Arbitration Bill [HL]

(Limited Text - Ministerial Extracts only)

Lords Special Public Bill Committee
Wednesday 27th March 2024 Other Business

Moved by

[Lord Bellamy]

1: Clause 1, page 1, line 13, leave out “, of itself,”
Member’s explanatory statement
This amendment does not change the effect of the provision, and follows comments from respondents to the Committee’s call for evidence that the omitted words are unnecessary and cause confusion.

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

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)]

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.

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[Lord Bellamy (Con)]

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)]

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.

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[Lord Mendelsohn (Lab)]

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)]

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)]

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

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Moved by

[Lord Bellamy]

3: Clause 11, page 6, line 29, at end insert “subject to the court ruling otherwise in the interests of justice”
Member's explanatory statement
This amendment provides that court rules within subsection (3C) restricting the raising of new grounds for objection, the consideration of new evidence or the rehearing of evidence must provide that the restriction is subject to the court ruling otherwise in the interests of justice.

[Lord Bellamy (Con)]

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.

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[Lord Marks of Henley-on-Thames (LD)]

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)]

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

Amendment 3 agreed.

Moved by

[Lord Bellamy]

4: Clause 11, page 6, line 35, leave out first “heard by” and insert “put before”
Member's explanatory statement
This amendment makes clear that the evidence mentioned in subsection (3C)(b) includes written evidence as well as oral evidence.

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[Lord Thomas of Cwmgiedd (CB)]

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)]

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.

Clause 15 agreed.