Arbitration Bill [Lords]

Nicholas Dakin Excerpts

2nd reading
Wednesday 29th January 2025 Commons Chamber

[The Parliamentary Under-Secretary of State for Justice (Sir Nicholas Dakin)]

I beg to move, That the Bill be now read a Second time.

I am pleased to be opening this Second Reading debate on the Government’s Arbitration Bill. This legislation is a direct response to recommendations made by the Law Commission of England and Wales in its report on arbitral reform, published in September 2023. If enacted, the Bill will make targeted reforms to the Arbitration Act 1996, which governs arbitration in England, Wales and Northern Ireland. Scotland has its own devolved arbitral framework under the Arbitration (Scotland) Act 2010, which this Bill will not affect.

Arbitration is a major area of business activity. For example, the Chartered Institute of Arbitrators, headquartered in London, has more than 17,000 members across 149 countries. As the House will know, arbitration is greatly valued by individuals and businesses alike as an alternative to going to court, giving parties the ability to appoint a private tribunal to resolve disputes by issuing a binding and enforceable award. For example, when parties enter into a commercial contract, it is common to find a clause that provides that any disputes will be resolved through arbitration in this great capital city of London, rather than through litigation in court. That is often true even where a contract has no other connection to the UK, such is the prestige of arbitration here. Furthermore, thanks to an international convention commonly called the New York convention, which dates from 1958, arbitration awards made in the UK can be enforced anywhere in the world. Studies suggest that such enforcement is often faster and more reliable than seeking to enforce court judgments.

The New York convention may date from 1958, but arbitration has been a feature of our justice system for centuries. Arbitration was a common way of settling disputes back in Anglo-Saxon times. It was largely a public affair, with enforcement through community pressure. By Norman times, parties could choose their arbitrator, someone known to both sides and well placed to facilitate a reconciliation. In the 14th century—[Interruption.] The Opposition spokesman, the hon. Member for Bexhill and Battle (Dr Mullan), is enjoying my little canter through the historical background, which I am sure the massed attendance this afternoon is also enjoying. In the 14th century, the mayor and aldermen of London set up, in effect, an arbitration centre here in this great city. This also provided services to foreign traders whose disputes had no other connection to England. Arbitration then grew in Elizabethan times, and by the mid-18th century arbitration clauses were very common, as were professional arbitrators.

It is said that our first arbitration Act, the Arbitration Act 1698, was single-handedly drafted by the famous political philosopher John Locke after he had been tasked by the then Board of Trade to devise a scheme that would help merchants to reach a satisfactory settlement of their disputes. John Locke’s arbitral framework fitted on one or two sides of paper, which is a real achievement, is it not? If only we could emulate that today, but things have got more complicated and therefore more precise. Arbitration has come a long way since then, though we salute John Locke and his efforts in setting us on this journey.

Today, arbitration happens in a very wide range of settings, from rent reviews through commodity trades and shipping to international commercial contracts and investor claims against states. In each instance, it enables parties to resolve the dispute at hand and move on from it. The parties can choose a neutral venue to resolve their dispute. They can choose trusted arbitrators or arbitral institutions to preside over the proceedings. I add with emphasis that some of the world’s leading trade and arbitral institutions are headquartered here in London. I may have mentioned that before, but we need to be proud of it. They range from the aforementioned Chartered Institute of Arbitrators and the London Court of International Arbitration to important specialist organisations concerned with matters such as shipping and trade in grains, oils and sugars.

Parties can tailor the arbitration process to their own needs, which results in an award that is internationally enforceable. At the same time, the process is respected for its integrity—at least, that is the position here in the UK, thanks in large measure to the regulation of arbitration through the Arbitration Act 1996. The Act ensures that arbitration is conducted in a way that is impartial, fair and without unnecessary cost and delay. The English courts, which command much respect worldwide, retain a supervisory jurisdiction.

Building on its extensive history of arbitration, and thanks to its legislative framework, London has become the world’s leading destination for international arbitration. It is highly respected as a neutral venue for resolving disputes across the world, something in which we all rightly take immense pride. In fact, the Law Commission estimates that at least 5,000 arbitrations take place in England and Wales each year, directly contributing at least £2.5 billion a year to our economy in fees alone. So arbitration and the Bill are part of our growth agenda for our great country. However, as arbitration is a largely private affair, we may speculate that its direct value is likely to be even greater than that £2.5 billion.

Arbitration is also an important offering in our country’s international business package, one that includes legal services, banking, insurance and trade. It is a great advantage of our jurisdiction that business can be done here in the knowledge that when legal disputes arise, they can be resolved swiftly and fairly. We enjoy a worldwide reputation for the quality, independence and ethics of our legal professions. It is therefore no surprise that arbitration here in London is a showcase for that, or that it is very much in demand.

