Scottish Law Commission (Reports)

 


Part 9: Arbitration, adjudication and other forms of dispute resolution

Introduction

9.1           The terms of our reference include "claims… submitted for decision to arbitration, adjudication or some other form of dispute resolution". Except in cases where a statutory provision requires a dispute to be submitted to arbitration^[1] or adjudication,^[2] the resolution of disputes by a means other than litigation depends upon the parties to the dispute having agreed that it should be resolved in this manner. It is therefore open to the parties to agree what powers, if any, the person to whom the dispute has been submitted should have with regard to the award of interest. The principal questions which we addressed in the Discussion Paper were, firstly, whether extra-judicial decision-makers should have power to award interest in the absence of express agreement; and, secondly, if so, whether those powers should be broadly equivalent to those available to the courts or, alternatively, whether extra-judicial decision-makers should be afforded a wider discretion.

Arbitration

9.2           It is common practice for deeds of appointment of arbiters to make express provision with regard to their power to award interest, for example a power to award interest from such date and at such rates as the arbiter may see fit. We are not aware of there being any difficulties in relation to arbitration awards where such a power is expressly conferred. Where, however, an arbiter is appointed to resolve a dispute regarding a principal sum claimed and there is no express power conferred to award interest, the current law is less satisfactory. In John G McGregor (Contractors ) Ltd v Grampian Regional Council,^[3] the Second Division held that an arbiter has no implied power to award interest for any period prior to the date of his final decree.
9.3           We consider that this problem is resolved by our principal recommendation in this Report that a general statutory entitlement to interest on contractual debt should be introduced. The effect of the legislation which we are proposing will be that any sum awarded by an arbiter will carry statutory interest from the date when payment fell due. Interest will run even though the claimant's entitlement to the principal sum, or the quantification of the sum due, has not yet been determined by the arbiter. The position of the claimant in an arbitration will therefore be no different from that of a pursuer claiming payment in a court action.
9.4           It remains to consider whether arbiters should be given a wider discretion in relation to the awarding of interest than the limited judicial discretion which we are recommending^[4] in relation to claims for payment which are decided by the court. Arbitration agreements often confer a wide discretion on the arbiter to award interest (including compound interest) at such rate and between such dates as he sees fit. We suggested in the Discussion Paper that it might be regarded as in keeping with the flexibility of the arbitration process that the "default" statutory power to award interest should be a matter of broad discretion. In 1996, the Scottish Advisory Committee on Arbitration Law produced a draft Arbitration (Scotland) Bill which, if enacted, would have applied to proceedings where the seat of the arbitration is in Scotland. A revised version of the draft Bill was published in 2003. Clause 22(1) of the revised draft provides:

"In addition to the powers conferred generally or specifically on the tribunal elsewhere in this Act, the tribunal has the following powers (unless the parties otherwise agree):

…

(d) Power to order that simple or compound interest shall be paid by any party on any sum awarded at such rate or rates and with such rests as the tribunal determines to be appropriate without being bound by legal rates of interest imposed by any State, court or any agreement between the parties in respect of any period which the tribunal determines to be appropriate including a date prior to the appointment of the tribunal and ending not later than the date upon which the award was complied with."

9.5           One consultee^[5] urged us to recommend the enactment of the wide discretion to award interest contained in Clause 22(1) above. This would give Scottish arbiters powers comparable with those accorded to arbitrators sitting in England.^[6] We have, however, concluded that it would be anomalous for arbiters to be granted a broad statutory discretion to award interest when the corresponding discretion afforded to the courts is restricted. As noted above, the main current difficulty, namely that interest does not run on arbitration awards at all, will be resolved by our recommendations. If arbiters are to be given statutory powers wider than those available to the courts, we consider that this should be done as part of a comprehensive statutory regime for arbitration in Scotland. In the meantime, it remains open to the parties to agree to confer a wider discretion on the arbiter than that which will apply under our proposed legislation. We recommend that:

1. The power of an arbiter to award interest should be co-extensive with the powers of the court in relation to interest (on the various categories of pecuniary claims) under the proposed new legislation.

