Lord Bellamy

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That the Committee do consider the Bill.

The Parliamentary Under-Secretary of State, Ministry of Justice (Lord Bellamy) (Con)

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My Lords, as our learned Chairman has just indicated, the procedure is, as I understand it, that we will formally move a Motion for Second Reading on the Floor of the Chamber after this debate and then I will move a Motion that the Bill be referred to a Special Public Bill Committee for further consideration. It is a kind of hybrid Bill procedure because this is a Law Commission Bill following the Law Commission report of 5 September 2023, which contained a draft Bill.

I should say at the outset that there are two changes to the draft Bill presented by the Law Commission. First, Clause 1(3) of the Law Commission version provided that the Bill would not apply to any existing arbitration agreement. That caused a certain amount of concern because there are many thousands of existing arbitration agreements going back many years and, if that situation had prevailed, we would have had a dual system for a very long time, as old arbitration agreements became subject to arbitration. The Bill now provides that its changes do not apply to arbitrations that have already commenced, as distinct from existing arbitration agreements. I have taken the precaution of checking with the law officers that that is regarded as satisfactory and that it is in line with earlier precedent in relation to the Arbitration Act 1996, which this Bill amends. That is the first point.

The second point is that the Bill now extends to Northern Ireland, which is thought to be consistent with policy. It does not extend to Scotland, as the noble and learned Lord, Lord Hope of Craighead, well knows. Scotland has its own regime under the Arbitration (Scotland) Act 2010.

Following those introductory comments, I will briefly take your Lordships through the Bill, conscious as I am that almost everyone in the Room knows much more about it than I do. I have a certain sense of déjà vu, as this is not unlike appearing once again in front of the Supreme Court, or the House of Lords as it was, considering the galaxy of knowledge and experience that we have before us this afternoon. Your Lordships well know that the arbitral process is of great importance and value, particularly to the commercial community of this country, which is a most important centre for international arbitration. Arbitration is a method of resolving disputes to which the parties willingly submit and, in the Government’s view, it should be promoted and kept up to date.

The background to this Bill is the decision by the Lord Chancellor in 2021 to ask the Law Commission to review the Arbitration Act 1996, which contains the present law—I know that certain noble Lords, notably the noble Lord, Lord Hacking, go back well before that and have lived this development over many years. The 1996 Act contains a thorough code of the principles and practice of arbitration in this country. This Bill is intended to bring that structure and framework up to date and ensure that we remain abreast of international developments and that London and these jurisdictions remain competitive on the international scene. Arbitrations in England and Wales generate some £2.5 billion annually in arbitral and legal aid fees alone and in 2021, according to the Law Commission, London was the world’s most popular seat for international commercial arbitration, notably in banking, insurance, trade and other businesses.

Your Lordships will be very familiar with the provisions of the Bill, but I will briefly summarise them. Clause 1 provides that the law governing the arbitration will, unless the parties agree otherwise, be the law of the seat of arbitration. As noble Lords know—I will try to get this completely right—in contractual disputes, the contractual liability will normally be determined by the proper law of the contract, but the contract may provide that the arbitration be elsewhere. A contract may be governed by Russian law but have arbitration in London. In that event, what is known as the curial or supervisory jurisdiction is governed by English law; for example, whether an arbitrator should be removed or to which court some challenge to the arbitral award may be made will be the subject of the law of the seat—in that example, English law.

However, suppose the question is whether the dispute is within the agreement to arbitrate in the first place. In my example, would it be governed by the Russian law of the contract or the English law of the seat? This question has exercised the courts over many years and there have been different views and decisions. In Enka v Chubb in 2020, the Supreme Court, in a split 3:2 decision, arrived at a somewhat complex test for deciding exactly which law governed the agreement to arbitrate. That gave rise, among other things, to a desire for certainty and a clear and simple rule. That simple rule is now provided in Clause 1, which provides that it would normally be the law of the seat unless the parties agree otherwise.

My understanding is that that is already in line with certain standard arbitration agreements and the rules of bodies that provide arbitration services. That is the essential provision of Clause 1. As I am sure the noble and learned Lord, Lord Hope of Craighead, is well aware, England, Wales and Northern Ireland will thereby align with Scotland, so we will have a common position across the four jurisdictions.

Clause 2 provides a statutory duty on arbitrators to disclose circumstances that might reasonably give rise to justifiable doubts as to their impartiality, to maintain the integrity of arbitration in this country. There have been some well-publicised incidents, as a result of which it should be put beyond doubt that arbitrators have a full duty to disclose anything that may reasonably give rise to justifiable doubts as to their impartiality.

Clauses 2 and 3 support arbitrators in making impartial and proper decisions without fear that they might incur some personal liability. In the case of an application for the removal of an arbitrator, Clause 3 provides that the arbitrator will not be liable personally for costs unless they have acted in bad faith. Clause 4 provides that an arbitrator will not be liable for resigning unless the resignation is shown by a complainant to be unreasonable. Those provisions effectively support the independence of arbitrators.

Clauses 5 and 6 deal with jurisdiction. Under Clause 5, if there is a challenge to the tribunal’s jurisdiction on which the tribunal has already ruled, the losing party cannot go directly to the court on a preliminary point to challenge that; it must await the final arbitral award and then make that challenge under Section 67. That in effect rules out earlier challenges to the court on jurisdiction.

Clause 6 clears up something of a mystery: when an arbitral tribunal decides that it has no jurisdiction, does it none the less have jurisdiction to award costs? Clause 6 provides that it does; there is a power to award costs even if the arbitral tribunal has found that it has no jurisdiction over the dispute in question. Clause 7 effectively replicates the summary judgment procedures available in the court and empowers arbitrators to make an award on a summary basis if a particular issue has no real prospect of success.

Clauses 8 and 9 pertain to the powers of the court. Clause 8 empowers it to make court orders reinforcing the orders of emergency arbitrators. These powers already exist in relation to normal arbitrators, but on occasion emergency arbitrators are appointed, so this makes sure that the existing powers to issue court orders apply equally where there is an emergency arbitrator. Clause 9—again, similarly to normal court proceedings—entitles arbitrators to make orders in support of arbitral proceedings against third parties, most likely banks that may be holding relevant funds. That provision resolves a certain conflict in the case law and aligns the position of arbitral proceedings with that in court proceedings.

Clause 10 is essentially a tidying-up measure. There are various bases for challenging an arbitral award in the 1996 Act: Section 67 for lack of jurisdiction, Section 68 for serious irregularity or Section 69 for a point of law. Clause 10 ensures that, where there is a challenge under Section 67 for lack of jurisdiction, the remedies available to the court are the same as they would be were the challenge under Sections 68 or 69, to bring a certain degree of consistency across the three main ways of challenging arbitral awards.

Under Clause 11, if an arbitral party applies to the court to challenge an arbitral award on the basis that the tribunal had no jurisdiction under Section 67, that challenge should not be a full rehearing with new evidence and arguments—it should, in effect, be decided on the existing record so that the court does not have to restart or do the whole thing afresh on the basis of the challenge to the jurisdiction of the tribunal. That will streamline and simplify the operation of such challenges.

There are then some quite short, technical provisions. Clause 12 clarifies certain time limits. Clause 13 codifies the law in relation to the staying of legal proceedings and Clause 14 streamlines the process of applying to the court under the 1996 Act for certain preliminary rulings on jurisdiction and points of law. Clause 15 repeals certain sections that have never been brought into force and are therefore redundant.

That is a very brief outline. I am not sure whether it was a fast trot or a slow canter. Your Lordships are much more familiar with this area than I am. The Bill is intended to increase the competitiveness of England, Wales and Northern Ireland, and primarily London, as a seat of international arbitration, to foster growth in both domestic and international arbitration, to introduce a fairer and more efficient process and to reduce reliance on resort to the court. I beg to move.

Lord Hacking (Lab)

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My Lords, I have never spoken in the Moses Room in the two years since my return to the House of Lords and I am not familiar with the procedure, so if I go wrong, I hope that our Deputy Chairman or someone else will put me right.

I am in a rather poignant position, in that I am the sole surviving parliamentarian who took part in the 1979 Bill and the 1996 Bill. That is not to say that I am the only creature still alive who was involved in that Bill, because Robert Ayling was the assistant solicitor in the Department of Trade—the 1979 Bill was taken through partly by the Lord Chancellor’s Department and partly by the Department of Trade. As far as I know, he is alive and kicking; I have not seen him for a little time. Mark Saville, now the noble and learned Lord, Lord Saville of Newdigate, played a critical part in the 1996 Act, but he had not by then arrived in the House of Lords Judicial Committee, which he did a year later, and therefore he sat on the steps of the Throne. He was a very important person, but not a parliamentarian at the time.

Of the parliamentarians of the time—if we could remember them—there was Lord Maurice Peston, who spoke for my party throughout the Arbitration Bill. He mugged up on the subject very well and was a very good participant in our debates. Lord Peter Fraser of Carmyllie was the government spokesman to take through our debates. Alas, both have departed this world, as indeed have other prominent Members of the House who took a very active part, including Lord Mustill, Lord Donaldson and Lord Roskill. So here I am as the one surviving parliamentarian. There is another name I must mention at once—Mr Toby Landau. Not only is he alive and kicking but he is here in this Room to listen to our debate. At least somebody other than me is still alive and kicking.