Given that the Arbitration Act 1996 is approaching 30 years of age, the previous Government rightly asked the Law Commission to undertake a thorough review of the legislation back in 2021. It was tasked with determining whether the 1996 Act required amendment to reflect modern practices and maintain its effectiveness in a growing global market when competing jurisdictions had already updated their own arbitral frameworks. The Law Commission was painstaking in its review, carrying out the commission given to it by the previous Government, and I pay tribute to the members of the Law Commission for their painstaking work on this matter, from which we all benefit.

An initial consultation paper was published in September 2022. It laid out the Law Commission’s analysis of the law as it stood and proposed a small number of areas for reform. That consultation received responses from abroad and from an expert base of consultees including individual practitioners, academics, specialist bodies and international firms and institutions, as well as from our judiciary. Taking this feedback on board, the Law Commission refined its proposals and published a second consultation paper in March 2023. After yet another round of engagement, final proposals and a draft Bill were published in September 2023.

As I said, this process has been painstaking and thorough, and we need to credit everybody involved, including the Conservatives for their leadership of the process during that time. It is a testament to the longevity and flexibility of our arbitral framework that only targeted updates were recommended, with the Law Commission concluding that while some modernisation of the 1996 Act was needed and desirable, root and branch reform was not. And it is testament to the Law Commission’s thorough consultation that the Bill commands such support in the arbitral and legal sectors.

I cannot resist adding that the work has been watched carefully by our competitor jurisdictions abroad. The Law Commission’s report was cited by the Singapore court of its own initiative, and in the last few months, seeing the positive developments here, France has announced a need to review its own arbitration laws. We lead the way, and this Bill will ensure that we stay ahead.

As hon. and right hon. Members will be aware, the previous Government introduced an Arbitration Bill in 2023 that also sought to implement the Law Commission’s recommendations. That Bill had made its way through Committee in the other place when Parliament was dissolved for the general election. The legal sector was emphatic in expressing the view that the proposed reforms are vital for updating the arbitral framework and making sure that our jurisdiction remains competitive.

We are first in global class on arbitration, and this Bill will ensure that we stay first in global class. The Government agree wholeheartedly with the legal sector’s view, not least because of our commitment to fostering economic growth in our country. As such, this Bill was introduced in the other place at the very earliest opportunity in July 2024, as one of the first acts of this Government after the general election. I am pleased to see the Bill finally arrive in this House, as I am sure you are, Madam Deputy Speaker.

It is worth saying that the 1996 Act boasts some key strengths. It provides flexible procedures that allow parties to shape proceedings to best suit them. Parties can, for example, arbitrate their dispute with one of our jurisdiction’s many world-leading arbitral institutions, which have developed procedures that parties trust will deliver a fair and timely outcome.

Our current framework also permits effective recourse to our courts, where needed. Parties can request that our courts determine a preliminary matter in the arbitration, such as jurisdiction, or later challenge an award produced by arbitration. Arbitrators can similarly apply to the courts to assist their proceedings, such as by enforcing their orders. At the same time, the regime of court support is carefully balanced to prevent parties from dragging their feet and re-litigating cases. This gives parties huge confidence that arbitrations taking place in our jurisdiction are both efficient and fair.

Many of this Bill’s reforms are designed to build on the strengths of the 1996 Act. I will now go through the key clauses, because I can tell that Members are deeply interested in checking through the detail so that, should we move to a vote, we know exactly what we are voting on.

[Dr Kieran Mullan (Bexhill and Battle) (Con)]

Quite right.

[Sir Nicholas Dakin]

I am pleased to see the Opposition spokesman give me a willing eye of encouragement, for which I am duly grateful.

I start at the beginning. Clause 1 will make it much simpler to determine what law applies to an arbitration agreement. Currently, the rules for identifying the governing law are found in the common law and a recent Supreme Court decision. That decision shows both immense learning and the complexity of the current approach. The Supreme Court was split in its judgment, and its approach was different from that of the Court of Appeal, which used an approach different from that at first instance.

Instead, to make the law clearer and more predictable, clause 1 provides that the governing law will align with the legal location—that is, the seat—of the arbitration by default. This will ensure that arbitrations, where seated in England and Wales and Northern Ireland, will be fully supported by our law, which is among the most supportive of arbitration globally.

Clause 2 codifies a duty for arbitrators to disclose circumstances that may cause doubts as to their impartiality. This will codify the common law and align domestic law with international best practice, such as the United Nations Commission on International Trade Law model law, which our expert lawyers had a major hand in drafting. The model law’s influence can be found in other jurisdictions as far apart as Scotland and Switzerland. It will promote trust in arbitration by promoting trust in the integrity and impartiality of arbitrators.

Clause 3 and, in the interest of briskness, clause 4 will support arbitrators in making impartial and proper decisions by extending their immunity against liability when they resign for good reason or are removed for no fault of their own. This will support arbitrators to make robust and impartial decisions without fear.

