HL Deb 18 January 1979 vol 397 cc1211-46

5.26 p.m.

House again in Committee on the Question, Whether Clause 1 shall stand part of the Bill?

Lord LLOYD of KILGERRAN

Before the Question is put, may I briefly express my thanks to the noble and learned Lord, Lord Diplock, for the general sympathy which he has expressed to your Lordships in regard to the second Amendment which I discussed earlier this afternoon, albeit that I have put it in the wrong place. That sympathy had the support of the noble and learned Lord, Lord Denning, the Master of the Rolls, and the combined effects of the two noble and learned Lords has, it appears, diluted the opposition of the noble and learned Lord the Lord Chancellor in this matter, because I understand that it will be considered later on.

The LORD CHANCELLOR

I do not know that your Lordships will want me to follow the detail of the learned and interesting discourse which the noble Lord, Lord Hacking, gave us on the whole law of arbitration. The objects of this Bill are rather concentrated on removing the deterrent created by the case stated to the use of London for arbitration, and we have also provided in the Bill a new system of judicial review of arbitration awards, but we certainly have not sought to cover the whole ground. But some of the matters that he has raised will be dealt with in the subsequent stages of our discussion, and we shall no doubt be able to return to them at that point. But I understood the noble Lord not to be opposing Clause 1. On the contrary, I know that he warmly supports the main objects of the Bill.

Clause 1 agreed to.

Clause 2 [Determination of preliminary point of law by court]:

On Question, Whether Clause 2 shall stand part of the Bill?

Lord DIPLOCK

May I raise a small point on Clause 2? This is a practical point which was drawn to my attention by a very experienced arbitrator. This clause provides for a consultative case, and it provides that that may be applied for in two circumstances, one of which is by an arbitrator or umpire who has entered on a reference—that is to say, the arbitrator or umpire acting upon his own initiative—and the other is by any of the parties to the reference with the consent of all the other parties. It has been drawn to my attention that if paragraph (a) stands as it is now, it will in practice be a dead letter, because it will mean that the arbitrator will have to incur the costs of himself instructing a solicitor, the solicitor instructing counsel and the like.

What has been suggested to me as an alternative, which would not result in a dead letter, is that the right to make an application should be by any of the parties to the reference, with the concurrence of the arbitrator or umpire. I am not suggesting the exact form of the Amendment. I am suggesting, however, that the kind of Amendment I have in mind is to strike out paragraph (a) and at the end of paragraph (b), which reads: by any of the parties to the reference with the consent of all the other parties", to add: or with the concurrence of the arbitrator or umpire". I think that that will carry out the intention of the clause, but carry it out in a practical way and a way which will not become a dead letter.

The LORD CHANCELLOR

That is a good and useful point, and I shall certainly consider in what terms we can give effect to it at the Report stage.

Clause 2 agreed to.

Clause 3 [Exclusion of rights under sections 1 and 2]:

5.31 p.m.

The LORD CHANCELLOR moved Amendment No. 11: Page 3, leave out line 24 and insert— ("(b) the High Court shall not, under section 1(5)(b) above, grant leave to make an application").

The noble and learned Lord said: This is a drafting Amendment which makes no change of substance to the Bill but merely brings the wording in paragraph (b) of subsection (1) into line with the wording of paragraph (a), there being no reason for the present difference of expression. I beg to move.

On Question, Amendment agreed to.

Lord HACKING moved Amendment No. 12: Page 3, line 27, at end insert ("and— (d) no application may be made under subsection 22(1) Arbitration Act (1950), and")

The noble Lord said: I beg to move Amendment No. 12. I intend to address the Committee also on Amendments Nos. 13, 14 and 15, as well as Amendment No. 12, and I shall also be making reference to Amendments Nos. 26 and 27. I recognise that, owing to the inadequacy of my drafting, even if the principles are accepted by the Government, I shall be compelled to withdraw these Amendments at the end of the Committee stage. I am, however, moving towards the central ground of my concern; namely, international contracts, to which reference has already been made.

The purpose of these Amendments is to permit parties to international agreements to contract out, by means of the exclusion agreement which is to be found in Clause 3(1) of the Bill, of other provisions where English courts have power to intervene in arbitrations.

Amendment No. 12 concerns the powers of the court to remit matters back again to the arbitrator after the exercise of the court's inherent jurisdiction, which I tried to describe to your Lordships in my earlier observations on Clause 1 of the Bill. Amendment No. 13 seeks to exclude parties to international contracts from the operation of Section 23, subsections (1) and (2), which concern arbitrator misconduct. This is misconduct—and very rare, at that—of the arbitrator himself or, more frequently with this unfortunate terminology of misconduct, it is when an arbitrator has made an error in conducting the proceedings, an error which entitles the party to make an application under Section 23 of the Act.

In the rare and unhappy event of an arbitrator acting dishonestly or grossly in breach of natural justice or—to take a third example that comes under inherent jurisdiction and not under the Act—acting in excess of his authority, clearly there must be a power to remove him. For that reason, I have also tabled Amendments Nos. 26 and 27, in a rough sketch form, to indicate that if one removes, as I am asking this Committee to do, subsections (1) and (2) of Section 23 for the purpose of international contracts, then one must bring in another clause on the lines of my Amendments Nos. 26 and 27, with the proviso that there should be added to Amendments Nos. 26 and 27 the third circumstance—the case of an arbitrator acting in excess of his authority.

Turning to Amendment No. 14, this concerns subsection (2) of Section 24 of the Arbitration Act 1950 and the matter of fraud. I addressed the House on this subject at Second Reading and I do not intend to weary the Committee with a second speech on the same subject. My suggestion then was that subsection (2) of Section 24 should be repealed altogether for all arbitrations. Having reflected upon it, however, I recognise that in the case of domestic agreements there can be circumstances when the victim to a false allegation of fraud, albeit made in the privacy of arbitration proceedings, feels so strongly about his integrity and reputation that he would wish to exercise his right to invite the court to transfer the arbitration proceedings from the arbitrator under subsection (2) of Section 24 of the Act.

My submission to the Committee is that the same circumstances do not surround the parties to international agreements. Most of those parties are vast corporations and are not injured private citizens. My suggestion, therefore, is that to leave subsection (2) of Section 24 in the Act in its present form so as to be available to parties of international contracts will leave an avenue of abuse. Whether that abuse is used or not, it is going to be seen as a gap in our attempt to reform the law.

That deals with the main points on my Amendments. I do not think that I need to address the Committee on Amendment No. 15 because this was an attempt, in an inadequate way, to brush up the end of the clause, these earlier clauses having been introduced. Those are the submissions which I have to make on these Amendments.

Lord DIPLOCK

I should like to support Amendment No. 14 which deals with fraud. Section 24 of the Arbitration Act is couched in very wide terms. In effect, what it enables a party to an arbitration agreement to do if fraud is alleged is to demand that the matter be dealt with by the court instead of by arbitration. In domestic arbitrations the great protection is that the rule of ethics at the Bar provides that as counsel you do not put down an allegation of fraud until you are satisfied that there is material upon which to base it. That I think almost any foreign lawyer would say is a peculiarity of English practice. Allegations of fraud are not regarded with the same seriousness either in America, where they are freely put without any real further consideration, or in other jurisdictions. If an allegation of fraud is made as a matter of common form, as sometimes it is, the risk is that a foreign arbitration will be brought before the jurisdiction of an English court.