As I said, I am not familiar with the proceedings in the Moses Room and I am ready to be corrected at any time. I have some memories of the 1979 and 1996 Acts which I think it would be valuable for the Committee to be reminded of. Therefore, I intend to take a little time in doing so. I am aware that this is very close to the Christmas Recess. If any noble Lord, particularly one who is listed to speak, thinks that I am going on too long, I would ask him not to suffer me but to stand up and, if needs be, cut back my words.

The foundation of this Bill, and indeed the foundation of all arbitration law, goes back to the Act of 1698. The Bill in its preamble was described as:

“An Act for determining Differences by Arbitration”.


Further on in the preamble, we have the words: now this Bill is

“for promoting Trade and rendring the Awards of Arbitrators the more effectual in all Cases for the final Determination of Controversies referred to them by Merchants and Traders or others”.

This important Act of so long ago established the support that was needed for the conduct and, indeed, the encouragement of the use of, arbitration as a means of settling disputes. Right up to the present time, our statutory law should create a balance between the courts and arbitrations. It should also be promotional for the conduct of arbitration in the United Kingdom. The importance of that comes out clearly in a briefing that we have just received from the Law Society, which calculates that currently there are no fewer than 5,000 arbitrations annually, bringing an income of £2.5 billion to the economy, so it is of importance. I would suggest that what we are doing today is of importance.

I actually doubt whether 5,000 arbitrations is the right calculation, when one takes into account the numerous LMAA and GAFTA arbitrations, and other arbitrations in the commodity field. Indeed, when I headed up an action group in 2000—I have its paper here—there were then more than 3,000 LMAA arbitrations. But whatever it is, the figure is very large and, I suggest, very important.

The 1979 Act was specifically directed to two matters. One was the setting aside and annulment of these two procedures: the “case stated” procedure and the procedure for setting aside awards for errors on its face, which was also being used. It was used by parties when they were not doing very well in an arbitration and who then sought to take their arbitration to the courts to cause delay, embarrassment and difficulty to the plaintiff or complainant.

Indeed, in the debate that I opened in May 1978 in the Chamber of this House, I read a letter from the general counsel of Raytheon, the massive defence producer of weapons and the like. In that letter, the general counsel said that, because of the way in which two of the major arbitrations were being sucked into the court by the case stated procedure, he had given directions that there should not be any arbitration agreement signed by Raytheon, carrying a London arbitration jurisdiction. That is how serious it was. Thanks to Lord John Donaldson, the 1979 Act effectively got rid of both the case stated procedure and the procedure of setting awards aside on their face. It also created what I believe to be the right balance between the law courts and arbitration, and that has been continued ever since.

When I was citing the 1698 Act, I should have mentioned that were other arbitration Acts in the 19th century, one based on the MacKinnon report. There was of course the consolidating Arbitration Act 1950, but none were developing arbitrations on the foundation Arbitration Act 1698.

The big challenge for getting the 1979 Act through was to get Lord Diplock on side. A former commercial judge—I think he was the first judge of the Commercial Court—he was a man, a judge and a Lord of great influence, and if we did not get him on side, we had no hope of getting the 1979 Act through. The second great challenge in 1978-79 was to get the Government to give time and support for what became the 1979 Act. We achieved the first, getting Lord Diplock on side. We were greatly assisted by Bob Clare, who was then senior partner of the very big American law firm of Shearman & Sterling. He walked Lord Diplock round and round the lake at Selsdon Park until he managed to get his support.

The other way of getting Lord Diplock on side was achieved by Lord Donaldson in creating special categories of arbitrations—those relating to admiralty, commodity and insurance—and setting those aside, so that they were not entitled to opt out of the new arbitration process. Lord Diplock felt very deeply on the subject; he described the commodity and admiralty arbitrations as providing the water in the fountain of the development of English commercial law. That was quite an achievement on the part of Lord Donaldson. Incidentally, at that time Lord Donaldson was the senior judge in the Commercial Court, and, in the very active way that he approached matters, he set up a special committee which issued a report. That was then given accord by the Government of the day, being made into a Command Paper, which was of great influence in getting the 1979 Act.

As for getting the Government on side, we really had to thank Lord Cullen of Ashbourne, who was a retired stockbroker. I won the ballot and therefore succeeded in having the right to open a debate on the future of arbitration in London. There are a number of noble and learned Lords behind me now; at that debate, there were a number of Law Lords in front of me. Lord Diplock took part—I am just trying to remember all those who did—as did Lord Scarman and Lord Wilberforce. This somewhat surprised the Opposition Benches. They could well have replaced Lord Cullen of Ashbourne with Lord Hailsham, who, for example, was close to arbitration law and took an active part in the 1979 Act. However, they remained loyal to Lord Cullen, which meant that we received the evidence from him of the loss of £500 million in invisible earnings, which is what the loss of income to the Government was called then. That was an astounding figure—probably close to £5 billion in today’s currency. The Lord Chancellor spoke to me about it afterwards and said, “Is it really that much?” I was quite sure that it was not, but just said to him, “I think it is a very large sum of money”. He then seized upon the opportunity to push forward that Bill, because the Labour Government were not doing awfully well and he thought it would be awfully good for them to do something that was wholly friendly to the City of London.

It was given the Rolls-Royce treatment—that was the term Sir Thomas Legg gave it, from the Lord Chancellor’s Department—but it nearly got into a disaster. I am going on a little but am getting quite close to my end. We nearly got into a disaster at the end of that because the Labour Government collapsed in March 1979. We had just had the Bill go all the way through the House of Lords and it had not got near the House of Commons. As a result, there was a happy trade-off with the House of Commons through the official channels, which was how the Bill was saved.

Onward therefore to the 1996 Act: it was a rather slow process, which caused Arthur Marriott to take up an initiative. That then brought about the setting-up of what was called the departmental—

Lord Roborough (Con)

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I give a gentle reminder to the noble Lord that there is an advisory speaking time of 15 minutes. We have time, but if there are points he wishes to make—

Lord Hacking (Lab)

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I appreciate that, and I am not yet at 15 minutes, but there is nothing on the speakers’ list that stipulates a time of 15 minutes.

The Deputy Chairman of Committees (Baroness Watkins of Tavistock) (CB)

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If I could clarify, it is normally expected in a Second Reading that 15 to 20 minutes is the maximum. Obviously, sometimes there are exceptions, but particularly as the noble Lord asked at the beginning for any clarification, I thought that would be helpful.

Lord Hacking (Lab)

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Yes, I am very aware that behind me, and in other parts of this Committee Room, there may well be those who are anxious about getting away for their Christmas. I will therefore be responsive to this interjection and bring the Committee to another very important crisis—one which leads directly to what I have said about the importance of an arbitration Bill. It should not only set the right relationship between arbitration and the courts but be promotional in nature.

The departmental committee was headed up first by Lord Mustill and then by Lord Steyn. They gave up the fight with the parliamentary draftsman who was, dear lady, a very pedantic one. She produced a Bill which was enormously complicated and quite unreadable. It included, most surprisingly—Mr Toby Landau would remember this—the writ of habeas corpus. We had a meeting about it in Queen Mary College, down the Mile End Road, and there was an uproar against it. I remember Jan Paulsson, a leading international arbitrator, making scathing comments. There was a skeleton hang-up and what we should therefore be grateful for, and what I would like to record, is that the noble and learned Lord, Lord Saville, and Mr Toby Landau started all over again. That is the product we have now in the 1996 Act.

The important thing about what we are doing now is that this is a wholly readable Bill. It does not have a whole lot of parliamentary junk in it. It takes you all the way through each stage of the arbitration. What we should be doing now is to make quite sure that we follow in that line. I do have comments about the Bill itself, but I will leave those to another time.

Lord Etherton (CB)

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I am grateful to the noble Lord, Lord Hacking, for his fascinating historical overview from a personal perspective. For my part, I consider the Bill to be good and extremely useful, and I congratulate the Government on seeking to implement the Law Commission’s recommendations so quickly after the publication of its final report.

There is one matter I should like to raise for the Government to consider, but I want to emphasise that it is not my intention that there should be any amendment to the Bill. The issue concerns discrimination in arbitrator appointments. This matter was raised by the Law Commission in its consultations, in which it observed that women were up to three times less likely to be appointed than men. Consultees had different views about this but in the end the Law Commission decided that there should be no anti-discrimination provision in its draft Bill.

I ask the Government to consider, perhaps when there is next a review of the Equality Act 2010, whether there might be some provision in that Act concerning discrimination in arbitrator appointments. I recognise that it would be important for the Government to carry out a consultation prior to any decision on the matter to see whether such a provision would for technical or other reasons place the United Kingdom at a disadvantage in competing with other countries for the conduct of international arbitrations.

As I have said, this should not be the subject of an amendment to the Bill, not least because it is proceeding in accordance with the special expedited procedure for uncontentious Law Commission Bills. It is a matter for future consideration, possibly in relation to the Equality Act.

Lord Verdirame (Non-Afl)

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My Lords, I declare an interest on this matter: I am a practising member of the Bar and my practice includes arbitrations including proceedings under the Arbitration Act. I am also a member of the Commercial Bar Association, but I had no involvement in Combar’s response to the consultation on the Bill.

I, too, welcome the Government’s decision to press ahead with this Bill so soon after the completion of the excellent work by the Law Commission, to which I pay tribute. The number and quality of the responses to the two consultations is also to be commended. It is a testament to the breadth and depth of expertise and experience in the field of arbitration that we are lucky to have in this jurisdiction.

