Official Report of the Committee on the Arbitration Bill [H.L.]

HL Deb 28 February 1996 vol 569 cc1-30GC

Wednesday, 28th February 1996.

The Committee met in the Moses Room at four of the clock.

[The Deputy Chairman of Committees (Lord Ampthill) in the Chair.]

The Deputy Chairman of Committees (Lord Ampthill)

Before I put the Question that the Title be postponed, it may be helpful to remind your Lordships of the procedure for today's Committee. Except in one important respect, our proceedings will be exactly as in a normal Committee of the Whole House. We shall go through the Bill clause by clause; noble Lords will speak standing; all noble Lords are free to attend and participate; and the proceedings will be recorded in Hansard. But the House has agreed there shall be no Divisions in the Committee. Any issue on which agreement cannot be reached should be considered again at the Report stage when, if necessary, a Division may be called. Unless, therefore, an amendment is likely to be agreed to, it should be withdrawn.

I should also explain what will happen if there is a Division in the Chamber while we are sitting. This Committee will adjourn as soon as the Division bells are rung and will resume after 10 minutes.

On Question, Title postponed.

Clauses 1 to 6 agreed to.

Clause 7 [Separability of arbitration agreement]:

The Minister of State, Department of Trade and Industry (Lord Fraser of Carmyllie) moved Amendment No. 1:

Page 3, line 30, after ("agreement") insert ("(whether or not in writing)").

The noble and learned Lord said: Clause 7 codifies the law on the separability of the arbitration clause from the main contract or agreement. This is a small drafting amendment but it may be useful if I expand on it. As the text stands at the moment, it could be argued that the clause is operative only where the main agreement is in writing. This is because Clause 5 provides for agreements to be effective for the purpose of the part only if in writing. It was not our intention that Clause 7 should apply only where both the arbitration clause and the substantive part are in writing. To put matters beyond doubt the amendment makes clear that the clause applies whether or not the main agreement is in writing. Members of the Committee will wish to know that, as is the case with most amendments to which I shall speak this afternoon, this point is discussed in the report on the Bill which was very helpfully prepared earlier this month by the departmental advisory committee on arbitration law. It is to be found in paragraph 358. From looking around, it is clear that this document is well known to Members of the Committee.

Since this amendment raises this issue for the first time, it may be helpful if I say a few words about this report. In this case the committee has suggested amending the Bill and I am very happy to agree with this particular recommendation and a number of others. There will be other cases, however, where the committee has commented on some point of difficulty but has concluded that the Bill is clear as it stands. Given the close involvement of the committee in the preparation of the Bill, its views on such points clearly carry great weight. I have therefore arranged for a copy of the report to be placed in the Library of the House for those who have an interest in it.

In the short time available, we have not been able to deal with all the points in the committee's supplementary recommendations but I should be happy to clarify any other points. Simply because amendments which follow the recommendations do not appear at this stage on the Marshalled List, that should not be taken as an indication that they have been rejected by the Government. In some circumstances, the position is simply that there has been insufficient time for us either to undertake additional consultation or to reflect on how such amendments might be incorporated within the Bill. If necessary, we can return to these matters at a later stage. I hope that is helpful. I beg to move Amendment No. 1.

Lord Lester of Herne Hill

Perhaps I may make a brief comment about the departmental advisory committee's report to which the noble and learned Lord the Minister has just referred. During the Second Reading debate, all noble Lords expressed great pleasure at the clarity of the drafting of the Bill and its underlying principles. As the least well-informed Member of this Committee, I pay tribute to the clarity of that report. I should imagine that should there be any ambiguity in the legislation, the status of the report would be entirely a matter for the courts to determine. However, I suppose that the report will be a very valuable guide to practitioners of all kinds, as well as to the courts. Therefore, I express my personal gratitude to the committee for the excellent work that it has done.

On Question, amendment agreed to.

Clause 7, as amended, agreed to.

Clauses, 8 to 15 agreed to.

Clause 16 [Procedure for appointment of arbitrators]:

4.15 p.m.

Lord Fraser of Carmyllie moved Amendment No. 2:

Page 7, line 3, leave out ("any") and insert ("a").

The noble and learned Lord said: In moving Amendment No. 2, perhaps I may also speak to Amendment No. 3. These are both small drafting amendments. As currently drafted, it could be argued that the arbitrators are to appoint an umpire only when they cannot agree on all matters. That is clearly not the intention. The amendments put this matter beyond doubt and are shorter. I beg to move.

On Question, amendment agreed to.

Clause 16, as amended, agreed to.

Clauses 17 to 20 agreed to.

Clause 21 [Umpire]:

Lord Fraser of Carmyllie moved Amendment No. 3:

Page 8, line 27, leave out ("any") and insert ("a").

On Question, amendment agreed to.

Clause 21, as amended, agreed to.

Clauses 22 and 23 agreed to.

Clause 24 [Power of court to remove arbitrator]:

Lord Hacking had given notice of his intention to move Amendment No. 4:

Page 9, line 39, leave out from ("expenses") to end of line 40.

The noble Lord said: I wish to speak to Amendment No. 4, standing in my name on the Marshalled List and at the same time I want to address noble Lords on Amendment No. 6. I should like to associate myself with the words of the noble Lord, Lord Lester, on the quality of the report that has been prepared by the departmental advisory committee on arbitration law, chaired by Lord Justice Saville, and for the enormous assistance that Lord Justice Saville continues to give us on the Arbitration Bill.

Some assistance was given yesterday by Lord Justice Saville when informally he saw several noble Lords, including my noble friend the Minister. As a result of the explanation that Lord Justice Saville gave, I am happy not to move the amendment. I am addressing noble Lords now because I did have a concern, and continue to have some concern, over parts of the Bill that may have been overworked.

As for the particular extra phraseology in this clause, and in the clause to which Amendment No. 6 refers, I am wholly satisfied with the explanation; I am wholly satisfied that these words are needed. On that basis, unless any noble Lords wish to address the Committee, I shall not move Amendment No. 4.

[Amendment No. 4 not moved.]

Clause 24 agreed to.

Clause 25 [Resignation of arbitrator]:

Lord Fraser of Carmyllie moved Amendment No. 5:

Page 10, line 5, leave out ("in writing").

The noble and learned Lord said: This amendment is a small but important drafting amendment. Noble Lords may recall that Clause 5 provides that the arbitration agreement and any other agreement between the parties are effective only if in writing. Therefore, throughout the Bill we have not repeated the words "in writing" wherever mention is made of an agreement. However, I regret to say that in this clause the words have crept in. They need to be removed in case a reader might come to the conclusion that, where the words are not included, there is no need for the agreement to be in writing. I beg to move.

On Question, amendment agreed to.

[Amendment No. 6 not moved.]

Clause 25, as amended, agreed to.

Clauses 26 to 28 agreed to.

Clause 29 [Immunity of arbitrator]:

Lord Brightman moved Amendment No. 7:

Page 11, line 19, at end insert— ("( ) An arbitrator is nevertheless liable for any costs of the arbitration thrown away if by reason of his own default or the default of his employee or agent he fails to take a step necessary for the proper and expeditious conduct of the arbitral proceedings.").

The noble and learned Lord said: This amendment arises out of Clause 29 which confers general immunity on an arbitrator. I entirely support Clause 29 (1) as it stands subject to one point. It seems to me that if costs are thrown away as a result of an arbitrator's negligence, then perhaps he should not escape liability. The sort of scenario that I have in mind is this. An arbitration is arranged to take place on Monday. By error of the arbitrator's secretary, "Tuesday" is written into his diary. Therefore, the Monday hearing is totally aborted. Of course there. will be the expenses of hiring the premises where the arbitration is to take place, expenses, no doubt, of witnesses who are not called upon and expenses of solicitors and perhaps of counsel. Therefore I propose an amendment to Clause 29 providing that an arbitrator is to be liable: for any costs of the arbitration thrown away if by reason of his own default or the default of his employee or agent he fails to take a step necessary for the proper and expeditious conduct of the arbitral proceedings".

Since I tabled the amendment I have received a wholly unsolicited letter from my noble and learned friend Lord Denning, who unfortunately is not able to be here. He wrote to say that he entirely supports the amendment and has asked me to inform the Committee of that fact.

In the amendment I have referred to "costs thrown away". There is an alternative expression which is "costs wasted". Both expressions are commonly used in the courts in England and are to be found on page 1069 of the 1985 edition of the Supreme Court Practice.

