My Lords, as our learned Chairman has just indicated, the procedure is, as I understand it, that we will formally move a Motion for Second Reading on the Floor of the Chamber after this debate and then I will move a Motion that the Bill be referred to a Special Public Bill Committee for further consideration. It is a kind of hybrid Bill procedure because this is a Law Commission Bill following the Law Commission report of 5 September 2023, which contained a draft Bill.
I should say at the outset that there are two changes to the draft Bill presented by the Law Commission. First, Clause 1(3) of the Law Commission version provided that the Bill would not apply to any existing arbitration agreement. That caused a certain amount of concern because there are many thousands of existing arbitration agreements going back many years and, if that situation had prevailed, we would have had a dual system for a very long time, as old arbitration agreements became subject to arbitration. The Bill now provides that its changes do not apply to arbitrations that have already commenced, as distinct from existing arbitration agreements. I have taken the precaution of checking with the law officers that that is regarded as satisfactory and that it is in line with earlier precedent in relation to the Arbitration Act 1996, which this Bill amends. That is the first point.
The second point is that the Bill now extends to Northern Ireland, which is thought to be consistent with policy. It does not extend to Scotland, as the noble and learned Lord, Lord Hope of Craighead, well knows. Scotland has its own regime under the Arbitration (Scotland) Act 2010.
Following those introductory comments, I will briefly take your Lordships through the Bill, conscious as I am that almost everyone in the Room knows much more about it than I do. I have a certain sense of déjà vu, as this is not unlike appearing once again in front of the Supreme Court, or the House of Lords as it was, considering the galaxy of knowledge and experience that we have before us this afternoon. Your Lordships well know that the arbitral process is of great importance and value, particularly to the commercial community of this country, which is a most important centre for international arbitration. Arbitration is a method of resolving disputes to which the parties willingly submit and, in the Government’s view, it should be promoted and kept up to date.
The background to this Bill is the decision by the Lord Chancellor in 2021 to ask the Law Commission to review the Arbitration Act 1996, which contains the present law—I know that certain noble Lords, notably the noble Lord, Lord Hacking, go back well before that and have lived this development over many years. The 1996 Act contains a thorough code of the principles and practice of arbitration in this country. This Bill is intended to bring that structure and framework up to date and ensure that we remain abreast of international developments and that London and these jurisdictions remain competitive on the international scene. Arbitrations in England and Wales generate some £2.5 billion annually in arbitral and legal aid fees alone and in 2021, according to the Law Commission, London was the world’s most popular seat for international commercial arbitration, notably in banking, insurance, trade and other businesses.
My Lords, I have never spoken in the Moses Room in the two years since my return to the House of Lords and I am not familiar with the procedure, so if I go wrong, I hope that our Deputy Chairman or someone else will put me right.
I am in a rather poignant position, in that I am the sole surviving parliamentarian who took part in the 1979 Bill and the 1996 Bill. That is not to say that I am the only creature still alive who was involved in that Bill, because Robert Ayling was the assistant solicitor in the Department of Trade—the 1979 Bill was taken through partly by the Lord Chancellor’s Department and partly by the Department of Trade. As far as I know, he is alive and kicking; I have not seen him for a little time. Mark Saville, now the noble and learned Lord, Lord Saville of Newdigate, played a critical part in the 1996 Act, but he had not by then arrived in the House of Lords Judicial Committee, which he did a year later, and therefore he sat on the steps of the Throne. He was a very important person, but not a parliamentarian at the time.
Of the parliamentarians of the time—if we could remember them—there was Lord Maurice Peston, who spoke for my party throughout the Arbitration Bill. He mugged up on the subject very well and was a very good participant in our debates. Lord Peter Fraser of Carmyllie was the government spokesman to take through our debates. Alas, both have departed this world, as indeed have other prominent Members of the House who took a very active part, including Lord Mustill, Lord Donaldson and Lord Roskill. So here I am as the one surviving parliamentarian. There is another name I must mention at once—Mr Toby Landau. Not only is he alive and kicking but he is here in this Room to listen to our debate. At least somebody other than me is still alive and kicking.
