HC Deb 23 November 1966 vol 736 cc1487-500

Order for Second Reading read.

7.57 p.m.

The Minister of State for Foreign Affairs (Mrs. Eirene White)

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

The purpose of the Bill, which has come to this House from another place, is to enable the United Kingdom to ratify the Convention for the Settlement of Investment Disputes, a Convention which was negotiated and agreed under the auspices of the International Bank for Reconstruction and Development. The background to the Convention is described in the report of the Executive Directors of the Bank, issued in Washington on 18th March, 1965, and published in this country as Command 2745 of August, 1965.

The Governors of the International Bank turned their attention to the desirability of sponsoring institutional facilities for the settlement of investment disputes between States and foreign investors in 1962, and, at their request, the Executive Directors of the Bank conducted a very full programme of consultation leading to the drawing up of the Convention, which is now included as the Schedule to the Bill.

Consultative meetings were held on a regional basis in Addis Ababa, Santiago in Chile, Geneva and Bangkok. Legal experts from no fewer than 86 countries took part, so no one can complain that the ground was not thoroughly prepared—

Lord Balniel (Hertford) indicated assent.

Mrs. White

—which I am sure is a very comforting thought for the noble Lord and myself, neither of whom, I think, is very learned in the law.

The authorities of the Bank have made it clear that they consider that the proposed arrangements under their aegis will be a major step towards promoting an atmosphere of mutual confidence between States and foreign investors, thus stimulating a larger flow of private international capital into those countries which wish to approve it. The United Kingdom played a prominent part in the negotiation of the Convention and was the second country to sign it. In all, about 50 countries have now signed, of which 22 have completed ratification. Provision was made that, after the 20th ratification, the Convention should come into force, so that has now been achieved.

The Convention provides for the establishment, under the auspices of the International Bank, of a Centre for the Settlement of Investment Disputes, to which disputes between States and nationals of other States arising out of investment may be submitted. For a dispute to be within the jurisdiction of the centre, it must satisfy two criteria. It must be a legal dispute raising directly out of an investment and it must be between a State and a national of another State.

The Centre will not itself engage in conciliation or arbitration activities. This will be the task of the conciliation negotiators and arbitral tribunals constituted in accordance with the provisions of the Convention. The organs of the Centre will be the Administrative Council, which will be composed of representatives of the contracting States and the Secretariat.

Recourse to the settlement procedures laid down in the Convention is voluntary in that it is subject to the consent of both parties, but Her Majesty's Government believe that the existence of this new Convention is a significant new step forward and that it offers an important additional safeguard for British investors overseas.

The settlement provisions of the Convention applying to disputes between States and foreign private investors—including, of course, companies—differ from the provisions of the International Court of Justice, before which only States may appear. An important international need is thus fulfilled by the Convention.

As a country with massive overseas investments, totalling not far short of £10,000 million, the United Kingdom has a particular interest in participating in drawing up the rules of procedure for conciliation and arbitration proceedings under the Convention. In order to participate in the drawing up of these rules, we must ratify the Convention as soon as possible and thus obtain membership of the Administrative Council, which will perform this task.

There are three main aspects of the Convention which require legislation in the United Kingdom. First, we must provide for the enforcement in this country of arbitral awards made under the Convention. The Arbitration Act, 1950, cannot appropriately be applied to proceedings under the Convention. The procedure of the registration of awards has, therefore, been adopted. They will be registered in the High Court in England and Wales, in the High Court in Northern Ireland and in the Court of Session in Scotland. They will then have the same force and effect for the performance of execution as the judgments of these courts. The procedure is, in some respects analogous to that provided by the Foreign Judgments Reciprocal Enforcement Act, 1933.

This is the main requirement for legislation, but we must, of course, give legal effect in this country to the provisions of Articles 18 to 24 of the Convention—set out in the Schedule to the Bill—concerning the status, immunities and privileges of the Centre, of members of its Administrative Council and Secretariat and of persons taking part in conciliation or arbitration proceedings under the Convention. I should, perhaps, point out, since the House is always very much concerned with the matter of immunities and privileges, that no person is granted immunity from legal process extending beyond the exercise of his functions under the Convention, and no person is given any Customs privileges.