I should like to say a few words in support of the conclusions reached by the Law Commission, as reflected in this Bill, on a couple of points. The first is the scope of the court’s review of an arbitral tribunal’s jurisdiction under Section 67 of the current Arbitration Act. This is addressed in Clauses 10 and 11 of the Bill. In its first consultation paper, the commission suggested that in order to avoid delay and costs for the parties, instead of a full review, there should be an appeal. After two rounds of consultation, the commission concluded that there should not be a radical departure from the current system, proposing instead some limited and pragmatic procedural improvements.

That is the right conclusion. A key question in any system of consent-based jurisdiction is who should police the boundaries of that jurisdiction. An arbitral tribunal can of course rule on its own jurisdiction under the principle of kompetenz-kompetenz, but it does not follow from this principle that that tribunal should be the final arbiter of its jurisdiction. Arbitration is successful because it is widely seen as having legitimacy. That legitimacy depends to a significant degree on the jurisdiction of the arbitral tribunals being subject to effective controls that go well beyond the self-policing by the same tribunal of its own jurisdiction.

In the wider world of international law, where consent-based jurisdiction is also the norm, an exorbitant jurisdictional determination by an international court or tribunal does not always have a clear or easy fix and that can create a legitimacy problem, and it sometimes does so. It was therefore important to preserve the architecture created under Section 67 of the Arbitration Act, as interpreted by our courts. At the same time, I believe that Clause 11 provides some protection to the winning party from the risk of unnecessary time-wasting and delay that follow from having to relitigate jurisdiction. Under Clause11, this objective would be achieved through the use of rules of court, which strikes me as a sensible and pragmatic solution.

The other question on which I wanted to touch was the one on which the noble and learned Lord, Lord Etherton, has spoken: the principle of discrimination and whether there should have been an amendment to ensure that it applied to the appointment of arbitrators. There were a number of problems with that, as the Law Commission rightly identified. One is that under Article V of the 1958 New York convention, it is stated:

“Recognition and enforcement of the award may be refused”


where it is shown that

“The composition of the arbitral authority … was not in accordance with the agreement of the parties”.


Another difficulty discussed in the consultation was that, particularly in international arbitration, it is quite common to require arbitrators to be of a nationality different from that of the parties.

In the course of considering this question, the commission helpfully set out the ways in which discrimination already applies to arbitration. That is so particularly through the duty of impartiality but also, as far as barristers and solicitors are concerned, through our professional codes of conduct. The obligation not to discriminate is, of course, a core professional duty.

It bears noting that in the 2022 review of discrimination in professional codes of conduct by the International Bar Association, England and Wales came out as one of the best jurisdictions. We have codes of conduct that prohibit discriminatory conduct by lawyers in any capacity, and not only in the exercise of professional functions. This matters because it is lawyers who advise clients on the contractual terms on the appointment of arbitrators and, ultimately, on whom to appoint. In doing so, in this jurisdiction, lawyers have to be mindful of their responsibility. The Law Commission was right to conclude on this point, after its thorough consideration of the question, that there should not be

“any further legislation within the Arbitration Act to prohibit discrimination, in particular in the appointment of arbitrators by … parties, because we think that this will not improve diversity of arbitral appointments, but could well lead to unwarranted satellite litigation and challenges to awards”.

My final, brief point is on Clause 1, which settles a complex question—one on which the case law had never been fully and satisfactorily settled. New Section 6A has the clear benefit of clarity and simplicity.

In sum, I too very much welcome this Bill. It is a timely and measured intervention in our law that we should all be grateful to the Law Commission for, and to the Government for pressing ahead.

Lord Hope of Craighead (CB)

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My Lords, I too, I think in common with all your Lordships, very much welcome this Bill. It is plain from the Law Commission’s report that it is the product of a great deal of hard work on the parts of the Law Commission itself and those who responded to its papers in the course of this process.

The result is a compact measure that seeks to amend the Arbitration Act 1996 in 15 distinct respects. I do not think that anything in the Bill is controversial. On the contrary, the proposals will all contribute to the improvement of the law of arbitration in England and Wales in the various ways that the Minister explained in his helpful introduction. Our thanks must go to all the members of the Law Commission who contributed to this process and to His Majesty’s Government for finding time to bring the Bill before us. We very much hope it will achieve its results before the next election.

At first sight, the best guide to what has been going on might be thought to be found in Appendix 3 to the Law Commission’s final report, which sets out for the reader a list of all the suggestions that have not been taken forward. No less than 54 such suggestions are listed. I thought that this was perhaps quite a good indication of the amount of interest among practitioners that this project has generated. However, my sense of excitement was somewhat dampened when I read in paragraph 3.3 that almost all these suggestions were raised by only one consultee, and that there was, indeed, no widespread clamour for reform in respect of the various suggests that that consultee put forward. On the other hand, the consensus was that the 1996 Act works well, as indeed it does, and that root and branch reform was not needed or wanted. What was looked for, instead, was some updating and refinement of what we already have. Indeed, this is essential if we are to ensure that England and Wales remains the jurisdiction of choice for the resolution of international disputes.

The fact is that there is a very competitive market out there in the wider world. We must keep our heads in front. We do not want to lose our place to others in the Middle East and elsewhere, who are marketing their services vigorously to attract as much business as they can. That is why the work that the Law Commission has done in bringing this Bill forward is so important and so much in the public interest.

Leaving Appendix 3 aside, a word should be said about the work done by some very experienced practitioners in Brick Court Chambers, including my noble and learned friend Lord Hoffmann. I should mention that, although I am a door tenant there, I was not one of those practitioners. They worked to persuade the Law Commission to include a provision in the Bill about the law applicable to the arbitration agreement. I understand that what is now Clause 1 was not in the first draft of the Bill, but it is good to see that the Law Commission was persuaded that there was a need to clarify the rules as to its determination.

As the Minister mentioned in his introduction, the position in Scotland is set out in Section 6 of the Arbitration (Scotland) Act 2010, which provides that:

“Where (a) the parties to an arbitration agreement agree that an arbitration under that agreement is to be seated in Scotland, but (b) the arbitration agreement does not specify the law which is to govern it, then, unless the parties otherwise agree, the arbitration agreement is to be governed by Scots law”.


There is currently no such provision in the Arbitration Act which precedes this Bill. On the contrary, as the law stands in England and Wales, no necessary inference can be drawn that by choosing an English seat, and with it English law as the law which governs the proceedings in the arbitration, the parties also, by implication, have chosen English law as the law which governs the arbitration agreement itself.

The need for clarity was rendered all the more pressing by the decision of the UK Supreme Court in Enka v Chubb in 2020. In that case, it was held that the question as to the law applicable to the agreement was to be determined by applying English common law rules for resolving conflicts of laws. According to those rules, the law applicable to the arbitration agreement was the law chosen by the parties or, in the absence of such choice, the system of law with which the arbitration agreement was most closely connected.

The reasoning in that case—it was a majority decision, as mentioned earlier—was perfectly orthodox, but it seemed to open up issues which, in this context, were best avoided. It was argued that the better view was that where there was no agreement, the law to be applied to the arbitration agreement should be the law of the seat of the arbitration. That simple solution is what is now provided for in new Section 6A(1) of the 1996 Act, which is set out in Clause 1 of the Bill. This provision achieves the clarity that is needed, in line with the position in Scotland.

However, new Section 6A(2) adds a rider to what is set out in Section 6A(1), which perhaps need to be clarified. It states that:

“For the purposes of subsection (1), agreement between the parties that a particular law applies to an agreement of which the arbitration agreement forms a part does not, of itself, constitute express agreement that that law also applies to the arbitration agreement”.


The words “of itself” beg the question: what do they mean? What do they envisage as necessary to displace the default rule that, where no such agreement is made, the law to be applied is the law of the seat of the arbitration?

These questions arise because it may be said that the wording of subsection (1) is perfectly clear in itself; it already uses the word “expressly”. We are told there that the law applicable is

“the law that the parties expressly agree applies to the arbitration agreement”.

What, then, does subsection (2) add to what is already provided for in subsection (1)? Indeed, do we need that provision at all? I hope that, at some point, clarity could be given as to the reasoning behind subsection (2) so that we fully understand how it interacts with what is already set out in the clearest language in subsection (1).

That point aside, the wording of the other provisions in the Bill, all of which are very welcome, do not seem to me to give rise to any questions. I hope that the Bill will receive a Second Reading in due course and as soon possible, and I wish it well as it proceeds through its remaining stages in this House and in the other place.

Lord Faulks (Non-Afl)

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My Lords, I too welcome the Bill and agree with what noble Lords have said about it. The Library Note on the Bill suggests that the arbitration industry centred on London could be worth at least £2.5 billion to the UK economy each year, although that is described as possibly an underestimate.

There have always been some areas of doubt about certain aspects of the law in relation to arbitration and the Bill is a welcome clarification of many of them. I did not wholly anticipate the problems that the noble and learned Lord, Lord Hope, identified in Clause 1 —it seemed on the face of it to be the answer to what was a somewhat uncertain position as to the law—and I am sure the Minister will consider carefully what he said.

That change and others have been generally welcomed, not least by the Chartered Institute of Arbitrators. I declare an interest as a fellow of the institute, although I have to say that my services have not been called upon very often. I should also declare that the Independent Press Standards Organisation, which I chair, provides for arbitration—extremely cheaply—for those who have complaints against regulated newspapers and their online manifestations. Unfortunately, lawyers for the parties seem to prefer litigation to arbitration.

