Arbitration Bill [Lords]

Nicholas Dakin Excerpts

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.