Clause 5 clarifies the two pathways for a party that wants to challenge the jurisdiction of the arbitrators—that wants to question whether the dispute should be arbitrated at all. The party can either apply to the court for an early ruling, or it can wait until the award is issued and then go to court. Clause 5 clarifies that it cannot do both. It is either/or.

Clause 6 ensures that, where arbitrators agree that they should not be hearing a dispute after all, they can still award the costs incurred up to that point against the party that generated those costs.

Clause 7 will allow arbitrators to adopt expedited procedures to dispense with issues that have no real prospect of success. This aligns with summary judgments available in court proceedings and will make arbitrations more efficient.

We move seamlessly to clause 8, which will help emergency arbitrators. Emergency arbitrators are appointed on a temporary basis while a full tribunal is being established—that process can sometimes take weeks. They are, therefore, very important to arbitrations. They are often tasked with vital preliminary matters, such as preserving evidence or assets, and are important to ensuring that arbitrations can proceed smoothly. As the practice of emergency arbitrators post-dates the 1996 Act, our framework did not make explicit provision for them, so looking again gives us an opportunity to examine their role.

Clause 8 empowers emergency arbitrators to handle urgent matters better and ensure compliance with their directions by equipping them with final orders and court enforcement. That will give emergency arbitrators the same pathways to enforce their orders as other arbitrators, and will enhance their effectiveness.

Clause 9 provides that court orders made in support of arbitral proceedings can be made against third parties, which aligns with the position in court proceedings. For example, it would enable a party to arbitration to get an order freezing assets held by a third party, such as a bank.

Clause 10 ensures that when a party challenges an arbitral award at court, the court has the full range of remedies available, regardless of the pathway. This clause irons out discrepancies that courts and practitioners have otherwise sought to work around.

Clause 11 provides more efficient court challenges to the tribunals jurisdiction through rules of court that would prohibit repeating evidence and arguments already debated in front of the tribunal. That will avoid such challenges becoming full re-hearings, reducing costs and delays.

I can deal with clause 12 pretty quickly, you will be pleased to know, Madam Deputy Speaker. Clause 12 ensures that the time limit for challenging awards is consistent across the Act.

Clause 13 corrects a rare example of a drafting error. What the Act meant to say was that court orders could be appealed, but in some cases there would be restrictions. What it actually said was that court orders could be appealed only where there were restrictions. To its credit, the Judicial Committee of the House of Lords spotted this error and interpreted the statute as it was meant to be read. We have taken this opportunity to correct the drafting to reflect the judicial ruling, as a useful bit of tidying up.

Clause 14 streamlines the requirements for applying to court to obtain preliminary rulings from the court on questions of law, or on whether the arbitrators have jurisdiction to hear the dispute. Early rulings, such as those from expert judges, can save time and cost.

I am getting towards the end of going through the clauses. In fact, I have come to the last and final clause that I wish to comment upon, clause 15, as you had probably worked out, Madam Deputy Speaker, because that usually comes after clause 14. [Laughter.] There is no clause 16, so clause 15 is the final clause. Clause 15 repeals provisions that were never brought into force, simply to tidy up the Act. Those provisions would have meant slight differences in approach between domestic arbitrations and international arbitrations. In the event, they were never used or needed, never brought into force and there remains no demand for them. Our arbitration law is first class and applies equally to domestic and international arbitrations, so removing the provisions is a helpful way to tidy things up.

In sum, the Bill will greatly approve the arbitral process in our jurisdiction and further cement our position as a top global business destination, where legal disputes can be resolved fairly and quickly. The Bill has already gone through the other place, where it received considerable examination and support from noble and learned Members, including many experienced arbitrators. There are, apparently, a lot of experienced arbitrators in the other place, and they brought their knowledge, experience and expertise to the debate, for which we are very grateful.

Indeed, I emphasise that the Bill has been reviewed by Members of the other place not once, but twice. The first time, scrutiny was provided by a Committee, led by the noble and learned Lord Thomas of Cwmgiedd, that took further evidence from expert stakeholders. The several technical improvements made to the previous Bill because of that work are retained in this Bill. This time, the Bill was reviewed on the Floor of the other place, where the Government amended clause 13 to fix a long-standing error in our framework on arbitral appeals.

I have been quite thorough in covering the ground. I hope all Members feel they have got a good understanding of the issues behind the Bill and why we need to take the steps that I am urging the whole House to take.

To conclude, I second the remarks made by Lord Thomas on Third Reading:

“We must find a means of doing this very rapidly, as we must keep English law—I say English law deliberately—attractive and at the forefront of use internationally, for the benefit of our whole economy.”

—[Official Report, House of Lords, 6 November 2024; Vol. 840, c. 1499.]

I hope the House agrees, and will give the Bill a Second Reading.

[Madam Deputy Speaker (Ms Nusrat Ghani)]

A tour de force. I call the shadow Minister.

