Arbitration Bill [HL]

Second Reading

16:02:00

Moved by

That the Bill be read a second time.

My Lords, I thank noble Lords for their interest in the Law Commission’s review of the Arbitration Act 1996 and this Bill, which enacts the commission’s recommendations. Many of your Lordships will be aware of the Bill’s history, but let me provide a summary of it for the record. In 2021, the Ministry of Justice asked the Law Commission of England and Wales to carry out a review of the Arbitration Act 1996, which provides the arbitral framework for England, Wales and Northern Ireland. The purpose of the review was to ensure that our world-renowned arbitration laws remain just that—world leading and fit for purpose in a changing business landscape. The commission conducted two public consultations before laying its report and draft Arbitration Bill before Parliament on 5 September 2023. This report was widely praised for recommending measured rather than wholesale reforms of the 1996 Act to bring the law up to date and modernise the arbitral framework. That Arbitration Bill was introduced into this House in November 2023, in the final Session of the last Parliament, by the noble and learned Lord, Lord Bellamy. It progressed through a Special Public Bill Committee, of which I was a member, under the Law Commission Bill procedure. That committee held an evidence-taking process chaired by the noble and learned Lord, Lord Thomas of Cwmgiedd, which marshalled expert views from practitioners, academia and the judiciary. The Bill was amended in response to the evidence gathered, and I will return to those changes shortly. I am pleased to bring these reforms before Parliament again, as it is clear to me, from my position on the committee, that the Law Commission’s recommendations for reform commanded strong support from the sector and were the result of extensive consultation. By supporting our arbitration sector, this Bill will help to deliver one of this Government’s guiding missions: to secure economic growth. The benefits that arbitration brings to this country are plain to see. The Law Commission estimates that the sector is worth at least £2.5 billion to the British economy each year, while according to industry estimates, international arbitration grew by some 26% between 2016 and 2020. Of course, London remains the world’s most popular seat for arbitration by some stretch. However, we face healthy competition from Singapore, Hong Kong, Sweden and Dubai. They have all updated their arbitration frameworks in recent years and our legal system too must continue to adapt and evolve if we are to remain ahead of the curve. The changes this Government bring forward now will undoubtedly be a foundation for future success, although we are also clear that they represent evolution not revolution. I am therefore delighted that this Government have been able to prioritise time so early in this Session to legislate for these reforms to the 1996 Act and to support this crucial sector. The Bill takes forward the full set of reforms recommended by the Law Commission. It also incorporates the minor and technical improvements that were made as amendments to the former Bill. There has also been one further change made to Clause 1 to address a point raised on investor-state arbitrations. For brevity, I will summarise only the key provisions of the Bill now and point out the revisions as I do so. First, Clause 1 clarifies the law applicable to arbitration agreements by providing that the law governing the arbitration agreement will be the law expressly chosen by the parties; otherwise, it will be the law of the seat. An express choice of law to govern the main contract does not count as an express choice of law to govern the agreement to arbitrate. Clause 1 will provide greater certainty as to the law underpinning arbitration agreements, and ensure that arbitrations conducted in England, Wales and Northern Ireland are supported by our arbitration law, where appropriate. Here, we retain the change to Clause 1 made by the Law Commission draft Bill, which removed the words “of itself” from inserted Section 6A(2), as they were thought to be unnecessary and to cause confusion. We have also made an additional change to Clause 1. Clause 1 now provides that the new default rule on governing law does not apply to arbitration agreements derived from standing offers to arbitrate contained in treaties or non-UK legislation. The reasons why are as follows. There were concerns raised during the previous Bill’s passage that Clause 1 should not apply to some investor-state arbitration agreements; that is, those arising under offers of arbitration contained in treaties and foreign domestic legislation. Sector feedback was that such arbitration agreements are, and should continue to be, governed by international law and/or foreign domestic law. The Government agree that it would be inappropriate for a treaty—an instrument of international law—to be interpreted in accordance with English law principles. Likewise, we should not subject foreign domestic legislation to English law rules of interpretation, rather than its foreign law. To apply Clause 1 to these arbitration agreements may have discouraged states from choosing London as a neutral venue for their investor-state arbitrations. Just as investor-state arbitrations with the International Centre for Settlement of Investment Disputes have their own separate regime, so too should non-ICSID investor-state arbitrations be treated separately in the matter of governing law. This change will ensure that will be the case. Lastly on Clause 1, noble Lords have also brought to my attention a further matter requiring clarification. It is possible that issues may arise which are not expressly provided for by the inserted Section 6A; in particular, where there is no choice of seat in the arbitration agreement and no seat has yet been designated by the tribunal or the court. This rare issue was considered by the Law Commission in its final report, and the Government are confident that the courts will be able to resolve such matters through common law. We will also update the Explanatory Notes in due course to make this point clear. I move on to the other key measures in the Bill. Clause 2 codifies a duty of disclosure for arbitrators that will protect the principle of impartiality and promote trust in arbitration. This duty will apply prior to the arbitrators’ appointment when they are approached with a view to being appointed. It is a continuing duty that also applies after their appointment ends. Clauses 3 and 4 strengthen arbitrator immunity against liability for resignations and applications for removal. This will support arbitrators in making robust and impartial decisions. Clause 7 empowers arbitrators to make awards on a summary basis on issues that have no real prospect of success. This will improve efficiency and aligns with summary judgments available in court proceedings. Clause 8 will boost the effectiveness of emergency arbitration by empowering emergency arbitrators to issue peremptory orders and make relevant applications for court orders. Clause 11 revises the framework for challenges to an arbitral tribunals jurisdiction under Section 67 of the 1996 Act. This will allow new rules of court to provide that such applications should contain no new evidence or new arguments. That will avoid jurisdiction challenges becoming a full rehearing, thereby preventing further delay and costs. Clause 11 also retains the improvements made to the previous Bill, including: the inclusion of subsection (3D), which makes it clear that the general power of the Procedure Rules Committee to make rules of court is not limited as a result of the provision; the change in subsection (3C), which ensures that the court rules within must provide that the restriction is subject to the court ruling otherwise in the interests of justice; and the change in the drafting of subsection (3C)(b), which clarifies that the evidence mentioned includes oral as well as written evidence. These measures extend to England, Wales and Northern Ireland. They will apply to arbitration agreements whenever made but not to proceedings commenced before these measures come into force. There are other more minor yet quite worthy reforms in the Bill that I have not covered here but which I would be pleased to discuss during this Bill’s passage. The Bill will enable efficient dispute resolution, attract international legal business and promote the UK’s economic growth. I welcome noble Lords’ participation in this debate.

