ARBITRATION PROVISIONS (Hansard, 1 November 1999)

§ The Parliamentary Secretary, Lord Chancellor's Department (Mr. David Lock)
I beg to move, That the clause be read a Second time.

§ Madam Speaker
With this it will be convenient to discuss Government amendment No. 1.

§ Mr. Lock
The new clause deals with arbitration and will ensure that, where appropriate, the Arbitration Act 1996 applies to the enforcement of third-party rights under the Bill. No one disputes that that is the right policy, but the subject is technical and—I apologise to the House for introducing further amendments on such a subject at this late stage—concerns that were raised during the recess have made us examine the wording carefully.
I record my gratitude to those who raised the concerns and to the arbitration experts who helped us ensure that the drafting was right. Subsection (1) of the new clause will bring in the provisions of the Arbitration Act where the third party's right to enforce a substantive term in his favour is subject to a term providing for the submission of disputes to arbitration.
Subsection (1) will also ensure that when a third party whose right of enforcement is subject to the dispute being referred to arbitration seeks to enforce his right by litigation, the promisor—the other party to the contract—will be able to seek a stay of the proceedings under 24 section 9 of the Arbitration Act. The Bill as now drafted would not allow that course of action if the third party, whose right under the Bill is subject to arbitration, chose to litigate instead. The Government have decided that it would probably not be safe to rely on the court's using its inherent power to stay the proceedings brought by the third party.
Subsection (2) of the new clause is concerned with situations in which the "conditional benefit" approach will not apply—for example, where the contracting parties give the third party a right to arbitrate a dispute other than one concerning a right conferred on the third party under clause 1, such as a tort claim made by the promisor against the third party. We do not believe that such situations will occur often, but to require the third party to arbitrate where there is no other benefit to him would be to impose a pure burden on him, which would be contrary to the policy of the Bill. Subsection (2) therefore brings in the Arbitration Act only where the third party has chosen to exercise the right to arbitrate.
Amendment No. 1 would delete clause 7(4), which is being replaced by the new clause on arbitration.

§ Mr. John Burnett (Torridge and West Devon)
I am grateful to you for calling me, Madam Speaker, because this is the first opportunity that I have had publicly to welcome both the new Parliamentary Secretaries to the Lord Chancellor's Department, the hon. Members for Wyre Forest (Mr. Lock) and for Liverpool, Wavertree (Jane Kennedy), to their Front-Bench posts. I congratulate them on their appointments.
Promotion to the Lord Chancellor's Department seems to be the precursor of further preferment, so I wonder where both hon. Members will be in a year's time. I am especially delighted because I believe that the hon. Member for Wavertree has set a precedent, in that she is not a lawyer. I do not know whether she is the first non-lawyer ever to be a Minister in that Department, but if so the precedent is welcome, especially to me, because I am the only lawyer among the 26 new Liberal Democrat Members of Parliament. I shall draw the precedent to the attention of our new party leader.
I pay tribute to the Law Commission for its excellent work on the Bill. I am also grateful to the Parliamentary Secretary for his letter to me of 18 October and for advance notice of new clause 1. He will be aware that I raised several points on Second Reading that were dealt with by his predecessor, the hon. Member for Leicester, East (Mr. Vaz), in his letter to me of 12 July.
For reasons of certainty and to incorporate various other provisions—for example, guarantees of performance by third parties given by banks or insurance companies—most commercial organisations will continue to insist on written agreements with third parties, which are usually called collateral warranties or collateral agreements. I hope that the Parliamentary Secretary will make it clear when he responds that if there is a conflict between a written collateral warranty or agreement and the Bill—including the parties agreeing to contract out of the Bill—the provisions of the written agreement will prevail. I welcome the new clause, because it will go some way to meeting the problems that I envisaged on Second Reading and that were dealt with by the letter I received from the hon. Member for Leicester, East.

§ Mr. Nick Hawkins (Surrey Heath)
I join the hon. Member for Torridge and West Devon (Mr. Burnett) 25 in his congratulations to the hon. Members for Wyre Forest (Mr. Lock) and for Liverpool, Wavertree (Jane Kennedy) on their appointments. It is an especial pleasure to welcome them because I worked with the hon. Lady on cross-party matters in the previous Parliament and because the hon. Gentleman and I come from the same chambers in Birmingham. I am sure that he will join me in welcoming the fact that, in addition to his appointment and mine, the head of our former chambers—now called St. Philip's chambers—is the new leader of the Midland and Oxford circuit. Our chambers therefore has triple cause for celebration.
Like the hon. Member for Torridge and West Devon, the official Opposition accept that new clause 1 is a useful clarification. The Parliamentary Secretary was kind enough to write to me as well to explain the new clause and, as somebody who was at one stage an associate member of the Chartered Institute of Arbitrators and dealt with cases involving collateral warranties, I recognise that the Government are right to doubt whether it would be safe to rely on an inherent power in the court to stay proceedings brought by the third party in the circumstances mentioned by the Parliamentary Secretary.
New clause 1(2) is a wise change, because it will bring in the Arbitration Act 1996 only in cases in which the third party has chosen to exercise the right to arbitrate. It is helpful that the Parliamentary Secretary has given the Opposition parties advance notice of the Government's intentions, and we welcome the clarification contained in the new clause.

§ Mr. Lock
I can confirm to the hon. Member for Torridge and West Devon (Mr. Burnett) that it is the Government's understanding that new clause 1—and, indeed, the whole Bill—will not affect the operation of collateral warranties. It will be up to the parties themselves whether they choose to enter into collateral warranties or rely on the terms of the Bill. Indeed, under the terms of the Bill, the original parties to the contract will be able to specify the extent to which, if at all, the contract will apply to third parties and can, if they choose, contract out of the third party rights in their entirety. In those circumstances, it is correct to say that the provisions of any collateral warranty will take precedence over any rights under the Bill.
I am grateful for the kind words from the hon. Members for Torridge and West Devon and for Surrey Heath (Mr. Hawkins), and I concur with what the latter said about the position of our previous chambers. I also welcome the appointment of my hon. Friend the Member for Liverpool, Wavertree (Jane Kennedy) to prove that the Lord Chancellor's Department is neither an all-boys club nor entirely a lawyers club.