ARBITRATION (INTERNATIONAL INVESTMENT DISPUTES) BILL [H.L.] (Hansard, 10 November 1966)

§ THE PARLIAMENTARY UNDERSECRETARY OF STATE FOR FOREIGN AFFAIRS (LORD WALSTON)
My Lords, I beg to move that this Bill be read a second time. The purpose of the Bill is to enable the United Kingdom to ratify the Convention for the Settlement of Investment Disputes, negotiated and agreed under the auspices of the International Bank for Reconstruction and Development. We have two main interests in this Bill. The first is that, as a country where private long-term assets overseas amount to just under £9,500 million, we naturally have a great interest in safeguarding and looking after those investments. Our second interest is that of a country which has for a very long time taken the lead in encouraging the development of machinery for the settlement of international disputes. So I suggest that we have this double reason for welcoming the entry into force of this Convention.
I may say that we played a prominent part in establishing the Convention itself and our Ambassador in Washington signed it on our behalf on May 26, 1965. We were the second country to sign it. It is a matter of encouragement that of the 49 countries which have so far signed this Convention, 28 are developing countries and, of these, 18 have so far ratified the Convention.
The Convention itself provides for the establishment under the auspices of the I.B.R.D. of a Centre for the Settlement of Investment Disputes. Disputes between States and nationals of other States, arising out of investment, may be submitted to this Centre. For a dispute to be within the jurisdiction of the Centre it must satisfy two criteria. First, it must be a legal dispute arising directly out of an investment; and, second, it must be between a State, on the one hand, and a national of another State, on the other. There is no attempt here to define the term "investment", because before any dispute can be submitted to the Centre the consent of both parties is required so 1031 that in effect they are at liberty to frame their own terms of reference. The Centre itself will not engage in conciliation of arbitration activities; this will be the task of conciliation commisisons and arbitral tribunals set up in accordance with the provisions of the Convention.
The organs of the Centre will be the Administrative Council, which will be composed of representatives of the contracting states, and the secretariat. The settlement procedures are laid down in the Convention and they are entirely permissive. Recourse to that means is voluntary; no disputant is empowered to take the other party against his will before any arbitral tribunal or conciliation commission. But we believe that the existence of this new international body for conciliation and arbitration is in itself a significant new step forward; that it offers very important additional safeguards to investors of all countries and, in particular, of course, to British investors overseas.
The Centre will provide remedies which are not available at the present time in the International Court of Justice, and therefore fulfils a very important international need. As your Lordships know well, only States themselves may be parties to cases which come before the International Court and therefore the International Court is not empowered to adjudicate in disputes arising between a State and a private investor. As I have said, the settlement provisions of this Convention apply to disputes between States and foreign investors and, of course, the investors concerned may themselves be parties in conciliation or arbitration proceedings under it.
As a country whose overseas investments are a very important factor in our economic life—we have the highest overseas investment per head of population of any country in the world—it is natural not only that we should support this Convention but that we should have a particular interest in participating in drawing up the rules of procedure of conciliation and arbitration under the Convention. In order to participate in that we must first ratify the Convention. The reason why this Bill is brought before your Lordships at this time is to enable us, having ratified the Convention, to obtain membership of the Administrative 1032 Council which will perform the task of drawing up methods of procedure.
There are actually three main aspects of the Convention which require United Kingdom legislation. First of all, we must provide for the enforcement in this country of any arbitral awards made under the Convention. It was not possible to apply the Arbitration Act 1950 to proceedings under the Convention, because that Act subjects the conduct of arbitration proceedings in England and Wales to certain legal rules and to the control of English courts in some respects. Proceedings under the Convention, on the other hand, will be governed by the provisions of the Convention itself and the rules made under it. It would be inconsistent with the Convention to make the 1950 Act apply. The procedure of registration of awards in the High Courts has therefore been adopted; they will then have the same force and effect for the purpose of execution as judgments of the High Court. Secondly, we must give effect to the provisions of Articles 18 to 24 of the Convention (the text of which is set out in the Schedule to the Bill) concerning the status, immunities and privileges of the Centre, of members of its Administrative Council and its secretariat and of persons taking part in conciliation or arbitration proceedings under the Convention.
