Scotland
In your jurisdiction, are there any formal ADR procedures available for resolving commercial disputes other than litigating (or arbitrating) to a final hearing?
The ADR procedures available in Scotland are similar to those available in England and Wales. Parties invariably informally negotiate to some degree at the outset of a dispute either as an alternative to, or at the same time as, litigation or arbitration. However, there are also a number of more formal types of ADR which are commonplace in Scotland across all types of commercial disputes.
The main types of ADR in Scotland are mediation, adjudication, expert determination and early neutral evaluation.
Mediation is a voluntary, non-binding, private process in which a trained independent person helps the parties to try to reach their own negotiated settlement. This is the most common method of ADR and has a high success rate.
Adjudication is where a neutral third party makes a decision that is binding, pending any subsequent court or arbitral award. Adjudication is used most often by the construction industry. It is important to note that unless adjudication is specified in a contract, it will not be an option available to parties unless it is a construction related contract.
Expert determination via the appointment of an expert in the subject matter of the dispute to make a decision which the parties agree beforehand to accept as binding. It is usually adopted for specific technical issues. Although generally classified as a form of ADR, this is significantly different from the other methods, most importantly in that the outcome of the process is generally binding on the parties. The parties can provide for an appeal procedure. Where a contract does not specify for one, and the expert is regulated by a professional body, the professional body’s rules will often be referred to for guidance.
Early neutral evaluation is a non-binding preliminary assessment of fact, evidence or legal merits by one or more independent professionals, often a member of the Faculty of Advocates. Parties can agree in advance to be bound by the opinion.
Does engaging in ADR have any effect on potential or existing litigation or arbitration?
ADR processes can be binding, meaning that the outcome is final and can be enforced (generally, by the courts or through arbitration) or non-binding, which means that the parties can proceed with litigation to resolve the dispute if they are not satisfied with the outcome of the process.
Engaging in ADR does not stop the time from running on limitation or prescription periods. Where proceedings have not commenced, parties should keep in mind limitation or prescription periods. It also does not automatically sist (pause) any proceedings or arbitration already commenced.
The best option for parties may be to begin proceedings and agree to sist (pause) the action while the parties explore ADR.
Litigation and arbitration can be commenced and continued whilst ADR is pursued and will be available if no settlement is secured.
Is ADR compulsory and if so are there any consequences if a party fails to engage in ADR? If it is not compulsory are there any plans for this to change?
As regards the requirement to consider ADR, depending on the nature or value of a claim, different procedural rules apply.
For Simple Procedure Actions, yes, there is a requirement to consider ADR. The Simple Procedure Rules (SPR) require parties to consider whether negotiation or ADR would resolve the parties’ dispute. It requires the sheriff to encourage the parties to resolve the case by negotiation or ADR. The sheriff is entitled to give orders that are necessary for the encouragement of negotiation or ADR.
For Ordinary Actions, there is no requirement to consider ADR. There are no mandatory pre-action requirements for parties to consider ADR before an ordinary action in the sheriff courts or the Court of Session.
For Personal Injury Actions before the Sheriff Court, there is Compulsory pre-action protocol (CPAP) in personal injury claims. CPAP applies to most personal injury claims where the value of the action does not exceed £25,000. Should a party fail to adhere to CPAP the court may sist the action to allow the requirements to be met, award expenses against the party who failed to comply, modify an award of expenses, and make an award regarding the interest payable on any award of damages.
For Commercial Actions before the Sheriff Court, potentially yes there is a requirement to consider ADR, depending on the Sheriffdom and the orders of the Sheriff. Whether ADR is encouraged will depend on the Sheriffdom’s Practice Note where the commercial action would be raised. Note that the Sheriffdoms of Glasgow and Strathkelvin and Lothian and Borders do not have a practice note on commercial actions, as such no requirements exists to consider ADR. Currently the Sheriffdom of South Strathclyde, Dumfries and Galloway encourage parties to consider and discuss ADR. It is not clear whether the courts require evidence of any discussions on ADR. Sheriffs have the right at the Case Management Conference to make any order which they think will result in the speedy resolution of the action, including the use of ADR.