--- Later in debate ---

[Sir Nicholas Dakin]

I thank all Members for their contributions. I thank the Conservative spokesperson for recognising, as we do, the work of Lord Bellamy, Lord Hacking and other peers in the other place, as well as everybody who has contributed to where we are today. I also very much welcome what the Liberal Democrats spokesman said on the tackling of issues through the process—that is, giving greater confidence about tackling corruption risk and the issues around the right of appeal. I am grateful for the constructive way in which this debate has been pursued.

The Bill mirrors that of the last Government’s, save for two changes, which I will note here for completeness. The first, as I mentioned in my opening speech, was the amendment to clause 13 to better reflect the case law on appeals. The drafting error it fixed was in section 18 of the Senior Courts Act 1981 and in section 35 of its Northern Ireland equivalent, the Judicature (Northern Ireland) Act 1978. That suggested that appeals to the court of appeal under part 1 of the Arbitration Act 1996 would only be permitted if expressly permitted in the 1996 Act. However, case law established that the intended regime for appeals under the 1996 Act was to permit appeals to the Court of Appeal, unless there is provision in the 1996 Act that adds an explicit restriction on those appeals. I hope that deals with that issue.

Clause 13 therefore corrects the drafting error identified in the House of Lords’ judgment in Inco Europe v. First Choice Distribution and makes it clear that appeals from High Court decisions under part 1 of the Arbitration Act 1996 may, subject to provision in that part, be made to the Court of Appeal. A slight amendment to the long title was also required to reflect that change.

The second change was to clause 1, which we made prior to the Bill’s introduction to Parliament. That was to address concerns about the effect on arbitrations between investors and states, in particular those that follow from an open invitation to arbitrate made in a trade agreement or in domestic legislation. The current position is that those arbitrations are governed by international law and foreign domestic law. Sector feedback made clear that that is what should continue. Our change therefore provides that new section 6A(1) of the Arbitration Act 1996 does not apply to arbitration agreements derived from standing offers to arbitrate contained in treaties or non-UK legislation. [Interruption.] Does the hon. Member for North Bedfordshire (Richard Fuller) wish to interject?

[Richard Fuller (North Bedfordshire) (Con)]

indicated dissent.

[Sir Nicholas Dakin]

I just a pause for a little reflection while I gather my thoughts on the other issues to do with arbitral corruption. I am sure the hon. Member for North Bedfordshire, for whom I have the highest regard, would not want me to skimp on dealing with arbitral corruption, which has been raised by both the speakers in the debate so far.

[Richard Fuller]

indicated assent.

[Sir Nicholas Dakin]

I am encouraged by his nodding.

We take corruption very seriously. However, we have concluded that arbitral corruption is not caused by any issue with our domestic arbitral framework. The Arbitration Act 1996 and common law already provide remedies to deal with corrupt conduct. The courts are empowered to set aside arbitral awards where there are serious irregularities, as they have done recently in the well-known case of Nigeria v. P&ID. Furthermore, arbitrators are under a statutory duty to be impartial and to reach a fair resolution of the dispute. They can issue an award that prevents the corrupt party from benefiting. Although arbitration procedures are often private, corruption can be exposed. Common law allows an exception to confidentiality when disclosure is in the public interest.

However, there is a need for arbitral practitioners and institutions across the world to ensure that their practices are continually developing to weed out attempts to exploit them. We shall support and keep track of initiatives that are under way, such as that of the International Chamber of Commerce’s anti-corruption taskforce. We will engage with the sector to adopt the very best practices as they are developed. I hope that that assures the shadow Minister and the hon. Member for Didcot and Wantage (Olly Glover).

I give my sincere thanks to right hon. and hon. Members who have contributed to the debate. It has been a measured and helpful debate, which underscores the broad support for this legislative programme. I am happy to have heard so much support for this Bill, particularly those contributions that emphasise its importance to economic growth. Our legal services are a vital element of our economy both for creating favourable domestic business conditions and for attracting investment in the UK. And this Government will continue to support them.

I re-emphasise that these reforms are very much appreciated. Many businesses will be deciding whether to designate London as their seat of arbitration versus competitors such as Singapore, Hong Kong, Sweden or Dubai, which have updated their arbitral frameworks in recent times. This decision is not just to settle disputes via arbitration now. Arbitration agreements are often pre-emptive, so these businesses will be making a decision as to where and how disputes may be settled many years in the future.

For the past quarter of a century, our Arbitration Act and our law have been a key draw, making our shores the natural choice for arbitration. In 1996, we created a truly world-leading legislative framework, which contributed to London becoming the preferred forum for arbitration proceedings across the globe. We must maintain our leading position and continue to attract businesses to ensure economic growth. It was therefore important that these measures sought only to improve the arbitral process and promote trust in arbitration. It would have been no good had these reforms created red tape—we would not want to see that.