I have also used the expression fails to take a step necessary for the proper and expeditious conduct of the arbitral proceedings".

I suggest that if the amendment is accepted in principle, it might be improved by adopting from Clause 41 the words: failure to do something necessary for the proper and expeditious conduct of the arbitration".

Then there can be no debate as to what is meant by the word "step" in the arbitration. There is nothing else that I wish to say about the amendment. I beg to move.

Lord Mustill

Perhaps I may raise a point on the amendment. I did not give my noble and learned friend Lord Brightman the courtesy of speaking to him about it first because I have only just seen the amendment. Clause 33(1)(b) provides that the arbitrator shall, adopt procedures … avoiding unnecessary delay or expense". I feel a little apprehension about creating a liability on the arbitrator in certain circumstances. For example, if he had made a peremptory order which would have hastened the arbitration he would be in breach of his obligations under Clause 33(1)(b) and would be made liable for the wasted costs which resulted from the arbitration taking longer than it should have done. So far as I am aware, there has never been a case in which an arbitrator has been held liable for that kind of wasted cost. For the Act as amended not only to recognise the possibility but to impose a liability for such a waste might be thought to be going rather further than what I believe the intent of the amendment conveys. I simply offer that thought to the Committee before the Question is actually put.

Lord Donaldson of Lymington

I have two worries about this amendment, both of which I have made known to the noble and learned Lord. The first is much the same as that set out by my noble and learned friend Lord Mustill. I was appointed an arbitrator some two years ago in a quite absurd dispute, the details of which do not matter. Beyond writing a pained letter saying, "Would it be a good idea if they got on with it", I have done nothing.

I have done nothing, because I have set the principle that the bottom line is that the parties are entitled to run or not run the arbitration as they wish. But there is no doubt that, in order to obtain an expeditious resolution of this absurd dispute, I should have made peremptory orders left, right and centre. I should really resent very much if either party turned round at a late stage and said "A whole lot of costs had been wasted while we had been consulting our solicitors over and over again, because you didn't make a peremptory order."

The answer of my noble and learned friend Lord Brightman to that, which may be a good answer, is that I am not in default in failing to take that step, but I am hound to say that I would rather not be at the mercy of one of these disputants in all the circumstances.

My other worry is that if an arbitrator—for example, my noble and learned friend's clerk—puts the date of the arbitration and the wrong date in his calendar, that would be a perfectly proper fact to take into consideration when deciding what his fee for the arbitration should be. I venture to think that that is the way in which it ought to be dealt with. If we are to have a straight liability here as an exception to the general exemption contained in the clause, arbitrators will be forced to take out insurance. As a very occasional arbitrator, if I had to start taking out insurance, for my part I would cease to arbitrate at all.

Lord Roskill

With hesitation, I venture to differ from anything that my noble and learned friend Lord Brightman puts forward, but I respectfully echo what has fallen from the lips of my noble and learned friends Lord Mustill and Lord Donaldson.

I suppose some of us ought to declare an interest here. The fundamental fallacy in this is not only that referred to by the noble and learned Lord, Lord Mustill, but it also overlooks the fact that the jurisdiction in arbitrations is consensual and not compulsory. This seeks to put upon an arbitrator a duty of getting on with an arbitration. Under the new doctrines of case management, the Bill may now be right in the commercial court, but it is. not right for an arbitration which is under the control of the parties. There are now ways and means of getting arbitration struck out under other clauses of the Bill if the parties do not proceed with it, but it is no part of the duty of an arbitrator or umpire to become involved. He is there to decide what the parties ask him to decide. He is not there to take any initiative.

The proposed amendment has two limbs to it. I have dealt with the first. The second part states, or … he fails to take a step necessary for the proper and expeditious conduct of the arbitral proceedings". What does that involve? Is he to ring up? Is he to say get on with it? I do not know. However, I venture to suggest, with profound respect, that this amendment is misconceived.

Lord Lester of Herne Hill

Any advocate in the presence of noble Lords, all of whom are noble and learned Lords, must speak with profound humility and hesitation. However, like the noble and learned Lords, Lord Donaldson and Lord Roskill, I have serious doubts about the amendment. I wonder whether the answer lies in the protection given by Clause 24 on the power to remove the arbitrator, because subsection (1)(d) contemplates a situation where, he has refused or failed—

1. (i) properly to conduct the proceedings, or
2. (ii) to use all reasonable despatch in conducting the proceedings".

I note from the departmental report that one matter that one might wish to revisit at Report stage would be to give the judge who removes the arbitrator a wider discretion to withdraw the arbitrator's immunity but to impose a ceiling on the amount of liability in extreme circumstances. That is not a matter for us now to consider. However, it seems to me that the mischief might be better dealt with under Clause 24 than giving liability at large in the way proposed by the noble and learned Lord, Lord Brightman.

Lord Hacking

Those of us who are not noble and learned Lords must have some temerity to disagree not only with three noble and learned Lords, but also with the noble Lord, Lord Lester, who is a highly qualified lawyer. However, the noble and learned Lord, Lord Brightman, needs a friend, and I am willing to offer friendship to him on the principle that arbitration should be conducted in a proper and expeditious way; and if the fault lies with the arbitrator, I see no reason why he should not pick up the financial penalty.

The noble and learned Lord, Lord Donaldson, whom we do not wish to discourage from presiding over arbitrations, is worried about insurance. All I have to say to the noble and learned Lord and to other noble Lords is that all the rest of us who are in the marketplace offering professional services must have insurance, and I do not see any reason why arbitrators should not contemplate that as well.

Lord Fraser of Carmyllie

It may be helpful, before the noble and learned Lord, Lord Brightman, responds if I contribute briefly to this interesting debate. It might be helpful if I outline the thinking, as I understand it, behind the clause. The purpose of the clause is to confer immunity upon members of the tribunal, their employees and agents in respect of arbitral functions, other than those discharged in bad faith. There is some doubt whether arbitrators have such immunity at the moment at common law and this provision would clarify the situation.

Like judges, arbitrators need to be able to act and make decisions based solely on the merits of the case. Justice must be uppermost in their minds and they should not have to worry about whether they will be sued for the decisions they make or indeed about taking out insurance against the prospect of being sued. At the same time, it will stop recalcitrant parties, who have no solid grounds for challenging an award, from suing the arbitrator as an alternative. In this way, the finality of the arbitral process is strengthened.

An important point to note is that the arbitrator is not protected if he acts, or fails to act, in bad faith. There is sufficient case law to underpin what we mean by bad faith, and we need only refer to the case of Melton Medes v. Securities and Investments Board to establish certain clear principles. What we are talking about is malice in the sense of personal spite or desire to injure for improper reasons, or knowledge of the absence of power to make the decision in question. I think there is a clear dividing line between acts of bad faith and behaviour which falls short of it.

What seems to me to be important is that there are sanctions elsewhere in the Bill, to which in particular the noble Lord, Lord Lester, referred, which can be used against an arbitrator whose behaviour falls short of bad faith. Clause 33, to which the noble and learned Lord, Lord Mustill, referred, imposes a general duty on the tribunal to act fairly and impartially and to avoid unnecessary delay and expense. If an arbitrator fails to comply with these requirements, in particular if he has refused or failed to conduct the proceedings properly or with reasonable speed and a party has suffered substantial injustice as a result, that party can apply to the court under Clause 24 to have the arbitrator removed. The court has the power to make such an order as it thinks fit with regard to the entitlement of the arbitrator to his fees and expenses, an approach which the noble and learned Lord, Lord Donaldson, also urged as a useful alternative to the proposal that is contained within the amendment of the noble and learned Lord, Lord Brightman.

I hope that that explanation of the Government's view of this important clause is helpful to the Committee.

Lord Brightman:

I remain unrepentant. I am very grateful for the one friend whom I have. However, in the circumstances, I think it right for me to seek leave to withdraw the amendment and in the meantime I will reconsider the position.

Amendment, by leave, withdrawn.

On Question, Whether Clause 29 shall stand part of the Bill?

Lord Hacking

My noble and learned friend the Minister very kindly said that if an amendment did not appear in the Marshalled List of amendments, but had nonetheless been recommended by the DAC report, we were not to take it that the amendment had been rejected. I should therefore be grateful if my noble friend could help the Committee over paragraph 361 of the report, which refers to Clauses 24 and 25 and the clause that we are now considering.