There is one area that the Law Commission considered but decided not to include in the draft Bill. This was a matter raised not just by the one very assiduous consultee referred to by the noble and learned Lord, Lord Hope; it was in relation to the secrecy or confidentiality of arbitration. Confidentiality has long been a hallmark of the arbitration process and a significant attraction to users. The rule is not absolute. The contours of those circumstances where one party or another loses confidentiality or secrecy have been developed by the courts. I understand that the reason for omitting any provisions about this may have been that it is regarded as preferable to leave the law to the courts rather than try to capture in legislation in what circumstances there should be a departure from the general principle. It is, of course, always open to those entering into an arbitration agreement to be specific about these matters.

The case law acknowledges that the courts have an important role in ensuring standards of fairness in arbitrations. The 1996 Act, particularly Sections 67 to 69, provides the basis on which a party can challenge an arbitration award in the courts. However, there is an inherent tension between the principle that justice should be both done and seen to be done and the privacy and confidentiality that go with arbitration.

My attention has been drawn to a case reported a few months ago before Mr Justice Robin Knowles, the Federal Republic of Nigeria v P&ID. In a lengthy and comprehensive judgment, Mr Justice Knowles found that P&ID had practised

“the most severe abuses of the arbitral process”.

The judge said in his decision that it

“touches the reputation of arbitration as a dispute resolution process”.

He asked himself whether, on the facts, there was an irregularity within Section 68 of the 1996 Act and found that, notwithstanding the high bar that has to be surmounted to prove a serious irregularity, it had been proved. He found that documents had been obtained by fraud and in breach of professional obligations, that deliberate lies had been told to the panel and that there had been wholly inadequate disclosure. In his view, it was important that Section 68 was available to “maintain the rule of law”.

The case involved huge sums of money that the arbitration panel decided were owed by Nigeria to a shell company in relation to a gas pipeline. After carefully examining the facts and concluding as he did, the judge said:

“I hope the facts and circumstances of this case may provoke debate and reflection among the arbitration community, and also among state users of arbitration, and among other courts with responsibility to supervise or oversee arbitration. The facts and circumstances of this case, which are remarkable but very real, provide an opportunity to consider whether the arbitration process, which is of outstanding importance and value in the world, needs further attention where the value involved is so large and where a state is involved”.


In discussing the principle of confidentiality, the judge said:

“The privacy of arbitration meant that there was no public or press scrutiny of what was going on and what was not being done. When courts are concerned it is often said that the ‘open court principle’ helps keep judges up to the mark. But it also allows scrutiny of the process as a whole, and what the lawyers and other professionals are doing, and (where a state is involved) what the state is doing to address a dispute on behalf of its people. An open process allows the chance for the public and press to call out what is not right”.


The judgment was unusual and should cause the arbitration community to reflect on the risks inevitably involved in the confidentiality of arbitration proceedings. I do not have any amendments to suggest for the Bill, but I respectfully seek a response from the Minister on the serious questions this judgment raises about the appropriateness of arbitration, in particular its confidentiality, when the facts are similar to those of that case. Are the Government satisfied that there is no need for further provision and the matter can be left to individual judges, or has this case caused any change of heart such that they will legislate specifically to avoid a repetition? I do not necessarily expect a response now, except in general terms, but I ask for a more substantial response in writing.

I do not suggest that there is anything inherently unsuitable in encouraging arbitration, for the reasons we have heard, but I wonder whether there are sufficient safeguards to prevent the abuse of the process so starkly illustrated by this case. That said, I welcome the Bill.

Lord Thomas of Cwmgiedd (CB)

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My Lords, I shall be brief as I agree with almost everything that has been said so far. I declare my interests as set out in the register in respect of arbitration and institutions that try to engage with those in arbitration to ensure better enforcement and a better relationship with the courts.

This is an excellent Bill. I commend the work of Professor Sarah Green, who has produced a number of proposals to modernise our law. However, it is important to reflect on one matter. The attempt to establish an online procedural rule committee was frustrated by three general elections, even though it was an uncontroversial, technical piece of law. As it is inevitable that there will be a general election within 13 months—it could be much sooner—I hope we will get on with this Bill as soon as possible so that it is not lost. Progress and speed are essential.

My noble friend Lord Faulks raised concerns about arbitration in London in relation to fraud and other matters. It is important to look at this in the context of what my noble and learned friend Lord Hope said about the competitiveness of the arbitration market. Without any doubt, London is under pressure. It is extremely important that London does not in any way fall under suspicion that something unsavoury can be done in its arbitrations or through its arbitral process.

I therefore hope that the Ministry of Justice takes up this suggestion or, given that its funds are almost non-existent, gets some work done by those who profit so much from the success of London—the Law Society, the Bar Council and arbitral institutions—to ensure that people understand three things: first, that the case to which my noble friend referred is an extraordinarily rare and quite exceptional example of things going wrong, and that it is easy for one case to contaminate things; secondly, that in other debates the legal profession has unfortunately gained a reputation in some quarters for not being anxious to have transparency; thirdly, that there has been concern about the tactics lawyers have used, particularly SLAPPs, on which the Minister brought forward such an important amendment in recent legislation.

I am sure that there is no problem in London, but it would be very good if a small body could quickly report that everything possible is being done to ensure that London arbitration is fair, honest and clean, and that the issues which arose from the Nigeria case and the concerns sometimes expressed about lack of transparency do not affect its fundamental integrity. Otherwise, I have a horror that that kind of criticism will undermine London’s competitiveness. We must not be complacent. However, this is not a matter for the Bill, which needs to go through before the general election.

Lord Hoffmann (CB)

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My Lords, I will make a declaration. Since I retired from being a member of your Lordships’ Appellate Committee some 14 years ago, I have practised as an arbitrator in London, including having presided over the Nigerian arbitration to which my noble and learned friends on my right referred.

I have come only to make a modest suggestion for improvement, which has already been anticipated by my noble and learned friend Lord Hope, in relation to new Section 6A(2). I can see entirely why it has been inserted into the draft; it has been done in case some literal-minded judge, not really knowing much about the background to this legislation, might say, “It says that the law which the parties expressly agree applies to the arbitration. The parties have expressly agreed that the document in question shall be governed by the law of Patagonia, so why doesn’t that include the arbitration agreement, which is part of that document?” As I say, you have to be fairly literal and ignorant to be able to come to such a conclusion, but there it is—that is what it is for.

However, I am afraid that, as I think my noble and learned friend Lord Hope pointed out, the existing new Section 6A(2), which is meant to deal with that problem, has problems of its own because of the words,

“does not, of itself, constitute express agreement”.

If you say that, you can say, “What else is needed, and what else will count as sufficient?” You find that all you can do is to go back and say, “Well, you need an express agreement that the arbitration agreement shall be governed by a different law”. I do not want to say anything which might possibly derail the special procedure under which the Bill is going through the House but, if it were possible quietly to drop new Section 6A(2), that would be an improvement.

The Minister said that we are now aligning our law with the law of Scotland, but the law of Scotland does not have such a provision—it manages perfectly well with Section 1. Likewise, if you sign up to the rules of the London Court of International Arbitration, you get the law of Scotland, not this extra new Section 6A(2). The draftsmen of both those instruments had sufficient confidence in the judiciary to be able to arrive at the proper conclusion, simply on the basis of what is now Section 1. That is the only contribution which I have to make to your Lordships’ debate.

Lord Mance (CB)

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My Lords, I shall make just a very brief intervention. First, I disclose that, since retiring from practice as an arbitrator in the Supreme Court, I have also taken part in the representations which were made to the Law Commission, and indeed met with it, and I was one of the judgment writers in a case called Dallah against the Government of Pakistan, which forms part of the background to the clause which amends Section 67.

I echo the congratulations to the Law Commission on its responsiveness and diligence in this matter. The fact that the most significant clause in practical terms emerged only part way through the consultation process shows the commission’s willingness to listen. The way it has dealt with this seems largely satisfactory. I hear what was said about the words “of itself”, which must be read against the background that, as my noble and learned friend Lord Hoffman said, express agreement otherwise is required. There may be a difference regarding Scottish law here, which says simply

“Unless the parties otherwise agree”.


It does not require them “expressly” otherwise to agree. However, that sort of nuance will probably not be decisive. I suspect that the courts will make good sense of Clause 2, even though it looks a bit awkward.

I will say a few words on the important question: what is the approach to review? This will depend in part on the nature of the rules that are permitted to be made under Clause 11. However, I heard the Minister say that the aim was that the challenge should not be de novo. That is an oversimplification; the position is quite nuanced. In new subsection (3C), provision is understandably made for circumstances whereby someone, having argued a jurisdictional point before a tribunal, then seeks to raise objections that they could have raised but did not previously, or seeks to allow evidence that they could have adduced but did not before the tribunal. Not surprisingly, that sort of conduct, without good excuse, potentially will be sanctioned, assuming rules giving effect to new subsections (3C)(a) and (b) are passed.

Otherwise, the scene is largely discretionary. New subsection (3B) simply indicates what type of provision may be made by rules where the tribunal has already ruled, and new subsection (3C)(c) prescribes that,

“evidence that was heard by the tribunal must not be re-heard by the court, unless the court considers it necessary in the interests of justice.”