This does not require the making of any specific provision for arbitration in our draft Bill, other than to extend the power to remit interest in whole or in part to arbiters.^[7]

9.6           In addition to arbitration agreements at common law, there are a number of statutory regimes which provide that disputes must be referred to arbitration.^[8] Most of these provisions are in a standard format requiring the dispute to be submitted to an arbiter selected by a specified individual such as the Lord President of the Court of Session. None contains any express power to award interest on any sum which the arbiter finds to be payable. We consider that an arbiter appointed under one of these provisions should, in the absence of agreement to the contrary, have the same power in relation to the awarding of interest as an arbiter appointed under an arbitration agreement which is silent as to power to award interest. Again, this is achieved by the introduction of a general statutory entitlement to interest from the date when payment became due and no special legislation is needed to extend this entitlement to claimants in statutory arbitrations.

Adjudication

9.7           The Housing Grants, Construction and Regeneration Act 1996 established a regime known as adjudication for the resolution of disputes arising under construction contracts. In contrast to the position in Scots law regarding arbitration, the Schedule to the Scheme for Construction Contracts (Scotland) Regulations 1998^[9] contains detailed rules for the conduct of adjudication. So far as interest is concerned, paragraph 20(2) of the Scheme provides:

"(2) The adjudicator may take into account any other matters which the parties to the dispute agree should be within the scope of the adjudication or which are matters under the contract which he considers are necessarily connected with the dispute and, in particular, he may -

… (c) having regard to any term of the contract relating to the payment of interest, decide the circumstances in which, the rates at which, and the periods for which simple or compound rates of interest shall be paid."

This provision confers a wide power on adjudicators in relation to the award of interest which is applicable whether or not the parties' contract contains any term relating to the payment of interest. In the Discussion Paper we asked whether any difficulty was arising in practice in relation to the power of an adjudicator to award interest. One consultee suggested that it was doubtful whether paragraph 20(2)(c) of the Scheme (set out above) permitted an adjudicator to award interest which would not run as a matter of law unless the parties had made contractual provision for it. If this doubt is well founded, then we consider that the problem which it raises will, as with arbitration, be resolved by the introduction of a general statutory entitlement to interest from the date when payment fell due, irrespective of whether entitlement to the principal sum has still to be determined by the adjudicator. Accordingly, there seems to be no need to make any specific legislative provision other than to ensure that the limited discretion to remit interest in whole or in part applies to adjudications.^[10]

Other forms of dispute resolution

9.8           Not all modes of dispute resolution culminate in the making of a pecuniary award in favour of one of the parties. A power to award interest is necessary only in proceedings which are quasi-judicial in nature, ie where a person is appointed by the parties for the primary purpose of making a decision which will be binding upon them. It seems unlikely, therefore, that questions regarding awards of interest would arise in proceedings such as mediation and conciliation where the function of the person appointed is to promote a consensual resolution of the dispute. There exist hybrid procedures containing features of both arbitration and mediation. If the outcome of a procedure of this type were to be the making of an arbitration award, it seems appropriate for any new legislative provision regarding arbiters to apply. On the other hand, if the outcome is a consensual resolution, there is no need for any legislative intervention as regards interest.
9.9           It would be difficult to anticipate in a statutory provision all the forms which dispute resolution might take. In the Discussion Paper we expressed the provisional view that it would be unwise to extend the proposed statutory entitlement to interest beyond the methods of dispute resolution presently available which lead to a judicial or quasi-judicial determination of the parties' respective rights and obligations, namely litigation, arbitration and adjudication. We invited comments as to whether in addition to these there was any form of dispute resolution in respect of which statutory provision would be desirable with regard to entitlement to interest on a sum found to be payable by one party to another. None was suggested to us. We therefore recommend that:

There is no need to make specific legislative provision for entitlement to interest as regards any form of dispute resolution other than those already discussed in this Report.

Note 1   See para 9.6.     [Back]

Note 2   See para 9.7.     [Back]

Note 3   1991 SLT 136.     [Back]

Note 4   See paras 5.12-5.13.     [Back]

Note 5   Professor John Murray.     [Back]

Note 6   Under the Arbitration Act 1996, s 49(3).     [Back]

Note 7   Draft Bill, ss 9 and 16(1).     [Back]

Note 8   These are discussed in F Davidson, Arbitration (2000). Some were listed in the Discussion Paper at para 11.8.     [Back]

Note 9   SI 1998/687.     [Back]

Note 10   Draft Bill, ss 9 and 16(1).     [Back]