As a matter of presentation, in the case of arbitration—where the parties to the big, one-off contracts, with which we are concerned to a considerable extent in the exclusion clause, are very often Governments or Government entities—the prospect of being dragged before an English court, even upon an allegation of fraud and even if it be unsuccessful, is something which ought to be avoided, if it can be.

Furthermore, if there is an allegation of fraud, while it is quite true that the party who sought to get the matter transferred to the courts would have to go through an English solicitor, or at any rate would have to have an English solicitor and counsel present, this really is not a sufficient safeguard in that sort of case because it may well be that the legal representatives of the parties in the arbitration itself are not English lawyers. It may also be that under the Directive of the EEC legal representation it will be the foreign lawyer with the different code of ethics who is able to appear in the High Court to make the application. If English counsel is only brought in at that stage it is a difficult matter for him to be able to be sure one way or the other whether the allegation of fraud is one which is justified as a prima facie case or not.

This matter has been the subject of representations to me from a number of different sources and I would therefore urge that consideration be given to enabling the parties in an exclusion agreement to exclude the power to apply to the court, on an allegation of fraud, to get the matter decided by the court rather than under the arbitration agreement. Unless we do that I think it will continue to be a serious obstacle to attracting the international contract to arbitration in England.

For that reason I warmly support Amendment No. 14. I hope the noble Lord, Lord Hacking, will forgive me if I say that while I attach importance to his Amendment No. 14 I feel rather indifferent about Amendments Nos. 12 and 13 because I do not think they will have any serious effect.

5.42 p.m.

The LORD CHANCELLOR

These Amendments are similar in purpose. Their effect would be that when an exclusion agreement is effective, that is to say an agreement to contract out of a new right of appeal at any stage in relation to an international arbitration or after an arbitration has commenced in domestic cases, it will also operate to exclude applications to the court under Section 22, which gives power to the court to remit an award to an arbitrator; Section 23—the power of the court to remove an arbitrator or to set aside an award on the ground of the arbitrator's misconduct, and Section 24(2), the power of the court to intervene when fraud is alleged.

I notice that the noble and learned Lord, Lord Diplock, has shown less than enthusiasm for Amendments Nos. 12 and 13, an approach which, if I may say so, I share with him. Amendment No. 12 would confer on the parties the right to exclude by agreement the court's power to remit an award to an arbitrator under Section 22(1) of the Arbitration Act. I find the practical aim of that Amendment the most difficult to identify as it does not as such restrict applications to the High Court under the Bill or the Arbitration Act 1950, but where invoked by parties would merely limit the court's power under Section 22(1) to remit any matter to the arbitrator or umpire after it has been determined by the court. In my view, not only would such a limitation be undesirable, but it seems to be at odds with Clause 1(2)(b) which allows remission following an appeal on a point of law under Clause 1(2).

As to Amendment No. 13, this would confer upon the parties the right to exclude by agreement the court's power under Section 23(1) and (2) of the 1950 Act to remove an arbitrator or umpire and/or to set aside his award for misconducting himself or the proceedings. It seems to me to be rather undesirable for an arbitrator to know in advance that he could with impunity act improperly or incompetently or, for example, in breach of the agreed procedures. In my view, in the last resort the court should have power to intervene in such circumstances if a party to the arbitration applies to it.

Amendment No. 14 would confer on the parties a power to exclude by agreement the power of the High Court under Section 24(2) of the 1950 Act to order that an arbitration agreement shall cease to have effect, and to revoke an arbitrator's authority in so far as it is necessary to enable the High Court to determine any question of fraud alleged against a party to the agreement. In the past at any rate, as a matter of public policy it has been thought essential that allegations of fraud should be determined by the court. The protection against the abuse of Section 24(2) of the 1950 Act is that, save for the case of an applicant in person, an application to the High Court under Section 24(2) would be made by a member of the Bar of England and Wales who would be bound by strict rules, as the noble and learned Lord, Lord Diplock, has intimated, forbidding a plea of fraud save in the face of clear evidence. But it would seem that there is a greater willingness—putting it as delicately as I can—in other jurisdictions to allege fraud and to use the allegation of fraud as a means of delay in respect of foreign agreements. Therefore it may well be desirable that this suggestion should be looked at again, unattractive as it is to put our own standards here apparently above those in other jurisdictions. Perhaps that is not the proper way to put it. I will certainly look at that aspect of the matter again at a later stage. I fear that in respect of Amendments Nos. 12 and 13 my own advice to the Committee would be that they are really not helpful, but we will look again at Amendment No. 14.

5.49 p.m.

Lord HAILSHAM of SAINT MARY-LEBONE

I am sure the House will be grateful to the noble and learned Lord for expounding his views upon this question. I think it is probable that at Report stage we shall have to come back at least to the subject matter of Amendment No. 14, but I would reiterate the general comment that I was making at a much earlier stage this afternoon. It is very difficult on a highly technical matter like this, in dealing with a Bill the purpose of which is largely to give effect to the recommendations of a Committee, to use the Bill as a vehicle for reforming the law outside the recommendations of the Committee. Sometimes unexpected results are obtained by this procedure and, on the whole, I should be as conservative as I usually am about using the Bill for this kind of purpose.

I do point out that of course in favour of the noble Lord, Lord Hacking, as I have read his Amendments, being Amendments to Clause 3 they only really deal with exclusion agreements in international contracts as defined, and therefore they do not affect domestic arbitration, otherwise I should feel much more deeply about the matter. But I would point out to him that under the combined effect of subsections (6) and (8) of Clause 3, as I read them, there is room for extending Clause 3 to a wider range of contracts. The effect of his Amendments, if the Secretary of State exercised his powers, I think ought to be considered carefully. I suggest that the right course at the present stage is to withdraw these Amendments, but to revert, at any rate, to the subject matter of Amendment No. 14, when the Lord Chancellor has had an opportunity of consulting perhaps the chairman of the Donaldson Committee or other persons who may be interested, and also the Parliamentary draftsmen, as to the way in which an Amendment of this kind could properly be drafted.

I make one final point, and I am going to make it again at a later stage when we come to the Amendments. It was to deal with points of this kind that on Second Reading I ventured to support the noble Lord, Lord Hacking, in his suggestion for an arbitration rules committee, because my doubts about introducing into a Bill Amendments outside the scope of the deliberations of the Committee which it is designed to implement would be met if there were in existence a permanent body which could give effect to suggestions of this kind, after the appropriate consultation, and subject to the authority of both Houses of Parliament.

I know the noble and learned Lord's objection because we have been in correspondence. I think he described it as a Henry VIII type of Committee with power to amend statute law. But this is a very highly technical matter. One does not want to hold up desirable law reform. Having regard to the difficulties of Parliamentary time, I very much doubt whether, if we had not been living in this kind of Parliamentary limbo, the Lord Chancellor would ever have got time for this Bill. If he had a rules committee we would not be troubled in Parliament with having to debate these very highly technical problems on the Floor of the House, unless, the Rules Committee having recommended it, there was a general feeling that they had gone too far or not far enough.

Lord DENNING

May I say that I would have some sympathy with Amendment No. 13 coupled with Amendment No. 26, for this reason: that the courts have been apt to set aside awards, or remit them, for what we often call technical misconduct and not real misconduct. It would be undesirable if the courts would interfere more under that provision, which still remains in the law. On the other hand, I hope that after the passage of this Bill we shall not be inclined to give a technical meaning to the word "misconduct", but that we will interpret it properly as it ought to be. So I would not press these Amendments, but I would have some sympathy with the suggestion.