16:12:00

My Lords, I hope that I am standing up at the right moment. I have been advised by the Table, as the only Back-Bencher available to speak in this debate, that this is the moment that I am allowed to intervene as a gap speaker. Unfortunately, I am also advised that I have to keep to the strict rules of the gap and a Whip is already showing four fingers to me, which I think indicates four minutes. All I can do is to hope that the Whips will be kind, because I was a full participant in the Special Public Bill Committee on this Bill and took part in the many thorough and detailed sessions that we had within that committee. I am going to break away for a moment to give tribute to the noble and learned Lord, Lord Thomas, who was our excellent chairman, and also to tell your Lordships that the noble and learned Lord is sad not to be here today and has asked me to express his regret for his absence. I will therefore concentrate on the corruption issue. This has become important since the judgment of Mr Justice Robin Knowles in the Nigeria case. He gave his judgment on 23 October 2023. Suffice it to say that in that case, two very distinguished English arbitrators came to the conclusion that there should be an award of no less than $11 billion US against the Federal Republic of Nigeria. When this came before Mr Justice Robin Knowles, in a judgment lasting 140 pages, he set the whole of this large award aside on the grounds of corruption. In the committee, we received submissions from Spotlight on Corruption but had no time to examine this important issue further. I am therefore asking the Minister to convene, before Committee, a special meeting to be attended by the Law Commission, by noble Lords who take part in the Special Public Bill Committee, and other noble Lords, to consider the issue of corruption and whether we should address that in Committee. This is a very important issue, and I cite from a distinguished international arbitrator who says: “Corruption is today one of the greatest challenges facing international commerce and has serious detrimental effects on markets, efficiency, and public welfare”. I know that from my own days as an international arbitrator, when I arbitrated a number of commodity cases relating to Ukraine and Russia. Corruption was evident all the time, and we had to be very careful in reaching our decision. Of course, this can be pushed over to another day for another arbitration law reform, but they come very few and far between. There were 17 years between the 1979 and 1996 Acts, and it has now been more than 20 years since the 1996 Act, so I suggest that this should not be pushed over to another arbitration reform Bill; it should be addressed now and in committee.

