessary delay". We think that that allows us not to work over the weekend, but we will start on Monday.

With great respect, Mr Anderson's fixed-time-limit proposition is utterly unworkable. The case that I have just mentioned can be dealt with within 28 days, as it is not difficult. However, I had another case recently in which all the parties involved were middle eastern. The only UK-related thing about the case was that there was a British national on the panel. That case took the equivalent of well over a year because of the way in which business is conducted and other issues in the middle east. Mr Anderson's concept is admirable but completely unworkable in practice.

I respectfully suggest that the obligations in the bill—which are highly similar to those in the Arbitration Act 1996—mean that if proceedings closed this Friday, the Scottish arbitrator would have to have good reason not to proceed with the next phase of the arbitration on the immediately following working day. The question is whether the process can be that rigid.

I have another point to pick up on, which is that in the adjudication process that Mr Anderson mentioned, if the decision is not made within the 28-day period, as extended, the adjudication collapses and starts all over again. The imposition of rigid time limits has a serious downside if the time limits are not met.

I tend to agree with Mr Dundas that enshrining a one-size-fits-all approach in legislation will not work, given that it is trying to cover so many different types of arbitration, from relatively small to very large arbitrations as well as international arbitrations. On the whole, that would not be workable.

However, as Mr Dundas indicated, there are provisions in the bill that lend themselves to moving things forward relatively quickly. We need a change of mindset among the parties and a new spirit to move forward to more speedy dispute resolution than we have had in the past, using the process of arbitration. I do not think that the example of statutory adjudication in the 1996 act really assists. That system provides an interim decision; thereafter, the parties are able to go to the court or to arbitration for a final decision. One needs to consider carefully any lessons that might be drawn from statutory adjudication. In my experience, it is relatively rare for a statutory adjudication not to have an extension to the 28-day period.

There is an informal aspect that may be important. It is quite a privilege to sit as an arbitrator, but it is quite difficult to become one, and it is quite difficult to acquire widespread competence because an arbitrator has to acquire a practice before they can acquire competence. Appointments by appointing institutions—such as, but not confined to, the Chartered Institute of Arbitrators—carry with them the obligation to respect the name of the institution and not to do it damage. A party who is disgruntled by delay may feel that it is open to them to complain to the institution because the arbiter has gone to sleep on the case. Take it from me—that sort of informal pressure is very powerful.

Every year, the RICS has about 600 applications for rent review arbitrations in Scotland. The equivalent figure for England is about 9,000. It is a big business—every five years, commercial properties such as shops, offices, industrial sites and supermarkets have a rent review due. The RICS is the appointing body, and a potential arbiter has to undertake to proceed with reasonable expedition. Most of those cases do not require a hearing, and they are completed within three months. At the end of the day, a fixed period is not required—I agree with Mr Dundas about that. The RICS has to have feedback at the end of the arbitration. If a member of the chairman's panel of arbiters does not have a decent reputation because of regular feedback from those cases, they will be removed from the panel. Quite apart from the bill making adequate provision, there is every incentive for the arbiter to move with haste and for the parties to remove him if he does not do so.

I have reservations about imposing in the legislation what might be viewed as an artificial time constraint. If one of the bill's objectives is to attract large-scale, complex international work or to encourage the use of arbitration in large-scale, complex domestic disputes, it does not seem to me that an artificial time constraint will assist.

One must be realistic about the agreement of rules or procedures that will encourage a speedy resolution. It may not be in the interest of the party that is defending an arbitration to agree to a speedy resolution.

Practically speaking, I see the most important considerations in relation to time to be the attitude and approach of the arbiter, and in particular their adopting a fairly intense case management approach with a view to moving any arbitration on as expeditiously as appropriate.

Mr Anderson has the right to reply.

Mr Borland is right. It is no good saying that the parties can adopt time limits if they want to do so, because the agreement of all the parties is needed to achieve that, and that is rarely available, as Mr Borland said.

Time limits are not unknown in legislation. Adjudication, for example, although it is an interim process, has a 28-day time limit. If people run up against the time limit, as they often do, the process can be extended for a limited period with the agreement of the adjudicator and the referring party. Indeed, if all the parties agree, the process can be extended for an unlimited period. That does not involve the courts at all; it is within the rules.

Arbitration is generally accepted to be a rough-and-ready procedure. Nobody is looking for a perfect answer. People want to get a solution and get on with their business; time is important to them. If people know that there will be 100 days, possibly with an extension by agreement, they will simply gee up and get on with things. From my limited experience of voluntary 100-day arbitrations in England, I think that they are working, to the extent that everyone gets to a decision within 100 days by hook or by crook. Therefore, I see no reason in principle why there cannot be a built-in time limit. If there was, the speed question would be answered and the concept of Scottish arbitration would be made considerably more attractive than what is available elsewhere.