The LORD CHANCELLOR

I willingly concur with the approach of the noble and learned Lord, Lord Hailsham, and I hope that in the light of my assurance the noble Lord, Lord Hacking, may be disposed to withdraw the Amendments, certainly with the knowledge that we will revert to a reconsideration of them at a later stage.

5.54 p.m.

Lord HACKING

I undertook to withdraw the Amendments even before I presented them to the Committee and I am going to remain faithful to that undertaking. I am very grateful for the support of the noble and learned Lord, Lord Diplock, and indeed the Master of the Rolls at a later stage. Perhaps I may just observe, without, I hope, any impertinence to the noble and learned Lord the Lord Chancellor, that perhaps when he was making his observations—and I know the difficulty in trying to join up different Amendments in the Bill—he was not sufficiently focussing on the relationship between the proposal made in Amendment No. 13 with that made in Amendment No. 26. Therefore, I would be very grateful if the noble and learned Lord could at least consider that Amendment as well as Amendment No. 14.

If the noble and learned Lord is able to do that, we will find entirely common ground, because on further research, whether it be right or wrong, I certainly have come to the view that my Amendment No. 12 is inappropriate on the line of the observations I made earlier on the inherent jurisdiction of the court. Of course, this subsection only comes into being—or to use an American phrase, it can only be activated—when the court itself has exercised its inherent jurisdiction to take the matter, and having taken the matter decided that it is right to send it back to the arbitrator. For that reason I concede that Amendment No. 12 is not appropriate; but I do ask the noble and learned Lord to consider No. 13 coupled with No. 26, together with Amendment No. 14. If my other Amendments were to find any favour with the noble and learned Lord, I leave No. 15 entirely, to the Parliamentary draftsmen.

The LORD CHANCELLOR

As I have said, I am perfectly willing to accede to that request. If I have been a little out of focus, having gyrated so much in the course of the afternoon, I am not entirely surprised.

Amendment, by leave withdrawn.

[Amendments Nos. 13, 14 and 15 not moved.]

5.58 p.m.

Lord LLOYD of KILGERRAN moved Amendment No. 16: Page 3, line 33, at end insert— ("An Agreement in writing shall include any agreement in the written or typed form but shall exclude all agreements in printed form.").

The noble Lord said: This is a simple Amendment intended to define what is meant by "agreement in writing" under this clause, for the purpose of trying to extend the special category of cases with which the clause is concerned. The Amendment says that: An Agreement in writing shall include any agreement in the written or typed form but shall exclude all agreements in printed form".

The noble and learned Lord, Lord Diplock, spoke at length about what he referred to as the standard term contracts, and he indicated that there were many commercial branches where it is impossible to practise, to trade, or to enter into a transaction except upon the standard form prepared by a trade association. He referred to the Baltic practice. Therefore, if you want to enter into a transaction of that kind you are for practical purposes forced to contract upon the standard form, it being a printed form. He went on to say, which rather surprised me, that he felt that many of such contracts were not freely negotiable between the parties of contract; they just had to accept the printed form. He indicated that the Committee upon which he was serving had considered this matter very carefully and he had had many representations about extending the definition of the written agreement in that form.

What my Amendment is concerned with is saying that the written agreement which can be classified in the special category must be one which the parties have considered; therefore, prima facie if you have an agreement which is in writing or which is in typed form, not printed, it shows that the parties have made some attempt to consider the terms and that the contract has been negotiated. I fully realise the difficulties of drafting that arise in a matter of this kind, and this is a humble attempt to try to extend that special category of cases to which the clause refers. I beg to move.

The LORD CHANCELLOR

As I understand it, the effect of the Amendment would be to invalidate terms of agreements, excluding the right to apply to the High Court under the Bill, which appeared in print as opposed to writing or typewriting. The aim appears to be to prevent exclusion clauses being forced on unwilling parties in standard form contracts. I submit that the Amendment is impracticable as a party who wished to exclude the new right of appeal would merely have the standard contract typed or written out. In addition, the Amendment gives no guidance as to the effect of exclusion terms in standard form contracts which have been modified or altered in writing or typing. So I am afraid that in my submission it will not do.

Lord HAILSHAM of SAINT MARY-LEBONE

I do not think that it is simply a question of drafting, either. With respect to the noble Lord, Lord Lloyd of Kilgerran, one understands, of course, the reluctance of lawyers and judges to accept exclusion clauses in ordinary contracts. Indeed, the noble and learned Lord the Master of the Rolls quite recently made an eloquent speech which we all remember on the Unfair Contract Terms Act. But, the kind of arbitration clause to which we are referring is not between parties of that particular character: it is between—as I ventured to call them on Second Reading and earlier this afternoon—grandees. The fact is that in contracts of the type which we are discussing the uninequality which applies between parties, who may have unfair terms imposed upon them in domestic affairs, hardly applies. I should think, on reflection, that having aired this subject the noble Lord, Lord Lloyd of Kilgerran, will realise that it is not merely impracticable from the point of view of drafting, but there is, in fact, no need for a clause of this kind at all.

Lord LLOYD of KILGERRAN

I was trying to deal with the objections which I understood had been raised by the noble and learned Lord, Lord Diplock, who said that the special category contract ought to be excluded for the time being. He seemed to indicate that it was because the contract was in printed form and just shovelled out at the parties. But, it seems that perhaps I should consider what the noble and learned Lord has said and revert to this matter at a later stage. I beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

6.4 p.m.

Lord HACKING moved Amendment No. 17: Page 4, line 11, after ("Section 1") insert ("as amended by this Act").

The noble Lord said: This Amendment is related to Amendments Nos. 29 and 30. I hope that the noble and learned Lord has been able to cross index and to relate the later Amendments which I have mentioned to Amendment No. 17. The Amendment concerns the problem of the definition of international contracts, which is perhaps the matter of the greatest concern of all the Amendments that I have tabled for the Committee stage.

So far as I know international agreements were first defined separately from domestic agreements in the Arbitration Act 1975. If my memory is right, the noble and learned Lord, Lord Diplock, played a prominent part in the introduction of that Bill. I see that the noble and learned Lord, Lord Diplock, is shaking his head. However, in any event, that Bill was introduced into this House in 1975 and its purport was to give effect to the New York Convention of 1958.

Without going into other areas of concern which were also dealt with in the short 1975 Act, Section 1 dealt with the problem when, during the subsistence of a valid arbitration agreement, one of the parties to that arbitration agreement took court proceedings. The 1975 Act, for international agreements, changed the provision of an earlier Act—if I am correct it was Section 4 of the 1950 Act—which made it a discretionary matter for the courts whether to stay court proceedings. As regards international agreements what was a discretionary power in the court was converted into an obligatory power. The key word in Section 1(1) of the 1975 Act is "shall" which I think replaced the word "may" in the earlier legislation. Therefore, for the purpose of this Act it was necessary to distinguish those agreements which were to be affected by Section 1 from those domestic agreements which were not to be affected.

The approach in the 1975 Act was to define domestic agreements and hence to treat all other agreements as international or non-domestic agreements. The crucial time was the time when the proceedings were brought. Therefore, the distinction—again speaking very broadly to your Lordships—is that when a party is a person who is not a national of this country and not resident, or in the case of a corporation when that corporation is incorporated outside the United Kingdom or has no central control or management within the United Kingdom, then there is a non-domestic agreement. Therefore, the time which was fixed for ascertaining whether an agreement was non-domestic or domestic, was the time when the proceedings commenced. For the purposes of the 1975 Act that worked perfectly well.

