HL Deb 15 May 1978 vol 392 cc89-117

7.2 p.m

Lord HACKING rose to ask Her Majesty's Government what assistance and encouragement they are willing to provide for the re-establishment of London as a forum for international arbitration. The noble Lord said: My Lords, this Question focuses on London as a centre for international arbitration when disputes arise on the joint performance on international contracts, that is to say contracts between companies, States or persons of different nationalities.

Let me first set the scene. It so happens that in New York City, of which I have some knowledge, there are, almost week by week, being negotiated vast industrial development contracts concerning new explorations for mineral resources, new plants, new airports, new harbours and even new cities in certain areas of the world which have in more recent times come to greater prominence, in the Middle East and Far East. All of these contracts involve very large sums of money, to the tune of million and multi-million dollar projects. The second characteristic is that they are all very complicated and contain the essential ingredient of financing arrangements, which in their turn add extra complications to these agreements. They are, because of the resources and involvement of the great New York banks, agreements which are likely to come out of New York for some time, and I do not isolate my remarks to New York, although it is a principal area and place for the funding of these massive agreements.

All of these agreements without exception contain an arbitration clause for the settlement of dispute in the performance of the contract. The reasons for this universal practice of including the arbitration clause are that because Governments are often involved in the contract, and because in many countries there is a certain closeness, shall I say, between Governments and courts, this makes one or more of the parties uncomfortable to go to the national courts of one or another country. Another reason for this almost universal inclusion of the arbitration clause is that the parties are seeking a method of resolving disputes which is final, swift and private. It is part—this is an ancillary point—of the psychology at the end of these long negotiations to say, "If there must be a dispute, we should resolve it within the private dignity of arbitration proceedings".

It so happens that almost none of these contracts choose English law as the proper law of the contract or England as the forum for arbitration proceedings. It also happens that in many cases the parties wish to choose English law and English arbitrations. I do not want to leave this as just a jingoistic assertion, so I will give the reasons for that. First and foremost, there is wide respect for English law, especially English commercial law, and a general respect for the strong support, principally through the Arbitration Act 1950, which English courts give to arbitration proceedings taking place in England. There is also wide respect—I say this with full immodesty—for English lawyers, judges and arbitrators; criticisms of us are reserved for the home market. It is important to note in this context that since the Administration of Justice Act 1970, High Court judges sitting in the Commercial Court can, with the leave of the noble and learned Lord the Lord Chancellor, act as arbitrators.

Another reason why parties wish to use English law and English arbitration proceedings is because English law and English arbitration proceedings provide a good meeting point between Americans, who form part of these contracts and who feel more comfortable with English proceedings in the English language, and the other parties to the contracts who have misgivings, with reason, about entering into any form of litigation in that highly competitive and highly litigious country —and I hope that comment will not disbar me from the New York Bar!

The question on which I am asking the House to focus is: why do they not come here? Why, if they believe in and have a taste for English legal proceedings and English arbitration proceedings, are they all moving away from us? The answer is that in recent years we have been getting a bad reputation, which is not wholly deserved. The main cause of this bad reputation and difficulties—the difficulties are in the realm of delay and expense—is the use and, by our laws, permitted abuse, of a procedure called the case stated procedure. The result is that the parties do not get the swift, private and final adjudication which is the essential ingredient they seek when going to arbitration.

I regret to report to your Lordships that things have now got to a pretty bad pitch. It is now the universal advice of lawyers in America advising clients on the arbitration clause not to use an English arbitration clause. Indeed, on Saturday, just a couple of days ago, in Charleston a lawyer was telling me that that was precisely the advice he regularly gave his clients. Secondly, the arbitration section of the International Chamber of Commerce gives similar advice. Nor, as I have said, is the problem limited to big contracts emanating from New York. Indeed, I am bound to report that the head of the legal department of one of Britain's very biggest companies operating on a world-wide basis has actually ordered no English arbitration clauses.

To set the scene as I believe it should be seen, I will read an extract from a letter which was written to me after I had given an address to a Chamber of Commerce in Boston, Massachusetts, in January. This is what the letter told me in reply to my request for comment on English arbitration: While our recent experience is limited to two major cases, I think our complaints may be succinctly stated. The purpose of utilising arbitration in lieu of litigation is generally thought to be that arbitration proceedings will be speedy, inexpensive, and private. Perhaps they are private, but they are certainly neither inexpensive, nor speedy in the United Kingdom". He goes on to set out certain facts concerning the difficulties in these two arbitrations. He then continues: While I recognise that some of the delays might be attributable to the specific arbitrators appointed by the parties, I am told that even when arbitrators with a sense of urgency are handling the case, defendants may delay proceedings by frequent appeals back to the judicial system". He then goes on further in the letter to say that until we can make our arbitration proceedings swift and final, …I have issued instructions in my department that counsel are never to agree to the United Kingdom as a site for an arbitration".

Many of your Lordships, particularly the very distinguished noble and learned Lords who have kindly agreed to participate in the debate, will know what the case stated procedure is. Perhaps for the benefit of other noble Lords who have been kind enough to come to listen to the debate I should simply explain it in this manner. The case stated procedure is a means by which either the arbitrator, or one of the parties, can seek the guidance of the court on a point of law which arises during the taking of the arbitration proceedings.