In addition to the provisions of the bill that police or regulate—or however one wants to describe it—the arbitrator, particularly those that lead up to his or her removal for delay, a professional misconduct charge would be opened up through the Chartered Institute of Arbitrators' code of ethics, which applies to all members of the institute. That could conceivably mean the arbitrator being removed from the institute. I appreciate that that might not help the aggrieved party, but it is fairly frightening for us guys who sit in the arbitrator's chair. None of us wishes to be caught up in that.

I think that Mr Campbell mentioned the bill's attractiveness for consumer cases as well as for commercial cases. I am interested in exploring a particular aspect of that.

Given the importance of privacy or confidentiality in making the arbitration of cases in Scotland attractive to commercial concerns, how can the consumer interest be protected when, for example, an arbitration case finds a fault or a flaw in how something has been marketed that will have consequences or implications for other people? An example that comes to mind is the charges that are imposed by high street banks on card transactions. The discovery in one case that those charges were ill-founded has implications for millions of consumers, but such discoveries will benefit those consumers only if the case is held in public or its lessons are made publicly available. There are consumer watchdog bodies for consumer cases. Those bodies made great efforts to publicise the outcome of the case in question so that consumers would be aware of it.

In relation to consumer cases, how do you square the importance of privacy with the importance of building up a body of case law that can be applied in other cases to the benefit of the wider public?

There are several solutions to that. To my knowledge, disputes about bank charges are never referred to arbitration. I suggest that they are in the group of things that it might not be appropriate to refer to arbitration. Certain countries prevent certain matters from going to arbitration. For example, in India, any contract involving any element of technology transfer cannot be arbitrated under Indian law, because the Indian Government says that technology transfer is a matter of national and public interest. The consumer bodies can approach bank charges in whatever way they wish and they can put the appropriate pressure on the statute, the statutory bodies and the legislators.

It would be easy to design a scheme whereby the essential nature of a decision in a consumer case was reported in an anonymised fashion. In the maritime industry, there is a long tradition of reporting maritime awards in an anonymised fashion, with names changed and so on, so that knowledge of the decision is put out. Once it is put out into the public eye, other parties that think that they might have the same issue can deal with it. It would be possible to take such an approach to consumer schemes.

That is interesting. Am I right in thinking that the bill does not debar certain classes of case in the way that Indian law does? If a mechanism for publishing relevant precedent in an anonymised way was appropriate, ought it to be provided for in the bill?

You are entirely correct that there are no prohibitions in the bill, but prohibitions would normally arise through decisions of the court or through other legislative instruments that would prevent certain classes of transaction from going to arbitration. That is the case in countries such as India, China and the US, where such exclusions are rather more common than they are here.

Will you repeat your second question so that I can answer it correctly?

If there was merit in having a mechanism to make public in an anonymised way precedent established in arbitration, ought that to be provided for in the bill?

I suggest that such a mechanism should be adopted sector by sector. The consumer schemes with which the Chartered Institute of Arbitrators deals are set up in consultation with, for example, the travel industry and the funeral services industry. In one way or another, those schemes are monitored fairly energetically by the Department for Business, Enterprise and Regulatory Reform or other appropriate Government departments, which sometimes impose such schemes on sectors of industry. In such an instance, it would be for the department and consumer representative bodies to ensure that the scheme provided results that were in everybody's best interests. By results, I mean not only the decision in an individual case but the precedent-type decisions that you are talking about. That would be quite possible and highly likely.

To give life to the monitoring point, I can tell you that fashion changes. In the travel industry, we have seen private arbitration schemes, which have a fixed, low cost and in which arbitration is quick. The pendulum sometimes swings towards the use of an ombudsman. If that is found not to be satisfactory in some sectors, the pendulum swings back again towards having a consensual process. Over time, the pendulum will swing back and forth on such legal ideas for dispute resolution.

The Chartered Institute of Arbitrators runs about 120 consumer schemes of that nature across the UK on matters ranging from false teeth and funerals to Ford motor cars, the travel industry and mobile phones.

At the risk of stating the obvious, although it is useful to have arbitral awards in certain areas published, they cannot create precedents, even for other tribunals.

Professor Davidson has taken the first of my observations out of my mouth. I wanted to ensure that Lewis Macdonald, who used the word "precedent" several times, was not labouring under the misapprehension that any decision by arbiter 1 has any effect on the decision by arbiter 2. Such decisions can be monitored and published as much as people like, but they have absolutely no effect whatever as precedent.

On the underlying point, I am bound to say that the Faculty of Advocates—like the judges, I notice—has considerable reservations about the proposals on confidentiality. We venture to question how the proposals would work in practice, how an obligation of confidentiality would be placed on a court, how that obligation would be enforced if it was found to have been breached and, further, how such an obligation would relate to what is normally regarded as the right of newspaper journalists and others to watch court proceedings.