However, the Bill seeks to adopt that section of the 1975 Act and with it the timing that was chosen. That is of crucial importance because the vital time is when the contract is being negotiated, when parties to agreements are considering putting in an arbitration clause which will enable London to be the forum of an arbitration. It is essential that those parties know at that time that the agreement which they are entering will be operative and binding upon the other parties. Therefore, if the time is fixed at a later stage in possibly the distant future when proceedings are commenced, those parties at the critical time they are carrying out the negotiations cannot feel fully protected.

Let us take the example of an English resident company entering into an agreement with an American company. It is possible that an American company—and I make no aspersions against an anonymous American company—could deliberately and wilfully convert itself into a domestic company and hence take that agreement out of the exclusion. The much more likely event is that the American company, having prospered, hopefully on the agreement to which I referred your Lordships, decides that the time has come to establish a business in the United Kingdom; and when that business is established, as a matter of commercial convenience all the contracts which then existed between the parent company and other companies, are assigned to their new resident English company. So at a later time, after the agreement is signed, the effect of the exclusion arrangements would be a nullity. The exclusion agreement itself would be a nullity because the parties to that agreement were no longer, within the definition of the Act, non-domestic.

I recognise that my drafting is quite inadequate, but for the reasons that I have put forward, I urge the noble and learned Lord to accept the concept of the Amendment. I beg to move.

The LORD CHANCELLOR

The noble Lord, Lord Hacking, has raised some very interesting matters as regards this Amendment. In view of the proceedings which are to follow this Committee stage perhaps I can shorten matters by saying that I shall consider most carefully what he has said in regard to these somewhat difficult Amendments—at least difficult in my mind—and we shall revert to them at the Report stage.

Lord HACKING

I beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Lord LLOYD of KILGERRAN had given Notice of his intention to move Amendment No. 18: Page 4, line 15, at end insert— ("Any reference under an arbitration agreement relating to (a) Intellectual Property or (b) the Treaties or Community Treaties as defined in the European Communities Act 1972 or Articles 85 or 86 of the Rome Treaty shall not be deemed a domestic arbitration agreement within the meaning of section 1 of the Arbitration Act 1975").

The noble Lord said: I was minded to introduce this Amendment in view of the qualified sympathetic approach which the noble and learned Lord the Lord Chancellor had made in his letter of 20th December to the noble and learned Lord, Lord Hailsham of Saint Mary-lebone. It seemed to me that he was sympathetic to the suggestion of the noble Lord, Lord Hacking, about a foreign law declaratory clause being introduced into the Bill. Therefore, my Amendment is very much of a probing nature. In view of the fact that the noble Lord, Lord Hacking, has proposed another Amendment on this matter—Amendment No. 22—with the leave of the House, I shall not move Amendment No. 18 but raise the principle embodied in my Amendment during the debate on Clause 3 stand part.

[Amendment No. 18 not moved.]

[Amendments Nos. 19, 20 and 21 not moved.]

Clause 3, as amended, agreed to.

6.11 p.m.

Lord HACKING moved Amendment No. 22:

After Clause 3, insert the following new clause:

Exclusion of foreign law from judicial review

(".—(1) For avoidance of doubt and subject to subsection (2) below, questions of foreign law, as denned in subsection (3) below, are not to be considered as questions of law which arise under this Act.

(2) Notwithstanding subsection (1) parties to any arbitration proceedings, being conducted within the jurisdiction of England and Wales, may agree in writing, concerning questions of foreign law, as denned by subsection (3) below, to make the arbitration proceedings, in whole or in part, subject to the provisions contained in sections 1 and 2 of this Act.

(3) Questions of foreign law are questions of law which do not fall under the law of England and Wales").

The noble Lord said: I am afraid that noble Lords will be troubled by my words again, but I shall try to be brief because of matters coming before the House shortly. This new clause is a foreign declaratory clause and I invite the noble and learned Lord the Lord Chancellor to include such a clause in the Bill. There are two parts to this Amendment and I shall address the Committee on them in the order in which they come. The first part of my Amendment is simply an attempt—again, with inadequate drafting—to draft a foreign declaratory clause.

I invite the noble and learned Lord to accept the concept of this clause because over this matter there is more than a doubt whether foreign law forms part of a question of law in England. Indeed, it is widely held among lawyers from overseas that a question of foreign law still remains—and one cannot criticise them for taking this stand because, after all, it concerns their own law—a question of law and not a question of fact. For that reason I commend to your Lordships the inclusion in the Bill of a clause which, when properly drafted, sets the matter beyond any doubt. This recommendation was covered in the Commercial Court Committee's Report, and indeed it was also recommended by the London Arbitration Group. I recognise that there is a reluctance over a declaratory clause, but as I have suggested, it is very important that the matter should be put beyond doubt. Indeed, why should overseas lawyers burden themselves studying and going through English law when this matter is so easy of remedy.

The second part of my proposed Amendment—subsection (2)—also seeks to follow the recommendations of the Commercial Court Committee in paragraph 52 at page 13 of the report. However, there is an essential difference. In choosing the drafting of both subsections (1) and (3), I was directing attention not to the proper law of contracts being followed, but simply to questions of law. By taking this extract out of the rather wider concept in the Commercial Court Committee's Report, I believe that I have answered the two concerns that were expressed in the report; namely, those concerning lex fori—that is when the arbitration is taking place in England under a foreign law contract—and also the problem of renvoi.

In certain circumstances it may be helpful to parties who are arbitrating in England to have the assistance of the English courts on a matter of foreign law. This may sound a slightly bizarre proposition but there are many matters of interpretation of documents, clauses and conventions which are common to a number of countries in the world. Recently I attended a seminar in New York which considered the new Hamburg Rules on the transport of goods by ships. It is proposed that those new rules replace The Hague Rules. It is clearly foreseeable that arbitration proceedings could be conducted in London under, for example, New York law, where it could be helpful to the parties to make a reference to the English court in order to ascertain the interpretation of a clause. It may be rare circumstances when this would arise, but it would be a hospitable act on behalf of the forum country to leave the door open if any such help can be by the English court to parties participating in an arbitration in London.

Lord HAILSHAM of SAINT MARY-LEBONE

I see a little difficulty about this and I hope that the noble and learned Lord will be able to assist me one way or the other, either by removing my doubts or by supporting them. I believe it to be a general rule of English law that questions of foreign law are questions of fact. The noble Lord, Lord Hacking, says that perhaps foreign lawyers do not know this and why not have a declaratory clause. I suspect declaratory clauses for the reason that if we start including them in statutes for the avoidance of doubt, the only ultimate effect is to cast doubt on the whole sequence of disputes where there is no statute containing a declaratory clause. In other words, we undermine the doctrine of the law in other cases than that in which the statute applies. If we say, "In this Act it is declared for the avoidance of doubt that questions of foreign law are questions of fact", we underline the whole doctrine throughout the whole of the rest of English law. I think that it creates doubt, and does not avoid it, if we start inserting declaratory clauses in particular statutes when the general law is perfectly well established and well known.