Arbitration must remain a quicker and a more flexible means by which to resolve a legal dispute versus going to court. But also it is key to promote trust in arbitration to ensure that proceedings on our shores remain robust and respected internationally. The Law Commission needs to be commended for doing such a brilliant job—a superb job—reviewing our framework line by line and seeing where improvements can be made. This Bill contains, as I have said, the expertise and wisdom of myriad practitioners, experts, firms, judges and others.

I will, if I may, indulge in sharing some of the supportive quotes from the sector about the Law Commission’s work.

[Dr Mullan]

No!

[Sir Nicholas Dakin]

I have only a few. [Laughter.] The House would be the poorer for not hearing these quotes—[Hon. Members: “Hear, hear.”] I feel that it is important to share them. More are available, but I will restrict myself to just a few. The Bar Council said:

“We welcome the Law Commission’s characteristically careful and balanced review of the Arbitration Act, and we support the proposals for reform which it makes. It is extremely important that the government finds parliamentary time,”—

we are doing that—

“for the short bill which the Law Commission proposes. London has a well-deserved reputation as the foremost centre”—

the foremost centre—

“for international arbitration. It is important to legislate to make the modest changes to the arbitration regime which the Law Commission has recommended in order to maintain and enhance that reputation.”

The Chartered Institute of Arbitrators said that it welcomes

“the proposed changes, the majority of which are in line with our recommendations, which were informed by input from our membership… It is a sign of the Arbitration Act 1996’s strength and value that only specific changes to ensure that Act remains current have been recommended as opposed to an overhaul. As well as underpinning the attractiveness and competitiveness of London as an arbitration seat, the Act forms the basis of legislation in many other jurisdictions, lending global significance to this development.”

The Chartered Institute of Arbitrators

“worked closely with the UK Law Commission to inform the review. We support regular review of such legislation to ensure arbitration remains effective, fit for purpose, and a viable means of justice in a modern world.”

White & Case LLP said that

“we expect that the amendments proposed by the Law Commission will promote the efficiency and finality of arbitration proceedings, whilst not unnecessarily introducing drastic reform to existing legislation. The Report therefore is to be welcomed as a positive, incremental step in maintaining London’s position as a major centre for international arbitration and dispute resolution more generally.”

The last quote is one of many positive comments that have been received on what we are doing today and on the Law Commission’s work. Herbert Smith Freehills LLP said:

“There can be no suggestion that any changes are being made for change’s sake. The Law Commission has respected the importance of this legislation and sought only to make changes that are necessary…If enacted into law, they will continue to ensure that the arbitration legislation of England and Wales maintains its market-leading status.”

That is what we all want, Madam Deputy Speaker. We want this Arbitration Bill, which began under the previous Government and was completed under this Government, to maintain our market-leading status. We are determined to do that by working together across this House.

Those are, I assure the House, only a small sample of those who engage with, and support, the Law Commission’s review. However, I will also highlight that these comments were made almost a year and a half ago now on the publication of the Law Commission’s final report. Although it is indeed the case that law reform can take some time, this Government are committed to ensuring that these reforms find their way on to our statute book as quickly as possible.

We must ensure that the Bill faces no further delay. These measures must now proceed at pace through the House. Dispute resolution matters. Disputes that go unresolved are bad for the parties and have knock-on consequences for everyone else. At best, disputes distract from firms getting on with their business and individuals getting on with their lives. At worst, the slow and stressful impact of legal disputes can have much greater impacts elsewhere. Businesses may have money tied up in litigation that could and should go towards investment. Individuals may find that a protracted court battle, with its costs and delays, may lead to sickness, which of course will have its own knock-on effect on economic productivity.

Resolving disputes allows everyone to move forward—all the more so if disputes can be resolved by a process that is trusted and respected and that can be tailored flexibly to the needs of those involved. It is no wonder that arbitration has proved such a popular method for resolving disputes in the UK and why UK arbitration has proved such a popular method for resolving disputes worldwide.

I will also take a moment to compliment the other excellent forms of dispute resolution on our shores. In the construction sector, many disputes will by default go to an expedited adjudication with experts, allowing for a quick determination that enables the project to proceed without further delay. We also boast an excellent network of ombudsmen, which deal with all manner of disputes, including consumer matters. We also have a growing mediation sector, which, in both commercial and family matters, is expert at facilitating negotiation between parties to come to a truly consensual resolution to disputes.

The Bill will enact long-awaited reforms to our arbitration law framework, which will enable more efficient dispute resolution for domestic and international parties alike. It will attract international legal business and promote UK economic growth—not just directly because arbitrations happen here, but because it promotes the UK as a one-stop shop for business. Our arbitrations are respected, and so too are our lawyers engaged in arbitrations—lawyers who are then engaged for transactional businesses; business that is funded by our banks, underwritten by our insurers and mediated through our trading houses; and trading houses that also offer arbitral services in a mutually reinforcing offering.