Like my noble friend Lord Verdirame, I emphasise that it can be important to retain the ability for a court to review de novo the jurisdictional basis on which a tribunal acted, so long as it does not fall foul of one of the situations that I mentioned. It is wrong for a tribunal’s analysis of its own jurisdiction to be axiomatically final. That would be a classic case of bootstrapping and there is a considerable risk—which, I am sure, escapes no one —of conferring on to individuals the power to be arbiters of their own powers. It is healthy to have a review.

That is also internationally contemplated. Take the New York convention, which contemplates that the court of the seat will have an important role in reviewing, among other things, the jurisdictional basis of an arbitrator’s activity if the arbitrators have exceeded their jurisdiction in setting aside their award. The convention also contemplates that enforcement courts may have a parallel role, although their activity may be subject to considerations of issues of stop law and abuse of process if there has been a prior decision by the court of the seat or, indeed, by another enforcement court.

I join my noble friend Lord Verdirame in what he said on this area. Otherwise, I strongly commend the Bill.

Lord Beith (LD)

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My Lords, it is a very good principle in the House of Lords to speak mainly on things of which you have a great deal of knowledge and experience. That principle has been followed in this debate admirably so far, and would have continued to be followed had my noble friend Lord Marks of Henley-on-Thames not been otherwise engaged today, leaving me with the task without that essential qualification.

What a fascinating debate it has been. We had the long sweep of history from the noble Lord, Lord Hacking, whose knowledge goes back even further than I had realised. The emphasis on the competitive market in arbitration, in which England is currently very successful, and its wider legal implications, which the noble and learned Lords, Lord Hope and Lord Thomas of Cwmgiedd, mentioned, means it is important to keep the laws and procedures up to date so we can continue to get that benefit. It is indeed competitive: was it last year or the year before when Singapore equalled the amount of arbitration that England had been able to achieve?

In the course of the debate, the noble and learned Lord, Lord Hope, initiated a discussion, in which others joined, of the additional subsection in Clause 6 of the 1996 Act. When I read it, I took it to mean that you could not automatically read across, from the contract being by English law, that the arbitration would necessarily be governed by the law of the seat unless it was expressly stated. It seems bizarre that you could conduct proceedings on a contract that was expressly stated to be of English law but you chose to do it by arbitration not under English law, but sometimes Bills have to prohibit bizarre things from happening. No doubt the Minister will be able to explain that to us.

I was helped by the noble Lord, Lord Faulks, who saved me the task of explaining the Nigerian case, the anxiety that it promotes about how corruption could be concealed within arbitration proceedings and what restraints there were on preventing that from happening by the clear, common-sense statement that if you discover serious corruption,  you should not allow it to be buttressed or assisted by the legal process that you are engaged in—that is, the process of arbitration. Arbitration takes place under commercial confidentiality, but it is not meant to be there as a means of allowing corrupt actions to be perpetrated. If the Minister could help us on what might be necessary to deal with that, I would certainly be very grateful. However, I recognise that amending the Bill at this stage, given the special procedure to which it is subject, is not necessarily an easy option even if we could agree on what that amendment should be.

The history of arbitration in England and Wales in recent years is a huge success. It is a major source of foreign earnings and, even more importantly, a great reputation support for our legal system in general and, consequently, for our commercial success. The 1996 Act has operated as a model of its kind and has worked extremely well. There are a huge number of commercial contracts, often nothing to do with England or English entities, that include English arbitration clauses, making England the seat of any arbitration and often subject to English law. A large number of such contracts make English law the law of the contract, not just the law of the arbitration. Undoubtedly significant in that success is the reputation of English arbitrators, including many well-known retired judges—some of them might be Members of this House—for legal incisiveness, incorruptibility, impartiality, courtesy and an unfussy and relatively informal style.

The Bill makes small changes to the Arbitration Act 1996 and introduces some reforms, all of which will be beneficial. It is a model of the Law Commission’s work and, welcome to say, a model of Parliament attending to the Law Commission’s work with due expedition, which has not always been the case. When I chaired the Justice Committee in the Commons, we were constantly complaining about the work that the Law Commission had done that was going nowhere because parliamentary opportunities had not been found to take it forward. This is a very good example of the Government taking it forward and using the fast track that is available. The work itself—two public consultations and thorough consideration of the responses —is also commendable.

The debate so far has identified most of the significant features of the Bill. Other things that I have not mentioned so far include the duty of disclosure, which may be important for parties from outside the UK who are not accustomed to the way in which normal practice would support disclosure in this country. Having an explicit provision may be helpful from that point of view.

Then there is the power to make awards on a summary basis, which reflects the power that courts have to make summary determinations where one party or the other has no real prospect of success. That does not have to be in relation to the whole claim but can relate to particular issues, and the benefit is to stop parties running hopeless points, often at the risk of running up costs for both sides that may not prove recoverable, and at further risk of delaying the proceedings.

Good case management by arbitrators, with the help of the parties in identifying and defining issues suitable for summary determination, could save time and costs. Importantly, it can encourage parties to settle proceedings where summary awards are given on particular issues.

Then we have in Clause 11 the streamlining of the procedure for determining challenges to the courts for awards on jurisdiction under Section 67. That, too, is a helpful improvement in the Bill.

This Bill has been carefully prepared. We spend a lot of time in this House looking at Bills which have been woefully or inadequately prepared, contain numerous unresolved issues or do not even give proper effect to their stated purposes. We cannot say that about this. It is a model of its kind, as is the way that it has been gone about, and I welcome it.

Lord Ponsonby of Shulbrede (Lab)

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My Lords, the noble and learned Lord, Lord Bellamy, introduced the Bill by saying “Everyone in the Room knows more about this than me”. There is an exception—I suspect that I know less about it than any other noble Lord here.

I am the only speaker in this debate who is not a lawyer. However, I have employed a lot of lawyers in my time and my business experience in employing them was in trying to avoid litigation or arbitration. I was very much of the view that it was not a route that would be beneficial to the businesses which I was involved with, but it was very welcome that that resource was there. Litigating or arbitration within England and Wales was trusted by all international parties with which I was dealing. There was never any question about the jurisdiction in which any future disputes would be agreed and it was always an easy thing to agree with international colleagues.

My noble friend Lord Hacking gave us a tour de force on the historical context. He took us all the way back to 1698 and talked about his early days in this House. I have been around here quite a long time too and remember very well Maurice Peston, Peter Fraser and a number of the other noble Lords to whom he referred when the 1996 Bill was being considered, although I do not go back as far as 1979.

The noble and learned Lord, Lord Etherton, opened by congratulating the Government on the Bill, as I think everyone did. However, it is fair to say that all noble Lords, while congratulating the Government, raised particular issues. The noble and learned Lord referred to anti-discrimination procedures, the Equality Act and the appointment of arbitrators. I will be interested to hear what the Minister has to say on that.

The noble Lord, Lord Verdirame, spoke in a wider context, if I can put it like that, about how English and Welsh arbitration fits within an international framework. I have been on the edges of those types of procedure and they have been wholly unsatisfactory, from my point of view. There is an international frame- work for dealing with matters when they cross boundaries and, when there are disputes about jurisdiction, it can be an extremely lengthy and expensive procedure in which to be involved. When there are these jurisdiction issues, I would be interested to know whether the Bill may, for example, go some way to resolving them, because I understand that they can be difficult.

The noble and learned Lord, Lord Hope, asked a particular question about the Scottish position on arbitration. Again, I will listen to the Minister’s response on that.

The noble Lord, Lord Faulks, raised Nigeria v P&ID Ltd. This case was referred to in the Explanatory Notes and I had a look at that judgment. It seemed that the concern raised within it by Mr Justice Knowles was whether going through the arbitration process itself can be used as a way of money laundering. That is a concern. The noble Lord asked a number of questions of the Minister on whether, in that set of circumstances with those particular concerns raised, the Bill will go any way to addressing those concerns or whether it is such a particular set of circumstances that it is not appropriate for this Bill. I thought that was an interesting question.

The noble and learned Lord, Lord Thomas, essentially raised the same point about making sure, to quote his words, that London arbitration is seen as fair, honest and clean. If it is anything less than that, it will undermine its competitiveness and its standing in the world.

We then had the two speakers in the gap, the noble and learned Lords, Lord Hoffmann and Lord Mance. They both spoke with huge amounts of expertise and raised their own particular technical points, which I am sure the Minister will answer fully. The noble Lord, Lord Beith, concluded that he agreed that this is an important and well-prepared Bill—a model, to use his word, of how Bills should be handled in this House.

The Labour Party obviously supports this Bill. The only point I have for the Minister is that none of the measures introduced in the Bill can be easily measured. Will there be any sort of assessment, in a year or two’s time, of whether the changes introduced are working satisfactorily and whether this may need to be returned to in the next few years? Whether the changes are actually having any impact would not seem to be easily measured but, other than that, we support the Bill.

Lord Bellamy (Con)

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My Lords, I thank all noble Lords and noble and learned Lords for their contributions to this debate, in particular for the broad welcome that the Bill has received from the Committee. I take it on myself—authorised, if I may, on behalf of this Committee —to pass on our warm thanks to the Law Commission and its team, one of whose representatives are here, for the extraordinary work that has been done on the Bill, and indeed to all those who participated in the consultation. As has been said, it is a model of its kind. All legislation should aspire to reach this kind of standard. That is the first thing I need to say.