If confidentiality is to apply to a report of the proceedings, what will happen if someone who has watched the arbitration proceedings picks up that they relate to what he conceives to be a matter of public interest? If he approaches one of you gentlemen—or any other MSP—and you agree that the matter is of serious interest and importance, what will happen if you raise the issue on the floor of the Parliament? The issue of interest might well be who is involved in the matter. The public interest might lie in the fact that a particular individual is involved in the dispute and is arguing whatever it is that is disputed.

It occurs to us that careful thought might need to be given to the extent to which one can impose any confidentiality obligation on reports of court cases or on what the court says. Normally, the court's opinions come straight out on the internet. How will that information be prevented from shifting around? One might well ask whether that should be prevented. In forming such a strict view about confidentiality, we might find that television and newspaper interests will trot along to argue whether it is open to the Parliament to make such a provision, given the restrictions on the Parliament's legislative competence and given what they might see—whether rightly or wrongly—as their right to report exactly what happens in the Queen's courts.

May I answer that? With respect, the position in England is crystal clear. Under the civil procedure rules, certain arbitration applications are normally heard in private and no public judgment is issued. In certain cases, the default is the opposite, but both positions can be changed by the decision of the judge after hearing the parties on the matter. That mechanism was tested in the Court of Appeal, which confirmed that the civil procedure rules were entirely legal in that regard and complied with the Human Rights Act 1998. Therefore, it is not possible for the details of the judgment or arbitration to get into the newspapers because no representative of the newspaper will be present in the courtroom when the application is being heard. There is no difficulty in that regard.

On the issue of what happens if the confidentiality obligation is breached—which Mr Howie also, correctly, raised—the aggrieved party has two main remedies. They can either seek an injunction to prevent the breaching party from breaching or they can sue for damages for breach of contract. Often, the difficulty is in quantifying the damages.

However, the gist of the matter is that the procedural issues to which Mr Howie referred have been fully developed and tested in the English courts and are, in so far as is possible, fully reflected in the bill. I suspect that a certain adaptation of the rules of court will be required to reach the equivalent position that pertains in England.

For your notes, convener, the relevant rule is rule 25.

I will get into the nuts and bolts of some of the rules and provisions in the bill, but I first have a narrow question for the CIArb. On domestic arbitrations, the CIArb's written submission estimates that there are currently about—plus or minus a few—50 commercial arbitrations and 250 consumer arbitrations. Of course, it is difficult to get entirely accurate figures. The written submission goes on:

"We can reasonably envisage … a starting point, within a reasonably short time after the Bill has come into force, of 200 commercial cases, 250 small business cases and 500 consumer cases."

That suggests a quadrupling of commercial cases and a doubling of consumer cases. Where are you getting those figures from and what is the justification for those estimates?

The population of Scotland is fairly close to 10 per cent of the population of England. Those numbers are, broadly, the equivalent English numbers divided by 10. We have no other easy basis on which to estimate anything.

Following the implementation of the 1996 act south of the border, did the number of arbitrations increase dramatically?

No, and for a very good reason. We in Scotland hope to consign to the statutory dustbin an antiquated law that dates back, in part, to at least the 13th century and to start with a clean sheet of paper. With the Arbitration Act 1996, England followed arbitration legislation that had been passed in 1979, 1950, 1934, 1889 and 1856—there had been a long process of gradual improvement and development over 150 years, which meant that there was no quantum increase in England. The other factor that has to be taken note of is the fact that, around the time that the Arbitration Act 1996 came into force, the Housing Grants, Construction and Regeneration Act 1996 also came into force. That act—known colloquially as the construction act—took away a large proportion of English construction arbitration and dumped it into another process.

Taking those two factors into account, one could argue the position that interest in arbitration in England increased in 1996, but it is hard to separate out all the factors.

I apologise for repeating myself, but the point is that we in Scotland are doing something radically different from what was done in England in 1996. We are not fine tuning existing law; we are creating something new—something that we have never had before. In terms of estimating quantum, we cannot easily rely on the English statistical model.

In terms of evaluating the quality of the vehicle that is used to carry forward the process, it is important to recognise that the 1996 act started life as a private initiative among judges who were concerned with arbitration, such as Lords Mustill and Saville. It is said that one of them went around knocking on the doors of senior law firms and asking for money to promote the initiative and that they got it, because those firms recognised that the template and the tools that they were using to work in that growing trade in London were not as satisfactory as they could be. To go back to Lewis Macdonald's question, they did not just lift a model off the shelf and say, "This'll do us"; they devised an instrument of their own.

The main reason that many businesses to which I have spoken gave for not opting for arbitration is that they felt that arbitration was too slow and, related to that, too expensive—that ties in with what Mr Borland said.

Other than time limits, which have been discussed already, is there anything that should be in the bill in the interests of making arbitration faster and/or cheaper?

I will respectfully answer that question by saying, no, there is nothing that can constructively and usefully be added to the bill to make any difference to the moves, procedures and controls that are in the bill.