The Bill ensures that our arbitration law is cutting edge. As I have said, it has attracted attention the world over, serving as a reminder of why the UK remains a premier destination internationally for businesses everywhere. The Bill is therefore of great importance to the legal services sector and to the Government. I commend it to the House.

Question put and agreed to.

Bill accordingly read a Second time.

Arbitration Bill [Lords]

Nicholas Dakin Excerpts

Committee of the whole House
Tuesday 11th February 2025 Commons Chamber

[The Parliamentary Under-Secretary of State for Justice (Sir Nicholas Dakin)]

It is a pleasure to serve with you in the Chair, Ms Nokes.

On account of the Bill’s 18 clauses being grouped together, I will speak to them in numerical order. I begin with clause 1, which contains one of the Bill’s key reforms: provision for determining the governing law of an arbitration agreement. This is important because different governing laws may give different answers to important questions such as who is party to the agreement and whether the type of dispute is capable of being arbitrated.

Clause 1 will determine the governing law of the arbitration agreement by replacing the common law approach established in Enka v. Chubb with a new statutory rule. The law governing the arbitration agreement will be the law expressly chosen by the parties. Otherwise, it will be the law of the seat. By way of simple illustration, if someone arbitrates in London, by default the applicable law would be English law.

Whereas the common law approach is complex and uncertain, the new approach in clause 1 is simple and predictable. It reduces the prospect of satellite litigation to determine governing law, which can be slow and costly. Where the arbitration takes place in London, as is the choice in so many international arbitrations, by default the arbitration will be fully supported by English law.

For the avoidance of doubt, I would like to add that an express choice of law to govern the main contract rather than the arbitration agreement is not enough. Clause 1 will not apply where the agreement is derived from standing offers of arbitration contained in treaties or foreign domestic legislation, as with investor-state arbitration, for example, as these are better underpinned by international law and foreign domestic law respectively.

Clauses 2, 3 and 4 make provision in relation to the arbitral tribunal. Clause 2 requires an arbitrator to disclose circumstances that might reasonably give rise to justifiable doubts as to their impartiality. It will apply prior to the arbitrator’s appointment, when they are being approached with a view to appointment. It will be a continuing duty that also applies after their appointment. This codifies the duty of disclosure recognised by the Supreme Court in its decision in Halliburton v. Chubb and will enhance trust in arbitration.

Clauses 3 and 4 will reassure arbitrators that they can take the right decisions in their proceedings without fear of reprisal from a disappointed party. Clause 3 provides that an arbitrator will not be liable for the costs of an application to court for their removal unless the arbitrator has acted in bad faith. Clause 4 provides that an arbitrator’s resignation does not give rise to any liability unless the resignation is shown by a complainant to be unreasonable.

Clauses 5 and 6 both concern jurisdiction. There are two ways for a party to question the jurisdiction of the arbitral tribunal. One way is to wait until the tribunal has issued a ruling and then challenge that ruling under section 67 of the Arbitration Act 1996, which allows a challenge to an arbitral award on the basis that the tribunal lacked jurisdiction. The other is is by invoking section 32 of that Act, which allows the court to decide whether the tribunal has jurisdiction as a preliminary point.

Clause 5 makes clear that if the tribunal has already ruled on its jurisdiction, any challenge must be brought through section 67. Clause 6 provides that where the arbitral tribunal or court rules that the tribunal has no jurisdiction, that tribunal can nevertheless award the costs of the arbitration proceedings up until that point. This will ensure that if a party wrongly starts arbitration, they can still be held responsible for the wasted costs incurred.

Clauses 7, 8 and 9 deal with arbitral proceedings and the powers of the court. Clause 7 will confer an express power on arbitrators to make an award on a summary basis—that is, adopting an expedited procedure—to dispose of an issue where an arbitrating party has no real prospect of succeeding on that issue. This aligns with the summary judgments available in court proceedings and will deliver more efficient arbitrations. This power can be exercised on application by any of the parties. The procedure to be adopted is not prescribed. It will instead be a matter for the arbitrator to decide on a case by case basis after consulting with the arbitrating parties.

Clause 8 concerns emergency arbitrators. Arbitral rules sometimes provide a regime for the appointment of emergency arbitrators on an interim basis. Such arbitrators can make orders on urgent matters, such as the preservation of evidence, pending the constitution of the full arbitral tribunal. Emergency arbitrators were not commonplace when the 1996 Act was drafted, so it is important that we now expressly empower them. Clause 8 will provide that failing to comply with an order made by the emergency arbitrator will have the same consequences as those for a normal arbitrator.

Clause 9 concerns interim court powers exercisable in support of arbitral proceedings. Under section 44 of the 1996 Act, the court can make orders in support of arbitration proceedings on certain matters—for example, the taking of witness evidence, the preservation of evidence, sales of goods and interim injunctions. Clause 9 will amend section 44 to make it clear that such court orders are also available against third parties. For example, the court will be able to make an order preserving assets against a third party such as a bank. This will mirror the position in court proceedings.