Secondly, I also warmly congratulate the noble Lord, Lord Hacking, on his tour de force, going back to 1698—almost as if he was there in 1698, though not quite perhaps—and thank Mr Landau for coming today and blazing an earlier trail, in which we follow with diffidence as the years go by. We are well aware of the points he made on the importance of achieving a good balance between the courts and arbitration on the one hand, and promoting arbitration in this country and pursuing that objective, as the Law Society has today underlined.

With those introductory comments, perhaps I could deal briefly with at least some of the points that have been made, bearing in mind that we still have the Public Bill Committee to come; further points can, of course, be raised then. The equality point, raised by the noble and learned Lord, Lord Etherton, and commented on by the noble Lord, Lord Verdirame, is a difficult one. The Law Commission decided not to proceed to do anything about it but it is something that we can, of course, keep under review. When the Equality Act next comes up for consideration, I anticipate that this point would need to be addressed.

The noble Lord, Lord Faulks, raised the Nigeria case and the tension inherent in arbitration between privacy and transparency. I will make two points about that case. First, in a sense, it established that London is capable of dealing with this kind of fraud, because there was a judge who was able to expose it, and a procedure and, in the end, it was demonstrated that the supervisory jurisdiction in England and Wales works very well.

Secondly, I agree with the noble and learned Lord, Lord Thomas of Cwmgiedd, that it was almost certainly a one-off—a quite extraordinary exception to the general rule. However, the Government ought to take under advisement whether we should do anything to further establish or reinforce what is undoubtedly the case—that London is clean, to use the word of the noble and learned Lord. With the co-operation of the professions, we ought to quietly establish whether anything further should be done to ensure that that is indeed the case. However, it was a disturbing case and, as the noble and learned Lord, Lord Thomas, observed, question marks remain in some cases, over some aspects of the legal profession in relation to SLAPPS, transparency and so forth. In some areas, further consideration may be necessary in due course.

I am glad that the issue with the words “of itself” in new Section 6A(2) has been drawn to the Government’s attention. Again, we should reflect on that. I think that I understand what the draftsman is driving at, but perhaps we should embark on further amendment to that section and whether it is necessary—perhaps we should consider that further.

The noble and learned Lord, Lord Mance, raised the issue of the review under Clause 11 and the whole question of what the rules of court should do and how far they should go. That may link back to our earlier discussion about the Nigeria case, because this is the court taking a very active review role. No doubt there will be a consultation in due course on the rules of court, and it will be important to bear in mind the points made today.

Those were the main points raised. The noble Lord, Lord Ponsonby, asked whether we planned to have an assessment in a year or two. That is a little far ahead for the Government to be looking at the moment.

Noble Lords

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Oh!

Lord Bellamy (Con)

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However, this is an area where Governments, the profession and practitioners are constantly aware of the need for London to be competitive, fair, open and transparent and to prosper. As the years pass, this will be reviewed over time to ensure that London remains competitive by the natural play of market forces.

I think I have covered the main points raised. I thank all noble Lords for their contributions.

Lord Hacking (Lab)

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Could I draw the Minister’s attention to Section 61 of the 1996 Act, which the Law Commission has not pronounced upon? This is the section on the power of the arbitrators to award costs, and how they should do so. Section 61(2) says that

“the tribunal shall award costs on the general principle that costs should follow the event”.

That is the regular jargon used in cases conducted before our law courts. At the very end of the case, the winning party gets up and asks the judge to award costs following the event—namely, that that party has won and therefore the other party should pay all the costs. That goes to the point that I was making that this should be a promotional Act, attractive to those from overseas—and how are those overseas persons meant to know or understand what

“costs should follow the event”

means?

It is more complicated than that. This came out in two cases, both under the jurisdiction of the wonderful Law Lord, Tom Bingham. When he was a mere Mr Justice, he did the case of “Catherine” in 1982—and then, when he was the Lord Justice of Appeal, he presided on the Norwegian Cruise case of April 1988. In both those cases, he did not follow the normal rule of costs following the event, because in both those cases the winning party had taken up excessive time on matters that it lost in the dispute. Therefore, it is not so simple as costs following the event and the loser paying.

What I suggest concerning this clause is that we take the opportunity during the passage of the Bill to remove that phrase and leave it as a simple judgment of the arbitrator or arbitrators—what is the fair order on costs that that they should make.

Lord Bellamy (Con)

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My Lords, I thank the noble Lord, Lord Hacking, for that intervention. As far as I know, the Law Commission did not consider that specific question, so I am not entirely sure, as of now when I am on my feet, to what extent we should widen the debate in the context of this particular Bill. But I shall take his point back and further consider it, and see whether the Government have a position on the point that he very strongly makes.

Lord Bellamy

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That the Bill be read a second time.

Lord Bellamy

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That this Bill be committed to a Special Public Bill Committee.

The Parliamentary Under-Secretary of State, Ministry of Justice (Lord Bellamy) (Con)

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My Lords, in moving Amendment 1 to Clause 1, I extend my thanks and appreciation first to the Law Commission for all the work that has gone into the preparation of this Bill and secondly to the many stakeholders who submitted evidence to the Special Public Bill Committee, as well as all those who have assisted us throughout this Committee process. Although the submissions have been most carefully considered, in the event the Bill is little changed from the version submitted and prepared by the Law Commission.

None the less, the process has been, in the Government’s view, most valuable. We have thoroughly reviewed the Arbitration Act 1996, which has provided our arbitral framework for some quarter of a century and has underpinned the foremost position that we enjoy as a destination for international arbitration. I hope that the Committee and all concerned will accept that we now have a thorough review of the 1996 Act, which is a most important advance in maintaining an up-to-date and effective procedure for arbitration, especially international arbitration, in this country.

Clause 1 provides certainty beyond doubt that the law governing the arbitration agreement will be the law of the seat, unless the parties expressly agree otherwise. By inserted Section 6A(2), any law chosen to govern the main contract does not count as an express choice of law to govern the arbitration agreement. In the Government’s view, that is a much clearer approach than that provided by the common law, notably through the Supreme Court’s decision in Enka v Chubb.

Members of the Committee will be aware that there has been thoughtful input from stakeholders to the Committee on whether the default rule in Clause 1 should be further improved on. Subject to one change, and having carefully considered those views, the Government’s position is that Clause 1 should not be further amended. The Law Commission’s policy was to reverse the decision in Enka v Chubb but not go further than that. The Law Commission’s draft, which was widely consulted on, seeks to balance the views of the sector while not being overly prescriptive.

The Government support preserving Clause 1 as it is, subject to one change, which is the subject of Amendment 1. Amendment 1 will remove the words “of itself” from new Section 6A(2), following observations that those words were likely to cause undue confusion, a point first raised at Second Reading by the noble and learned Lord, Lord Hope of Craighead, and other noble Lords and further supported by stakeholders’ evidence to the Committee. Amendment 1 deletes those words and, subject to that amendment, I hope noble Lords will agree that Clause 1, as amended, should stand part of the Bill. I beg to move.

Lord Thomas of Cwmgiedd (CB)

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My Lords, I will briefly make a few observations. First, I thank the clerk of the Committee, who has been invaluable to us all and extremely diligent in the work that he has done. One will have the opportunity no doubt to thank him again at a further stage of the Bill, but I wanted to put that on record. I thank the Committee Members, some of whom are absolutely expert in the law and some who found this an amusing and, I hope, interesting excursion into an important part of our law. I am also deeply grateful to the Minister and his private office for the assistance that they have given us.

The people who deserve the most thanks, however, are those—I prefer not to use the modern term “stakeholders”, because I do not think that it is an accurate description—who came to give evidence to us, who are expert in this highly technical area of the law. They gave us of their wisdom and their experience—not only practitioners, but those who ran the important institutions of arbitration and those who used it. We are immensely grateful for their diligence.

As the Minister said, this is an important Bill for arbitration. Having seen the achievement of the 1996 Act, particularly the work of Lord Mustill, Lord Steyn and Lord Saville in producing a readable document for those whose first language is not English, we have not been complacent. We have grasped the need for change and faced up to the increasingly severe competition for this desirable legal and dispute resolution business. It has been particularly helpful to have had the input of the judges on at least one of the clauses in ensuring that we keep up with the tradition of expert judicial input into this highly technical area of the law. I also thank Professor Sarah Green and her team for their work. Although, as will become apparent, we have concentrated on one or two points, the vast bulk did not need any review by us or the experts who assisted us.

The first of those issues that we have to consider today relates to this amendment. Although other forms of wording were suggested, there cannot be any doubt as to the intention of Parliament. I hope that, if this matter is ever litigated in the future—and I hope that that never arises—there will not be the kind of misunderstanding that occurred in the course of the judgments in Enka about Parliament’s intention.

I want to raise one point. The Law Commission was not adverted to the issue in respect of arbitrations under treaties. This was raised with us at a time, unfortunately, when we had completed the taking of evidence. I still think that there is a difficult issue that needs to be confronted and I hope that, between now and Report, it can be. I am not persuaded at present that this is not an issue that needs addressing. However, as it came up at a late stage, and as the Bill needs to be progressed as soon as possible, it is something to which we can return on Report after those concerned in government have had a chance to take advice from experts in this area—they are simply not “stakeholders”, which is a term that I find discourteous, although I am sure that the Minister intended no discourtesy to people who spend their lives in this kind of business and who in this area are far more expert than the Law Commission itself.