As Mr Campbell said earlier, what is needed is a change of culture. In his submission, Mr Anderson gave a nightmare example of an arbitration that went on for ever and cost an enormous amount. Conversely, in an international case that I am currently chairing, a deadline runs out this Friday and we will commence the next stage on Monday. That is how the modern international arbitrator moves. It is a prerequisite—and the Chartered Institute of Arbitrators' code of ethics requires—that Scots arbitrators will do just that when the new bill comes into force.

I think that the bill could be changed to address those two points, which constitute the main hurdle to arbitration in this country and to making Scottish arbitration better than any other arbitration.

The trend in adjudication, given the changes in the law that are coming through, is that each party is to be responsible for its own expenses and costs. That tends to be the approach in the United States of America. The parties are thus able to quantify the costs involved and to assess whether the cake is worth the candle—whether it is worth going for arbitration.

As things stand, arbitration can be a slow, cumbersome procedure—even worse than litigation. With expenses following success, the process can be extremely expensive, to the extent that the entire business is imperilled, or at least the personal wealth of the person involved. Although it would be a radical step, it would be possible to write into the bill provisions relating to time and cost. In my opinion, that should be done to make the Scottish arbitration system unique, and very attractive.

As a practising arbiter, I would say that a fixed time limit would not be practical, given the flexibility that is required for different cases.

I will give one example to show the cost of arbitration compared with litigation. In the public domain is City Wall Properties (Scotland) v Pearl Assurance. That case, on the interpretation of a rent review clause for a number of car parking spaces at East Green Vaults, Aberdeen, went to Lord Clarke, reverted to Lord Clarke in the outer house of the Court of Session, and then went to the inner house. That took two to three years and cost the company, which is a one-man company, £250,000 in fees for Richard Keen QC and various other lawyers. The individual is now trying to quantify the issue and get the actual rent review moved forward—with one in 2003 and one in 2006, I think. If the arbitration clause had not excluded section 3 of the Administration of Justice (Scotland) Act 1972, on the finality of a decision by an arbiter, that three-year job would have been done in six months at a fraction of the cost.

As an arbiter with several hundred cases under my belt over 30 years, I cannot think of one case where arbitration has taken longer than litigation. I have never come across such an example.

My friend Mr Anderson reverts to his previous points about time limits. On the wider stage, with a new act and a core of skilled arbiters, there will be a culture change, and a recognition of what Mr Dundas has spoken about—the importance of the code of ethics and of giving the process the intellectual and commercial respectability that it is capable of achieving. However, that will not happen overnight.

I will give one more example. I took over an arbitration in Singapore two or three years ago. The parties were from mainland China and the European Union. The arbitration had been bouncing around for about a year. The chairman either resigned or was removed. I was asked to deal with it as a matter of urgency by the Singapore International Arbitration Centre. The award was delivered 94 days after I was appointed, and the total cost of the arbitration was about $30,000. These things can be done if the arbitrator or tribunal gets on with it, in which case it is done at minimal cost. If the parties are allowed to develop submissions spread over a year, using three eminent QCs, it will cost a lot; if it is done in 90 or 180 days—or whatever the appropriate time is—less money is spent, automatically.

I trust that Mr Dundas is prepared to sign a contract to bring all his arbitrations from Singapore to Scotland in future.

Rule 45 talks of the power of an arbitrator to award damages—something that I think does not exist in Scots law at present. It is a default rule. In some submissions, the suggestion was made that the rule should be mandatory. Should the rule be default or mandatory?

The Law Society has issued written observations on the matter. Our common-law rule is a joke as far as the domestic business community and the international community are concerned. Under Scots common law, the arbiter has no power to assess and award damages.

It may appear on the face of it that it is perfectly okay to leave the power in a default rule, so that, unless the parties agree otherwise, the power will apply. The difficulty on which we need to focus is what parties will do when they think that it is in their commercial interest to do a particular thing. If one party can do something that will inflict difficulty on an opponent, the likelihood is that it will do it. One thing that could be done is the deletion of the power to award damages. We could end up with the situation where someone has bought into arbitration but—perhaps unwittingly on their part because there is an imbalance of arms, with the other party being represented by a solicitor—the contract has deleted the power to award damages. They could be forced to arbitrate on certain claims but be unable to arbitrate on a claim for damages. That could result in parallel proceedings—one set of proceedings in the court for damages and the other for claims that fall within the arbitration clause.

It could be argued that the matter is one for agreement between the parties. The difficulty with that is that, in the regime under the bill, at least a quarter of the rules are mandatory and cannot be changed. A line has to be drawn somewhere. Part of the problem with the process of arbitration is that people with clever lawyers will take whatever steps they consider are appropriate to delay or cause difficulty to opponents. Traditionally, because this has been a rule of our common law, people have used it to prevent others from having their claims for damages placed before arbiters. People have been forced into parallel proceedings with increased cost.