Clauses 10, 11 and 12 concern powers of the court in relation to an arbitral award. An arbitral tribunal can issue an award on whether it has jurisdiction, and it can issue an award on the merits of the dispute. Either type of award can be challenged under section 67 of the Arbitration Act 1996 on the basis that the arbitral tribunal did not have jurisdiction. Clause 10 will equip the courts with the full suite of remedies for section 67 challenges. When the court has a jurisdiction challenge in front of it, it will have two new options: to declare the arbitral award to be of no effect, or to return the matter to the arbitral tribunal for consideration so that a revised award can be made. These remedies already exist for other challenges, for serious irregularities and for appeals on points of law, so this provision fixes something of an inconsistency in the 1996 Act.

Clause 11 also amends section 67 of the 1996 Act. It will confer a power for rules of court to provide that, unless necessary in the interests of justice, there should be no new grounds of objection and no new evidence put before the court unless it was not reasonably possible to put them before the tribunal. The amendments made to section 67 by clause 11 also provide that evidence taken by an arbitral tribunal should not be reheard by the court. This will avoid these challenges from becoming full re-hearings, departing from the precedent set in the case of Dallah v. Pakistan. Re-hearings can involve duplication of time and costs, and it can be unfair to allow a party who lost before the tribunal a complete rerun.

Clause 12 amends section 70 of the 1996 Act, which governs how arbitral awards can be challenged before the courts. It will clarify that the 28-day time limit for such a challenge will start running only after any arbitral process of appeal or correction has concluded.

Clause 13 concerns appeals from High Court decisions and corrects a rare drafting error in the 1996 Act. Section 18 of the Senior Courts Act 1981 and section 35 of the Judicature (Northern Ireland) Act 1978 were amended by the 1996 Act. When read at face value, those sections currently suggest that High Court decisions made under the 1996 Act can be appealed to the Court of Appeal only if expressly permitted in the 1996 Act.

[Chris Vince (Harlow) (Lab/Co-op)]

It is clear from what my hon. Friend is saying that the Bill is welcomed by the legal sector. What engagement has he had with the legal sector and relevant stakeholders?

[Sir Nicholas Dakin]

There has been massive engagement with parties interested in this Bill. The Bill began in the last Parliament, to which I am grateful for the work already done. It began in the Lords, who engaged fully with parties at that stage. The Lords have had to restart the Bill in the new Parliament, so they have had two bites at the cherry, and all the feedback from stakeholders has been very positive. I thank my hon. Friend for drawing that out in this debate.

--- Later in debate ---

[Josh Babarinde (Eastbourne) (LD)]

I rise in support of this Bill, which introduces important measures to modernise our arbitration framework. We Liberal Democrats welcome the approach that the Government have taken in refining the Bill’s provisions to ensure clarity and effectiveness.

Clause 1 is a key part of this new Bill, and we are fond of the changes made following the recommendations from the Special Public Bill Committee in the previous Parliament. For example, the Committee proposed removing two words to prevent undue confusion, and I am pleased that the Government have accepted that recommendation. In addition, the Government have further clarified that investor state arbitration agreements derived from treaties or non-UK legislation will not be subject to the default rule, which is a welcome and sensible step that is necessary to bring greater legal clarity to the process.

I also welcome the five amendments to clause 11, which enable procedural reforms under section 67 of the 1996 Act. These changes respond directly to concerns raised in the last Committee, and strike the right balance between efficiency and fairness in arbitration proceedings.

Further improvements were made in the other place, where the Government tabled amendments to clause 13 to correct drafting issues, which have been mentioned, and to ensure that access to the Court of Appeal aligns with established case law. These amendments received cross-party support and I am pleased to reinforce the Liberal Democrats’ support for them today.

This Bill strengthens the UK’s arbitration framework by improving clarity, ensuring fairness and refining procedures. We support its passage and urge the House to do the same. We do not expect any problems with that.

[Sir Nicholas Dakin]

I give my sincere thanks to hon. and right hon. Members on both sides of the House for their contributions today to what has been a succinct and precise debate. We are all agreed that this is an important step forward, and I am particularly grateful to the Opposition spokesman, the hon. Member for Bexhill and Battle (Dr Mullan), and the Liberal Democrat spokesman, the hon. Member for Eastbourne (Josh Babarinde), for welcoming the improvements to the Bill and recognising that they have been the work of many people in the Lords and the Commons as well as of contributors from outside, as my hon. Friend the Member for Harlow (Chris Vince) reminded us earlier.

The hon. Member for Bexhill and Battle raised the important issue of corruption. As I mentioned during the Bill’s Second Reading debate, arbitral corruption is not the result of our domestic framework, which provides several effective remedies to quash corrupt practices. We support sector initiatives to enhance anti-corruption practices such as the International Chamber of Commerce’s anti-corruption taskforce, and we will push for the adoption of best practices as they are developed.