As I said, I am not familiar with the proceedings in the Moses Room and I am ready to be corrected at any time. I have some memories of the 1979 and 1996 Acts which I think it would be valuable for the Committee to be reminded of. Therefore, I intend to take a little time in doing so. I am aware that this is very close to the Christmas Recess. If any noble Lord, particularly one who is listed to speak, thinks that I am going on too long, I would ask him not to suffer me but to stand up and, if needs be, cut back my words.
I give a gentle reminder to the noble Lord that there is an advisory speaking time of 15 minutes. We have time, but if there are points he wishes to make—
If I could clarify, it is normally expected in a Second Reading that 15 to 20 minutes is the maximum. Obviously, sometimes there are exceptions, but particularly as the noble Lord asked at the beginning for any clarification, I thought that would be helpful.
Yes, I am very aware that behind me, and in other parts of this Committee Room, there may well be those who are anxious about getting away for their Christmas. I will therefore be responsive to this interjection and bring the Committee to another very important crisis—one which leads directly to what I have said about the importance of an arbitration Bill. It should not only set the right relationship between arbitration and the courts but be promotional in nature.
The departmental committee was headed up first by Lord Mustill and then by Lord Steyn. They gave up the fight with the parliamentary draftsman who was, dear lady, a very pedantic one. She produced a Bill which was enormously complicated and quite unreadable. It included, most surprisingly—Mr Toby Landau would remember this—the writ of habeas corpus. We had a meeting about it in Queen Mary College, down the Mile End Road, and there was an uproar against it. I remember Jan Paulsson, a leading international arbitrator, making scathing comments. There was a skeleton hang-up and what we should therefore be grateful for, and what I would like to record, is that the noble and learned Lord, Lord Saville, and Mr Toby Landau started all over again. That is the product we have now in the 1996 Act.
The important thing about what we are doing now is that this is a wholly readable Bill. It does not have a whole lot of parliamentary junk in it. It takes you all the way through each stage of the arbitration. What we should be doing now is to make quite sure that we follow in that line. I do have comments about the Bill itself, but I will leave those to another time.
1:34 pm
Lord Etherton (CB)
I am grateful to the noble Lord, Lord Hacking, for his fascinating historical overview from a personal perspective. For my part, I consider the Bill to be good and extremely useful, and I congratulate the Government on seeking to implement the Law Commission’s recommendations so quickly after the publication of its final report.
There is one matter I should like to raise for the Government to consider, but I want to emphasise that it is not my intention that there should be any amendment to the Bill. The issue concerns discrimination in arbitrator appointments. This matter was raised by the Law Commission in its consultations, in which it observed that women were up to three times less likely to be appointed than men. Consultees had different views about this but in the end the Law Commission decided that there should be no anti-discrimination provision in its draft Bill.
I ask the Government to consider, perhaps when there is next a review of the Equality Act 2010, whether there might be some provision in that Act concerning discrimination in arbitrator appointments. I recognise that it would be important for the Government to carry out a consultation prior to any decision on the matter to see whether such a provision would for technical or other reasons place the United Kingdom at a disadvantage in competing with other countries for the conduct of international arbitrations.
As I have said, this should not be the subject of an amendment to the Bill, not least because it is proceeding in accordance with the special expedited procedure for uncontentious Law Commission Bills. It is a matter for future consideration, possibly in relation to the Equality Act.
My Lords, I declare an interest on this matter: I am a practising member of the Bar and my practice includes arbitrations including proceedings under the Arbitration Act. I am also a member of the Commercial Bar Association, but I had no involvement in Combar’s response to the consultation on the Bill.
I, too, welcome the Government’s decision to press ahead with this Bill so soon after the completion of the excellent work by the Law Commission, to which I pay tribute. The number and quality of the responses to the two consultations is also to be commended. It is a testament to the breadth and depth of expertise and experience in the field of arbitration that we are lucky to have in this jurisdiction.