Clearly, two arguments are involved. The particular problem in this regard—and I speak as someone who has had to wrestle with problems of this nature for 25 years—is that, when people are in dispute, they do not think rationally or logically; they think only of what is in their best interest at that moment. If someone thinks that it is better for them to remove the power to award damages, they will do it. However, that does not mean that the arbitration and disputes are resolved smoothly.

In our submission, we tried to reflect our experience of what users do when push comes to shove, which is different from what they might say in filling out a questionnaire on law reform or what people think is the politically correct thing to say. If we want a smoother arbitration process, in which people cannot make difficulties, on balance, it would be better to include the power to award damages in the bill. Impliedly, if we were to leave it in default, we would be saying, "It is fine for you to do that."

Let us suppose that G Brown Ltd is about to enter into contract with N Don Ltd—

It is not going to happen.

I am sure that it is prohibited by the parliamentary rules, but let us just make that supposition. In negotiating your contract, Mr Brown, if you are well advised, you will agree that, in the event of a dispute, it will be governed by the Scottish arbitration code 2007. At the time of making the contract, your two companies do not know who will claim and who will defend in any dispute.

Mr Kelly spoke about a situation where, after the dispute has arisen, people decide what set of rules to use. As a general commercial rule, that is not very good practice. I draw the committee's attention to the Scottish arbitration code, which has a clear power for the arbitrator to award damages. The agreement is made between the two parties.

In the hypothetical case that I just described, if the parties have agreed that the Scottish arbitration code will govern future arbitration on a dispute that has not arisen yet, about a subject that is not yet known, they have agreed the power to award damages. If they have not agreed to use the Scottish arbitration code, the bill says that the default rule—rule 45—will apply, and the arbitrator will still have the power to award damages.

The circumstances that Mr Kelly identified are real but relatively rare, because parties negotiate the arbitration code into the contract at the outset or end up in the loving hands of the default rule in the bill because they have not agreed anything else.

As to agreeing or not agreeing, when parties are in dispute, they rarely agree anything, so the default rule will apply, because the parties will not have agreed to anything different.

What about commercial advantage? If a main contractor put out to tender a construction contract for which five subcontractors bid, the main contractor could say as part of the arrangement that, if the other party wanted to obtain the contract, they would have to agree to remove the damages clause. What about such a scenario, which involves an imbalance in negotiating power?

In some circumstances, the employer in the construction contract is the claimant. If he wrote it into his contract that no damages could be claimed, he might shoot himself in both feet simultaneously.

Mr Brown's point is nonetheless well made. It is consistent with my experience in construction-related work, in which main contractors have considerable bargaining power over subcontractors. The point is realistic.

Beyond the damages point, the faculty has significant concerns about rule 45. Paragraph (c) of the rule gives the arbiter the power to order a party to do something—in court terms, that would be described as an order of specific implement—or to refrain from doing something, which would be an order of interdict. Paragraph (d) allows the arbiter the power to rectify a contract or to reduce a deed or other document. Such powers are a little incongruous, because they are not open to the junior tier of professionally qualified judges—judges in the sheriff court.

A sheriff has no power to reduce a deed or a document or to order, at least ad interim, the specific implement of a contract. As I said, it is incongruous that professionally qualified judges sitting in the sheriff court do not have the power to reduce a document or a deed or to order specific implement ad interim when those powers are being given to arbiters.

I have a further point about the power to order a party to refrain from doing something, which is in effect a power to interdict parties from doing things. In the civil court context, a breach of interdict has the potential to visit criminal consequences on a party. The committee and the Parliament should hesitate to afford arbiters such powers.

Paragraph (d) of rule 45 refers to the power to order rectification, which is currently open only to the court. Rectification and reduction are matters to which third-party interests can be relevant. In saying that, I am conscious that rule 54(2) refers to third-party rights and interests. However, in short, the committee and the Parliament should hesitate to afford arbiters such powers.

Can I just comment on what Mr Dundas said? As I understood it, part of the bill's scheme is to cover instances when people arrive at a point where they are in dispute and have never heard of arbitration before. It does not encourage people to go off to arbitration if one of the parties is able to refuse to refer to arbitration an element of the claim that may relate to damages—that just does not work.

The type of contract to which Mr Dundas alluded—in which there is an arbitration clause in the underlying contract and the dispute arises later—is perhaps more common in the construction industry, in which I work. It is nonsense to suggest that whether damages powers should be given to arbiters is not the subject of discussion at that stage and that powers are in some sense allowed by default or not. Lawyers advising clients must address these issues every day of the week and it is up to the clients to decide what route they take. Normally, they will take the route that they think is in their best interests. If they think that they are the party who is less likely to be the subject of a claim for damages, they may well take such a power out of the contract. That is perhaps particularly the case in construction contracts, which will have, for example, damages-type claims such as liquidated and ascertained damages that will be claims under the contract but not strictly damages. That therefore takes out that concern for an employer, who can make a claim under the contract, but it will not be a claim for damages of the type that we are discussing. All I am doing is giving the committee the experience of the practitioners in the area. That is all that the Law Society seeks to reflect in its evidence to the committee.