That paragraph points out that if the arbitrator resigns and is sued for his fees, he is not protected from a breach of contract action under the immunity clause, Clause 29; but, on the other hand, if he is removed by the court he has the benefit of immunity under Clause 29.

That is an anomaly and I wonder whether my noble and learned friend is able to help us with his consideration of that paragraph in the report?

Lord Fraser of Carmyllie

Having made an opening set of observations about those recommendations which do not appear as amendments, I was hoping to avoid being probed at this stage as to whether we are accepting or rejecting them on an individual basis. I can shortly say to the noble Lord that the proposal to be found in that paragraph is one that we are still considering. At this stage I hope that he will not press me further.

Lord Hacking

I certainly shall not do that. It seemed to me that that was rather an important recommendation in the report and for that reason I drew it to the attention of the Committee. I do not intend to go through all the other amendments as they appear in chapter 6 of the report, which I hope is of some comfort to my noble and learned friend the Minister.

Clause 29 agreed to.

Clauses 30 and 31 agreed to.

Clause 32 [Determination of preliminary point of jurisdiction]:

Lord Fraser of Carmyllie moved Amendment No. 8:

Page 12, line 35, leave out ("unless the court certifies") and insert ("which shall not be given unless the court considers").

The noble Lord said: In speaking to Amendment No. 8, I shall speak also to Amendments Nos. 12 and 15. While the purpose of the amendments is probably well known to those of your Lordships attending the Committee, I shall spell out shortly the reasoning behind them for those who are not present.

Clause 32 empowers the court in certain limited circumstances to determine a question as to the substantive jurisdiction of the parties put to it by a party. Clause 45 empowers the court to determine a preliminary point of law and Clause 69 a point of law arising out of the award.

The amendments relate to the provisions for appeal from a decision of the court. In each case the leave of the court for an appeal from a decision of the court is required. Each clause also restricts the possibility of an appeal by requiring leave of the court or a certificate by the court that the question involves a point of law which is of general importance or which for some other special reason should be considered by the Court of Appeal.

As drafted, these appeal provisions look as though they are alternatives. That is not our intention. We want to ensure that the leave of the court is obtained only in cases which are of general importance or which for some other special reason should be considered by the Court of Appeal. In that way, appeals that are made simply to waste time will be deterred. That is in line with the general philosophy of the Bill. Indeed, in the case of determination of points of law, that is the current law under the Arbitration Act 1979. It is certainly not the intention to make appeals easier than they are now. I beg to move.

On Question, amendment agreed to.

Clause 32, as amended, agreed to.

Clauses 33 to 37 agreed to.

Clause 38 [General powers exercisable by the tribunal]:

Lord Hacking moved Amendment No. 9:

Page 14, leave out lines 17 to 20.

The noble Lord said: In moving Amendment No. 9, I shall speak also to Amendment No. 10, which is the amendment of my noble and learned friend the Minister, and to Amendment No. 11, which is in my name.

These amendments are directed to the issue of security for costs. As the Committee will be aware, the notable change between the present law, under the Arbitration Act 1950, and the proposed law in the Bill is that the right to make an order for security for costs moves from the court to the arbitrator. I welcome that.

The first question that should be considered is whether there should be at all the right to order security for costs in an arbitration. The experience in litigation is that security for costs is used as a weapon to discomfit another party in that litigation, particularly in the application of Order 23, Rule 1 under the rules of the Supreme Court when the plaintiff is ordinarily resident out of the jurisdiction. The noble and learned Lord, Lord Mustill, makes some interesting observations on security for costs in the Ken-Ren case. I read from the speech of the noble and learned Lord, who says this on page 468: Finally, there is the argument that security for costs is an English idiosyncrasy which should be excluded from the cosmopolitan world of institutional arbitration. This is correct to the extent that most national arbitration laws do not offer such a procedure, which is not surprising since only the common law systems … enable a tribunal to order the losing party to pay its opponent's costs".

That is the first question, which might be described as the idiosyncratic question. Amendment No. 9 seeks to deal with that by simply removing altogether the power for an order for security for costs.

I now turn to Amendments Nos. 10 and 11. I can do so swiftly and easily because my noble and learned friend the Minister has a much better amendment. If my noble and learned friend moves Amendment No. 10 and it is accepted, then it is not my intention to move Amendment No. 11.

Lord Fraser of Carmyllie:

It might be useful to clarify the position. My noble friend ought to have indicated to the Committee, although I stand to be corrected by him, that if my Amendment No. 10 is accepted, and if I indicate to him now that I wish to move it, he would not then seek to move his Amendment No. 9.

Lord Hacking

That is right.

Lord Fraser of Carmyllie

The provision for security for costs is difficult and it is undoubtedly important that we get it right. I am convinced that we are right to give the power to order security for costs to the tribunal. At the moment, parties have to incur the expense and inconvenience of making applications to the court. The philosophy underlying the Bill is to transfer power from the courts to the tribunal wherever appropriate. In our view, this is such a case. Amendment No. 11 would leave parties in limbo, as it removes the power of the tribunal to order security for costs. But there is no provision in the Bill for the court to act. The ability of a party to rely on an order for security of costs is a useful tool in appropriate cases and it is right that the possibility should remain available.

The subsection as it is drafted might be criticised for a lack of user friendliness. One of our objectives has been to make the Bill as user-friendly as possible. While on the whole we have succeeded, there is nevertheless scope for improvement here. The provision is not self-contained in that reference has to be made to the rules of court and to case law to ascertain in what circumstances the court would act, and on what principles. It would be exceptionally difficult to encapsulate court processes and principles in the Bill. We have come to the conclusion that it would be preferable to de-couple the powers available to the tribunal from those of the court. To that extent, Amendment No. 9 has merit. However, turning to my own Amendment No.10, I should additionally like to place a restraint on the tribunal whereby it cannot order security for costs on the grounds that the party concerned is foreign. It will be appreciated that there has been some concern expressed by those who do not live here.

The concept of security for costs is alien to many jurisdictions, and many in foreign business circles think they are being singled out for special and undeserved treatment. One of the main objectives of the Bill is to ensure that foreign business continues to come to London to have disputes arbitrated. The invisible earnings that such business brings are substantial and I am loth to place that business in jeopardy because our security for costs provisions are seen as unacceptable.

I invite my noble friend to withdraw Amendment No.9. I shall propose Amendment No.10 and I hope that he will not move Amendment No. 11.

Lord Hacking

Before my noble and learned friend sits down, can I tell your Lordships I was a little quick in agreeing with my noble friend? In fact Amendment No.9 stands quite separate from Amendments Nos. 10 and 11. The purport of Amendment No.9 is to remove altogether the power to order security for costs. That is a separate issue.

When I addressed the Committee on my Amendments Nos.9 and 11 and my noble and learned friend's Amendment No.10, I said that if the Committee was against me on the issue there should not be the power of order for security for costs. My position is that I prefer my noble friend's Amendment No.10 to my own amendment, Amendment No.11.

Lord Lester of Herne Hill

I speak in opposition to the amendment of the noble Lord, Lord Hacking, and in support of the Minister's amendment. It seems to me that the matter is clearly dealt with in the DAC report where the advantages of a power towards security for costs is clearly out. The committee was concerned at the possible injustice that might occur but came to the conclusion after further thought that that possibility could be overstated and, for reasons given in paragraph 366(iii), it concluded that there were adequate safeguards against abuse in the Bill as it stands. I agree with that view. It seems to me that the great advantage of the Minister's amendment is that it is more user-friendly than the previous draft and it also ensures that our law is brought into line with European Community law so far as any discrimination based on nationality is concerned in making an order for security for costs.

Lord Donaldson of Lymington

Subject to guidance, I am not clear whether this is an appropriate moment to comment upon the Minister's amendment.

The noble Lord, Lord Hacking, says that security is used as a weapon; and so it is by the advocates. From the point of view of the court, it is not used as a weapon at all. It reflects the fact that as we have a system in this country whereby costs can be awarded against one party or the other it is important that there should be some system for ensuring that should that eventuality occur there are ways and means of seeing that the order is effected. That is the sole purpose. I see no reason why that should be any different for international commercial arbitrations if they are being consulted under a system of law which would enable an order for costs to be made at the end. Of course I am very conscious of the extent to which this power is misunderstood and is an obstacle to arbitration in this country. The only thought that I would like to put forward for consideration by the noble and learned Lord, the Minister, is that one might perhaps put in the word "only" so that his amendment would read: This power shall not be exercised only on the ground that the party is". The reality is that if somebody has assets within this country or within the European Community, there is no need for security for costs. There may be other countries outside the Community where the same is true, but in Ruritania—to take a country at random—where there is no such system, it is the very fact that one party is ordinarily resident in Ruritania which could be said to justify the making of an order for security for costs. The problem arises where somebody is resident, which does not matter, coupled with the fact that it is not possible to get at him there. I say frankly that I do not know how to redraft this and it may be that it should not be redrafted at all. However, I put forward the point for further consideration, if that is thought to be appropriate.