I should like to say a few words in support of the conclusions reached by the Law Commission, as reflected in this Bill, on a couple of points. The first is the scope of the court’s review of an arbitral tribunal’s jurisdiction under Section 67 of the current Arbitration Act. This is addressed in Clauses 10 and 11 of the Bill. In its first consultation paper, the commission suggested that in order to avoid delay and costs for the parties, instead of a full review, there should be an appeal. After two rounds of consultation, the commission concluded that there should not be a radical departure from the current system, proposing instead some limited and pragmatic procedural improvements.
That is the right conclusion. A key question in any system of consent-based jurisdiction is who should police the boundaries of that jurisdiction. An arbitral tribunal can of course rule on its own jurisdiction under the principle of kompetenz-kompetenz, but it does not follow from this principle that that tribunal should be the final arbiter of its jurisdiction. Arbitration is successful because it is widely seen as having legitimacy. That legitimacy depends to a significant degree on the jurisdiction of the arbitral tribunals being subject to effective controls that go well beyond the self-policing by the same tribunal of its own jurisdiction.
My Lords, I too, I think in common with all your Lordships, very much welcome this Bill. It is plain from the Law Commission’s report that it is the product of a great deal of hard work on the parts of the Law Commission itself and those who responded to its papers in the course of this process.
The result is a compact measure that seeks to amend the Arbitration Act 1996 in 15 distinct respects. I do not think that anything in the Bill is controversial. On the contrary, the proposals will all contribute to the improvement of the law of arbitration in England and Wales in the various ways that the Minister explained in his helpful introduction. Our thanks must go to all the members of the Law Commission who contributed to this process and to His Majesty’s Government for finding time to bring the Bill before us. We very much hope it will achieve its results before the next election.
At first sight, the best guide to what has been going on might be thought to be found in Appendix 3 to the Law Commission’s final report, which sets out for the reader a list of all the suggestions that have not been taken forward. No less than 54 such suggestions are listed. I thought that this was perhaps quite a good indication of the amount of interest among practitioners that this project has generated. However, my sense of excitement was somewhat dampened when I read in paragraph 3.3 that almost all these suggestions were raised by only one consultee, and that there was, indeed, no widespread clamour for reform in respect of the various suggests that that consultee put forward. On the other hand, the consensus was that the 1996 Act works well, as indeed it does, and that root and branch reform was not needed or wanted. What was looked for, instead, was some updating and refinement of what we already have. Indeed, this is essential if we are to ensure that England and Wales remains the jurisdiction of choice for the resolution of international disputes.
My Lords, I too welcome the Bill and agree with what noble Lords have said about it. The Library Note on the Bill suggests that the arbitration industry centred on London could be worth at least £2.5 billion to the UK economy each year, although that is described as possibly an underestimate.
There have always been some areas of doubt about certain aspects of the law in relation to arbitration and the Bill is a welcome clarification of many of them. I did not wholly anticipate the problems that the noble and learned Lord, Lord Hope, identified in Clause 1 —it seemed on the face of it to be the answer to what was a somewhat uncertain position as to the law—and I am sure the Minister will consider carefully what he said.
That change and others have been generally welcomed, not least by the Chartered Institute of Arbitrators. I declare an interest as a fellow of the institute, although I have to say that my services have not been called upon very often. I should also declare that the Independent Press Standards Organisation, which I chair, provides for arbitration—extremely cheaply—for those who have complaints against regulated newspapers and their online manifestations. Unfortunately, lawyers for the parties seem to prefer litigation to arbitration.
There is one area that the Law Commission considered but decided not to include in the draft Bill. This was a matter raised not just by the one very assiduous consultee referred to by the noble and learned Lord, Lord Hope; it was in relation to the secrecy or confidentiality of arbitration. Confidentiality has long been a hallmark of the arbitration process and a significant attraction to users. The rule is not absolute. The contours of those circumstances where one party or another loses confidentiality or secrecy have been developed by the courts. I understand that the reason for omitting any provisions about this may have been that it is regarded as preferable to leave the law to the courts rather than try to capture in legislation in what circumstances there should be a departure from the general principle. It is, of course, always open to those entering into an arbitration agreement to be specific about these matters.