For Commercial actions before the Court of Session – yes, there is a requirement to consider ADR. In communications prior to the action, parties should consider and discuss whether all or part of the dispute could be resolved through ADR. The court may consider any failure to comply with having discussion about ADR when reviewing a motion for expenses. Parties are encouraged to consider ADR before a preliminary hearing. Parties are expected to be able to inform the court on the steps they have taken to achieve settlement without the involvement of the court.
The Scottish Government formed The Scottish Dispute Resolution Delivery Group. The Group is formed of representatives from Scottish Mediation and the Scottish Courts and Tribunals Service with the aim of reviewing Mediation in the Civil Justice System in Scotland and proving recommendations for reform. The Group published a report in 2019 which found both structural and cultural challenges in the use of mediation. These challenges include having a uniform implementation, building an awareness and changing professional receptiveness to mediation.
Can the parties agree, in advance of any potential dispute, to engage in ADR?
Yes. The parties can agree in advance that they will try one or more ADR methods to resolve any dispute that may arise, and many commercial contracts will include dispute resolution clauses involving one or more of these methods. This has the advantage of putting ADR automatically “on the agenda” in the event of a dispute and providing a mechanism for reaching a quick solution. Adjudication must be specified in contracts other than construction contracts if parties want to rely on it as a method of ADR.
When does ADR generally take place?
ADR can take place any time from pre-action to appeal but the optimum timing in any dispute will depend on the particular circumstances, including whether the issues in dispute are sufficiently clear. As stated above, some courts will require or encourage parties to discuss ADR before an action has been commenced.
Is ADR subject to without prejudice privilege and/or confidential? If not, is there any other means to protect confidential information?
Yes. ADR in Scotland is generally confidential and will be protected by standard “without prejudice”. Unlike in England Wales, there is no need for the parties to sign a mediation agreement in order to keep matters discussed confidential. A term of the mediation process itself is that it is confidential.
It is important to note with adjudication under the Scheme for Construction Contracts (Scotland), that parties need to indicate that information or a document is to be treated as confidential. It will be treated as confidential except to the extent it is necessary for the purpose of adjudication.
Does the output from ADR create precedents?
ADR is private in Scotland. As such it does not create a precedent and helps avoid adverse publicity associated with a court judgment. For this reason, it is unsuitable if a court decision allocating blame or an interdict (injunction) is required. A settlement achieved through ADR is usually recorded in a written agreement which will be enforceable between the parties. It is generally not binding on third parties.
Parties can enforce an adjudicator’s decision in two ways. The first is through the courts by parties raising a court action. The best forum to raise a court action is with the Commercial Court. There are a variety of defenses the other party can rely on to challenge the enforcement. The second option for parties is to register the adjudicator’s decision in the Books of Council and Session. The difficulty with registering the decision is that both parties must give their consent.
Who bears the costs of ADR?
It is open to the parties to agree who bears the costs of ADR as part of the final settlement terms. Usually, parties will agree to split costs or simply to pay their own.
Is your jurisdiction subject to any specific rules for cross border ADR?
Following the UK’s departure from the European Union, there is currently no dedicated reciprocal regime for mediations arising in respect of cross-border disputes between parties in the UK and those in EU member states. However, the Cross Border Mediation (EU Directive) Regulations 2011 still apply (with modifications) to EU cross-border mediations which started before December 31, 2020.
In May 2023, the UK signed the United Nations Convention on International Settlement Agreements Resulting from Mediation 2020 (the Singapore Convention on Mediation), but UK legislation will be required to bring it into force. When that happens, it will make enforcement easier because, instead of first obtaining a judgment or award for breach of contract, the Singapore Mediation Convention will allow the enforcing party to go directly to a court in the country where enforcement is sought. That court will then enforce the settlement agreement, unless one of the limited grounds for refusing enforcement set out in the Singapore Mediation Convention applies. The Singapore Mediation Convention is modelled on the New York Convention on the Recognition and Enforcement of Foreign Arbitration Awards, and in effect will give mediation settlements the same currency and status as the New York Convention gives to arbitration awards.
Are there any particularly unusual features of ADR in your jurisdiction that you are aware are different to other jurisdictions?
There is no obligation for mediators in Scotland to be legally qualified.
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