As I made clear, the Centre will be in Washington. The Administrative Council and Secretariat will also be established there. Proceedings Under the Convention will normally take place at the Centre and although there is provision for them to be held elsewhere, if necessary, there is no reason to expect that proceedings in this country will take place in other than the most exceptional cases. There is, therefore, no question of adding to the number of diplomatic privileged persons permanently resident in this country.

We must also make provision to enable the Treasury to meet any financial obligations in the United Kingdom arising out of Article 17 of the Convention. I am happy to inform the House that it is our belief that the costs of the Centre will be relatively small. Fees will be charged for the use of its facilities and the International Bank has agreed, under the Convention, to provide premises and various services. The contingency liability of the United Kingdom is, therefore, only to contribute to any deficit which might remain after the charges and other receipts have been taken into account.

Clauses 1 and 2 deal with the enforcement of awards given under the Convention by the procedure of the registration of awards. An arbitral award may be registered in the High Court in so far as the pecuniary obligations under the award have not already been satisfied; and they are, naturally, subject to compliance with the rules of court. There is a provision for making rules for a stay of execution of an award in certain circumstances, in accordance with the Convention.

Clause 3 will enable the Lord Chancellor to make the relevant provisions of the Arbitration Act, 1950, and the Foreign Tribunals Evidence Act, 1856, apply for the securing of evidence for the purposes of conciliation or arbitration proceedings under the Convention. There is a special provision concerning Scotland, for which, under Clause 7, an alternative form of Clause 3 is provided.

Clause 4 gives legal effect, so far as this is necessary, to the provisions of the Convention concerning status, immunities and privileges. With one exception, the provisions of this Clause do not extend the immunities and privileges which may be accorded by Order in Council under the International Organisations (Immunities and Privileges) Act, 1950, in respect of an international organisation to which that Act applies. That Act provides for the grant of immunities and privileges for agents, counsel and advocates of suitors to the International Court. It does not, however, apply to persons—including parties, agents, counsel, witnesses or experts—in proceedings under the Convention and who are required to be accorded limited immunities and privileges under Article 22 of the Convention. It is therefore necessary under this Act to extend to those persons the limited privileges which are required.

I have already dealt with the financial position, which is referred to in Clause 5. Clause 6 is the normal extension of the Act to dependent territories, if required, and then, as I have said, Clause 7 makes reference to the application of the Act to Scotland and provides for the necessary substitutions to meet the legal traditions North of the Border. Similarly, Clause 8 extends its application to Northern Ireland and makes the necessary provisions for that.

The Schedule, which, in effect, contains the main substance of the matter, is the Convention itself. We are asking the House to accept the Convention, with the necessary provisions, in the main portion of the Bill, putting it into effect in this country.

This is a short and somewhat technical Measure, but we believe that it is a very useful piece of international machinery. It should do something to assist the flow of investment between the developed and developing countries. It is interesting to note that of the signatories who have already acceded to the Convention, a very large number are Commonwealth countries in Africa and Asia. I am glad to say that we have an opportunity tonight to make it clear that we in the United Kingdom support the Convention and are anxious to put it into effect at the earliest possible moment.

8.10 p.m.

Lord Balniel (Hertford)

The hon. Lady, in her concluding remarks, said that the Bill is a rather technical one. The House is indebted to her for the careful explanation of the Bill, and also, although we appreciate that it is not open to amendment in the House, for her explanation of the main articles of the Convention appended to the Bill.

I think we all accept that it is desirable, both in the interests of investing countries such as ours and of recipient countries, often under-developed countries, that gradually there should be established an international system of protecting foreign investment. The sense of insecurity which exists in many parts of the world is one of the major impediments standing in the way of investing in under-developed countries. Any Bill which goes some way towards diminishing that sense of insecurity which investors must inevitably feel is worthy of support.

As the hon. Lady explained, this Bill deals with one aspect of setting up an international system. It deals with the need to set up international machinery for conciliation and arbitration. We certainly welcome the Bill, but I think the hon. Lady would be the first to recognise with me that it is no more than a fairly limited step forward in a field where a great deal of work has still to be done. In her introduction of the Bill, she said that as long ago as 1962 the Executive Directors of the World Bank were asked to prepare the draft Convention which we are discussing.