Before I come back to Gavin Brown, I have a general point on the arbitration rules in schedule 1, given that there may be a number of occasions when the arbitration is not between parties of equal strength, if you like. A classic example of that is a case in which a supermarket chain is against a supplier, because the supermarket chain is seen to have much more power than the supplier. Do you think that how the bill defines arbitration rules as default or mandatory will provide sufficient protection to the weaker party in such a case, or do you think that some of the rules that are currently default should be made mandatory to ensure that there is equal protection for both parties?

I will suggest a hypothetical example. A supplier provides potatoes to a supermarket chain, but the potatoes are found to be contaminated and 250 people die. Is it reasonable that there should be some action in damages by the supermarket against the supplier? I believe that it would be reasonable. In the reverse case, the supplier perhaps fails to deliver any potatoes, leaving a major supermarket chain with no potatoes across a busy weekend. I suggest that the fault in that instance could be on either side. I do not think that it is reasonable to decide that the balance is one way or the other at the outset of the execution of the contract.

May I just respond briefly—

That is not the point that I was trying to make. In terms of negotiating the arbitration rules for an individual case, if one party is much stronger than the other, they may be able to exert pressure to require that certain of the default rules are not applied, which may put the weaker party at a disadvantage. I just wonder whether there are too many default rules, which would therefore allow that sort of practice to happen, or whether the balance is right in the bill. It is not about individual cases, but about the pressure that may be put on one of the parties in arbitration by the other party to reach a set of rules that may be to the former party's disadvantage.

It will always be a matter of balance, will it not? It is very difficult indeed to legislate for potentially unequal bargaining parties. What we try to do is take away the inequality by legislating in a certain way.

Precisely—that is the point that I was trying to make. Do the bill's rules do that?

I believe that they do, but there will always be room for discussion.

One of the key factors that are constantly stressed in relation to international arbitration in particular is the idea of party autonomy. The bill tries to adopt party autonomy, which means that the number of default rules should be kept to an absolute minimum to allow the parties to decide something different if they want.

On the fixation with one party being stronger than the other, I suspect that that is perhaps in danger of deforming the bill into taking account of the exceptional rather than the norm.

Under the current law as I understand it, an arbiter can award interest only from the date of decree arbitral. Under rule 46, the arbiter can award interest from the date when he or she considers that the sum was reasonably due. The rule as it stands is a default rule; some submissions to the committee have suggested that it should remain so, while others have suggested that it should be mandatory. Can any of you elaborate on the position that you have taken in your written submissions?

I wonder whether it will remain a real issue for long. I recall that the Scottish Law Commission has proposed legislation on the substantive law of interest to Parliament. If such legislation is passed, the issue will simply go away because it will be covered by the substantive law of Scotland. The problems around arbiters' ability to award interest before the decree or afterwards, and at differing rates, will be dealt with by the proposed larger-scale changes to the law of interest through that legislation.

The committee might wish to consider how such legislation, if it is going ahead—you will know that better than I do—will sit in conjunction with the bill. The whole problem may simply not arise, because it will be cured elsewhere.

That bill has been delayed. It has gone out for further consultation.

Mr Howie's point assumes that it is Scots law that governs the issue of interest. One of the aspects of default rules is that rather than simply tinkering with the rule, parties might invoke a law other than Scots law as their default position to deal with the matter. The position of Scots law might therefore be irrelevant in certain cases.

With regard to my observations about the default provision in relation to damages, the same arguments apply—and are even more pointed—in relation to interest. It seems strange that people are encouraged to go to arbitration, yet if a party deletes the default provision, it is encouraged to go to the courts, which will gladly grant interest. That point of principle needs to be addressed so that people do not cause difficulties in the arbitration process because of the nature of the default rules. Otherwise, some people will do that, and then other people will do it as well. The whole reputation of the process will be affected if we do not address the issue.

We have been talking for decades about deficiencies in the law in relation to an arbiter's power to award interest. In the 21st century, a standard rule that an arbiter cannot award interest before the date of decree arbitral appears to most people to be a nonsense. It might take four weeks, 100 days, six months or a year before a decision is made, and yet no interest is awarded for that time.

It may be a decision for the parties, but we have a situation in which there are 80 rules, of which only 25 per cent are mandatory, and in which—to pick up Professor Davidson's point—all the default rules are capable of being changed. We do not suggest that the Parliament should be involved in a wholesale rethink of the default rules, but we know—and have done for decades—that particular rules cause problems in practice, and people will use any deficiencies that they can to their advantage.