16:17:00

My Lords, the noble Lord, Lord Hacking, has raised the corruption issue, and I will refer to it in a moment. First, I thank him for his contribution and for the insights he gave on Second Reading, in the life before the Arbitration Act 1996, which were illuminating. The Bill is extremely important. Arbitration is important; it is a major earner for this country. We need to keep our arbitration system up to date, and its legal framework needs to be reliable and able to deal with circumstances that can arise. I am delighted that the noble Lord, Lord Ponsonby, has set out the Bill for us and will respond at the end, and I am grateful for his close interest in it. It is an amazing Bill in that it has been through so many processes that it seems almost inconceivable that improvements could still be made to it. They could, actually, but it might be contrary to the public good if we in any way delayed the Bill, which is now somewhat overdue. The Law Commission did the work. There were consultations arising out of it. The Special Public Bill Committee did extremely good work on it under the able chairmanship of the noble and learned Lord, Lord Thomas of Cwmgiedd. The noble and learned Lord, Lord Bellamy, was much engaged with it and will no doubt refer to it in a moment. Since the original consideration of that Bill in the previous Parliament, Clause 1 has been amended to deal with the state party issue, which was referred to at the later stages of the Special Public Bill Committee. It was very disappointing that the Bill did not get dealt with in the wash-up, but I welcome the Government having moved quickly to bring it back again. I genuinely believe that we could proceed with it expeditiously. I do not usually argue for shortcutting parliamentary procedures, but the Bill has had a lot of parliamentary procedures and a lot of attention, and I think it is in a fit state to be made statute. On the corruption issue, which was raised at a relatively late stage in the Public Bill Committee, the noble and learned Lord, Lord Bellamy, in responding, agreed to write to arbitral institutions to see what they were doing to ensure that the arbitration frameworks that we have are not used as a device for money laundering and other forms of corruption to be pursued. I would be interested to know what response he got while he was still in office. To the extent that responses came later, perhaps the Minister can assist us and tell us what indications were given that institutions and organisations were alive to this problem and were looking for ways to ensure that it did not feature largely in arbitrations that were conducted under the terms of the Bill. We have a very good reputation for arbitration and some of those most experienced in it took part in the Bill’s proceedings. The work they put into it means that this worthwhile Bill deserves an expeditious passage.

16:20:00

My Lords, again I take this opportunity to welcome and congratulate the Minister on his appointment, since this is the first time that we have faced each other across the Chamber at the Dispatch Box, and our roles are now reversed. I thank him particularly for his courtesy and common sense in the previous Parliament and I am sure that that those qualities will serve the ministry and this country in very good stead in the years ahead. It is a marvellous appointment and I congratulate him. His Majesty’s loyal Opposition support the Bill and I thank the Government for bringing it forward so quickly and expeditiously when it was so unfortunately lost as a result of the Dissolution of the last Parliament. I also take this opportunity to thank everyone who has contributed to the result we have achieved, particularly the Law Commission team and all those who gave evidence to our Special Public Bill Committee. It has been a notable example of co-operation in achieving the result that we now have. As the Minister has indicated, although this is formally the Second Reading, it is in effect the Third Reading or perhaps even the fourth reading, since many of these issues have been much gone over and the Bill is in effect in exactly the same form that I would have had the honour to present to this House at Third Reading had the election not intervened, in particular in relation to the insertion of new Section 6A(3), which affects investor protection-type arbitrations. I would have moved that wording at Third Reading as a government amendment—it was consulted on and I approved the wording—so I am delighted to be able to support not only that clause but the Bill as a whole. Indeed, I could do no other, since the previous Government worked very hard—in close collaboration with the then Opposition and with all stakeholders—to arrive at the result that we have now arrived at. On the Bill itself, I will ask the Minister one question about the background that I have just mentioned. I think our procedures looked somewhat absurd in the eyes of the world when we lost the Bill when we did. Can the Minister say whether the Government in due course would be prepared to co-operate with all parties across both Houses to consider the procedures and rules for carryover between Parliaments, so that we avoid similar situations arising in the future, at least in relation to Bills that are uncontentious and apolitical? I am sure the Minister would be prepared to take that under advisement, but I look forward to his reply on that issue. On the Bill itself, this is a very technical area, and there will always be certain what ifs, or questions that the Bill does not address. The Minister has indeed mentioned one such area in relation to the situation that may arise if there is in fact no choice of seat in the relevant arbitration agreement. The position of His Majesty’s Opposition is that one cannot cover everything in a Bill of this kind, and we should have absolute confidence in our excellent judges, who are well equipped to deal with any remaining lacunae there may be. As at present advised, we support the Government’s view that has just been expressed on that particular issue—there may be others—that we would welcome possibly a further comment in the Explanatory Notes but are entirely content to rely on the Commercial Court to sort out any questions that may remain. That is indeed what judges are for. In our view, the Bill has, for one reason or another, been delayed long enough, and should now reach the statute book as early as possible. However, there is one point that has been drawn to my attention. It was drawn to my attention only today and relates to Clause 13, which relates to the situation where one needs the “leave of the court” to appeal on a certain issue. It apparently relates or could relate to a case called Inco Europe v First Choice. As I understand it, the issue is related to the question of whether the “leave of the court” means the court of first instance and/or includes or should refer to leave from the Court of Appeal. The normal situation is that you apply for leave from the court trying the case; if you do not get it there, you ask the Court of Appeal for leave. The question is whether the Inco Europe decision—a decision of this House sitting in its judicial capacity some years ago—is fully reflected in Clause 13. I simply leave that question with the Minister; I have no idea myself what the answer is, but that is a point that has been raised with me. In relation to the points made by the noble Lord, Lord Hacking, also referred to by the noble Lord, Lord Beith, on corruption, I first thank the noble Lord, Lord Hacking, for his contribution today, his continuing interest in the issue of corruption and indeed his contribution to our Special Public Bill Committee. It was a great pleasure to have the opportunity to work with him, and he is by far the most experienced Member of this House on a number of these issues. At this stage, to take the point raised by the noble Lord himself, the position of the Opposition would be that it is now important that the Bill reaches the statute book. We would therefore hesitate to support further delay or dealing with the issues of corruption in this particular Bill. There are a number of important, albeit fairly technical, improvements made by the Bill, and it is quite important that those reach the statute book as soon as may be. However, as the noble Lord, Lord Beith, has already said, the issue of corruption was raised before. I believe the ICC Commission on Arbitration and ADR has commissioned a task force to explore the issues of corruption, and in my previous capacity, I also wrote to the Chartered Institute of Arbitrators, the ICC, the LCIA, the London Maritime Arbitrators Association and GAFTA, asking for their views on the issue of corruption and the Government should take this forward. I ask the Minister what replies he has had to those letters I authorised and personally wrote, and if and when the Government are able to come to a view on how we should take forward this important issue of corruption. As the noble Lord, Lord Hacking, has rightly emphasised, we cannot leave things where they are.