Secondly, turning to subsection (2) of the proposed new clause, what worries me about this is how we are going to try it. Let us take, for example, a Danish contract, which presumably contains some question of construction, perhaps in the Danish language or possibly under Danish law. It is all very well to say that we are entitled to contract ourselves into Clauses 1 and 2 of this statute, but how are we going to try it if it gets here? Ex hypothesi, in proceedings under Clauses 1 and 2 of this statute, where they take place by way of appeal from an arbitrator on a question of law, the court will not hear any witnesses. It will not be allowed to because it is a question of law. How do you contract yourself into an English court by way of appeal from an arbitrator and into deciding a question of fact unless you are going to call witnesses? If a question of foreign law is written in a foreign language, you first get a translator to translate it and he would be a witness. Secondly, you get a foreign lawyer—sometimes one on each side—saying what the foreign law is and how it applies to the facts of the particular case. I have had a number of these disputes in my life, and I do not see how these difficulties can be resolved. Perhaps the noble and learned Lord will say that they can, in which case I wish the noble Lord, Lord Hacking, every possible success with his Amendment. However, at the moment I am in difficulty about it.

6.20 p.m.

The LORD CHANCELLOR

I share the noble and learned Lord's difficulties. Since subsections (1) and (3) of the proposed new clause are merely declaratory and add nothing to our law, it seems to, me that the new clause in that respect serves less than a useful purpose for the reasons the noble and learned Lord gave. In the absence of a provision on the lines of the proposed subsection (2), as has indeed been admitted so far in the discussion, points of foreign law being questions of fact in English law could not be the subject of an application under the Bill because Clause 1(2) and Clause 2 of the Bill are limited to points of law only. Therefore, it would appear to be inappropriate to purport to confer on the High Court in this country a jurisdiction to determine appeals on points of foreign law. It may be that I have missed something from what the noble Lord, Lord Hacking, has said, but I am afraid I cannot go with him on my present understanding with regard to this new clause.

Lord DENNING

I am not quite sure about this. Take a contract in New York on the New York Produce Exchange form in the English language. We have to interpret it very often on cases stated. It may be said to be foreign law, but it is in the English language and the interpretation of the English language is a question of law. It may be that commercial men on both sides of the Atlantic might like a ruling on the proper interpretation of those words in the New York Produce Exchange form and to get an authoritative ruling upon it. Even though it may be technically a matter of foreign law, it is an interpretation of the English language which most of them are inclined to leave to us. So I have only that little reservation about it, and I wonder whether there is something in the Amendment after all.

The LORD CHANCELLOR

It may well be. I approached the matter fairly modestly. Perhaps there is something in it which I am bound to say again escapes me. But in the light of the views of the noble Lord who moved the Amendments, and particularly of the energetic willingness of the Master of the Rolls to undertake this sort of further incursion, perhaps I shall be willing to look at it again.

Lord DIPLOCK

Like the noble Lord, Lord Hacking, I have been concerned in presiding over a colloquium on the new Hamburg Rules. This was in Vienna only last week. One of the things we did at that colloquium was to discuss the knotty points of construction in the Hamburg Rules, and there are a great many of them. There were present at the colloquium and engaged in the discussion lawyers from a large number of different jurisdictions. All I can sav is that if the court were to be required to deal with questions of foreign law, God help them!

Lord WILBERFORCE

I should like to suggest in another way perhaps that there may be some valuable thought behind Lord Hacking's Amendment, although it may be that what I am going to suggest is not what he has suggested. He made some reference to it in his speech. The distinction he is making in his Amendments is between questions of foreign law, on the one hand, which he says are not to be considered as questions of law but questions of fact, and questions of English law which are of course questions of law and therefore subject to the Bill.

There is another distinction which is an important one which I suspect he has also in mind; that is, the distinction between contracts, the proper law of which is English, and contracts the proper law of which is a foreign law. I have in the back of my mind that there is a case for saying that the latter type of contract—namely, contracts the proper law of which is not English law—should not be subject to the exclusion provision requirements of this Bill. There is a case for saying that. It has been urged and the noble Lord has advocated it at some time. So if the noble and learned Lord is considering this clause, could he also address his mind to whether or not what we ought to be trying to do, when we are dealing with foreign law, is to treat contracts, the proper law of which is a foreign law, as a separate class of categories which are not within the procedure of exclusionary clauses as laid down in the Bill. I am not convinced whether or not that is right, but I feel this is a point which requires consideration.

Lord DIPLOCK

I should like to support what my noble and learned friend has said about considering whether one should not allow exclusionary agreements in all contracts of which the proper law is not English law. But it did not seem to me that this had anything to do with the Amendment we are discussing at the moment. It was a matter which I had in fact recommended before. I think there is a recommendation in the commercial court committee.

Lord LLOYD of KILGERRAN

If the Lord Chancellor is going to reconsider this question, might I remind him of my letter of 9th January to him, to which he has not yet had time to reply, but to which I hope in due course he will send a reply. It is concerned with the position of intellectual property in relation to the EEC. I mentioned it at Second Reading. I had suggested that, in view of the position in EEC matters, the scope of the Bill might be amended in the context of certain developments in the EEC. My letter of 9th January covers this point. Perhaps he would be good enough to consider the matter.

The LORD CHANCELLOR

I shall consider the points that have been raised. I would hope that we could have an intellectual discussion on intellectual property on the basis of one of the earlier Amendments of the noble Lord. I do not regret that he withdrew them, and the time presses, but I will certainly give consideration to the matters raised by noble and learned Lords, and the noble Lord, in further examination of these proposals.

Lord HACKING

Once again I am grateful to noble and learned Lords who have lifted me up from the very low position in which I find myself when the Lord Chancellor completes his first comments on my Amendments. When the noble and learned Lord considers this matter could he put at the front of his mind, the first part of this Amendment; namely, the declaratory clause. This is a matter of extreme importance. It is a funny thing about your Lordships' House that contributions can be made from all quarters of the community, and from odd quarters of the world. I have a certain amount of experience abroad. The matter of foreign law is of great concern and should be put beyond any doubt whatever. It is an important matter for those of us who are overseas, and I would be most grateful if the noble and learned Lord could give this earnest consideration.

The LORD CHANCELLOR

May I say, on behalf of the Committee, that all contributions are thankfully received.

Amendment, by leave withdrawn.

6.28 p.m.

Lord HACKING moved Amendment No. 23:

After Clause 3, insert the following new clause: Appointment of Rules Committee

(".—(1) The Lord Chancellor shall have power to appoint an Arbitration Rules Committee.

(2) The Arbitration Rules Committee shall have power to prescribe such rules as may be required to support the proper conduct of arbitration proceedings in England and Wales.

(3) Rules made under this section shall be laid before Parliament and shall be subject to annulment in pursuance of the resolution of either House of Parliament'").

The noble Lord said: I hope at long last that I might get some support at least from one of the Front Benches because this Amendment concerns the proposal that there should be an Arbitration Rules Committee. May I draw your Lordships' attention to the sketch—and I use that word as an admission regarding the clause which I have drafted in Amendment No. 23 which in no way attempts to be the appropriate clause to go into a Bill if the concept of this clause is accepted. All I sought to do here was to set out the marker posts. I sought to set out the proposition that the Lord Chancellor should have power to appoint an Arbitration Rules Committee. I sought, secondly, to direct attention to the area of operation of that Arbitration Rules Committee; namely, to deal with rules to support—these are the crucial words—the proper conduct of arbitration proceedings in England and Wales. Thirdly, I laid down the requirement that such rules should be laid before both Houses of Parliament.

Clearly there are many matters of detail that should be considered; for example, on the representation on such an Arbitration Rules Committee. But I am sure that if the concept is accepted, then with ease and with welcome the noble and learned Lord would extend invitations to many persons who are concerned in matters of arbitration: the London arbitration bodies: trade associations in London who have arbitration processes as part of the association. Indeed consideration should be given to representatives from arbitration bodies overseas, for example, the International Chamber of Commerce in Paris, with whom I spent the last three days, from Monday through to Wednesday evening.