Lord Mustill

I do not know whether I am in order in referring to observations that are made in a judicial capacity here but since they were cited, I ought to comment on them. My recollection is that in using the word "idiosyncratic", I was describing the arguments addressed by one side, not using the epithet for my own purposes. I would agree with the substitution of the words: An order for security for costs in arbitration is only available in a minority of jurisdictions The fact that it is a minority power does not mean that it is necessarily bad for that reason alone. I believe that, as my noble and learned friend Lord Donaldson has said, in a jurisdiction where there is a power to award costs, then a power to award security marches satisfactorily and helpfully with it. I would respectfully agree with everything that has been said by the noble and learned Lord, and I associate myself with Amendment No. 10, possibly with the minor adjustments proposed by the noble and learned Lord.

Lord Wilberforce

For my part, I find this particular provision the most difficult one which the Committee is now considering. I accept entirely the principle that we ought to withdraw any power to order security of costs from the court and transfer it if it is to be exercised by the arbitrators.

I view with some misgiving a general provision such as will emerge in any event, which simply says the tribunal may order a party to provide security for costs, without giving any indication as to the principles on which that order is to be made. That was met in the original text by saying that power must be exercised in the same way as it would be exercised by the court. I see the objection to that because it would necessitate referring to a great many provisions in the White Book; and also, it would frighten away many foreigners. However, to leave it absolutely open-ended does seem to me extremely difficult.

This will be regarded by arbitrators as a delightful new instrument, a wonderful new toy. They will say, "This is wonderful. We have completely unfettered discretion to order this, with the only limitation, if the noble Lord's amendment is accepted, that we must not do it on the grounds, or only on the grounds, that the party concerned is outside the jurisdiction".

I agree that the clause would be better with the Minister's amendment than without it, and it may be that is the best we can do. We have to accept the position that cases will emerge of discretions exercised by arbitrators on various grounds which will be questioned. Some body will have to be built up of practice or possibly of directions by the court. It may be quite some time before the position is stabilised. A great door of ambiguity and uncertainty is opened by this word "may" with the only restriction being that proposed by the Minister. I daresay that is the very best we can do, but I do not feel very happy about it.

Lord Fraser of Carmyllie

I may unintentionally have confused matters about the two amendments that my noble friend has tabled. I do not invite the Committee to accept either of those amendments, but I invite the Committee to accept my Amendment No. 10.

The noble and learned Lord, Lord Donaldson, suggested that Amendment No. 10 might be improved by the introduction of the word "only". That proposal was to be found within the report on the Arbitration Bill, to which I referred earlier, where the draft provided included that word. My understanding of the matter is that the draftsman came to the view that it did not add anything to the provision. However, given the observation that the noble and learned Lord has now made, I wonder if I might move my amendment but give him an indication that I will, with the draftsman, reflect further on that one word addition to the clause. There is nothing further that I can usefully add.

Lord Peston

I regret to say that there is a very commonsensical question I would like to ask. This arises, as I understand it from the Minister, because a foreigner might wish to use arbitration procedures in this country, and he does not want them frightened away, or so he says. I am totally sympathetic to that. But do I misunderstand Clause 38(1) which says: The parties are free to agree on the powers exercisable". Surely, then, they should be free to agree what they would like to do about the ordering of costs, which could only arise if they had not sorted out the problem in the first place. The essence is that they are supposed Ito think about it in the first place because they are worried about coming here. I am not quite clear, with all respect to the noble and learned Lord, what the fuss is all about.

Lord Lester of Herne Hill

There is a difficulty with the amendment proposed by the noble and learned Lord, Lord Donaldson. I fully understand the reason for including the word "only" but I respectfully submit that it would create problems with European Community law unless we had another law to deal with European Community law separately.

One can envisage the situation where if one put in the word "only" it would not deal with a case of mixed causation or intention. If part of the reason for imposing security for costs was that an individual was ordinarily resident in another European Community State, as 1 understand Community law as interpreted by the English Court of Appeal recently, our wording would breach European Community law, because there must be no direct or indirect discrimination based on nationality. That would include a case of mixed motives or complicated causation where, but for the EC nationality of the individual person concerned, an order for security for costs would not have been made. Therefore, if one were to go down the road of including the word "only", I would respectfully suggest that one would need a further amendment at a later stage to deal with that problem of European Community law, which would not arise, of course, in relation to Ruritania.

Lord Wilberforce

Perhaps I may comment on what was said by the noble Lord, Lord Peston. Surely Clause 38(1) is not really of any help. There is a situation in which one party wants security for costs and the other does not want to give security for costs. It is quite unrealistic to suppose that the parties will agree that security for costs will be given. The situation is ex hypothesi a hostile one. I had hoped that Clause 38(1) would help but in reality, I do not think that it does.

Lord Byron

Before the Minister sits down, I was about to say something that the noble and learned Lord, Lord Wilberforce, has also partly said. Those who are arbitrating pursuant to a set of rules will often have these laid down for them in advance, whether the tribunal gives security for costs or not. Those who are arbitrating in an ad hoc way, not pursuant to a set of rules, will almost certainly not be able to reach agreement. That is why it is often important.

The introduction of the word "only" seems to me quite important. Either residence abroad is a reason or it is not a reason. As I understand the present draft, it is not a reason at all. Therefore, in seeking security for costs one would have to find some other reason and presumably one would have to convince the tribunal that enforcement was the important criterion and that there would be a difficulty of enforcement or whatever. But the actual fact of residence would not be a ground at all. Once the word "only" is introduced—and opinions may differ as to whether that is a good thing or not—it becomes a ground. Then only one other peg may be needed to hang it on. It may be said that the main reason is that the plaintiff is in Ruritania or wherever, but the claim may also be rather weak and some other small ground is given as a make-weight. It would certainly alter significantly the text if we were to introduce the word "only". We should perhaps be rather careful as to the actual intention of the amendment. As I read the amendment, it was intended to take it out as a ground completely but leave in the more material considerations of questions of enforcement and so on.

Lord Fraser of Carmyllie

I indicated to the noble and learned Lord, Lord Donaldson, that I would reflect further on this matter. I may have been too hasty in saying that it was exclusively the draftsman who had determined that the word "only" should be removed from the proposed amendment. My improved understanding of the situation is that it was removed as the result of a wider range of advice available to the draftsman.

However, in view of the observations that have subsequently been made by the noble Lord, Lord Lester, and the noble Lord, Lord Byron, I should still like to hold to my undertaking to the noble and learned Lord, Lord Donaldson, that I will reflect on it. But there is clearly a body of opinion within the Committee which would indicate that the draft that is before your Lordships on the Marshalled List is correct. I will nevertheless stick to my undertaking to reflect upon the matter.

Lord Hacking

I am not quite sure what my noble and learned friend proposes to do about his Amendment No. 10.

Lord Fraser of Carmyllie

I shall move it.

Lord Hacking

In hearing all the argument, as your Lordships have, it was a delight that the one non-lawyer in our company made the winning argument on Clause 38(1) in making Clause 38(3) redundant, but when the noble and learned Lord, Lord Wilberforce, intervened, I realised that there could be a situation in the ad hoc setting up of an arbitration (rather than the institutional setting up of arbitration rules) where the parties would not be able to agree and I reluctantly come back to the position that if we are to have such a power, it has to be written into the statute book. My argument still remains that we should not have such a power. As my noble and learned friend the Minister said, the concept of security for costs is alien to many who are not familiar with our system of costs and the way in which we conduct legal proceedings, let alone arbitration proceedings.

It is clear that I do not have the Committee with me. I never expected to have a noble and learned Lord with me and, as I do not have the Committee with me, it is my intention—although I still ask my noble friend to reflect on my observations—to withdraw Amendment No. 9.

Amendment, by leave, withdrawn.

