As highlighted in our recent newsletter the Arbitration (Scotland) Act 2010 was passed by the Scottish Parliament on 18 November 2009, received Royal Assent on 5 January 2010 and is expected to come into force in the next few weeks. The hope is that the Act will make arbitration a far more attractive and widely used method of resolving disputes in Scotland than is currently the case.

It has long been the case that if parties agree to resolve their disputes by arbitration then either party can insist on arbitration and prevent disputes being resolved before the courts. However, a recent case reminds us that this right to arbitrate can be lost.

It is quite common for a party to a dispute to raise a court action before commencing arbitration. This is often done to secure a right to claim interest or to obtain security for the claim by way of diligence (e.g. arrestment). Thereafter, the proceedings can be sisted (i.e. put on hold) in order for the dispute to be referred to arbitration.

In UBC Group Limited v Atholl Developments (Slacbuie) Limited, an action was brought by UBC before the commercial court of the Court of Session. During the course of the action UBC sought to have the case sisted for arbitration. The court rejected UBC's application deciding that it had lost its contractual right to arbitrate having not insisted upon that right timeously. Importantly:

  • UBC did not indicate in its summons that it would be seeking to sist the action for arbitration;
  • UBC did not mention sisting for arbitration in its Note of Issues lodged before the first hearing;
  • The defender did mention the possibility of sisting for arbitration in its Note of Issues but indicated that it would not be insisting on that right;
  • UBC agreed to the defender lodging a counterclaim in the court action;
  • UBC only raised its request to sist for arbitration in adjustments to its pleadings which were lodged late.

In light of these factors the court decided that the application to sist was too late. Lord Glennie held that in considering the facts and circumstances of the case UBC had, from the outset, not conducted itself in a fashion consistent with an intention to insist upon its contractual right to arbitration.

Will this position change under the new Arbitration Act? The new Act sets out clearly in section ten that parties are entitled to a sist in proceedings insofar as they have not "otherwise acted since bringing the legal proceedings in a manner indicating a desire to have the dispute resolved by the legal proceedings rather than Arbitration".

In applying this section the courts are likely to look at the same factors considered by Lord Glennie in the UBC case and the same outcome is likely.

Lessons? Shortly put, parties who litigate in the commercial courts should know their strategy from the outset. If litigation has been raised, but is not intended to be the final vehicle for resolution of the dispute, then that should be brought to the courts attention at the earliest opportunity.