The period of time which has elapsed since then is an indication of how difficult it is to make progress in this field, but, although this is a fairly limited Bill, it is only right that we should look at it in the light of other advances which we realise are being planned. Attention is being given, not only to the setting up of an international system for conciliation and arbitration covered by this Bill, but of other aspects of an international system. The O.E.C.D. has before it a draft charter of an international-governmental guarantee scheme and has also prepared a draft convention on the protection of foreign property.

The Convention appended to this Bill, which sets up an international centre for the settlement of investment disputes, is an essential part of this process of establishing a more widespread system of international machinery which will help to create conditions of confidence, but its jurisdiction is very limited in scope. Its jurisdiction is confined to disputes of a legal nature, I think rightly, excluding disputes of a political nature, but also excluding economic and commercial disputes. Its jurisdiction is also confined to disputes between contracting States and the nationals of other contracting States. I understand that it would not be open to an individual in a dispute over a legal matter concerning investments with a company in another State to refer the matter to the arbitration tribunal.

The most important limitation which we must recognise is that disputes can be referred to the arbitration tribunal only if both parties to the dispute agree, if the investor who feels aggrieved or the contracting State which is the recipient of the investment both agree that the matter should be referred to the arbitration tribunal. It is not possible for an aggrieved individual to refer his dispute unless the assent of the contracting State has already been obtained.

Although in many respects the powers given to the International Centre and the arbitration tribunal under the Convention are very limited, we welcome Article 25 in particular. That ensures that when the parties have referred their disputes to the arbitration tribunal it is not open to them unilaterally to withdraw from the discretion of the tribunal.

We also welcome the Bill because we believe it is in our country's interests that legislation of this kind should be passed. Any move towards setting up an international system to protect investments must be valuable to a country such as ours which depends overwhelmingly, or in very large degree, for its economic health on our overseas investments. The hon. Lady mentioned that our private long-term investments overseas amount to close on £10,000 million. She will correct me if I am wrong, but I think that no other country in the world has as high an investment overseas per head of the population. As a major investing country overseas, we have a special interest in setting up an international system for conciliation and arbitration.

It seems that the value of this legislation is not confined to investing countries such as ours. The greater beneficiaries will be the under-developed countries. Many of them are desperately in need of investment, but they are surrounded by conditions of insecurity which are enough to frighten off investors who, given conditions of greater security, would happily have invested in them.

In general terms, the Bill is welcome to us. However, I wish to ask the hon. Lady one or two questions with a view to obtaining some information. She rightly pointed out that the Convention has now been signed by a considerable number of countries and a considerable number have ratified it. When reading the list of signatures, one notices that European countries, Asiatic countries and, as she said, many countries in Africa have appended their signatures. It is noticeable that no Latin-American signatures are appended to the Convention. One would have thought that the Latin-American countries would have benefited considerably from such machinery as is being established under the Convention. Would the hon. Lady explain why the Latin-American countries have not signed or ratified the Convention?

My next question concerns the nature of the law on which arbitration tribunals will base their decisions. I speak as a layman, but it seems that the kind of issues which will be taken to the tribunal will be issues where the international law is uncertain or where national laws conflict—where the national law of the investor conflicts with the national law of the contracting State. If there is a dispute of this nature where the parties disagree as to which law should be applied, which law will be used by the arbitration tribunal in coming to its decision? If the hon. Lady could enlighten me on this, I shall much appreciate it.

Lastly, I turn to that part of the Convention which defines the status, immunities and privileges of the International Centre. This is contained in Articles 18 to 24. I accept that this International Centre will be established in Washington.

I am happy to accept her assurance that the number of persons in this country who under the Bill and Convention will be granted diplomatic immunity will be very limited. Presumably they will be confined solely to officials of the International Centre who visit this country on official business.

None the less, the privileges and immunities granted to the centre and to its officials are extensive. Article 20 reads: The Centre, its property and assets shall enjoy immunity from all legal process, except when the Centre waives this immunity. My query arises because the World Bank enjoys only limited legal immunity. From my reading of Articles 18 and 20, the Centre is given full legal immunity and personality. Under Article 18, the Centre can enter into contracts and initiate legal proceedings. Article 18 reads: The Centre shall have full international legal personality. The legal capacity of the Centre shall include the capacity

  1. (a) to contract;
  2. (b) to acquire and dispose of movable and immovable property;
  3. (c) to institute legal proceedings."
I am sure that there are good reasons why such extensive legal immunity should be given to the Centre, but as a layman I do not quite see why the Centre should have the power to enter into contracts with individuals and also institute legal proceedings, even against people in this country, whilst, on the other hand, an individual or State has not the right to institute legal proceedings against the Centre. I am sure that a lawyer would find a simple explanation, but it would be valuable if ordinary Members could be given some explanation of the apparently very extensive powers which the Centre is given.