Lord Fraser of Carmyllie moved Amendment No.10:

Page 14, line 18, leave out from ("arbitration") to end of line 20 and insert—

("This power shall not be exercised on the ground that the party Is—

1. (a) an individual ordinarily resident outside the United Kingdom, or
2. (b) a corporation or association incorporated or formed under the law of a country outside the United Kingdom, or whose central management and control is exercised outside the United Kingdom.").

On Question, amendment agreed to.

[Amendment No. 11 not moved.]

Clause 38, as amended, agreed to.

Clauses 39 to 44 agreed to.

Clause 45 [Determination of preliminary point of law]:

Lord Fraser of Carmyllie moved Amendment No. 12:

Page 18, line 13, leave out ("unless the court certifies") and insert ("which shall not be given unless the court considers").

The noble and learned Lord said: In speaking to Amendment No. 8, I also spoke to Amendment No. 12. I beg to move.

On Question, amendment agreed to.

Clause 45, as amended, agreed to.

Clauses 46 to 60 agreed to.

Clause 61 [Award of costs]:

Lord Hacking moved Amendment No. 13:

Leave out Clause 61 and insert the following new Clause—

AWARD OF COSTS

(".—(1) The parties are free to agree on the power of the tribunal as regards the award of costs.

(2) Subject to the agreement of the parties, the tribunal shall determine the costs of the arbitration and decide which of the parties should bear the costs and in which proportion between the parties the costs should be borne.").

The noble Lord said: I beg leave to move Amendment No. 13. In my professional capacity and in the professional capacity of my noble friend Lord Byron who sits besides me, we have to advise. My noble friend is not in my practice and I am assuming therefore that he advises—as I have to advise—on the issues of costs to clients whether they arise as a matter of litigation or whether they arise as a matter of arbitration. I have to tell the Committee that cost is an extremely important element in a client's decision-making. It is an important element because large sums of money are at stake and because of the rule that the loser pays all. That can act as a deterrent for a party asserting his or her rights in litigation or arbitration. It applies the more so in litigation when one brings in the further ingredient of payments into court.

The other major unsatisfactory feature about the issue of costs is the system of taxation. I am not observing whether that is right or wrong, but the fact is that now, when a bill is taken to a taxing master to be taxed, there is a severe reduction of the awardable or recoverable costs of the party who has had the order for costs in his favour. The winning party is fortunate if that party gets as much as half of his costs on taxation.

That is the background to the amendment I have put before the Committee. In supporting the amendment I would say that the arbitrator should not be tied to the rule of costs following the event. There should be a separation between the conduct of litigation and the conduct of arbitration on this issue. It is highly undesirable to have that rule written in, and it should be left to the discretion of the arbitrator, who should have complete freedom. The rule of costs following the event, when one party has narrowly lost and one has narrowly won, results in the unhappiness of the losing party having the order for costs against him and then the next unhappiness is the winning party thinking that he will recover all his costs and derive a benefit from the system; he then does not benefit because he only recovers half of his costs. The issue of costs is a serious issue for the parties and this is why I have moved this amendment which is designed specifically to give complete discretion to the arbitrator.

Lord Byron

My noble friend Lord Hacking mentioned my name and although I share the same profession as he does, I cannot support him in this amendment. In so far as his amendment differs from the printed clause only in relation to whether costs should follow the event, subject to certain exceptions as set out in the Bill, or whether there should be complete discretion, my experience is slightly different from that of my noble friend Lord Hacking.

If there is a complaint, it tends to be that arbitrators do not quite follow the rules and do not necessarily allow that costs should follow the event—they can sometimes be quite wayward. The rule that costs should follow the event is well understood and easy to operate. There are ways in which parties can protect themselves and, in any event, the clause has within it a discretion where it appears that circumstances dictate otherwise. I cannot support my noble friend in this amendment.

Lord Donaldson of Lymington

I intervene only to say that I see nothing wrong in principle with costs following the event. I fully understand that there are difficulties where somebody is short of the amount and is caught for costs in those circumstances. The arbitrator would have a discretion if he thought there should be some tempering of the wind.

It must be remembered that if that presumption is abolished, it becomes very difficult to keep the system of Calderbank letters, or payments into court or some equivalent, which are so important in encouraging settlements before an award is made. Therefore, I am against that.

The question of taxation is a different one altogether. I am bound to say I was very surprised that the noble Lord was complaining about the taxation for two reasons: first, because it does not appear to have occurred to him that perhaps the taxing masters might be right; and, secondly, because certainly when I knew more about these things than I now do, I never heard of a commercial solicitor allowing his costs to be taxed by the taxing masters—they were always taxed by a third firm of commercial solicitors.

Lord Roskill

Perhaps I may add to what my noble and learned friend Lord Donaldson said on the last point. For what it is worth, my own experience as an arbitrator has been that the solicitors involved invariably arrange for the costs to be taxed not by a taxing master but by an experienced costs clerk in a third firm of solicitors.

On the other point, I venture to agree with what the noble Lord, Lord Byron, said. This clause as drafted does all that is necessary.

Lord Fraser of Carmyllie

There is little that I can usefully add to the three contributions that have been made to this debate. The principle that costs follow the event is well established and I believe it has indeed stood the test of time. Should circumstances arise which the noble and learned Lord, Lord Donaldson, indicated and someone is short of a few pounds, as both he and the noble Lord, Lord Byron, have pointed out, a discretion is provided within the clause as drafted.

The only further point that I make is directed to the noble Lord, Lord Peston. Again, this is a non-mandatory clause. If the parties wish to devise a principle other than costs following the event, they are at liberty so to do.

Lord Hacking

If there is a divide in the army, it is rather difficult for one leader to go in one direction and the other leader to go in the other direction and to keep the army, or the argument, intact. I therefore address noble Lords from a divided camp, and in the circumstances—let alone all the noble and learned Lords, once again arguing against me—I am not in a position to press this matter further forward in Committee. However, it is a real concern and I ask the noble Lords to accept that.

I have noted the observations of the noble and learned Lord, Lord Roskill, and the noble and learned Lord, Lord Donaldson, about costs of commercial solicitors. I am aware that there are various ways of resolving the issue of costs. However, there is still a problem, and I most sincerely put that problem before your Lordships as one who practises law and who advises clients on the issue of costs—whether it be arbitration or litigation—and come across this as part of my daily work. On that basis, certainly for the present, I withdraw my amendment.

Amendment, by leave, withdrawn.

Clause 61 agreed to.

Clauses 62 to 67 agreed to.

Clause 68 [Challenging the award: serious irregularity]:

Lord Fraser of Carmyllie moved Amendment No. 14:

Page 25, line 22, after ("ambiguity") insert ("as to the effect").

The noble and learned Lord said: This is a small but nevertheless important amendment. This clause enables the party to apply to the court to challenge an award on the grounds of serious irregularity affecting the tribunal, the proceedings or the award. The clause provides a closed list of grounds which can be classed as serious irregularities. One such is "uncertainty or ambiguity of the award". On reflection we believe this ground needs to be drawn more tightly.

By virtue of Clause 52 the arbitrator's reasons form part of the award, but the intention is not that ambiguity or uncertainty in the arbitrator's reasons should be a ground for challenging the award. Rather we want to limit the ground to a shortcoming in the decisions which form the award, and this is achieved by focusing on the effect of the award. If there is ambiguity or uncertainty as to that effect, a challenge is possible. I beg to move.

On Question, amendment agreed to.

Clause 68, as amended, agreed to.

Clause 69 [Appeal on point of law]:

Lord Fraser of Carmyllie moved Amendment No. 15:

Page 26, line 40, leave out ("unless the court certifies") and insert ("which shall not be given unless the court considers").

The noble and learned Lord said: In speaking to both Amendments Nos. 8 and 12 I spoke to Amendment No. 15. I beg to move.

On Question, amendment agreed to.

Clause 69, as amended, agreed to.

Clause 70 [Challenge or appeal: supplementary provisions]:

Lord Fraser of Carmyllie moved Amendment No. 16:

Page 27, line 3, after ("applicant") insert ("or appellant").

The noble and learned Lord said: In moving Amendment 16 it may be helpful if I speak also to Amendment 17. These are minor and obvious drafting changes. I beg to move.

On Question, amendment agreed to.

Lord Fraser of Carmyllie moved Amendment No. 17

Page 27. line 10, after ("applicant") insert ("or appellant").

On Question, amendment agreed to.

Lord Fraser of Carmyllie moved Amendment No. 18:

Page 27, line 20, leave out subsection (6) and insert—

("(6) The court may order the applicant or appellant to provide security for the costs of the application or appeal, and may direct that the application or appeal be dismissed if the order is not complied with.