It will also be necessary, if this new clause finds acceptance—and I am aware of the opposition I shall get from the "other" Front Bench in your Lordships' House—to give the noble and learned Lord power to repeal a number of sections of Part I of the Act. It would be necessary, for example, to repeal Section 12, but within the ambit of giving the Rules Committee powers to deal only with rules to support the proper conduct of arbitrations (as opposed to giving the Rules Committee any power to make rules and law to give rights of intervention in arbitration proceedings). It is this dividing line I have sought to make in drafting the Amendment.

The rather fearful description of Henry VIII has been alluded to the proposal for an Arbitration Rules Committee. I do not quite know what activity of Henry VIII the noble and learned Lord had in mind when he referred to the Henry VIII powers, but in my submission that, bearing in mind the dividing line I have urged, no fierce powers would exist. I also appreciate that there is increasing concern over the number of rule-making bodies; and any lawyer who has been exposed, even to a small degree, to the plethora of Statutory Instruments which pour from various bodies which have rule-making powers, will treat with a great deal of respect any proposal that there should be another body with such powers. But if wrongs are being committed in other areas and if there are too many bodies with rule-making powers, there is no reason per se to turn down this Amendment.

There would be a number of advantages in having an Arbitration Rules Committee. It would provide an easy vehicle for the reform of procedural law, it could support arbitration associations in the making of their own rules—for example, the "payment into court" recommendation which the Commercial Court Users' Committee considered. It would provide a regular meeting point of the Commercial Court and arbitration bodies and hence keep their relationship in good order. There would be a number of other advantages which would flow from having an Arbitration Rules Committee. I believe this suggestion is good and that it is certainly worthy of further consideration.

Lord HAILSHAM of SAINT MARY-LEBONE

Obviously one does not want to tie oneself to the particular wording of an Amendment, but, as the noble and learned Lord the Lord Chancellor is aware, we have been in correspondence about this and the subject was to some extent ventilated on Second Reading. The noble and learned Lord was good enough to send me a letter, which I understand has been circulated to other noble and learned Lords who have interested themselves in the matter, and his argument, if I summarise it correctly, fell under three heads.

The noble and learned Lord said that we must first of all clear our minds as to what a committee of this kind could do, and that was a useful exercise. He pointed out that the procedure in arbitrations was basically founded on contract and that the parties could decide what procedure they wanted to follow: and even when they could not, then, within limits, the arbitrator had it within his authority, conferred by the submission, to decide what procedure he should follow. In my view, that is sensible, healthy and true. What, therefore, asked the noble and learned Lord, rhetorically and with reason, could a Rules Committee do for that? In my view there is a good deal in that argument.

The second point the noble and learned Lord made was this: supposing it did not really interfere with contract, could you hope to get a set of model rules out of the Rules Committee? Some of the literature I have seen—and I dare say some of the literature others have been sent by various bodies—has suggested that the Rules Committee could provide a series of model rules. The noble and learned Lord says, I think with a good deal of reason, that arbitrations vary enormously in type and subject-matter and that a set of model rules will not be any good because there is too great a variation. I tend to think that may be true. I would rather rely on the Institute of Arbitrators, for example, putting forward rules for arbitrations under that Institute—or rules of the Baltic Exchange or what-have-you—than on a Rules Committee trying to impose some form of uniformity. I would rather see the expert bodies in particular branches of arbitration laying down what ought to be done where they think there is a gap or a need for some degree of uniformity in arbitrations of that class. Thus, I believe the noble and learned Lord has reason on his side in the second point he makes to me in that letter.

I come to the third point, where Henry VIII comes into it, and I must tell the Committee that the person who brought Henry VIII into this argument was the noble and learned Lord and not I. The spectacle of the noble and learned Lord in any respect resembling Henry VIII is not one which had naturally occurred to me, except perhaps that Henry VIII was a Welshman and the noble and learned Lord could make that claim too. At any rate, I come back to paragraph 55 of the Donaldson Report, which said they were: acutely aware that Parliamentary time is at a premium and that unless an amendment to the law of arbitration has great legal and economic importance, as is without doubt the case in relation to the powers of judicial review"— which is the main subject-matter of this Bill— it is difficult to obtain such time". It would have been impossible, even in this case, if we had not been living in what I have described as a period of Parliamentary limbo. However, the making of minor improvements in arbitration procedure is not the most controversial field of human endeavour and the Committee hope it will prove possible to remedy these minor defects in addition to dealing with the powers of judicial review. In this context, we think that consideration should be given to establishing an arbitration rules committee with powers similar to those of the Supreme Court Rules Committee. This would relieve Parliament of the need to consider detailed amendments to the Act both now and in the future". On that third point, I am not sure that I do not part company with the cautious approach adopted by the noble and learned Lord, because in this connection I am not afraid of Henry VIII. In the ordinary course, I agree that amendments to statute law should be made by statute, by Parliament—it should go through three readings, both Houses stage by stage and, if need be, line by line—and I am perhaps, as noble Lords will remember in some more controversial debates we have had, a great enthusiast for this general point of view. However, I wonder whether this is not possibly an exceptional situation. Arbitration law is very technical. Half, probably all, the Amendments we have discussed so far this afternoon would never have come before Parliament and stopped a large and excited audience from listening to and discussing unidentified flying objects for so many minutes and hours if we had had an Arbitration Rules Committee to decide these technical questions, after consulting the relevant bodies.

I ask the noble and learned Lord whether it is possible that a Committee on the lines recommended in paragraph 55 of the Donaldson Report might serve a useful purpose. My own view is that it would. Of course Parliament would retain the ultimate control. Rules would be produced, and I suppose that they could be made subject either to Affirmative or Negative Resolution procedure. I am not suggesting that we ought to spend a great deal of time discussing UFOs; but I question whether we ought to spend quite so much time discussing whether questions of foreign law are questions of fact, as we have been doing, when the matter could in fact be referred to a committee of experts. Little difficulties are involved, but they are real difficulties and difficulties of importance, which have been raised by the noble Lords, Lord Hacking, Lord Lloyd of Kilgerran, and others. These matters could be discussed in a rather more intimate atmosphere before a forum specially qualified to deal with the question. I wonder whether the noble and learned Lord cannot think again along the lines of paragraph 55 of the Donaldson Report.

6.42 p.m.

Lord DIPLOCK

My noble and learned friend Lord Hailsham of Saint Marylebone has referred to the genesis of the proposal for an Arbitration Rules Committee which is to be found in paragraph 55 of the Donaldson Report, in which it was stated: We think consideration should be given to establishing an Arbitration Rules Committee". I entirely agree that that is a matter to which consideration should be given. The trouble is that it has not—it has not yet—and my great anxiety is that the Bill should get through in the Parliamentary time available to it. It appears that large numbers of people, upon seeing that sentence in the Commercial Court Committee's Report, have latched on to it and said, "Wouldn't it be lovely to have an Arbitration Rules Committee. It could do all sorts of things". A number of people have written to me about this matter. Some of them think that the committee's function should be to lay down rules for the conduct of arbitration, whereas I agree with my noble and learned friend that that is the kind of matter which is dealt with by agreement. He referred to the rules of the Institute of Arbitrators. In fact they are the rules of the London Court of Arbitration. They are fresh rules, recently drafted. There is a wide selection of rules: the Commodity Trade Rules, the GAFTA rules, and the rest.