I do not wish to delay the House, because the Bill has our support. It is a rather technical Bill and, I should have, thought, more suited to discussion by lawyers or financiers than by ordinary Members. None the less, in international terms the Bill is a step in the right direction. It establishes machinery for the international settlement of legal disputes involving investments and, as such, it will help to create a climate in which investment overseas can flourish and trade between developed and underdeveloped countries expand.

If the Convention achieves this, it will be a minor but worth-while advance towards bridging the gap between the richer countries and the poorer ones, a gap which we know all too well is steadily widening at present. The Convention has already been ratified by many other Parliaments and the International Centre is already being established in Washington. So we are happy to help the Bill forward on to the Statute Book as soon as possible.

8.23 p.m.

Mr. John Brewis (Galloway)

I, too, am glad that we are to ratify the Convention, in which I have taken a certain amount of interest at the Council of Europe. The Convention has an even longer history than that mentioned by the hon. Lady the Minister of State, in that attempts have been made in many international organisations to get such a Convention. O.E.C.D. was mentioned by my noble Friend the Member for Hertford (Lord Balniel). The United Nations have tried. So has the Council of Europe.

At first sight, it might seem rather strange that an organisation such as the World Bank should have succeeded where the efforts of other international organisations have foundered. It has been a long job. As the hon. Lady said, there has been consultation in such far away places as Bangkok, Santiago and Addis Ababa. Another interesting fact is that the legal representatives of no fewer than 61 countries have taken a part in the drafting of the Convention. So there is no fear of the Convention being imposed by the rich investing countries on the poorer countries.

The Convention has one or two interesting points. My noble Friend said that it is possible for a system of law which is foreign to both the disputants to be the law which is applied in their dispute. Another curious fact is that I think that this is the first occasion on which a national of a particular State can summon a State itself before a tribunal. I think that this is a new departure in international law.

As with all these Conventions where so many countries are involved, to get agreement there has had to be a considerable consensus and a glossing over of difficulties. It is a pity that there is no provision for compulsory arbitration. As a result, the Convention is undoubtedly weakened.

I want to call attention to one or two other weaknesses. Article 25(4) states: Any Contracting State may, at the time of ratification, acceptance or approval of this Convention or at any time thereafter, notify the Centre of the class or classes of disputes which it would or would not consider submitting to the jurisdiction of the Centre. Therefore, even after ratification, a State can still back out of the provisions of the Convention if it finds it inconvenient to apply them in a dispute with a private individual. This is a considerable weakness.

Another weakness is contained in Article 26, which states: A Contracting State may require the exhaustion of local administrative or judicial remedies as a condition of its consent to arbitration under this Convention. By this means a person with a legal grievance might be held up for years in the courts of the State where the investment took place—we have seen something similar to this in many Latin American countries—before he could go to arbitration; and he might then well experience difficulties and have res judicata raised against him when he did.

Another weakness is that there is no definition in the Convention of what is an investment. I suppose we all know what "investment" is. A long-term loan would undoubtedly be investment. Is a short-term loan an investment; and, if so, how short must it be? It is a pity that in this respect also it was not possible to get any consensus on a possible definition of "investment".

I entirely agree that ratification of the Convention will improve the investment climate. The private investor will be more inclined to invest in a country which has ratified the Convention, and it will, therefore, be a good thing. It is a pity, as my noble Friend the Member for Hertford (Lord Balniel) said, that the Latin-American countries have not seen fit to ratify, and I have a sneaking suspicion that the association of the Centre with Washington may to some slight extent be a reason why the Latin American countries do not want to ratify the Convention. I wonder whether Washington is necessarily the best place for the Centre or whether it should be divided between, say, three regional sub-centres, so that there would be no feeling that it was something run by the United States.