16:30:00

My Lords, I am grateful to all noble Lords who have taken part in the Bill. Although it is a very short list of speakers, it is fair to say there are a number of other noble Lords who said that they are sorry not to be here, and have also said to me personally that they would have supported the Bill. I will start with the comments of the noble Lord, Lord Beith. I agree with his overall point, which is that there has been a lot of process on the Bill and that we really need to conclude the Bill as soon as possible—we have written to all the arbitration institutions, and all the people who gave evidence in the process for the previous Bill, and that is a common theme in the responses we have had. I have been lobbied separately by numerous groups to say that they want the Bill to be concluded. I turn to my noble friend Lord Hacking, who raised the issue of corruption. This of course is a serious matter, and I do not know the answer to the question raised by the noble and learned Lord, Lord Bellamy, about the responses to the letters he wrote to the institutions. I will see whether those letters have come back and will write to the noble and learned Lord and my noble friend, and copy it to other noble Lords. I am happy to have a private meeting with my noble friend, but my point is that we do not want anything that will hold up the current Bill. It has had a lot of process, and it is to the benefit of the arbitration process that it is concluded as quickly as possible. However, I will meet my noble friend when he wishes.

My noble friend would have heard my worry that the opportunity for arbitration reform is an opportunity that does not arise until a number of years have passed. Can he give any assurance that, as corruption is a serious issue—I think he recognises that—this Government will support this further investigation into corruption and whether any legislation relating to arbitration law should be brought in, and fairly swiftly?

We are always open-minded about addressing problems. We need to scope out the true extent of the problem, which is why I have offered to write to noble Lords about the responses that we may have received—I do not know the answer to that—to the letter written by the noble and learned Lord, Lord Bellamy, when he was the Minister concerned. I turn to other points. The noble and learned Lord, Lord Bellamy, was very gracious to me in his opening, and I thank him for that. I certainly intend to behave as a Minister as he behaved when he was a Minister, and to consult with colleagues across the House to try to make sure that we focus on the real issues of difference between us, rather than any other matters that may distract us. I will take a leaf out of his book about how I conduct myself in trying to achieve that. The noble and learned Lord asked about the possibility of carryover for uncontentious Bills between Parliaments. I will bring that comment to my noble friend’s attention. I do not know what the reaction will be, but it seems a sensible idea to me. The second point the noble and learned Lord made concerned the choice of seat. I had a discussion with the noble Lord, Lord Wolfson, about this very issue, and my opening speech referred to it. I agree that we should have confidence in our judges, and perhaps some extra words can be added to the explanatory notes to reflect the position. We have undertaken to look at that. The noble and learned Lord also raised an issue concerning Clause 13. I will have to write to him about that as well, as I am not sighted of that issue. In conclusion, this Bill achieves a balance. It neither seeks to fix what is not broken, nor does it sell short the potential of our jurisdiction. Growth is a fundamental mission of this Government, and this Bill plays its part. I thank all noble Lords who have taken part in this short debate, and I look forward to interacting with them as the Bill progresses.

Bill read a second time and committed to a Committee of the Whole House.