The power to order security for costs shall not be exercised on the ground that the applicant or appellant is—

1. (a) an individual ordinarily resident outside the United Kingdom, or
2. (b) a corporation or association incorporated or formed under the law of a country outside the United Kingdom, or whose central management and control is exercised outside the United Kingdom.

(7) The court may order that any money payable under the award shall be brought into court or otherwise secured pending the determination of the application or appeal, and may direct that the application or appeal be dismissed if the order is not complied with.

(8) The court may grant leave to appeal subject to conditions to the same or similar effect as an order under subsection (6) or (7).

This does not affect the general discretion of the court to grant leave subject to conditions.").

The noble and learned Lord said: I have spoken to two minor amendments to this clause, but this is one of rather greater substance. The clause deals with a number of supplementary procedural matters relating to challenges to the award or appeals on a point of law under Clauses 67, 68 or 69. As subsection (6) of the clause stands, the court can order security for costs or money to be brought into court only in respect of a challenge to awards under Clauses 67 and 68. There is merit in enabling the court to impose these requirements as a condition of granting leave to appeal on a point of law under Clause 69. This would help to avoid a situation where the ability of the losing party to honour the award becomes reduced, whether by design or otherwise, while the award is pending.

The only other changes are as follows. We thought it would be helpful to provide expression for the position on appeal from a decision under this clause. The rules of the court apply, but there is merit again in terms of user-friendliness and clarity in including a provision on the face of this Bill. The wording of subsection (6) is brought into line with the amendment to Clause 38 on security for costs. To accommodate these changes the second half of the clause has been re-ordered slightly. That is rather complicated, but I trust that the reasoning behind the amendment is clear enough. I beg to move.

Lord Hacking

I intervene to ask my noble friend whether my understanding is correct. My understanding on the drafting of this amendment, which reads in the second paragraph: The power to order security for costs shall not be exercised on the ground that the applicant or appellant is— (a) an individual ordinarily resident outside the United Kingdom, (and the other ground) is that that drafting has the approval of the DTI advisory committee chaired by Lord Justice Saville, as indeed did the drafting of the earlier clause when we were looking at security for costs in Amendment No. 10. The importance of that is that in the original report—which was received by your Lordships in February this year—the word "only" was used and then subsequently, as we know from Amendment No. 10 and this amendment, the word "only" has been removed. I understand that the word "only" has been removed on the recommendation of the committee chaired by Lord Justice Saville. The reason for its removal, as advanced by my noble friend Lord Byron is that it would act as a deterrent to arbitrations being conducted in this country.

Lord Fraser of Carmyllie

Those who have had the opportunity to consider the report to which I referred earlier will find that the line of argument I deployed in moving this amendment is succinctly set out in paragraph 380, but the reasoning is exactly the same. I can confirm to my noble friend that, following our acceptance of the proposal that there should be an amendment, as he might have anticipated, there has been a very useful and constructive discussion with Lord Justice Saville, among others, which led to the amendment being framed in the terms which now appear on the Marshalled List.

Lord Hacking

Does it apply also to Amendment No. 10?

Lord Fraser of Carmyllie

I certainly understand that that amendment was also subject to discussion with Lord Justice Saville, and that that particular deletion met with his approval. If I am wrong about that, doubtless I will be corrected.

On Question, amendment agreed to.

Clause 70, as amended, agreed to.

Clauses 71 to 75 agreed to.

Clause 76 [Service of notices &c.]:

Lord Fraser of Carmyllie moved Amendment No. 19:

Page 29, line 8, after ("be") insert ("given or").

The noble and learned Lord said: In moving Amendment No. 19, I speak also to Amendment No. 20. Clause 76 is about the service of notices or other documents, which is mentioned at various points in the Bill. At other places the expression "to give notice" is used. For example, in Clause 17 where a party is to appoint an arbitrator and fails to do so within the time specified, the other party may give notice to the party in default that he proposes to appoint his arbitrator to act as sole arbitrator. These two amendments are designed to link in the giving of notice with the provisions of Clause 76 on the service of notices or other documents. I beg to move.

On Question, amendment agreed to.

Lord Fraser of Carmyllie moved Amendment No. 20:

Page 29, line 25, leave out ("service") and insert ("giving or serving a notice or other document").

On Question, amendment agreed to.

Clause 76, as amended, agreed to.

Clause 77 [Powers of court in relation to service of documents]:

5.15 p.m.

Lord Fraser of Carmyllie moved Amendment No. 21:

Page 29, line 38, leave out subsection (5).

The noble and learned Lord said: This subsection serves no useful purpose. The point is already covered by Clause 76(6). I beg to move.

On Question, amendment agreed to.

Clause 77, as amended, agreed to.

Clauses 78 and 79 agreed to.

Clause 80 [Notice and other requirements in connection with legal proceedings]:

Lord Fraser of Carmyllie moved Amendments Nos. 22 to 25:

Page 30, line 37, after ("application") insert (". appeal").

Page 31, line 8, after ("application") insert ("or appeal").

Page 31, line II, after ("application") insert ("or appeal").

Page 31, line 17, after ("application") insert ("or appeal").

The noble and learned Lord said: In moving Amendment No. 22, perhaps I may speak also to Amendment Nos. 23, 24 and 25. As is obvious, these are very minor drafting amendments. Legal proceedings also cover appeal proceedings which need to be specified. I beg to move.

On Question, amendments agreed to.

Clause 80, as amended, agreed to.

Clause 81 agreed to.

Clause 82 [Minor definitions]:

Lord Fraser of Carmyllie moved Amendment No. 26:

Page 32, line 11, leave out ("where the seat of the arbitration is") and insert ("for a court").

The noble and learned Lord said: In moving Amendment No. 26, perhaps I may speak also to Amendment No. 27. Both amendments are designed to clarify the definition of "question of law".

As drafted, it is possible that the definition may be interpreted to mean that where the seat of the arbitration is outside England and Wales or Northern Ireland, questions of law include those other than the law of England and Wales and Northern Ireland. That is not the case. Our objective is to make it clear that there is no question of appeal in respect of a matter of foreign law. To put the matter beyond any doubt, the amendment substitutes the court in England and Wales or Northern Ireland as the defining factor rather than the seat of the arbitration. I beg to move.

On Question, amendment agreed to.

Lord Fraser of Carmyllie moved Amendment No. 27:

Page 32, line 13, leave out ("where the seat of the arbitration is") and insert ("for a court").

On Question, amendment agreed to.

Clause 82, as amended, agreed to.

Clauses 83 and 84 agreed to.

Clause 85 [Modification of Part 1 in relation to domestic arbitration agreement]:

On Question, Whether Clause 85 shall stand part of the Bill?

Lord Hacking

I address your Lordships not only on the issue of whether Clause 85 should stand part of the Bill but the accompanying Clauses 86, 87 and 88. As noble Lords may have noticed in the Marshalled List, the opposition to' these clauses standing part of the Bill is directed to whether there should be separate treatment in the Bill between domestic and international arbitrations. It is my submission to your Lordships that the time has now come to remove that distinction. It relates to the difference in powers of the courts in the staying of court proceedings when an arbitration is in existence and it relates to the right to contract out by an exclusion agreement from court intervention on termination of preliminary points of law under Clause 45 and on appeals on points of law under Clause 69.

The distinction between domestic and international arbitrations only came about when Parliament enacted the New York Convention on Recognition and Enforcement of Foreign Arbitration Awards of 1958, which was done in the Arbitration Act 1975.

Lord Donaldson of Lymington

I think the year was 1979.

Lord Hacking

I am looking at the noble and learned Lord, Lord Donaldson. It was in the Arbitration Act 1975, which was the one that dealt with the New York convention and the power of the court to stay court proceedings when there was an arbitration. The difference between the two was that in order to comply with the New York convention it had to be a mandatory power to stay the court proceedings when there was in existence a valid arbitration—that is to say, an arbitration under a valid arbitration clause—but with domestic arbitrations it was still left discretionary with the court.

It was then continued—and the noble and learned Lord, Lord Donaldson, is quite right to draw attention to it—in the 1979 Act. He played a great part in the creation of that Act when he was chairman of the Commercial Court Committee. Then the distinction was stretched into the new provisions of the 1979 Act which prevented parties to domestic arbitrations contracting out of the court intervention proceedings unless the agreement to do so had taken place, as I recollect, after the arbitration had started. It also prevented the contracting out of the special category cases, which have now gone from the Bill.