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Your Lordships will be very familiar with the provisions of the Bill, but I will briefly summarise them. Clause 1 provides that the law governing the arbitration will, unless the parties agree otherwise, be the law of the seat of arbitration. As noble Lords know—I will try to get this completely right—in contractual disputes, the contractual liability will normally be determined by the proper law of the contract, but the contract may provide that the arbitration be elsewhere. A contract may be governed by Russian law but have arbitration in London. In that event, what is known as the curial or supervisory jurisdiction is governed by English law; for example, whether an arbitrator should be removed or to which court some challenge to the arbitral award may be made will be the subject of the law of the seat—in that example, English law.
However, suppose the question is whether the dispute is within the agreement to arbitrate in the first place. In my example, would it be governed by the Russian law of the contract or the English law of the seat? This question has exercised the courts over many years and there have been different views and decisions. In Enka v Chubb in 2020, the Supreme Court, in a split 3:2 decision, arrived at a somewhat complex test for deciding exactly which law governed the agreement to arbitrate. That gave rise, among other things, to a desire for certainty and a clear and simple rule. That simple rule is now provided in Clause 1, which provides that it would normally be the law of the seat unless the parties agree otherwise.
My understanding is that that is already in line with certain standard arbitration agreements and the rules of bodies that provide arbitration services. That is the essential provision of Clause 1. As I am sure the noble and learned Lord, Lord Hope of Craighead, is well aware, England, Wales and Northern Ireland will thereby align with Scotland, so we will have a common position across the four jurisdictions.
Clause 2 provides a statutory duty on arbitrators to disclose circumstances that might reasonably give rise to justifiable doubts as to their impartiality, to maintain the integrity of arbitration in this country. There have been some well-publicised incidents, as a result of which it should be put beyond doubt that arbitrators have a full duty to disclose anything that may reasonably give rise to justifiable doubts as to their impartiality.
Clauses 2 and 3 support arbitrators in making impartial and proper decisions without fear that they might incur some personal liability. In the case of an application for the removal of an arbitrator, Clause 3 provides that the arbitrator will not be liable personally for costs unless they have acted in bad faith. Clause 4 provides that an arbitrator will not be liable for resigning unless the resignation is shown by a complainant to be unreasonable. Those provisions effectively support the independence of arbitrators.
Clauses 5 and 6 deal with jurisdiction. Under Clause 5, if there is a challenge to the tribunal’s jurisdiction on which the tribunal has already ruled, the losing party cannot go directly to the court on a preliminary point to challenge that; it must await the final arbitral award and then make that challenge under Section 67. That in effect rules out earlier challenges to the court on jurisdiction.
Clause 6 clears up something of a mystery: when an arbitral tribunal decides that it has no jurisdiction, does it none the less have jurisdiction to award costs? Clause 6 provides that it does; there is a power to award costs even if the arbitral tribunal has found that it has no jurisdiction over the dispute in question. Clause 7 effectively replicates the summary judgment procedures available in the court and empowers arbitrators to make an award on a summary basis if a particular issue has no real prospect of success.
Clauses 8 and 9 pertain to the powers of the court. Clause 8 empowers it to make court orders reinforcing the orders of emergency arbitrators. These powers already exist in relation to normal arbitrators, but on occasion emergency arbitrators are appointed, so this makes sure that the existing powers to issue court orders apply equally where there is an emergency arbitrator. Clause 9—again, similarly to normal court proceedings—entitles arbitrators to make orders in support of arbitral proceedings against third parties, most likely banks that may be holding relevant funds. That provision resolves a certain conflict in the case law and aligns the position of arbitral proceedings with that in court proceedings.