Then there are those who think along the same lines as those suggested in the report and believe that the committe should deal with amendments to the powers of the High Court in relation to arbitration. Some people think that the committee should do everything, of both kinds, and some think that it should consider detailed amendments to the Act. It is worth noting that the Commercial Court Committee suggested that the Arbitration Rules Committee should be given powers similar to those of the Supreme Court Rules Committee. If powers of subordinate legislation are to be given, it is most essential that we define what those powers are. The Supreme Court Rules Committee's powers are conferred by Section 99 of the Supreme Court of Judicature Act 1925, and it is perhaps worth noting that the definition of its powers take up a couple of pages of the Statute Book. There are no fewer than 10 different paragraphs all giving close definitions of the powers. If we are to set up an Arbitration Rules Committee with legislative powers, which is what they are—and there is much to be said for so doing—it is absolutely essential that we decide and define what those powers are to be. That has not been done. It is a matter in which there is room for much controversy. It is a matter upon which one wants to consult the interests concerned, and there is no practical possibility of doing that in the time available, unless we are to lose the Bill.

With great respect I recommend to the noble and learned Lord the Lord Chancellor that he should respond to what I think is an invitation by the Commercial Court Committee of referring to that committee the matter of considering whether or not to set up an Arbitration Rules Committee, and, in particular—and this will take much time and thought—defining what its powers are to be. I suggest that if the Amendment is insisted upon, we shall land ourselves in a mess and lose the Bill because sufficient consideration has not been given to what the powers of the committee should be.

Lord DENNING

It seems to me that many trades always have had their own rules, such as the commodity trades, with GAFTA forms and so forth, and in the International Chamber of Commerce. They all have their rules of practice laid out, and I imagine that a new rules committee could not interfere with these rules because they are matters of contract. With regard to other matters ordinary rules of High Court are often applied by analogy. I agree that in a sense there may be room for a Rules Committee, but as my noble and learned friend Lord Diplock has said, it could not be done under such a general formula as we have here. It would need detailed consideration to see exactly what the powers of the committee should be, especially if there were to be powers to amend or to alter any provisions of Acts of Parliament. So perhaps this is not the right stage for the Amendment to be accepted.

The LORD CHANCELLOR

I approach the matter very much in the same way as the two noble and learned Lords who have just spoken. In my letter to which the noble and learned Lord, Lord Hailsham of Saint Marylebone, was kind enough to refer, I said that if the proposal in the Amendment is to be pursued further, it seems to me to call for a separate report of its own by the Commercial Court Committee if it thinks fit to make one, rather than simply to have a paragraph at the end of a report not directly aimed at this particular question. As the noble and learned Lord, Lord Diplock, has pointed out, although the Commercial Court Committee recommended that consideration should be given—I emphasise those words—to establishing an Arbitration Rules Committee with powers similar to those of the Supreme Court Rules Committee, neither the report, nor the Amendment, is explicit about the type of rules which such a committee should have power to make or the matters for which such rules should provide.

The noble and learned Lord, Lord Hailsham, has analysed the reasons which I put forward in my letter for thinking that, unless we clear our minds in practical detail on what ground could be covered by such a rules committee, we shall be in danger of creating a body which will not have the faintest idea of what it is expected to do, or of what its powers would be, and we should indeed be landed in grave difficulties. I think it is much better to have a clear idea what we have in mind before we proceed further with the proposal which should be embodied in the Bill, rather than to commit ourselves at this point of time, before we really know what is needed by way of the setting up of an Arbitration Rules Committee. But, as I have said, I am very willing to do what I suggested in the letter, and to approach the Commercial Court Committee (or, if it is not willing to undertake it, perhaps some other body) to get some further guidance on the way we should proceed.

Lord LLOYD of KILGERRAN

In view of what the noble and learned Lord has said about looking at the matter and seeking guidance, I wonder whether I may refer him to my Amendment No. 24, which I shall not be moving, because I extracted that Amendment from the Patents Act. It has always been the practice of a Patents Act to have a section in it empowering the Secretary of State to make such rules as he thinks expedient for regulating all matters placed by this Act under the direction or control of the Comptroller General of Patents. Instead of the Comptroller General of Patents I have indicated that matters should be put under the direction or control of the arbitrator or umpire, and have gone on to say, or cause to be appointed an Arbitration Rules Committee …. There has therefore been a precedent for years in the Patents Act for making rules, but I agree with the noble and learned Lord, Lord Diplock, that of course it will take a long time before the rules are adequately prepared and that it is important to get this Bill through very quickly.

Lord HACKING

I readily join all noble Lords who have expressed concern that this Bill should pass quickly through both your Lordships' House and the other House so that it may become law as soon as possible. I tabled this Amendment because I was anxious to investigate further in Committee, as I think the noble and learned Lord knows, the concept of an Arbitration Rules Committee. The noble and learned Lord, in his final words, has certainly left me with the hope that that concept can be further considered, and on that basis I am more than willing to withdraw this Amendment. Indeed, I have no intention, as I believe the noble and learned Lord also knows, of tabling it again at Report or Third Reading. I do not give that undertaking concerning others of my Amendments.

Amendment, by leave, withdrawn.

[Amendment No. 24 not moved.]

Clause 4 agreed to.

Clause 5 [Minor amendments relating to awards and appointment of arbitrators and umpires]:

Lord LLOYD of KILGERRAN moved Amendment No. 25: Page 5, line 44, after ("agreement") insert ("in the event of two arbitrators appointed by the parties agreeing to make a joint award then no third arbitrator need be appointed, but").

The noble Lord said: I was pressed by a very experienced arbitrator to put forward this simple Amendment in the context of Clause 5. It was put to me that there are hundreds and hundreds of small cases where two arbitrators are appointed to give a joint decision, and my Amendment is to the effect that where the two arbitrators appointed by the parties agree to make a joint award, no third arbitrator need be appointed. This will save some time and some expense. I have put to experienced arbitrators the question as to what happens if the two arbitrators should disagree, and they have said that this rarely happens in the circumstances of their cases but then, of course, you would have to go back and appoint a third arbitrator to try to resolve the matter. This is a small matter, but it is apparently of commercial importance. I beg to move.

Lord DIPLOCK

I would suggest that there is here a matter which is worth considering. With the greatest respect to the noble Lord, Lord Lloyd of Kilgerran, I think the Amendment should be in Section 8(1) rather than Section 9, which is where he has sought to put it. The position which arises is this. Under Section 8, if there is a provision as to two arbitrators being appointed by each of the parties, then there is a requirement that they appoint an umpire, and once you have appointed an umpire you have added to the cost. What in fact happens in maritime arbitrations is that arbitrators appointed by the parties not infrequently agree, and then they do not in fact appoint an umpire, but the statute requires them to do so. It is a waste of time and money. I do not think this can possibly be a controversial Amendment. It has been drawn to my attention by the London maritime arbitrators, and I would venture to suggest that that is worth while considering, although I think the Amendment should be in Section 8(1) rather than in Section 9.

Lord DENNING

I would agree. We have had many cases in which the two arbitrators have agreed and where there has been an umpire who has had to be paid although there has been no need to call on him. It is a very good thing to have this Amendment, or words to its effect.

