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Arbitration Bill Lords

Volume 884: debated on Wednesday 15 January 1975

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10.30 a.m.

I beg to move,

That the Chairman do now report to the House that the Committee recommend that the Arbitration Bill [Lords] ought to be read a Second time.
The purpose of this short Bill is, I think, self-explanatory. It is to enable the United Kingdom to accede to the 1958 United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards. However, in order to bring out the significance of accession, I should perhaps tell hon. Members a little about the background to the convention.

As hon. Members will know, businessmen and traders have long looked to arbitration to solve their disputes in preference, in many cases, to litigation. It is usually quicker, cheaper, less formal and more private. Due no doubt to the United Kingdom's position as one of the world's leading trading nations, London has grown to be a major centre for arbitration settlements of disputes arising in international trade and commerce.

I am sure the Committee will agree that we are lucky to have in the United Kingdom a highly experienced body of professional arbitrators who cover a wide range of activities, such as general trade and commerce, engineering, insurance and surveying. They not only meet a requirement of our own traders and businessmen, but also, because of the high reputation they have built up, their services are sought by buyers and sellers in other countries. Not many countries enjoy facilities comparable to those available here and, consequently, people engaged in trade between two foreign countries frequently look to London arbitrators for the settlement of their disputes. Hon. Members will, therefore, appreciate that our arbitration arrangements are important to the United Kingdom, both for the protection of its own traders and, in these times, as a valuable source of income and foreign exchange.

Clearly, however, the awards of arbitrators in disputes involving parties in different countries would not be of much value if they were not recognised and, if necessary, enforced by the courts of law in the countries concerned. The United Kingdom, therefore, because of its double interest in having successful international arbitration arrangements, has played a major part in promoting international agreements which provide common rules for arbitration and make the settlement of disputes by arbitration more effective.

The United Kingdom is already a party to two main international agreements which bear on arbitration—the Protocol on Arbitration Clauses of 1923, which is known as the Geneva Protocol, and the Convention on the Execution of Foreign Arbitral Awards of 1927, which is known as the Geneva Convention. These instruments have worked reasonably well, but over the years certain shortcomings have become apparent. With a view to remedying these defects, an international conference, under the auspices of the United Nations, was held in 1958. That gave rise to a new Convention on Arbitral Awards, generally known as the New York Convention. The Bill will enable the United Kingdom to accede to this convention.

This legislation is, I concede, almost embarrassingly overdue. Perhaps therefore I ought to mention to the Committee some of the reasons for the delay.

Initially the Government of the day had certain reservations about the convention and referred for advice to the Lord Chancellor's Private International Law Committee. That Committee considered the provisions of the convention thoroughly and reported on it in 1961. The Committee concluded the convention was an improvement on the 1927 Geneva Convention for the following main reasons. It covered a wider range of agreements and awards; it clarified the burden of proof between the parties to disputes, and made obstruction of an award more difficult.

The Committee accordingly recommended that the convention was acceptable to the Government, with one reservation. This concerned domestic arbitration agreements, where both parties and the arbitrator reside or are based in the United Kingdom. The Committee thought that the convention as it stood might be interpreted as covering domestic agreements and thus removing from English and Northern Irish courts their present discretionary powers to try such disputes. This discretion is valued by the courts and the Committee thought that it should be maintained and that it would be consistent with the intention of the convention to exclude purely domestic agreements. The Government agree, and this exclusion has been reflected in the Bill.

Following the Lord Chancellor's Private International Law Committee report, legal and commercial organisations were consulted to ascertain their views on the desirability of accession. This process naturally took a considerable time, especially on the complicated domestic point I have just mentioned, but eventually this was cleared and there was general support for accession.

It has, however, taken a long time to translate this general support into legislative action. A Private Member's Bill was introduced in November 1973, but it was lost when Parliament was dissolved last February, and, although it was introduced by the Government in another place last July, it was again lost on the Dissolution last September. The Bill has thus suffered a frustrated history and has been an innocent victim of parliamentary changes.

In the time that has elapsed since the convention was signed, many countries have ratified or acceded and the United Kingdom is now almost the only major trading nation which is not a party to the convention. In this situation, the United Kingdom is at a disadvantage both because the recognition and enforcement of arbitration awards may be hampered to the detriment of our trading interests, and because our arbitrators are excluded from any contract where the parties have specified that the arbitration must be in a New York Convention country. The Bill, if passed, will therefore enable us to rectify this unfortunate situation.

It may be helpful to hon. Members if I briefly explain the purpose of the various clauses of the Bill. Clause 1 describes the conditions under which United Kingdom courts are required, under the convention, to stay legal proceedings where there is an agreement between the parties that the dispute should be submitted to arbitration. This clause excludes domestic agreements, to which I referred earlier. Clause 2 provides that awards made in countries which are parties to both the 1927 Geneva Convention and the New York Convention shall be treated as New York awards.