Clause 10 is essentially a tidying-up measure. There are various bases for challenging an arbitral award in the 1996 Act: Section 67 for lack of jurisdiction, Section 68 for serious irregularity or Section 69 for a point of law. Clause 10 ensures that, where there is a challenge under Section 67 for lack of jurisdiction, the remedies available to the court are the same as they would be were the challenge under Sections 68 or 69, to bring a certain degree of consistency across the three main ways of challenging arbitral awards.
Under Clause 11, if an arbitral party applies to the court to challenge an arbitral award on the basis that the tribunal had no jurisdiction under Section 67, that challenge should not be a full rehearing with new evidence and arguments—it should, in effect, be decided on the existing record so that the court does not have to restart or do the whole thing afresh on the basis of the challenge to the jurisdiction of the tribunal. That will streamline and simplify the operation of such challenges.
There are then some quite short, technical provisions. Clause 12 clarifies certain time limits. Clause 13 codifies the law in relation to the staying of legal proceedings and Clause 14 streamlines the process of applying to the court under the 1996 Act for certain preliminary rulings on jurisdiction and points of law. Clause 15 repeals certain sections that have never been brought into force and are therefore redundant.
That is a very brief outline. I am not sure whether it was a fast trot or a slow canter. Your Lordships are much more familiar with this area than I am. The Bill is intended to increase the competitiveness of England, Wales and Northern Ireland, and primarily London, as a seat of international arbitration, to foster growth in both domestic and international arbitration, to introduce a fairer and more efficient process and to reduce reliance on resort to the court. I beg to move.
The foundation of this Bill, and indeed the foundation of all arbitration law, goes back to the Act of 1698. The Bill in its preamble was described as:
“An Act for determining Differences by Arbitration”.
Further on in the preamble, we have the words: now this Bill is
“for promoting Trade and rendring the Awards of Arbitrators the more effectual in all Cases for the final Determination of Controversies referred to them by Merchants and Traders or others”.
This important Act of so long ago established the support that was needed for the conduct and, indeed, the encouragement of the use of, arbitration as a means of settling disputes. Right up to the present time, our statutory law should create a balance between the courts and arbitrations. It should also be promotional for the conduct of arbitration in the United Kingdom. The importance of that comes out clearly in a briefing that we have just received from the Law Society, which calculates that currently there are no fewer than 5,000 arbitrations annually, bringing an income of £2.5 billion to the economy, so it is of importance. I would suggest that what we are doing today is of importance.
I actually doubt whether 5,000 arbitrations is the right calculation, when one takes into account the numerous LMAA and GAFTA arbitrations, and other arbitrations in the commodity field. Indeed, when I headed up an action group in 2000—I have its paper here—there were then more than 3,000 LMAA arbitrations. But whatever it is, the figure is very large and, I suggest, very important.
The 1979 Act was specifically directed to two matters. One was the setting aside and annulment of these two procedures: the “case stated” procedure and the procedure for setting aside awards for errors on its face, which was also being used. It was used by parties when they were not doing very well in an arbitration and who then sought to take their arbitration to the courts to cause delay, embarrassment and difficulty to the plaintiff or complainant.
Indeed, in the debate that I opened in May 1978 in the Chamber of this House, I read a letter from the general counsel of Raytheon, the massive defence producer of weapons and the like. In that letter, the general counsel said that, because of the way in which two of the major arbitrations were being sucked into the court by the case stated procedure, he had given directions that there should not be any arbitration agreement signed by Raytheon, carrying a London arbitration jurisdiction. That is how serious it was. Thanks to Lord John Donaldson, the 1979 Act effectively got rid of both the case stated procedure and the procedure of setting awards aside on their face. It also created what I believe to be the right balance between the law courts and arbitration, and that has been continued ever since.
When I was citing the 1698 Act, I should have mentioned that were other arbitration Acts in the 19th century, one based on the MacKinnon report. There was of course the consolidating Arbitration Act 1950, but none were developing arbitrations on the foundation Arbitration Act 1698.