The LORD CHANCELLOR

There is apparently a fear that the new Section 9 in the Arbitration Act might result in two arbitrators appointed by the parties having to appoint an umpire in spite of the fact that they have agreed to an award. That, of course, is an absurdity, and I am certainly willing to look to see whether the words in the Amendment deal with it.

Lord LLOYD of KILGERRAN

I am very much obliged. In those circumstances, I beg leave to withdraw this Amendment.

Amendment, by leave, withdrawn.

Clause 5 agreed to.

6.58 p.m.

Lord HACKING moved Amendment No. 26: After Clause 5, insert the following new clause:

Amendment of s. 23(1) of principal Act

(". In section 23(1) of the principal Act for the words" misconducted himself or the proceedings "there shall be substituted the words" to the prejudice of one or more of the parties acted dishonestly or in gross breach of the rules of natural justice".").

The noble Lord said: I have already addressed the Committee to a certain extent on this new clause, and your Lordships will know the relationship between this clause and the earlier Amendments that I moved concerning Clause 3 of the Bill. I will not repeat the arguments that I presented then. This would be an essential clause if your Lordships were to accept Amendment No. 13—and I say that looking to the future rather than to the past—at Report stage. Section 23 of the 1950 Act, which, as I have already reminded your Lordships, consolidated earlier Arbitration Acts, is a section of the Act which has always caused difficulty, if not offence, to arbitrators. Your Lordships will be mindful of paragraph 67 of the Commercial Court Committee's report, and indeed mindful, no doubt out of personal experience, of the number of occasions when a judge has had to deal with applications under this section, principally applications in which the allegation was that the arbitrator had misconducted the proceedings. The whole terminology of misconduct did not come into arbitration law until, I think, 1899, and in so far as the concept of misconducting proceedings is concerned, that did not come into our law until the 1934 Act.

It is my submission to this Committee that those words are unfortunate, inappropriate and unnecessary now, at this stage of our law. It is also my submission to your Lordships, therefore, not only in the case of international contracts but of all arbitration law, that the time has come for this clause to be replaced by a clause on the lines of that which I have drafted in Amendments Nos. 26 and 27. Those are the circumstances in which an arbitrator should be removed; those rare circumstances when an arbitrator has been either dishonest or in gross breach of the rules of natural justice and, as I added earlier on in Committee, has acted in excess of his authority.

Even though the circumstances are very rare in which it will ever be necessary to use and make an application under a section such as I have proposed in these Amendments, clearly the law of England must have such a section in the Act, it must have that as part of it, and I suggest to your Lordships that this is the appropriate way of doing it. But, as with all my other Amendments, of course, before I go any further I undertake to withdraw it, because it is obviously a matter for consideration; but what I am anxious to hear from the noble and learned Lord is that this, too, is a matter which will be considered. It creates real difficulties. The other factor that I hope the noble and learned Lord will bear in mind is that Section 23 as currently drafted provides a route in both domestic and international arbitration as in all arbitration conducted in England, a route for abuse and a route that in my submission to your Lordships' Committee should be stopped.

Lord HAILSHAM of SAINT MARY-LEBONE

May I support not the Amendment but some of the things that have been said in support of the Amendment by the noble Lord, Lord Hacking. I think that the Donaldson Committee in paragraph 67 of their report have drawn attention to a matter which has caused needless offence to the commercial world. The term "misconduct" has a very special sense in relation to arbitrations which has developed with the years and which covers a number of things which would not be called misconduct, for intance, by the right reverend Prelate who has been such an attentive and welcome Member of this Committee, though not a particularly eloquent one so far. At any rate the word "misconduct" is an offensive one. The fact of the new procedure under Clauses 1 and 2 of the Bill I think justifies a reconsideration of the language which defines the circumstances in which an arbitrator may be removed.

I do not myself take the view that only "dishonesty" is good enough, because "gross incompetence" may not be dishonest but circumstances may come in which you want to get rid of an arbitrator because he is no good. That is not dishonest; nor is it a gross breach of natural justice. I must add that I do not like the word "gross" among the words of an Act of Parliament because even when we have had discussion in the courts from time to time in connection with the meaning of "gross negligence", it has been said that the word simply means "negligence" with a vituperative epithet added. It is somewhat lacking in precision and probably the noble Lord, Lord Hacking, would be the first to admit that this is a ballon d'essai rather than an attempt at Parliamentary draftsmanship. I think that the noble and learned Lord the Lord Chancellor would be gratifying not only the noble Lord, Lord Hacking, but others and the commercial world in general if he gave some gracious assurance in relation to paragraph 67 of the report.

The LORD CHANCELLOR

The word "misconduct" in our understanding of it connotes some moral obloquy. I understand the feelings in the commercial world, where this is brought in to deal with perhaps procedural errors, that to use that phrase in that connection is wholly inappropriate. All that I think that I can say at this stage is that I will look at this. I am not enamoured of the language of the Amendment but I am willing to look at it in consultation with others before or at the Report stage.

Lord HACKING

I say nothing, but beg leave to withdraw.

Amendment, by leave, withdrawn.

[Amendment No. 27 not moved.]

7.3 p.m.

Lord HACKING moved Amendment No. 28: After Clause 5, insert the following new clause:

Amendment of principal Act relating to appointment of new arbitrators

(". At the end of section 23 of the principal Act there shall be added the following:

"Where an Arbitrator or Umpire has been removed under subsection 23(1) above, any party to the reference may serve on the other parties to the reference, a written notice to appoint, or, as the case may be, to concur in appointing, an Arbitrator or Umpire in place of the Arbitrator or Umpire so removed, and if the appointment is not made within seven clear days after the service of the notice, the High Court or a Judge thereof may, on application by the party who gave the notice, appoint an Arbitrator or Umpire who shall have the like powers to act within the reference and make an award as had the Arbitrator or Umpire who has been removed.".").

The noble Lord said: Before I withdraw this Amendment, may I mention that I drafted this Amendment within the ambit of the new clause that I am proposing to replace Section 23. It is more appropriate to have the appointment of another arbitrator under terms (which other terms come from other clauses of this Bill) than to use the terms used in Section 25 of the Arbitration Act 1950. I beg to move.

The LORD CHANCELLOR

The Amendment allowing the court to replace an arbitrator removed for misconduct is, I am advised, unnecessary. Section 25 of the 1950 Act deals with the matter and gives the court adequate powers to replace a removed arbitrator. I do not know whether that covers the point that the noble Lord has made or not; but if he is still reverting to the use of the concept of misconduct in this connection, then, as I have said, I am willing to look at that again in other connections.

Lord HACKING

I will leave the matter there. I have already mentioned to the noble and learned Lord that I believe these words are better than those in Section 25. That is the reason why I drafted them. I beg leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Lord HACKING moved Amendment No. 29: After Clause 5, insert the following new clause:

Amendment of s. 1(4) of Arbitration Act 1975

(". In subsection 1(4) Arbitration Act 1975 after "is a party" there shall be added the words "to the proceedings".").

The noble Lord said: I shall briefly address the Committee on Amendments 29 and 30. The noble and learned Lord has already replied to my Amendment No. 17 which is related to these Amendments and he has left me in a position of suspension. I do not know the noble and learned Lord's mind, but I am happy to remain in suspension until the Report stage or until such time as he is able to take me out of it. I beg to move.

The LORD CHANCELLOR

I hope that the noble Lord will not suffer unduly in a state that I prefer to call suspended animation rather than suspension.

Amendment, by leave, withdrawn.

[Amendment 30 not moved.]

Remaining clauses agreed to.

House resumed: Bill reported with an Amendment.