That is the history behind it. The reason why I urge your Lordships to abandon now the distinction starts from a commonsense position. The commonsense position, is it not, is that we should have one arbitration law and that we should not have arbitration laws of different application? There is also concern about European Community law, but if the noble Lord, Lord Lester, wishes to raise that point I will leave that with him because it is much more within his knowledge than mine.

As long as we keep this distinction between domestic and international arbitration, it means that the parties have different rights and we therefore have the bizarre situation that when two English-based construction companies, as I quoted at Second Reading, are in dispute with one another, one set of arbitration rules apply, but if an English construction company should be in dispute with an overseas construction company in an arbitral process, then a different set of rules apply.

Your Lordships will have read Chapter 3 of the DAC report in which the arguments for and against the continuation of the separate distinction of domestic arbitration were carefully considered. Your Lordships will therefore have noted that the DAC Committee, having considered all the alternative arguments, is clearly of the view, that there are no grounds to continue this distinction. Indeed, until I spoke yesterday to the noble and learned Lord, Lord Mustill, I understood his departmental advisory committee report of June 1989 was also of the same mind. In paragraph 108(4), when referring to the new arbitration law and the recommendation that we should have a new and improved Arbitration Act (rather than adopt the model law), it was his committee's view that the new law should in general apply to domestic and international arbitrations alike, although there would have to be exceptions to take account of treaty obligations.

For all those reasons, I submit to your Lordships that the time has come to remove this distinction.

Lord Mustill

Perhaps I may suggest, in opposition to the noble Lord, Lord Hacking, in a limited sense, that this Committee is not the occasion to contemplate such a large-scale revision of the Bill in its existing form. It is plain enough from what is written in the report, which has been such an admirable help to us all, that the matter is open to further consideration and that the shape of the Bill, as drawn, enables Parliament to think again if it concludes that the arguments for making international and national arbitrations homogeneous are sufficient to carry the day.

However, I would make just two points. First, the Bill is explicitly stated to be modelled on the model law. The model law is a model law on international commercial arbitration. It was never contemplated by those who prepared the draft of that model law that it would have anything to do with domestic arbitration at all. I speak from personal experience because I was there throughout almost the entire debate and I can say this.

It was regarded in many quarters as extraordinary that the United Kingdom should even contemplate having the same law for international arbitration as it did for domestic arbitration. Very many European countries take the view that the two types of arbitration are completely different, governed by a different philosophy and different practical considerations, and to make them homogeneous is wrong in principle. I do not necessarily say that that is a correct view. All I am saying is that if we were to make our law homogeneous, we would be putting ourselves out of step with a great deal of thinking in the arbitral community worldwide.

I wish to make it plain that I am not opposing the suggestion, but it raises delicate issues which require wider consultation on this point which there has not been opportunity to hold. It is for that reason alone that I would respectfully oppose the proposal that these clauses should not stand part.

Lord Donaldson of Lymington

I apologise for having got the Act wrong. I do not have my copy of my noble and learned friend's book with me, and no doubt he will correct me if I make any other errors. My recollection of this problem stems from the work done by the Commercial Court of Appeal, of which I was Chairman before the 1979 Act, and in that situation I was as it were Lord Diplock's junior. I know that he felt very strongly, as I do, that it is important that there should be a body of case law stemming from arbitrations, and it is important that it should not be possible for arbitration law, if one can call it that, to go off into free orbit unrelated to the law administered by the courts. It may be improbable that would happen, but nevertheless if there is an unfettered right to exclude any resort to the courts at all, there is a very real danger that would happen.

Faced with that situation, what happened in the 1979 Act was that domestic arbitrations were put in a special category to which were added insurance and one other category—I cannot remember it.

Lord Hacking

Shipping.

Lord Donaldson of Lymington

Shipping law. The Secretary of State had power to amend that; I do not believe he did but they disappeared from this Bill, and I would not quarrel with that for one moment. I see that the process is being carried on, because in Clause 88 there is power again for the Secretary of State to amend these provisions in the light of experience.

For all those reasons this has not been written in stone, unlike most of the rest of the Act, and I personally would very much doubt whether it would be wise to give an unfettered right of exclusion to all concerned in arbitration. I would oppose this amendment.

Lord Fraser of Carmyllie

It has been helpful that my noble friend has indicated that he speaks not only to Clause 85 but the succeeding clauses through to Clause 88. The clauses reflect only minor changes to the law as they are set out in the current Arbitration Acts. Domestic users of arbitration have been able to rely on them for some time and we must consider carefully the effect on them of any changes in the current provision. That is why it was decided to restate the current law in the Bill and to propose an order-making power in Clause 88 which would give us the opportunity of removing or amending the provisions at a later date.

Having said that, I recognise that the provisions as they stand are not free of difficulties. The definition of a domestic arbitration agreement has certain consequences which may have been unforeseen at the time the provision was first drafted. In particular, as the noble Lord, Lord Hacking, indicated, it has the effect that nationals from other EC countries are treated differently from United Kingdom nationals. I do not think I need to elaborate on the difficulties that that may bring forward.

I have listened carefully to what my noble friend has said and, following on the contributions made to the debate by the noble and learned Lords, Lord Mustill and Lord Donaldson, I should like to take time to reflect further on the case for removing these provisions now rather than later. It is not an issue that is without difficulties but I will return to the question on Report. I hope that that is acceptable to the Committee.

Lord Hacking

That is certainly acceptable and I am grateful to my noble and learned friend the Minister for agreeing to consider this further. I would only make the observation that there have been continuing discussions on this issue and while it may not have formed part of the formal consultation process of the DAC committee chaired by Lord Justice Saville, it is something that Lord Justice Saville and his colleagues have closely considered, as can be seen from Chapter 3 of the report. As the noble and learned Lord, Lord Donaldson, rightly reminded the Committee, there was a power in the 1979 Act by statutory instrument to remove the special category cases. It is nice to remember Lord Diplock. Special category cases were very much the children of his creation, and of the noble and learned Lord, Lord Donaldson, when he was chairman of the Commercial Court Committee.

As I recall, it was envisaged that we would see for two or three years how it all went along in the special category cases and then have another look at it. After all, the statute gave power for a statutory instrument to remove the special categories altogether. The fact is that they were not moved on statutory instrument. Special category cases have remained in existence right up to the present time. That seems to be an unsatisfactory state of affairs . If there is an issue as to whether there should be a separate treatment for domestic and international arbitration, that is an issue that should be addressed by Parliament during the passage of this Bill and we should not leave it over to statutory instrument. We should not leave it over to an unfortunate—and I say "unfortunate" not in any way critical of the European Court but unfortunate for us that the European Court should make a ruling on it and declare our law as inconsistent with European law. It seems to me that we are left in an embarrassing and silly position. In any event, we should be addressing this now during the passage of the Bill through Parliament and not leave it to a statutory instrument.

Clause 85 agreed to.

Clauses 86 to 97 agreed to.

Clause 98 [Specific adaptations of provisions in relation to statutory arbitrations]:

Lord Lester of Herne Hill moved Amendment No. 28:

Page 37, line 40. at end insert— ("( ) In section I (general principles) the reference in paragraph (a) to an impartial tribunal shall be construed, for the avoidance of doubt, as requiring the tribunal to be independent of the executive.").

The noble Lord said: This amendment arises from a problem that I mentioned during the Second Reading debate. I am extremely grateful to the noble and learned Lord the Minister for having considered it carefully and corresponded with me upon it.

The problem of which I would like shortly to remind noble Lords arises in this way. The general principles in Clause 1 refer in subsection (1)(a) to the need for the fair resolution of dispute by an impartial tribunal. There is no reference to an independent and impartial tribunal. In Clause 33 the duty on the arbitrator is to act fairly and impartially between the parties, and the Committee may think that' there is nothing wrong with that. I respectfully agree with that when one is dealing with private consensual arbitrations. There is no requirement of independence.

The problem that arises is in the part of the Bill with which we are now concerned dealing with statutory arbitration, because obviously statutory arbitrations are not voluntary, but are imposed. The particular problem is where the Executive is party to a statutory arbitration. The case law of the European Court of Human Rights to which the European Court of Justice also looks as regards Article VI of the convention is what gives rise to the difficulty. Article VI of the European convention provides that everyone is entitled, in the determination of his civil rights obligation, to an independent as well as an impartial tribunal established by law. It is clear from the case law that the requirement of independence does not apply to a private voluntary consensual arbitration. But it is also clear from the case law that, where there is a compulsory arbitration and where the state is a party to the arbitration, it is essential for the arbitrators to be independent of the Executive as well as impartial.