The big challenge for getting the 1979 Act through was to get Lord Diplock on side. A former commercial judge—I think he was the first judge of the Commercial Court—he was a man, a judge and a Lord of great influence, and if we did not get him on side, we had no hope of getting the 1979 Act through. The second great challenge in 1978-79 was to get the Government to give time and support for what became the 1979 Act. We achieved the first, getting Lord Diplock on side. We were greatly assisted by Bob Clare, who was then senior partner of the very big American law firm of Shearman & Sterling. He walked Lord Diplock round and round the lake at Selsdon Park until he managed to get his support.
The other way of getting Lord Diplock on side was achieved by Lord Donaldson in creating special categories of arbitrations—those relating to admiralty, commodity and insurance—and setting those aside, so that they were not entitled to opt out of the new arbitration process. Lord Diplock felt very deeply on the subject; he described the commodity and admiralty arbitrations as providing the water in the fountain of the development of English commercial law. That was quite an achievement on the part of Lord Donaldson. Incidentally, at that time Lord Donaldson was the senior judge in the Commercial Court, and, in the very active way that he approached matters, he set up a special committee which issued a report. That was then given accord by the Government of the day, being made into a Command Paper, which was of great influence in getting the 1979 Act.
As for getting the Government on side, we really had to thank Lord Cullen of Ashbourne, who was a retired stockbroker. I won the ballot and therefore succeeded in having the right to open a debate on the future of arbitration in London. There are a number of noble and learned Lords behind me now; at that debate, there were a number of Law Lords in front of me. Lord Diplock took part—I am just trying to remember all those who did—as did Lord Scarman and Lord Wilberforce. This somewhat surprised the Opposition Benches. They could well have replaced Lord Cullen of Ashbourne with Lord Hailsham, who, for example, was close to arbitration law and took an active part in the 1979 Act. However, they remained loyal to Lord Cullen, which meant that we received the evidence from him of the loss of £500 million in invisible earnings, which is what the loss of income to the Government was called then. That was an astounding figure—probably close to £5 billion in today’s currency. The Lord Chancellor spoke to me about it afterwards and said, “Is it really that much?” I was quite sure that it was not, but just said to him, “I think it is a very large sum of money”. He then seized upon the opportunity to push forward that Bill, because the Labour Government were not doing awfully well and he thought it would be awfully good for them to do something that was wholly friendly to the City of London.
It was given the Rolls-Royce treatment—that was the term Sir Thomas Legg gave it, from the Lord Chancellor’s Department—but it nearly got into a disaster. I am going on a little but am getting quite close to my end. We nearly got into a disaster at the end of that because the Labour Government collapsed in March 1979. We had just had the Bill go all the way through the House of Lords and it had not got near the House of Commons. As a result, there was a happy trade-off with the House of Commons through the official channels, which was how the Bill was saved.
Onward therefore to the 1996 Act: it was a rather slow process, which caused Arthur Marriott to take up an initiative. That then brought about the setting-up of what was called the departmental—
In the wider world of international law, where consent-based jurisdiction is also the norm, an exorbitant jurisdictional determination by an international court or tribunal does not always have a clear or easy fix and that can create a legitimacy problem, and it sometimes does so. It was therefore important to preserve the architecture created under Section 67 of the Arbitration Act, as interpreted by our courts. At the same time, I believe that Clause 11 provides some protection to the winning party from the risk of unnecessary time-wasting and delay that follow from having to relitigate jurisdiction. Under Clause11, this objective would be achieved through the use of rules of court, which strikes me as a sensible and pragmatic solution.
The other question on which I wanted to touch was the one on which the noble and learned Lord, Lord Etherton, has spoken: the principle of discrimination and whether there should have been an amendment to the Act to ensure that it applied to the appointment of arbitrators. There were a number of problems with that, as the Law Commission rightly identified. One is that under Article V of the 1958 New York convention, it is stated:
“Recognition and enforcement of the award may be refused”
where it is shown that
“The composition of the arbitral authority … was not in accordance with the agreement of the parties”.