Clause 3 enables awards made in other countries which are parties to New York to be enforced in the United Kingdom in the same way as awards made here. Clause 4 sets out the evidence which persons seeking to enforce convention awards must provide. Clause 5 allows the courts to refuse to enforce a convention award if it can be proved to be defective in certain respects. Clause 6 is a saving clause which retains the freedom to enforce awards by other methods than under this legislation. Clause 7 provides for interpretation and Clause 8 for repeals, commencement, and the like.

The convention allows participating countries to apply enforcement reciprocally, that is, only to awards made in countries which are parties to the convention. Most countries which have acceded to the convention have now taken advantage of this reservation, and we propose to do the same.

In conclusion, successive Governments of both parties have accepted that we should accede to this convention. The Committee will be pleased to note that the Bill has already completed its passage through another place. I therefore commend it to the Committee.

10.40 a.m.

The Bill should be tested by examining the extent to which it advances this country's interests. We believe it passes that test. I cite a sentence from the Fifth Report of the Lord Chancellor's PIL Committee, to which the Minister referred. It was appointed to study the New York Convention of 1958, to which we are now proposing to accede. The Committee said:

"Arbitration is a valuable lubricant in international trade as businessmen are entitled to such help as Governments can give them in making it effective."
It is in order to make arbitration more effective that the Bill seeks to enable the United Kingdom to accede to the convention.

The terms of the convention received the approval of the PIL Committee in 1961—and the Minister has acknowledged that a considerable amount of water has flowed beneath the bridges since then—subject to the qualification about domestic arbitration agreements as distinct from the recognition and enforcement of foreign arbitration awards. The committee thought that English courts ought to be obliged to recognise, in the technical sense, only those arbitral agreements that were foreign and not domestic agreements. That distinction is adopted in Clause 1(2), but it is subject to a definition of what is a domestic agreement, which it will be necessary to consider in detail in Committee, but not today.

As distinct from a foreign arbitral agreement, it is right that a United Kingdom court should not lose its present discretion in the case of a domestic arbitral agreement as to whether to stay litigation of any issue covered by that agreement. At present, that discretion is enshrined in Section 4(1) of the Arbitration Act 1950. A court will be familiar with the law governing an arbitral agreement made within its own jurisdiction whereas that will not be so in the case of a foreign arbitral agreement. It is therefore in the interests of the parties to the agreement that they should have their agreement recognised as of right and without argument in those circumstances.

I think that the PIL Committee was right. It is not surprising that it was, because it included Lord Justice Cross of Chelsea, Lord Justice Megaw and Lord Wilberforce—a very high-powered committee. Of course there were others, but those were the judicial members. The reason I think that they were right is that, as the Minister says, it is not much use businessmen concluding an agreement that any dispute between them shall go to arbitration rather than be determined by the courts if they cannot be reasonably sure that the arbitrators' award will be worth the paper it is written on, and a great deal more besides.

It is regrettably true, I have to acknowledge with some ruefulness, that businessmen often prefer to go to arbitration rather than to take their matters before the courts, more in protest at litigation. The courts of different countries have been very jealous of their basic right to scrutinise arbitration agreements and, indeed, the dispute which has been the subject of the arbitration award before ordering that the award shall be enforced by the sanctions that the courts alone can command.

The 1927 Geneva Convention, of which we have been reminded this morning by the Minister and which the 1958 New York Convention is designed to supplant and whose obligations are implemented in Part II of the Arbitration Act 1950, provided in these terms—it is an important distinction, because this is one of the ways in which the 1958 Convention is an improvement:
"an award is not enforceable if it is contrary to the public policy or the principles of the law of the country in which it is sought."
The important words are:
"or the principles of the law of the country in which it is sought."
The PIL Committee received complaints from businessmen in this country that in some countries the courts used this as a justification for virtually retrying a dispute that had been the subject of an arbitration award in order to see whether the award was consistent with the principles of their own law. That can hardly have been the intention of the businessmen who sought to take a short cut by making an arbitration agreement.

The International Chamber of Commerce considered that this article of the 1927 convention was one of the main defects of the convention as a whole. Article 5 of the 1958 convention deletes this reference to the principles of the law of the courts dealing with the matter, and leaves only public policy out of these two grounds for rejection. We believe that this is a good thing, and so, I think, does the commercial community.

We also welcome the further improvement in the "lubrication" that international arbitration agreements can effect under the 1958 convention. The burden of proof has been touched upon by the Minister this morning. This burden of proof in regard to an award is an important example of this improvement. But under the Geneva Convention, in order to get an award enforced one had to prove that it had become "final" in the country in which it had been made, and that no proceedings to challenge it were pending.

But "final" means different things in different places. In England, finality is achieved if no challenge to the award is made within six weeks of its being made, but in some countries it is final so soon as it is delivered; in others still there is no time limit for challenging proceedings. Therefore, double judicial scrutiny is necessary under the 1927 convention and there is immense scope for people who wish to contest an award to show that it has not yet become binding on them if they are not happy with its content.