One might say that people should have the right to do that, but is that the best that we can do in Scotland on basic questions such as the award of interest for the period before the date of the decree arbitral?

The positions of rule 45 on damages and rule 46 on interest are highly similar to the position that was adopted in the 1996 act. I am not aware of any reported case in England in which either provision has given any difficulty whatsoever.

I am sorry—the point is not whether a reported case has resulted from a difficulty that arises from a provision. A decision will not be reported when the parties have made a contract in which the right to interest is deleted. That is a straightforward question.

Merely because a rule is in the 1996 act—most of which was not enacted for Scotland—that does not mean that, a considerable period thereafter, we should enact it in Scotland. Scotland has the opportunity to produce something new that reflects the experience of the arbitration process here. The Law Society has pinpointed two areas in which difficulties have been caused, which the Parliament has the opportunity to do something about.

If the rule on interest were made mandatory, it would apply in the way that it is set down to all arbitrations, so Parliament might want to consider the position on compound interest. The bill says that the parties can decide whether compound interest is to be available. If that were a mandatory rule, it would look like compound interest was automatically made available as a remedy to all tribunals. Parliament might want to revisit that if it goes down that road.

I agree with Professor Davidson. The Law Society foreshadows that issue in its observations, because it expects the wording of the current default rule to be tweaked, as it is very wide on the award of some types of interest and on compounding interest.

The judges of the Court of Session and the Chartered Institute of Arbitrators say that rule 29, on when a tribunal cannot agree on a decision, should be revisited. Can anyone elaborate on how it should be revisited?

The chartered institute would consider most closely and respectfully any suggestion by the judiciary in that regard. Similar provisions are common internationally and have given rise to no problems in my experience not only of the 10 jurisdictions in which I operate but of a wide range of other jurisdictions courtesy of various internet e-mail discussion fora and the like.

I would like to revisit the rule because of the judiciary's reference to the arbitrator who was last appointed. That might give rise to difficulties if a third arbitrator has never been appointed. The chartered institute would like more time to consider all sorts of complications before reaching a definitive view on the issue.

For example, the tribunal is dealing with a matter of considerable urgency this morning. I am not attached to my BlackBerry at the moment and the tribunal can proceed in my absence, as action will have to be taken this morning. The situation is capable of being, and generally is, dealt with by rules of arbitration. I have not checked the Scottish arbitration code on that, but that would be the first point of reference for what happens in practice.

Some submissions suggest that rule 50, on provisional awards, should be a default rule rather than a mandatory rule. Some written evidence has suggested that rule 51, on part awards, should be a mandatory rule rather than a default rule. Does any panel member have views on those rules?

In our view, the designation of the two rules is back to front. I suggest that the M, for mandatory, and the D, for default, were put in the wrong places when the bill was printed.

You think that that is just a typo.

Yes. With respect to the draftsmen, I think that there was an inadvertent error. I do not recall seeing the rules designated in that way in earlier drafts of the bill or the consultation.

I understand the point that has been made. The Law Society has observed that there is a strong argument for a mandatory power to make part awards.

I have a question about the importance of locality in attracting arbitration cases. The point has been made that cases tend to go to London because expertise is available there that is not available elsewhere. It struck me during our discussion last week that it would be worth while considering what influence industry has on the procedures that are worked out, particularly in local specialisms such as North Sea oil. Do cases tend to be drawn to particular locations because expertise is available there?

There is a small number of preferred arbitral centres around the world. I will not list them all, but people go to Stockholm, for example, for a range of reasons—not least the attractiveness of the city, but also because it has established a tradition of east-west dealing between pre-cold war communist bloc countries and non-communist bloc countries. I am sure that you are familiar with that. People also go to the far east, perhaps to Singapore for reasons of expedition and cost or to Hong Kong because of its proximity to the People's Republic of China. The list goes on. I am not sure if that answers your question.

That is a starting point. I am thinking of two areas that will expand enormously, one of which is wind farms and energy supply. The committee has had a certain amount to deal with in relation to that. I imagine that the arrangements for renewable energy generation and transmission are likely to be a large area for arbitration. I am thinking of things that are difficult to locate in any one state's purview because they concern international arrangements.

On a domestic scale, it is difficult to see why arbitration should be required in respect of renewables contracts. As you know, disputes usually arise at the planning stage, and the planning process is not immediately or obviously susceptible to arbitration. Arguably, it is susceptible to mediation, but we are not here to discuss that. It is certainly susceptible to crisp decision making by the appropriate authority.

I was thinking more about transmission than about the creation of generating capacity.

As you say, transnational contracts that deal with transmission are bound to become more important, but such contracts typically have embedded within them dispute resolution processes of the cascade variety, whereby parties are enjoined first to use their best endeavours to reach a solution. Cascading down from there we often find compulsory mediation. It is always difficult to know when mediation has failed, but it is usually when the mediator walks away. Thereafter, we find a range of formal processes.