Lord Marks of Henley-on-Thames (LD)

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My Lords, I want to add to what the noble and learned Lord, Lord Thomas, has just said, and I add my thanks to everyone that he thanked. I express the deep gratitude of the Members of the Committee that he so ably led for his chairmanship throughout, his inspired leadership, his understanding of difficult issues and, perhaps even more important, his ability to explain difficult issues that challenged the experts—that is, witnesses, those who were listening to the Committee and those Members of the Committee who are not lawyers. We are all grateful to the noble and learned Lord. We are also grateful to the clerk, who kept us well-informed throughout, to the Law Commission for its work and to Professor Green in particular.

I shall say a word or two about the witnesses. We heard from many witnesses and read the written evidence of many more. The degree to which, although there were disagreements, they were conducted and expressed carefully and with regard to the opinions of others was notable. In particular, I and others were grateful to the witnesses who gave evidence orally —I too prefer “witnesses” as a word to “stakeholders” in this context, and “experts” also—for their engagement with our questioning and, in the case of the amendments today, for effectively achieving unanimity on the need for the amendments that were discussed.

I shall say a word or two about Amendment 1. It was, and I think is, common ground that Enka and Chubb left the law on the choice of arbitration law in an unsatisfactory and unclear state. The Bill as originally proposed included the words “of itself”. To put this on the record, without the amendment new Section 6A(2) would have read: “For the purposes of subsection (1), agreement between the parties that a particular law applies to an agreement of which the arbitration agreement forms a part does not, of itself, constitute express agreement that that law also applies to the arbitration agreement”. For the lawyers among us, that raised a red flag, or rather rang a bell signalling danger. The words “of itself” suggested that if there were more then there might be such an express agreement, because of the agreement between the parties that a particular law applied to the agreement. In our view, the deletion of the words “of itself” subtracts nothing and adds clarity. For that reason, we support that deletion and this amendment entirely.

Lord Ponsonby of Shulbrede (Lab)

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My Lords, I too thank the noble and learned Lord, Lord Thomas. I have indeed had an amusing and interesting excursion into the world of arbitration. I sit on this Committee as a layman and it has been interesting to hear through various submissions the expert views of so many of the witnesses. I thank Mr Topping for his support to me and other members of the Labour Party who have taken part in this short Bill.

To round up on the Bill, the single most important message that I got through the whole process was the need for the arbitration process to be up to date and effective and to maintain its competitive advantage in the international arena. I know from my previous business experience that it is a competitive world and that other jurisdictions are developing fast. I understand the necessity for this Bill and am glad that the House has dealt with it expeditiously. I hope and expect that this will be to the benefit of the arbitration process. Having said that, I thank our Chairman and the Minister for the way in which this Bill has been handled within the House.

Lord Bellamy (Con)

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My Lords, I again associate myself and the Government with the thanks to everyone that have been enunciated this morning, particularly to the noble and learned Lord, Lord Thomas, for his chairmanship of the Committee. One point that arises from the remarks that have been made is the question that was raised by the noble and learned Lord, Lord Thomas, about the bilateral investment treaty. This was not raised during the Law Commission consultations, the written submissions that the Committee received or the oral evidence. It was raised after the 28-day period for taking evidence was completed. However, the Government are now seized of the point, are reflecting carefully on it and will provide an update as soon as they are in a position to take a view on what should happen next.

Lord Thomas of Cwmgiedd (CB)

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My Lords, may I say how grateful I am to the Minister for his last remarks? It is a misfortune in the experience of those who are lawyers that sometimes someone only sees a point at the very last minute. It is not unusual and no one is to be criticised for it, but once a point is seen it must be put to rest. I look forward to what the Minister has to say, but I am deeply grateful for his further consideration of the matter.

Lord Mendelsohn (Lab)

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My Lords, I am grateful for the opportunity to place this amendment before this Special Public Bill Committee. I am not highly experienced with such hybrid procedures and so, while I hope that your Lordships will guide me, you will be pleased to hear that I will also use brevity. I record my thanks and gratitude to the clerk and the noble Lord, Lord Ponsonby, for their help and guidance on this amendment.

This review of the Arbitration Act 1996 builds on its success. The UK has become a global centre of excellence and the proposed amendments to the existing arrangements are sensible and will help to strengthen this position. This amendment seeks to establish as an overarching statutory principle that the arbitral tribunals must confine themselves to resolving disputes that are proper subjects for arbitration and must not purport to make judgments or orders about other matters. It is enormously important that people who take an issue to arbitration do not find their rights affected by the system purporting to go outside the specific dispute between the parties and to resolve other legal rights or to interfere with the operation of statutes.

Even more importantly, arbitral tribunals must not purport to make orders that affect the rights of persons other than the parties to the dispute, such as family members. I will illustrate this point by means of an example. In certain parts of the Orthodox Jewish community there has developed a practice of parties to a divorce being encouraged, or even pressurised, by the religious court—or, as it is known, the Beth Din —handling the ritual side of the divorce to submit to the jurisdiction of the Beth Din by way of arbitration in relation to their financial affairs, and usually to vary a family court-agreed settlement. That in itself is questionable, as the Beth Din is not best placed to adjudicate on these matters, particularly because it has regularly been used as a way of allowing the delivery of the Jewish divorce, or “get”, as it is known, by the man to become a bargaining chip in the wider financial issues between the parties, and there is no provision in religious law for involvement in such issues during the ritual of divorce.

The process becomes particularly objectionable when issues such as access to children, which are not within the range of matters that an arbitral tribunal should be looking at in any event, are brought into consideration, leading to the parties asking the courts to agree to a consent order that risks allowing the children’s welfare, which should be the paramount consideration, being subordinated to the demands of the husband in relation to delivery of the get—in effect, allowing a recalcitrant husband to blackmail children out of their statutory protections.

This is just one example of ways in which religious or other arbitral tribunals may purport to exceed their jurisdiction. I hope the Minister will be able to confirm from the Dispatch Box today that it is a fundamental principle of the law of arbitration that arbitral tribunals should confine themselves strictly to the financial dispute between the parties and not make orders about, or allow themselves to be influenced by, other matters.

Lord Bellamy (Con)

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My Lords, I thank the noble Lord for his amendment and his remarks. The Government are entirely clear that arbitration tribunals should confine themselves to their jurisdiction and to matters properly subject to that arbitration. That is clear from the Arbitration Act 1996 itself, which provides a regime for the court to control the exercise by the arbitration tribunal of its jurisdiction. I do not think I need to run through the various sections of the Act, but it is perfectly plain that it is a fundamental principle of the Arbitration Act that arbitral tribunals should not exceed their jurisdiction. The Government take that obligation extremely seriously.

I confirm at the Dispatch Box, as the noble Lord requested, that the Government’s view is that arbitration tribunals should confine themselves strictly to the matters subject to the arbitration. That is a most important and serious obligation that must be strictly observed. If there is evidence that that principle is not being observed, any such information should be drawn to public attention. I hope that, with those assurances, the noble Lord will not feel it necessary to press his amendment.

Lord Mendelsohn (Lab)

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I thank the Minister for that assurance and beg leave to withdraw the amendment.

Lord Bellamy (Con)

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My Lords, I shall also speak to Amendments 4 to 7 to Clause 11, which, effectively, enables certain procedural reforms to take place in procedures under Section 67 of the Arbitration Act 1996, where a party challenges an arbitral award before the court on the basis that the tribunal had no jurisdiction. The current approach to these challenges, following the Supreme Court’s decision in Dallah v Pakistan, is that these challenges are by way of a full rehearing.

Clause 11 now amends Section 67 to confer a power for rules of court to allow the court to function in what may be described in a more proportionate way when it comes to consider cases under Section 67. In particular, rules of court will be able to provide that there should be no new grounds of objection and no new evidence before the court unless it was not reasonably possible to put these before the tribunal, and evidence should not be reheard by the court.

Regarding the amendments to Clause 11, as originally drafted, new subsection (3C)(c) was subject to the overriding “interests of justice”. The purpose of the amendments is essentially to provide that the concept of everything being subject to the interests of justice should be an overriding provision for all the paragraphs in new subsection (3C), not just the last one. Amendment 3 applies the saving, subject to the court ruling otherwise in the interests of justice, to all the court rules under new subsection (3C) which previously applied only to new subsection (3C)(c). Amendment 6 is consequential on that amendment.

Amendment 4 deals with a slightly different and technical point. It clarifies that the evidence mentioned in new subsection (3B)(b), on consideration of evidence not put before the tribunal, includes written evidence as well as oral evidence. The current drafting is not as clear as it should be because it uses the word “heard”, and it is not always clear that written evidence is evidence that is heard. This is a technical amendment that simply provides that the relevant provision applies to both written and oral evidence.

Amendment 7 adds language, in new subsection (3D), which makes clear that Clause 11 is not intended to and does not limit the generality of the power to make rules of court.

I hope those are relatively straightforward amendments that meet various points raised during the processes of the committee. I beg to move.

Lord Thomas of Cwmgiedd (CB)

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My Lords, I warmly support the amendments and I thank the Minister for bringing them forward. I commend parliamentary counsel on the elegance with which they have drafted the short amendments needed.

This is by far the most important matter before the Committee because it has been a fundamental principle of arbitration law in England, Wales, Northern Ireland —I leave out Scotland, which in this respect has gone its own way—and a large number of other jurisdictions for the court to determine whether an arbitration tribunal has jurisdiction. Although the arbitration tribunal may reach its own view on jurisdiction, only a court that is competent may decide whether the tribunal in fact had jurisdiction. It is sometimes said—a little brutally, perhaps, but with complete accuracy—that a tribunal cannot pull itself up by its own bootstraps. The clearest expression of that principle was set out by the noble and learned Lord, Lord Mance, in his judgment in Dallah.