The 1958 convention makes a great improvement. It both reverses and clarifies the burden of proof. It provides that it is for the party contesting the award—contesting, not seeking to enforce it—to show that it has not yet become "binding" on the parties, and an award is "binding" if no further recourse may be had to any other arbitral tribunal, for example, an appeals tribunal. This is much more satisfactory for the commercial community. It significantly and usefully cuts down the scope for obstructing an award if it has gone against one.

Lastly, we welcome the fact that the 1958 convention does not impose upon the courts an obligation to enforce an arbitral award elsewhere which may be fraudulent or oppressive. Courts retain this valuable right to satisfy themselves in that regard. The safeguards built into the 1927 convention are retained, legal control over the enforcement of arbitral awards is retained, and, to the extent that an award offends against natural justice, it will not be enforced any more than if it is against the public policy of the country of enforcement. This seems just and appropriate.

I do not know whether the Minister can help us as to why, in Clause 1(4), the definition of the domestic arbitral agreement does not require the agreement to be subject to the law of England, Scotland or Northern Ireland, as well as the requirements set out in the subsection. This was suggested as a possible solution and a possible definition by the PIL Committee. It is just a point of detail and can be looked at in Committee.

No one of whatever party can say that British Governments have exactly rushed this fence. They have arrived at it long after most of our principal trading partners have successfully taken it. By acceding to the 1958 convention we shall, I believe, greatly assist our commercial community and our arbitration profession without diminishing the necessary ultimate control of the courts over their operations, and for those reasons we warmly support the Bill.

10.48 a.m.

I, too, welcome the Bill. I agree that it has taken a long time for Parliament to make the convention effective in this country. On the other hand, the principle of reciprocal enforcement of judgments is something which this country has always accepted very gradually. We always wanted assurance that we could properly accept these matters affecting our own jurisdictions. Therefore, perhaps our national diffidence caused the great delay, quite apart from the investigations which were necessary before legal steps could be taken in the form of a Bill.

I, too, am rather impressed by the definition of a domestic arbitration agreement. It seems by its terms to exclude any agreement which has any sort of foreign element. "Foreign element" in this context seems to include the fact that the agreement might have been concluded, say, in a United Kingdom colony—for example, Hong Kong—or some other part of the world where possibly all British law, as we understand it, and where the parties might themselves be subject to the jurisdiction of British courts, would be thought to be a domestic agreement but where in this case it is not in the United Kingdom as such and it becomes subject to the operation of the convention.

My other questions concern a matter which has already been raised by my hon. and learned Friend the Member for Royal Tunbridge Wells (Mr. Mayhew)— the matter of enforcement. There is a reference to a case of an award not yet having become binding on the parties. I suppose that that will have been provided for in the arbitration agreement. But there must be many cases where the award is subject to appeal and where the domestic jurisdiction relating to the arbitration agreement concerned does not provide for the suspension of the award pending the appeal. This may be covered by the wording, but it appears to me that it may give rise to possible confusion in future if a matter which has been contested under other jurisdiction is subject to appeal but is the subject of an application for enforcement in Britain.

We do not also seem to accept in terms the proposition that enforcement elsewhere might be contrary to the terms of the arbitration agreement. No doubt many arbitration agreements specifically exclude enforcement elsewhere than in the country in which it is concluded. It may well be that these cases can occur if, for example, in a foreign country it is not desired that enforcement should be elsewhere than in the country concerned, for reasons perfectly acceptable to both parties to the agreement. In that event, one would have thought that the grounds for refusal of enforcement should have included where enforcement elsewhere would be contrary to the terms of the arbitration agreement.

I appreciate that these are minor points and, like my hon. and learned Friend, I welcome the Bill.

As this is a Second Reading Committee, does the hon. Gentleman wish to ask leave of the Committee to speak again?

10.54 a.m.

I do, Mrs. Jeger.

I am grateful to the hon. and learned Member for Royal Tunbridge Wells (Mr. Mayhew) for his courtesy in letting me know in advance that he intended to raise the question about the difference between the definition of domestic arbitration agreements appearing in the Bill and that suggested by the PIL Committee. This is a Committee point and can be discussed in detail during the Committee stage.

The New York Convention requires the acceding countries to recognise all arbitration agreements. The PIL Committee was concerned about the protection of the discretion of the courts. Therefore, any definition that it drew up had to be narrow in case it conflicted with the requirements of the convention. That is why the admittedly narrower definition was drawn up. Certainly I am prepared to re-examine the point and to discuss it in more detail in Committee.

The points raised by the hon. Member for Orpington (Mr. Stanbrook) were

Jeger, Mrs. Lena (Chairman)McMillan, Mr. Tom
Davidson, Mr. ArthurMayhew, Mr.
Hunt, Mr.Noble, Mr.
Lewis, Mr. KennethOrbach, Mr.
Litterick, Mr.Park, Mr.
Luard, Mr.Stanbrook, Mr.
MacCormick, Mr.Stradling Thomas, Mr. John

rather detailed and technical. It was right that he should raise them. I will consider them and write to him about them.

Question put and agreed to.


That the Chairman do now report to the House that the Committee recommend that the Arbitration Bill [Lords] ought to be read a Second time.

Committee rose at five minutes to Eleven o'clock.