The hon. Member also raised third party litigation and funding issues. The Government have carefully considered the impact of the UK Supreme Court judgment in Paccar, and have decided to wait for the outcome of the Civil Justice Council review before deciding whether to legislate. A comprehensive review of the market will allow us to take a wider range of factors into account. Following the Paccar judgment, concerns have been raised about the need for greater regulation of litigation funding agreements and greater safeguards for claimants. This is therefore an opportune moment to review the status of the market. The review is being undertaken by the Civil Justice Council, supported by a wider consultation group of experts across this area. The final report and recommendations will be published in the summer of 2025, after which the Government will consider the way forward.

The hon. Member also mentioned mandated mediation, and I will try to pick that up as well. The Government agree that dispute resolution, such as mediation, has a key role to play in ending disputes more quickly and cheaply. This is why all parties to a small money claim in the county court are now required to attend a free one-hour mediation appointment with His Majesty’s Courts and Tribunals Service’s small claims mediation service as an integrated step in the litigation journey. This reform will help thousands of people and businesses each year to resolve their legal disputes without the need for a court battle. We will continue to work to drive the uptake of dispute resolution throughout the justice system to allow parties to resolve their disputes more consensually and at an earlier stage.

That concludes my responses to the points raised during the Committee of the whole House. I once again thank all those who have contributed to the debate.

Question put and agreed to.

Clause 1 accordingly ordered to stand part of the Bill.

Clauses 2 to 18 ordered to stand part of the Bill.

The Deputy Speaker resumed the Chair.

Bill reported, without amendment.

Third Reading

[Sir Nicholas Dakin]

I beg to move, That the Bill be now read the Third time.

Let me first thank all Members of this House and the other place who have spoken in support of this important Bill and the reforms within it. I am particularly grateful for the support expressed on Second Reading by the hon. Members for Bexhill and Battle (Dr Mullan), and for Didcot and Wantage (Olly Glover); the hon. Member for Eastbourne (Josh Babarinde) has added his approval today as well. I am also grateful to all the hon. and right hon. Members who contributed to this afternoon’s Committee proceedings. It is encouraging to see enthusiasm on both sides of the House for further improving our already world-leading arbitral framework, and for the business that those changes will generate.

I also thank the many noble Lords who have given this Bill and its predecessor in the last Parliament such thoughtful consideration. Without their input and expertise, the Bill would not be so finely tuned. I pay tribute to the former special Public Bill Committee, which marshalled expert evidence from the sector, the judiciary and the world of academia. That Committee was ably and expertly led by Lord Thomas of Cwmgiedd. I am also grateful to all the other noble and learned Lords who have contributed to the passage of both Arbitration Bills in the other place, particularly Lord Hacking, Lord Wolfson of Tredegar, Lord Verdirame, Lord Beith, Lord Hoffmann, Lord Hope of Craighead and Lord Mance. I wish to give special mention to Lord Bellamy, who first introduced these important reforms to Parliament as a Justice Minister under the previous Government.

Of course, we owe a debt of gratitude to the Law Commission for its exceptional work reviewing the Arbitration Act 1996 and recommending the reforms that are being taken forward in the Bill. Professor Sarah Green and her colleagues at the commission have led what can only be described as a masterclass in public consultation and law reform. I particularly thank Dr Nathan Tamblyn for his work leading the commission’s review, and for the support he gave the Ministry of Justice in taking forward this legislation. It is fair to say that no one knows the Arbitration Bill better than Nathan. His contributions to this area of the law will, no doubt, have a long-lasting and positive effect.

This Bill has greatly benefited from the input of experts and practitioners from across the arbitration community. Their contributions were made both through the Law Commission consultations and during evidence-taking by the former Arbitration Bill’s special Public Bill Committee. As has been recognised by both Houses, it is vital that our modernised arbitral law works effectively in practice. This has been made possible by the involvement of those who will use this legislation once it comes into force.

Lastly, I put on record my thanks to the officials who have worked on this Bill since it was introduced in the last Parliament. I thank the policy lead, Lee Pedder, the Bill manager, Iona Bonaventura, and Helen Hall from the Office of the Parliamentary Counsel. I also thank my excellent private secretary, Gillian Atkinson.

I conclude by highlighting again the importance of this Bill for the arbitration sector and for UK economic growth more generally. We have a proud history of arbitration on these shores—a point that I covered in some detail on Second Reading. Since the 1996 Act came into force almost 30 years ago, the UK has been the chosen arbitral location for many thousands of disputes from across the world. This House can be confident that the modernisation in the Bill will enable our jurisdiction to continue playing that vital role for many years. This is very much a growth Bill—a growth Bill from a growth Government. I therefore commend the Bill to the House.