Arbitration, a form of alternative dispute resolution, is a non-judicial process for the settlement of disputes where an independent third party - an arbitrator - makes a decision that is binding. The role of an arbitrator is similar to that of a judge, though the procedures can be less formal and an arbitrator is often an expert in their own right.

Aside from mandatory arbitration prescribed in legislation, arbitrations may only proceed if all parties agree to go to arbitration. Typically there will be a clause in a contract that states what dispute resolution mechanism is to be used in the event of a disagreement. In the absence of a contract, for arbitration to take place all parties must agree. You cannot force the other parties to enter into such an arrangement. Arbitration is suitable for many different types of dispute of a civil nature.

The costs involved in arbitration vary. The arbitrator will set a fee, often an hourly rate. Costs will vary depending on the fee of the professional whether a hearing is required, venues and legal representation.

Arbitration is often used for the resolution of commercial disputes, particularly in the context of international commercial transactions. The use of arbitration is also frequently employed in consumer and employment matters, where arbitration is often agreed in the terms of employment or in commercial contracts and is also used in family matters.

Parties often seek to resolve their disputes through arbitration because of the potential advantages over the courts. Advantages include:

• Arbitration can be cheaper and more flexible, more commercial and less formal than court
• Arbitration is often faster than litigation in court, and a time limit can be placed on the length of the process
• Unlike court rulings, arbitration proceedings and arbitral awards are confidential
• The ability to select an arbitrator with an appropriate degree of practical experience
• Unlike in court, there are very limited avenues for appeal of an arbitral award, which limits the duration of the dispute and any associated liability
• Due to the provisions of the New York Convention 1958, arbitral awards are generally easier to enforce in other nations than court judgments

Arbitration has a long history in Scotland, spanning some seven hundred years, and yet in the Arbitration (Scotland) Act 2010 (“the Scottish Act”) Scotland has one of the most modern systems of arbitration in the world.

The Scottish Act is similar to the 1996 Act in use in England and Wales, and will feel instantly familiar to international arbitration practitioners. Indeed, the Scottish Courts have held that English case law applying to the Act in force there since 1996 can be used to interpret the Scottish Act. This provides predictability and certainty to the Scottish regime. However, there are some key differences:

• Arbitration in Scotland is a confidential process, and unlike the position in most jurisdictions, the duty to treat proceedings as confidential is backed up by legislation. The obligation to treat all matters relating to the arbitration confidentially is enshrined in the Scottish Act, and is has been strongly backed by the Scottish courts
• If a challenge is made to court in respect of an arbitration, the courts will keep the parties’ names, and details of the case anonymous, so as to preserve confidentiality. It is possible to persuade the Court that the case should not be reported at all
• There are no appeals on points of law where the arbitration is an international arbitration. Where the arbitration is ‘domestic’ (concerns two parties based in Scotland), the parties can exclude ‘legal error’ appeals by agreement
• To reduce unnecessary court challenges, the Scottish Act limits appeals to the Court, and from the Court to the appeal court (the Inner House). There is no appeal to the Supreme Court.

There are a number of reasons why parties may be attracted to Scotland. Advantages include the new state-of-the-art law, the cost effective nature of arbitration in Scotland due to the flexibility of the law and restricted appeal processes, being an English-speaking jurisdiction and separate from England in terms of arbitration (this neutrality may be attractive to foreign parties in dispute with English firms), Scotland being a very attractive venue in which to arbitrate, with good transport links and accommodation and our mature legal system to back up arbitration, with judges who appreciate the need to support the arbitral process, without unwanted interference.