As I said, I am glad that we are to ratify the Convention. We have quite a good record in ratifying conventions. I believe that we are one of the first of the so-called developed nations to do so, but there are still many conventions which we have not ratified. For people like my noble Friend and myself who take part in the work of organisations such as the Council of Europe and who spend a lot of time thinking about how we can improve international arrangements by harmonising laws, it is very annoying when a convention is drafted and we cannot then persuade our own country to ratify it. I hope, therefore, that the hon. Lady, while she is at the Foreign Office, will look at some of these conventions and protocols which have been agreed but not ratified.

Mrs. White

With permission, I should like to reply to the debate.

We are extremely grateful to the noble Lord the Member for Hertford (Lord Balniel) and his hon. Friend the Member for Galloway (Mr. Brewis) for the welcome which they have given to the Bill. We are all at one in wishing to further its purposes. Both hon. Members pointed out that this is not the only proposition which has been made at one time or another for international measures to safeguard investment or property in other countries. One thinks in this connection of the O.E.C.D. draft, which owed a good deal, I think, to a former Member of the House, Lord Shawcross. The very limitations of the Convention to which the hon. Gentleman drew attention are, I think, the reasons why it is possible to go ahead with a less ambitious Convention than the more ambitious, more complex and more wide-reaching ones which are covered in the O.E.C.D. draft. We should be thankful that, at least, we have an opportunity to put something into effect here, although it has, in certain respects, limited application.

The hon. Member for Galloway was quite right to point out that there are certain loopholes under, for example, Articles 25 and 26, but had those loopholes not been provided one might not have had the measure of international agreement which has been obtained. One has to take one's choice. The best can sometimes be the enemy of the good, and I suggest that we should be reasonably content with what has emerged from the wide consultations which preceded this Convention.

It is not quite true that the Convention makes legal history in providing, for the first time, that an individual may bring a State to judgment. Under the European Convention on Human Rights, for instance, it is open to an individual to bring a State to judgment. This, therefore, is an extension of a principle which has already been accepted in international jurisprudence.

The noble Lord asked about the nature of the law to be applied and the hon. Member for Galloway referred to the fact that law which was not the law of either country might be invoked in certain circumstances. I am advised that under Article 42 of the Convention a tribunal is required to apply the law agreed by the parties. Failing such agreement, the tribunal must apply the law of the State party to the dispute—unless that law itself calls for the application of some other law—as well as such rules of international law as may be applicable. I hope that that makes the matter perfectly clear.

The noble Lord raised an interesting question about the extent of the privileges and suggested that the privileges of the proposed Centre would in some respect be wider than those enjoyed by the World Bank. I am advised that the Centre will have the same legal capacities and personality as the International Bank and the other organisations connected with it such as the International Monetary Fund, but those organisations associated with the Bank which carry out financial operations such as borrowing and investment of funds or the issuing or guaranteeing of securities—in other words, which are in effect competing with or working alongside private financial institutions—have to be in a position where actions could be brought against them, otherwise they would have an unfair advantage as compared with the private institutions. This does not apply to the Centre, which does not carry out operations of that kind. It is for that reason that the Centre has a wider immunity than the commercial institutions associated with the World Bank.

Both hon. Members opposite have raised the question of the absence of signatories from Latin-America, but the lists are still open. There is nothing to prevent any Latin-American country from signing or ratifying the Convention, and we hope very much that they will do so. It would perhaps be undesirable of us to comment on any reasons which might be affecting the Latin-American Governments in this matter. It is for them to take their own decision as to whether or not they accede to the Convention.

All I can say is that the Government hope very much that they will accede. In many ways, Latin-America is attractive to overseas investment, and, indeed, one would suppose that it is in a position to desire such investment. I hope that those countries which have so far not felt it right to accede will reconsider their position and take part in this system of international jurisprudence.

The system has its limitations, and we recognise them, but I think we all agree that it is a step forward, one stage more at least in an international system of law extended to commerce and investment. I hope very much, therefore, that, with the United Kingdom as one of the major countries concerned and playing its full part, the Convention will soon come into full operation.

Question put and agreed to.

Bill accordingly read a Second time.

Bill committed to a Committee of the whole House.—[Mr. Ioan L. Evans.]

Committee Tomorrow.