It is important that we have made two things clear with this amendment. First, when the matter comes before the court, it is not an appeal but a completely de novo review of the position and a determination. In that connection, it is clear from what we heard from the experts who appeared before us that the commercial court has shown considerable skill in balancing the fundamental nature of the jurisdiction of the court with the fact that the parties may have spent a lot of time exploring this issue before the arbitrator. Therefore, what has come out in the amendments to this clause is a proper and true expression of the position. I am particularly grateful to Mr Justice Foxton and Mr Justice Henshaw for explaining that to us with the clarity necessary to put this clause into language that leaves the position beyond doubt.

I am also grateful for the elegant drafting suggestion to make it clear that, first, the interests of justice must always prevail and, secondly, the rules committee’s powers are not fettered. Experience has shown that it is much better to leave the rules committee with a balancing exercise and a degree of discretion, rather than trying to prescribe that in advance. It has always been the common law’s tradition to approach matters in this way and it was a mistake to try to circumscribe that, particularly given the success of the courts in this matter. I warmly support the amendments and am grateful for the elegance with which they have been produced.

Lord Marks of Henley-on-Thames (LD)

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My Lords, I agree with everything that the noble and learned Lord, Lord Thomas, has said. I have one or two small points to add. The first concerns his allusion to the need to be clear. We heard earlier from him and the noble Lord, Lord Ponsonby, about how important the Bill is to maintaining our competitive position in international circles in the field of arbitration. It is in that context that clarity is crucial.

When potential parties to arbitration determine where they are going to have the arbitration, which law will apply and all those questions, clarity is to be highly valued. In that context, it seemed to me, to the committee and to all the experts who gave evidence to us that it should be clear that the court would remain the ultimate arbiter of the arbitral tribunal’s jurisdiction. That was part of the need for these amendments.

To deal with the point about rules of court first, and slightly out of order, the potential problem with the Bill as drawn was that new subsections (3B) and (3C) of the new Section 67, which provided for rules of court, could have appeared too prescriptive. They could have made it look as though that is what the rules of court will say, and that would have two damaging effects. First, it could have been seen to limit the power of the rules committee to set up fair rules in the first place.

Another point that certainly seems important to me is that the rules committee has always had the power to change and adapt rules in the light of experience. If the statute governing the powers of the rules committee looks too prescriptive, that power to change and adapt could be threatened. An amendment along the lines of Minister’s Amendment 7, making it clear that the power of the rules committee would not be limited, is therefore very desirable.

The other point that the noble and learned Lord has made is that there should always be the power for, and indeed an obligation on, the court to act in accordance with the interest of justice. The committee felt, and I feel, that where the interests of justice were mentioned only in new subsection (3C)(c), that suggested that it would not be applicable to new subsection (3C)(a) and (b). The overriding provision in Amendment 3 that

“subject to the court ruling otherwise in the interests of justice”

applies to all three paragraphs was extremely desirable. It also seems important that that renders the clause as a whole entirely consistent with the overriding objective to deal with cases justly by making it clear that that applies consistently with the subsection as drafted and adds to the clarity for those coming to this legislation afresh and determining whether English law will retain its pre-eminent position in the world of arbitration.

Lord Bellamy (Con)

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My Lords, I thank noble Lords for their support for these amendments, which I commend to the Committee.

Lord Thomas of Cwmgiedd (CB)

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This clause seeks to remove the special provisions in relation to domestic arbitration from the Act, and it is entirely right to do so. However, it gives rise to a question that needs to be addressed, particularly because the broad powers of the court are being removed in respect of domestic arbitration. It is therefore opportune to use this occasion to raise the issue that has come before us. It was raised at Second Reading in relation to the problems of fraud, corruption and other related issues in arbitration.

We were greatly assisted by the evidence that we received on this in the light of two recent decisions: that of Mr Justice Knowles in The Federal Republic of Nigeria v Process & Industrial Developments Ltd, which has won worldwide praise; and that of Mr Justice Butcher in Contax Partners Inc BVI v Kuwait Finance House, where he was asked to enforce an award that was completely fabricated.

My own experience means that I would be extremely surprised if this was an extensive problem, but there may be others who take the view that there is a little more to this. Whatever the view, this issue really has to be examined. We are particularly grateful to what Spotlight on Corruption told us in two submissions; they are valuable papers that deserve close scrutiny. The organisation highlighted the problems by reference to some other cases and put forward some solutions. What is important from the point of view of London, and indeed the rest of the UK, is that it drew attention to the position of other states, included information about important international arbitration centres such as Singapore and Sweden, and the work being done by the ICC task force.

We cannot afford to be complacent about this issue. Plainly, it was not examined by the Law Commission and cannot therefore be gone into in the Bill, but there are issues. How do we mitigate the risk that has been seen to arise? What, if any, duties ought to be imposed on arbitrators? These are extremely difficult questions and I hope this is a matter that His Majesty’s Government will consider.

My only suggestion is that this might be best done through the way in which arbitration law was originally brought up to date in this country: a departmental committee. That brings the practical expertise of people who really are involved in this, and the Government would have the benefit of it costing nothing because the private sector is always happy to help on such matters. I hope consideration will be given to this. That is merely a suggestion as to how it should be done, but it really is something that I believe should be.

The second issue that I want to raise is the way that the Special Public Bill Committee works. It has worked well in this Bill, and in another where I had the honour of chairing the committee, but there are three points that it would be useful to examine. The first is the period of time that the committee has to review the evidence. It is extremely discourteous when the Law Commission has taken, say, two years to review a subject if we tell all the people who want to say something that they have 14 days in which to do so. That does not seem an entirely fair balance. I am not saying we should veer away from 28 days, but we ought to be allowed to have a pause to give people time—not what the Government give people and are criticised for, which is six weeks, but, say, three weeks. We should be slightly more generous in our timetable. That would enable us to focus, see what people are concerned about and get witnesses to come without disrupting the lives of busy people.

Secondly, in these technical areas—some highly technical areas are coming along the road as we move to the greater use of digitalisation and artificial intelligence and the effect this has on legal matters—we have to get right the time at which detailed technical expertise is brought to bear. It is sometimes a mistake to see these areas of the law as being a bit like the rest of it. This Bill and the one relating to digital documentation are highly technical, and it is a question of getting expert help at the right stage before the Committee meets.

Thirdly, there ought to be greater clarity about what a Special Public Bill Committee can do by way of looking at the scope of a Bill, what is in it and what is and is not policy without in any way imperilling a procedure that enables us to get Bills on to the statute book quickly. We now have some experience of these Bills. Given the important question of getting our law right on adjustments that have to be made to face the age of digitalisation and artificial intelligence, it might be wise to have a rethink about the precise way in which this procedure works. It has not caused a problem due to the Minister’s helpful attitude towards this whole process, for which I am most grateful, but I foresee that there could be difficulties if we do not think of the problems that have arisen before more come down the line, which will be vital to the prosperity of the United Kingdom.

Having made those remarks, I do not wish to press my opposition to the incorporation of Clause 15 any further. In fact, I wholly welcome that clause as bringing about a much-needed improvement to the law.

Lord Bellamy (Con)

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My Lords, in view of the noble and learned Lord’s indication that he is not pressing for the removal of these clauses—which, incidentally, have never been brought into effect—I will say a word or two about the important underlying issue that he raised about corruption. This was raised in the Nigeria and Kuwait cases that he referred to. Those cases revealed that there had been serious issues of corruption in the conduct of the arbitrations, and it is greatly to the credit of the Commercial Court of England and Wales that that was properly exposed and that, in the end, the system was seen to work well.

However, it is important that arbitrators navigating complex cross-border disputes are equipped and empowered to safeguard their process against any misuse or abuse and that everyone perceives our jurisdiction as one that facilitates clean and robust arbitration and is not tainted in any way by corruption. Certainly, it has been most important for the committee to have received evidence about that.

On that issue, I am aware that the ICC Commission on Arbitration and ADR has commissioned a task force

“to explore current approaches to allegations or signs of corruption in disputes and to articulate guidance for arbitral tribunals on how to deal with such occurrences”.

I have written to the principal arbitral institutions seeking their assistance in this matter: the Chartered Institute of Arbitrators, the International Chamber of Commerce, the London Court of International Arbitration, the London Maritime Arbitrators Association and the Grain and Feed Trade Association, as well as the Law Society and the Bar Council, many of whose members will be arbitrators or acting as counsel in arbitration. I have asked in particular what measures they have in place to mitigate the risk of corruption in arbitration, whether more should be done in the sector to mitigate corruption in arbitration, the best way to proceed and how the Ministry of Justice and the Government could support the sector’s efforts. Once we have received the responses, the Government will come to a view on what further action, if any, is needed.

Those matters are in train and this is an issue that the Government take seriously, because the reputation of London is crucial. I think that reputation is intact but we cannot be too careful in this important matter. I hope that that goes some way to reassure the noble and learned Lord that this matter has been properly raised, is on the radar and that action is being taken.

The noble and learned Lord also asked about the procedures of the Special Public Bill Committee, the timelines and the framework for dealing with that matter. Those points are well taken. I think it is a matter for the House authorities rather than the Government, so no doubt the House authorities will reflect on the points that have been made. The Government will support any sensible changes to the Special Public Bill Committee procedure in due course.