If the question is where people will go for arbitration in, for example, cases across the North Sea or between France and the United Kingdom, one would expect the contracts in such cases to specify where any disputes will be resolved. For example, a contract might state that the ICC rules will be adopted, which would put the case into Paris, or that the Scottish rules will be used, which would put the case into Scotland.

I am thinking that the business of making rules is part of the arbitration process itself, although that process will be quite independent and self-generated. Two areas strike me: the first is the transmission of renewable energy, and the second is the complex structure of the trans-European networks, particularly the rail network, where we are dealing with some state companies and some private companies. Those two areas seem to require a new type of expertise, which, if it is established in one place, is likely thereafter to attract cases. In the latter case, the fact that Scotland has two large multinational rail transport contractors in Stagecoach and FirstGroup might cause rail cases to come to this country, where that expertise can be tapped, written into agreements and used subsequently to settle disputes.

The bald proposition is that the repository of expertise in a country attracts dispute resolution mechanisms on the periphery of that particular industry. I do not demur from that. Frankly, it cannot be legislated for. Nevertheless, on being a magnet and attracting such dispute resolution mechanisms—well, we would have to see, would we not?

Again, I have the unhappy task of urging caution about overoptimism. Even with the big transport or rail companies, I suspect that their dispute resolution provisions are written into large contracts, which, if they reflect the ones that have crossed my desk in the past on not too dissimilar matters, will be in the hands of large commercial firms, particularly in London. There are a number of reasons for that, some of which are historical, but we are in the year of grace 2009 and we have to live with history.

History has led to a lot of underwriting or financing, for example, in London. The work of setting up contracts will go to the big London firms and it will be second nature to those gentlemen to write in the London clauses that they have written in since they were articled clerks. On the face of it, they will also have sound reasons for so doing, because they know that a number of gentlemen—it is invidious to name names—who operate in the area of transport, for example, have been silks or are retired judges and have practised for years in areas such as CMR notes for transport by road, the carriage of goods by sea and Warsaw convention cases. They have done the lot; this stuff is not new to them. The London firms know that those men are very able and are good at dealing with disputes and handling evidence. They have watched them do it man and boy for years, so they will just go to them. They are not going to take a chance on other people, even though they might be just as good, because the firms do not know them and are not going to take risks with their clients' interests by trying them out.

There would inevitably be a drift of quality. If you said, "I can tell you that the experts who know about how to deal with transmission all live on the line between Dundee and Glasgow," the answer would be that the experts could move and be put up in a London hotel. The big companies and law firms are interested not necessarily in that class of expertise but in the expertise that can analyse issues and evidence and legal problems. The contracts would probably have to be written under English law, so the English bar would be an obvious and cheaper place to go, because if cases came up here, someone would have to lead additional evidence on the law of England, therefore costs and time would go up. Your idea is cheerful, but, while I am sure that those whom Mr Borland and I represent would be delighted for you to be right for entirely altruistic reasons, I fear that you might be disappointed.

In the modern world, things are no longer written in stone; they are susceptible to change. Let us take as an example the London Maritime Arbitrators Association. For historical reasons, London was the only place to go for maritime arbitration for many years. However, at the annual dinner this year, the chairman said that he now regarded the Singapore equivalent as a serious threat and that London had to pull its socks up and watch its game if it was not to be eclipsed to an extent. I believe that if you establish centres of excellence for renewables and demonstrate an arbitration procedure that really works, you could attract a lot of business.

On the point about London magnetically attracting legal expertise, we are in a totally unprecedented situation as far as power generation and transmission are concerned. In addition, the state-owned railways of one country can now operate in a variety of ways in other countries. As far as I know, there is no precedent for that outwith periods of war and conquest. If I want to send goods to the continent by rail or, for that matter, to London, I will deal substantially with the German state railway. That is a new technical situation.

Time moves on and other international arbitration centres are opening all the time: a centre opened recently in Dubai; there is now the Chinese European Arbitration Centre, which I think Hew Dundas wrote about in the recent edition of the Chartered Institute of Arbitrators newsletter; a centre has opened in Hamburg; and Spain has adopted the United Nations Commission on International Trade Law rules as a gateway to South America. Other people are setting up arbitration centres.

Many countries might not feel comfortable dealing with England. Sweden has attracted many international cases over the years because of its perceived neutrality. Scotland is very much in the same boat. Scotland could well attract international arbitration cases from many countries, whereas England will not because it is England. We have to look positively at the situation. If there is a co-ordinated team effort that is publicised properly and everyone works together on it, I have no doubt at all that cases will gradually build up. It will not be an overnight thing, but we have to look to the future.

Thank you. Unfortunately, as you said at the start of your contribution, time is moving on, and it has now defeated the committee, because we have another item to deal with this morning. I thank the panel for giving us their views, which we will consider carefully when writing our stage 1 report.

Meeting suspended.

On resuming—