The last thing that I wish to do is to inflict an amendment which would have the effect of causing confusion in the main part of the Bill dealing with consensual arbitration. I have drafted this amendment in order that the issue can be raised and essentially to hear the views of the noble Lords, and I especially ask the noble and learned Lord the Minister to clarify the position. This why I put the amendment before your Lordships.

Lord Donaldson of Lymington

I am not clear, if this became part of the Bill, how anybody would be certain that a particular tribunal was independent of the Executive. I say that because of the devolution of power down to Executive agencies and quangoes of one kind or another. I take as a recent example the Marine Accident Investigations Branch which claims to be independent of the Executive, and in the other place the Secretary of State said that it was. It is an integral part of the Department of Transport. How would this be applied?

Lord Preston

When the noble Lord, Lord Lester, raised this subject I was very puzzled, and I remain puzzled. I take it that the word "impartial" has a meaning. It seems to me that its meaning does not change depending on which part of the Bill you are considering. If it has a meaning and it is what we want, then its meaning remains in the clause of the Bill, which is what we want. My question is to ask the point of what he is saying. I am not sure whether the Minister feels he should reply or whether the noble Lord, Lord Lester, should, but one runs into a fundamental logical difficulty. I would have thought the amendment otiose.

Lord Lester of Herne Hill

I shall endeavour to answer those two questions before the Minister replies. So far as the question raised by the noble and learned Lord, Lord Donaldson, is concerned, I cannot give a very satisfactory answer. Whether a court or tribunal is independent is very much rooted in the facts of a particular case—the nature of the subject matter, the method of appointment, the relationship between the members of the tribunal and the subject matter. There is case law, but it is obviously a difficult problem. I respectfully agree that if that is the criterion which must be satisfied under European law it gives rise to difficulties of interpretation which at present the European Court of Human Rights, if not our own courts, would be concerned with under the convention.

As to the question raised by the noble Lord, Lord Peston, the difficulty is that it is not correct that the word "impartial" in subsection (1)(a) or Clause 32 should be construed to include independence in the way that word is used in Article 6 of the European Convention on Human Rights. Were it to be so construed it would give rise to very great difficulties in practice in commercial arbitration. The problem is: what is one to do when one is dealing not with an ordinary, private, consensual arbitration but with a statutory arbitration to which the executive is party? I draw attention to the problem because it is necessary for us to be satisfied that we are complying with our obligations when we enact legislation of this kind. My amendment may be inept but it attempts at least to raise the point so that it can be dealt with in some fashion.

Lord Fraser of Carmyllie

I am extremely grateful to the noble Lord, Lord Lester, for putting down this amendment. I regard it as a very important point. We must do our best to ensure that the position is wholly clear.

There is much common ground between us. We are both clear that the European Convention on Human Rights does not apply to consensual arbitrations under Part I of the Bill. We are concerned in this part of the Bill, as he indicated, with statutory arbitrations. The noble Lord, Lord Lester, will doubtless recall, if others do not, that at the Second Reading, in answer to his speech, I sought to propose a possible distinction between statutory arbitrations where the executive was not involved in the dispute. I sought to suggest that perhaps in those circumstances the convention did not apply. It is important to put on record that upon further reflection I depart wholly from the attempt to suggest such a distinction. I accept that the convention applies to all statutory arbitrations, even those where the executive is not involved in settling the dispute. I accept that the state is engaged by virtue of having established the framework under which the arbitration is to take place.

It goes without saying that we take our obligations under the convention most seriously.

It is clear that the Bill must comply with the convention in relation to statutory arbitrations. The fact that the Bill does not expressly require tribunals in statutory arbitrations to be independent as well as impartial should not be taken to mean that independence is not a necessary attribute of such tribunals. The provisions of the Bill are consistent with a need for the tribunal to be independent. There is no provision for the Executive to overturn a decision of the tribunal. There are various avenues of appeal to the court for an aggrieved party.

If there is any doubt about a particular tribunal, the proper way of dealing with the matter is in relation to that tribunal. If necessary, the power in Clause 100(1) would be available. I am confident that the Bill is not inconsistent with the requirements of the convention, and that no change is necessary to the text. I have taken some time to go through my response slowly and, I trust, clearly because I am conscious of the importance of what is being said, and my words on this matter might be subject to scrutiny on some later occasion. However, I hope that what I have said is sufficient to reassure the noble Lord, and that he will consider that he can now withdraw his amendment.

Lord Lester of Herne Hill

I am extremely grateful for that considered and detailed statement. I have mixed feelings about having been the successful advocate in the case of Pepper v. Hart but the statement by the Minister does illustrate that there are some cases in which a studied ambiguity in the text of legislation may actually be desirable, and this may be one of those. I am grateful and satisfied that that statement does put the position extremely clearly and that to try to incorporate that in the text of the Bill would be very difficult to do, and is really unnecessary. If there is any doubt about the concept of impartiality and independence in the context of statutory arbitrations, it is now made clear by the Minister. In those circumstances, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 98 agreed to.

Clauses 99 to 112 agreed to.

Schedule 1 agreed to.

Schedule 2 [Modifications of Part I in relation to judge-arbitrators]:

Lord Fraser of Carmyllie moved Amendment No. 29:

Page 42, line 36, leave out ("and 45(6)") and insert (", 45(6) and 69(8)").

The noble and learned Lord said: The amendment is needed to correct a small oversight. I beg to move.

On Question, amendment agreed to.

Schedule 2, as amended, agreed to.

Schedule 3 [Consequential amendments]:

Lord Fraser of Carmyllie moved Amendment No. 30:

Page 50, line 12, leave out from beginning to ("(restrictions") and insert—

("35.—(1) The Judicature (Northern Ireland) Act 1978 is amended as follows.

(2) In section 35(2)").

The noble and learned Lord said: The Bill will extend to Northern Ireland. Current Northern Irish arbitration law differs from the law of England and Wales in certain respects, and consideration has been given to the extent to which Northern Irish law should align itself with the provisions of the Bill. The following four amendments all relate to Northern Ireland. I beg to move.

On Question, amendment agreed to.

Lord Fraser of Carmyllie moved Amendments Nos. 31 to 33:

Page 50, line 15, at end insert— ("(3) In section 55(2) (rules of court) after paragraph (c) insert—

• "(cc) providing for any prescribed part of the jurisdiction of the High Court in relation to the trial of any action involving matters of account to be exercised in the prescribed manner by a person agreed by the parties and for the remuneration of any such person;".").

Page 50, line 21, leave out from beginning to ("(civil") and insert— ("37.—(I) The County Courts (Northern Ireland) Order 1980 is amended as follows. (2) In Article 30").

Page 50, line 31, at end insert—

("(3) After Article 61 insert—

"Appeals from decisions under Part 1 of Arbitration Act 1996

61 A.—(1) Article 61 does not apply to a decision of a county court judge made in the exercise of the jurisdiction conferred by Part I of the Arbitration Act 1996.

(2) Any party dissatisfied with a decision of the county court made in the exercise of the jurisdiction conferred by any of the following provisions of Part I of the Arbitration Act 1996, namely—

1. (a) section 32 (question as to substantive jurisdiction of arbitral tribunal);
2. (b) section 45 (question of law arising in course of arbitral proceedings);
3. (c) section 67 (challenging award of arbitral tribunal: substantive jurisdiction);
4. (d) section 68 (challenging award of arbitral tribunal: serious irregularity);
5. (e) section 69 (appeal on point of law),

may, subject to the provisions of that Part, appeal from that decision to the Court of Appeal.

(3) Any party dissatisfied with any decision of a county court made in the exercise of the jurisdiction conferred by any other provision of Part I of the Arbitration Act 1996 may, subject to the provisions of that Part, appeal from that decision to the High Court.

(4) The decision of the Court of Appeal on an appeal under paragraph (2) shall be final.".").

The noble and learned Lord said: As I indicated in speaking very briefly to Amendment No. 30, these amendments all relate in differing minor respects to Northern Ireland. I would intend to move them formally unless noble Lords wish me to elaborate on any one.

On Question, amendments agreed to.

Schedule 3, as amended, agreed to.

The remaining schedule agreed to.

Bill to be reported with amendments.

Committee adjourned at ten minutes before six o'clock.