Another difficulty discussed in the consultation was that, particularly in international arbitration, it is quite common to require arbitrators to be of a nationality different from that of the parties.
In the course of considering this question, the commission helpfully set out the ways in which discrimination already applies to arbitration. That is so particularly through the duty of impartiality but also, as far as barristers and solicitors are concerned, through our professional codes of conduct. The obligation not to discriminate is, of course, a core professional duty.
It bears noting that in the 2022 review of discrimination in professional codes of conduct by the International Bar Association, England and Wales came out as one of the best jurisdictions. We have codes of conduct that prohibit discriminatory conduct by lawyers in any capacity, and not only in the exercise of professional functions. This matters because it is lawyers who advise clients on the contractual terms on the appointment of arbitrators and, ultimately, on whom to appoint. In doing so, in this jurisdiction, lawyers have to be mindful of their responsibilities. The Law Commission was right to conclude on this point, after its thorough consideration of the question, that there should not be
“any further legislation within the Arbitration Act to prohibit discrimination, in particular in the appointment of arbitrators by … parties, because we think that this will not improve diversity of arbitral appointments, but could well lead to unwarranted satellite litigation and challenges to awards”.
My final, brief point is on Clause 1, which settles a complex question—one on which the case law had never been fully and satisfactorily settled. New Section 6A has the clear benefit of clarity and simplicity.
In sum, I too very much welcome this Bill. It is a timely and measured intervention in our law that we should all be grateful to the Law Commission for, and to the Government for pressing ahead.
The fact is that there is a very competitive market out there in the wider world. We must keep our heads in front. We do not want to lose our place to others in the Middle East and elsewhere, who are marketing their services vigorously to attract as much business as they can. That is why the work that the Law Commission has done in bringing this Bill forward is so important and so much in the public interest.
Leaving Appendix 3 aside, a word should be said about the work done by some very experienced practitioners in Brick Court Chambers, including my noble and learned friend Lord Hoffmann. I should mention that, although I am a door tenant there, I was not one of those practitioners. They worked to persuade the Law Commission to include a provision in the Bill about the law applicable to the arbitration agreement. I understand that what is now Clause 1 was not in the first draft of the Bill, but it is good to see that the Law Commission was persuaded that there was a need to clarify the rules as to its determination.
As the Minister mentioned in his introduction, the position in Scotland is set out in Section 6 of the Arbitration (Scotland) Act 2010, which provides that:
“Where (a) the parties to an arbitration agreement agree that an arbitration under that agreement is to be seated in Scotland, but (b) the arbitration agreement does not specify the law which is to govern it, then, unless the parties otherwise agree, the arbitration agreement is to be governed by Scots law”.
There is currently no such provision in the Arbitration Act which precedes this Bill. On the contrary, as the law stands in England and Wales, no necessary inference can be drawn that by choosing an English seat, and with it English law as the law which governs the proceedings in the arbitration, the parties also, by implication, have chosen English law as the law which governs the arbitration agreement itself.
The need for clarity was rendered all the more pressing by the decision of the UK Supreme Court in Enka v Chubb in 2020. In that case, it was held that the question as to the law applicable to the agreement was to be determined by applying English common law rules for resolving conflicts of laws. According to those rules, the law applicable to the arbitration agreement was the law chosen by the parties or, in the absence of such choice, the system of law with which the arbitration agreement was most closely connected.
The reasoning in that case—it was a majority decision, as mentioned earlier—was perfectly orthodox, but it seemed to open up issues which, in this context, were best avoided. It was argued that the better view was that where there was no agreement, the law to be applied to the arbitration agreement should be the law of the seat of the arbitration. That simple solution is what is now provided for in new Section 6A(1) of the 1996 Act, which is set out in Clause 1 of the Bill. This provision achieves the clarity that is needed, in line with the position in Scotland.