I know perfectly well that your Lordships always scrutinise with great care any question of extending immunities and privileges still wider than they are at present. I assure the House that the extension being asked for in this Bill is very small. In particular, the Bill sets out that no person is granted any immunity from legal processes extending beyond acts performed by him in the exercise of his functions, and no person is given any customs privileges whatsoever. Of course, it is well to remember that the Centre will be not in this country but in Washington, and the Administrative Council and the secretariat will be established there.
Furthermore, proceedings under the Convention will normally take place at the Centre, and although there is provision for them to be held elsewhere in certain circumstances, if the parties so agree, there is no reason to expect that proceedings here would be anything other 1033 than extremely rare, or that if they did take place that they would be at all lengthy. Therefore, there is no question whatever of adding to the number of diplomatically privileged persons permanently resident in this country. If the immunities produced are to be claimed here at all, it will most probably be in connection with occasional visits by some of the persons concerned for the performance of their functions.
The third aspect which requires United Kingdom legislation is that there are certain financial provisions which enable the Treasury to meet any obligations of the United Kingdom arising out of Article 17 of the Convention. It is highly unlikely that any substantial contribution will be required from us, particularly because the costs of the Centre are expected to be relatively small. The International Bank for Reconstruction and Development will provide the Centre with premises and will underwrite the basic overhead expenditure, at least for some time ahead. The parties to the proceedings will be charged for the use of the Centre's facilities and it will therefore be to a very large extent self-supporting. It follows from this that the contingent liability on the United Kingdom is only to contribute to any deficit of the Centre which might remain after charges and other receipts have been taken into account.
May I go briefly through the clauses of the Bill? Clauses 1 and 2 deal with the enforcement of awards given under the Convention. An arbitral award may be registered in the High Court in so far as pecuniary obligations under the award have not already been satisfied, and subject to compliance with rules of court; the award then has the same force and effect for purposes of execution as a judgment of the High Court. There is, however, a provision for the making of rules for the stay of execution of an award in some circumstances in accordance with the Convention. Clause 3 will enable the Lord Chancellor to make the relevant provisions of the Arbitration Act 1950 and the Foreign Tribunals Evidence Act 1856 apply for the securing of evidence for the purpose of conciliation or arbitration proceedings under the Convention.
Clause 4 gives legal effect so far as necessary to the provisions of the Convention 1034 concerning status, immunities and privileges. With one exception the provisions of this clause do not exceed the immunities the privileges which may be accorded by Order in Council under the International Organisations (Immunities and Privileges) Act 1950 in respect of an international organisation to which that Act applies. The 1950 Act does not apply to the persons (parties, agents, counsel, et cetera, in proceedings under the Convention) who are required to be accorded limited immunity and privileges under Article 22 of the Convention. That Act does, however, provide for the grant of immunities and privileges for agents, counsel and advocates of suitors to the International Court of Justice. The German Conventions Act 1955 is a further precedent for the grant of exemption from liability to legal process to persons appearing in proceedings before an international tribunal. I think, therefore, there is sound precedent and good logic, which is perhaps more important, for this small addition.
Clause 5 makes provision for contributions from public funds towards the expenses of the Centre. As I have already said, while it is no direct concern of your Lordships' House, this is only a very remote possibility. Clause 6 provides for the extension of the Act to dependent territories by Order in Council. Clauses 7 and 8 deal with applications to Scotland and Northern Ireland respectively. Clause 9 gives the Short Title of the Act and enables it to be brought into force by Order in Council on the same day that the Convention will enter into force in respect of the United Kingdom.
