In uncertain times, arbitration could prove to be the answer

Between the lines Richard Farndale

Given the uncertainty of Brexit, arbitration could provide an opportunity for managing the risk of disputes with greater predictability and control. It should certainly be considered and weighed up at the time you enter into a new contractual relationship.

A significant commercial risk is the occurrence of a dispute. The choice you make when you enter into a contract can have a very significant financial impact in the event that a dispute later requires to be resolved. It is therefore important to take a considered and informed approach to manage that risk, and to deal with it appropriately in the contract.

If you don’t make any choice when you enter into a contract, you’re left with the default of litigation, as the route to a final determination of a dispute. So an important choice to be made at the honeymoon stage of entering into a new contract, is between litigation and arbitration (and, if appropriate, expert determination). Other options, including mediation should also be considered, often at the time that a dispute occurs.

Alternatives to litigation won’t be better alternatives all the time. But arbitration has benefits as a faster route to finality (with much more limited scope for appeal); greater flexibility of procedure; and ability to appoint a specialist with relevant technical skills as the arbitrator. That can bring benefits of speed and reduce costs. And unlike court, arbitration is a confidential process, so the rest of the world does not look on from the sidelines. There is a further benefit of arbitration, which deserves particular consideration in the new world following the Brexit vote (including any uncertainty regarding Scotland’s future status). That is the benefits of arbitration when enforcing an award. If you obtain a court judgment, but the relevant assets of the paying party are outside Scotland, you will require to have the judgment recognised and then enforced in another jurisdiction. The rules vary, but to date the rules for enforcement of court judgements between EU member states have been relatively straightforward. That may change because Brexit brings uncertainty to the regime which may operate in say two to five years time, including in different parts of the UK.

This should be contrasted with a well established regime to enforce an arbitration award, based on an international convention in 1958 – 156 countries have signed up to the mutual recognition and enforcement of arbitral awards, and the regime for enforcement of arbitral awards is well established and independent of any outcome of Brexit. That may now prove to be a significant advantage in managing the enforcement of any future award.

Arbitration in Scotland has been overhauled with the Arbitration (Scotland) Act 2010. The statutory regime includes structured but flexible procedural rules (many of the rules are optional), enabling a more bespoke approach to the dispute resolution regime. So, rather than just accept the default option of litigation, we suggest that you weigh up the options of alternatives to litigation, to provide an optimum regime, most appropriate for you. l Richard Farndale is a legal director in the construction and projects team at Burness Paull LLP and vice chairman and honorary secretary of the Chartered Institute of Arbitrators in Scotland