However, new Section 6A(2) adds a rider to what is set out in Section 6A(1), which perhaps need to be clarified. It states that:
“For the purposes of subsection (1), agreement between the parties that a particular law applies to an agreement of which the arbitration agreement forms a part does not, of itself, constitute express agreement that that law also applies to the arbitration agreement”.
The words “of itself” beg the question: what do they mean? What do they envisage as necessary to displace the default rule that, where no such agreement is made, the law to be applied is the law of the seat of the arbitration?
These questions arise because it may be said that the wording of subsection (1) is perfectly clear in itself; it already uses the word “expressly”. We are told there that the law applicable is
“the law that the parties expressly agree applies to the arbitration agreement”.
What, then, does subsection (2) add to what is already provided for in subsection (1)? Indeed, do we need that provision at all? I hope that, at some point, clarity could be given as to the reasoning behind subsection (2) so that we fully understand how it interacts with what is already set out in the clearest language in subsection (1).
That point aside, the wording of the other provisions in the Bill, all of which are very welcome, do not seem to me to give rise to any questions. I hope that the Bill will receive a Second Reading in due course and as soon possible, and I wish it well as it proceeds through its remaining stages in this House and in the other place.
The case law acknowledges that the courts have an important role in ensuring standards of fairness in arbitrations. The 1996 Act, particularly Sections 67 to 69, provides the basis on which a party can challenge an arbitration award in the courts. However, there is an inherent tension between the principle that justice should be both done and seen to be done and the privacy and confidentiality that go with arbitration.
My attention has been drawn to a case reported a few months ago before Mr Justice Robin Knowles, the Federal Republic of Nigeria v P&ID. In a lengthy and comprehensive judgment, Mr Justice Knowles found that P&ID had practised
“the most severe abuses of the arbitral process”.
The judge said in his decision that it
“touches the reputation of arbitration as a dispute resolution process”.
He asked himself whether, on the facts, there was an irregularity within Section 68 of the 1996 Act and found that, notwithstanding the high bar that has to be surmounted to prove a serious irregularity, it had been proved. He found that documents had been obtained by fraud and in breach of professional obligations, that deliberate lies had been told to the panel and that there had been wholly inadequate disclosure. In his view, it was important that Section 68 was available to “maintain the rule of law”.
The case involved huge sums of money that the arbitration panel decided were owed by Nigeria to a shell company in relation to a gas pipeline. After carefully examining the facts and concluding as he did, the judge said:
“I hope the facts and circumstances of this case may provoke debate and reflection among the arbitration community, and also among state users of arbitration, and among other courts with responsibility to supervise or oversee arbitration. The facts and circumstances of this case, which are remarkable but very real, provide an opportunity to consider whether the arbitration process, which is of outstanding importance and value in the world, needs further attention where the value involved is so large and where a state is involved”.
In discussing the principle of confidentiality, the judge said:
“The privacy of arbitration meant that there was no public or press scrutiny of what was going on and what was not being done. When courts are concerned it is often said that the ‘open court principle’ helps keep judges up to the mark. But it also allows scrutiny of the process as a whole, and what the lawyers and other professionals are doing, and (where a state is involved) what the state is doing to address a dispute on behalf of its people. An open process allows the chance for the public and press to call out what is not right”.
The judgment was unusual and should cause the arbitration community to reflect on the risks inevitably involved in the confidentiality of arbitration proceedings. I do not have any amendments to suggest for the Bill, but I respectfully seek a response from the Minister on the serious questions this judgment raises about the appropriateness of arbitration, in particular its confidentiality, when the facts are similar to those of that case. Are the Government satisfied that there is no need for further provision and the matter can be left to individual judges, or has this case caused any change of heart such that they will legislate specifically to avoid a repetition? I do not necessarily expect a response now, except in general terms, but I ask for a more substantial response in writing.
I do not suggest that there is anything inherently unsuitable in encouraging arbitration, for the reasons we have heard, but I wonder whether there are sufficient safeguards to prevent the abuse of the process so starkly illustrated by this case. That said, I welcome the Bill.