My Lords, this, in the main, is a somewhat technical Bill, but what it sets out to achieve, and will achieve, is something which I am quite sure all of us, even though we may have no legal knowledge, will feel is a worthwhile objective; something which we, as a country with widespread investments overseas and as a country which is doing its best to help developing countries by further investment, should undoubtedly support. I therefore ask your Lordships to agree to a Second Reading. I beg to move.

THE EARL OF BESSBOROUGH
My Lords, we must be very grateful to the noble Lord, Lord Walston, for having given us such a comprehensive review, not only of the Bill but also of the Convention which is in the Schedule. I am sure we all appreciate the need for international co-operation for economic development and the role which private —and it is private—international investment has to play in it. The noble Lord has referred to our large overseas investments, and I have nothing further to add there. I think that the existence of the Tribunal will prove very useful to the firms concerned, such as, for example, the oil companies, and indeed to the developing countries themselves which are, so to speak, the recipients of such investment.
The fact that the new Centre and Tribunal are set up under the auspices of the World Bank must give it considerable authority, and I think the companies in this country and elsewhere which have hitherto included arbitration clauses ad hoc in their agreements with the countries concerned will find the existence of the new Tribunal very valuable. I understand that as a rule disputes are settled through administrative, judicial or arbitral procedures available under the laws of the country in which the investment concerned is made. However, it is clear that disputes may arise which the parties may wish to settle by other methods, and I think it is true to say that both the countries concerned and the investors consider it is in their mutual interest to agree to resort to international methods of settlement. I am glad to see that the executive directors of the International Bank believe that private capital will continue to flow to countries which offer a favourable climate for attractive and sound investment, and that adherence to the Convention should stimulate a larger flow of such investment into the countries needing it.
I am particularly glad to see under Article 25 of the Convention that when the parties have given their consent no party may withdraw its consent unilaterally. This certainly strengthens the Convention, and I think we must accept the point, to which developing countries have attached great importance, that the jurisdiction of the Centre should, as the noble 1036 Lord has said, extend only to disputes arising directly out of an investment, and not to political disputes. Your Lordships no doubt will have noted—and the noble Lord, Lord Walston, has referred to this—that in Article 24, subsections (2) and (3), the Centre, its assets, property and income as well as its operations and transactions shall be exempt from all taxation and customs duty; but in the following subsection I see that in so far as the staff are concerned their salaries and expenses will be similarly exempt from income tax but not from customs duty. This may make some of your Lordships a litle envious. I think that it is only right that we should use this Article, since I believe the World Bank itself benefits from similar provisions. I once remember being tempted to accept a job in Washington for this very reason.
I am glad that the Convention has been warmly welcomed by many African States, and that they account for a substantial proportion of the ratifications to date. On the other hand, I am sorry to learn that the Latin American States have objected to it and that none of them has yet signed it. This seems a little regrettable. Perhaps the noble Lord can give us some explanation on that point.
Finally, I hope that the economic policies of the present Government of this country will not lead us into such a pass that we can no longer afford to invest abroad or that there will be no private enterprise to do so, but on this occasion I should not wish to press what I feel the noble Lord will take as a Party political point. I hope that we who have signed the Convention will now ratify it, and, in consequence, that your Lordships' House will give this Bill fair passage.

§ LORD WALSTON
My Lords, to answer briefly the two points raised by the noble Earl concerning the Latin American States, all I can do is to echo his hopes that, as more and more countries ratify this Convention, so the Latin American countries will see the value of it and will follow suit. I certainly share the noble Earl's pleasure that there are already seven members of the Commonwealth and ten countries from what is commonly called Francophone Africa who have actually ratified it.
I am grateful to the noble Earl for his tactful reference to our own economic 1037 policy. I can assure him that we value very much our overseas investments. I have already pointed out that we have per head the highest overseas investment of any country in the world. We are jealous of that position and I certainly hope that we shall retain it, in spite of our present economic troubles. We still are investing overseas, and I hope that the time will soon come when we shall be able to accelerate the speed of that investment. I should like to thank the noble Earl for his help in supporting this Bill, and I am most grateful to him and to his friends for all they have done to ease its passage.