The irony is that the case stated procedure played a very important part in the development of English law, and provided a very important bridge (as I have just described) between law courts and arbitration tribunals. Indeed, it is to be noted that there has not been in England a conflicting development of commercial law between the courts of arbitration and the courts of law as there has been, for example, in New Yolk State. The sadness is that this case stated problem has damaged our whole reputation and drawn attention away from the general strength of our arbitration laws, which in the support the courts give to arbitrations are, in my belief, second to none in world jurisprudence. I say again without a blush that our arbitration law is, I believe, in the main very good. One has only to skim through the Arbitration Act 1950 to see the plain authority that is given to the arbitrator in Section 1, or to see in Section 4 (which is now described in the 1975 Act as "non-domestic") that the courts are given, and exercise, the power to stay all legal proceedings when an arbitration clause is placed before them. If one looks at Section 16, one sees the finality, as so drafted, of the arbitrator's awards.

Skimming further through the Act, but without going into more detail, one sees a host of other helpful provisions which make for the efficiency and efficacy in English arbitration proceedings. I have in mind Sections 12, 13, 17 (which covers correction of accidental slips) and there is even a means, in Section 19, of resolving disputes when the arbitrator has not been paid.

In this difficulty we have been very lucky. We have had a number of friends from America who have come forward with offers of advice and assistance. A senior partner from a major firm in Washington has given a great deal of time. A senior partner of a major firm in York has also given us the benefit of his advice, and an American lawyer in London has put in an enormous amount of work in assisting us in considering this problem.

We have friends, too, from other quarters. The International Chamber of Commerce is holding a special seminar on Friday of this week to focus upon London as an arbitration centre. At this seminar the noble and learned Lord, Lord Wilberforce, will be chairing one of the programmes. According to the brochure that has been given to me, this is the first time that the ICC has ever held such a seminar outside Paris.

As we are receiving offers of help from outside, Parliament and Government are being offered a great deal of help from a group set up by Mr. Mark Littman, QC, called the London Arbitration Group, or LAG for short. Since once I was president of an organisation called NAG, that title gives me some friendliness. There is also Mr. Justice Donaldson and the Commercial Court Committee. They have given the problem much careful study and have produced very valuable suggestions. Thirdly, there is Mr. Clifford Clark and his joint committee of the London Court of Arbitration, the Institute of Arbitrators, and the London Maritime Arbitration Association. Noble Lords who are kindly participating in the debate have also made contributions. Indeed, the noble and learned Lord, Lord Diplock, in his very recent Alexander Lecture, as the President of the Institute of Arbitrators gave us the benefit of a great deal of his experience and learning.

Inevitably, when so many lawyers and judges consider a problem, differences of opinion arise. I am not anxious in the debate to enumerate these differences; first, because there is now a large measure of agreement on the most substantial points. In particular, there is agreement that parties in international contract arbitration clauses can at least have the option (whether contracting in or out) by agreement to exclude the operation of Section 21, which is the case stated provision. Again, it is agreed that disputes which arise out of standard contracts—albeit having international characteristics —are contracts which are used under the auspices of, broadly (if I may put it that way) the London maritime, insurance, and commodity markets. There is agreement that these should be treated separately. Perhaps I should say in reference to these arbitration bodies that they take arbitration with international ingredients, and hence here the need, as I see it, is to fortify their position.

There is also agreement on several useful reforms that can be made to arbitration law concerning, for example, the circumstances in which an arbitrator can be ordered, when necessary, to give his reasons. There are other common grounds on other useful reforms, such as the giving of power to the courts to order the consolidation of arbitration proceedings. There is also agreement on the means by which the abuses to the case stated procedure can be prevented.

My second reason why I am not anxious to run over the points of difference is because it seems that such points which do exist should be debated and decided upon when the necessary legislation comes before the House. The purpose of this Question, therefore, is to ask the Government—and I am very flattered that the noble and learned Lord the Lord Chancellor himself is to answer on behalf of the Government—what support they will give to legislation on Section 21 reform; and secondly, what support the Government will give to legislation which seeks a general and wider reform of arbitration law. Would the Government, for example, even support a simple Bill before the end of this Session?

Looking further ahead, do the Government see themselves as giving help on the provision of a building, and the provision of financial assistance—both very important matters—together with the need for good arbitration reports. I am not suggesting that the Government should spend this money to prop up an ailing project, but as a good Government investment. At all times I am mindful of those arbitration tribunals that are already situated in London, and that any of these forms of assistance and encouragement should work through them. Here I especially refer to the London Court of Arbitration and the Institute of Arbitrators.

I hope that the debate will prove to be helpful and will, by whatever means, give further momentum to an important, and, I believe, necessary reform. After all, the bringing to London of these international arbitrations is directly related to the prestige of the City of London and to our national wealth. The greater use, too, of the English Common Law can only bring us benefits. Whatever we do, we should act soon, and, so far as possible, bring into account existing contracts and existing disputes. Above all, we must be clearly seen to be effecting an important change. For that reason, I believe that we should allow parties to international contracts the freedom of being outside Section 21 procedure, unless they contract in. But here I am breaking my own rule and entering into the realm of controversy.

7.20 p.m.


My Lords, the House will indeed be grateful to the noble Lord, Lord Hacking, not only for having initiated this debate today but for the way in which he has explained to us the reasons for the growing anxiety over the loss of international arbitration business from London to other centres. This afternoon, in his excellent maiden speech, my noble and learned friend Lord Rawlinson said that in your Lordships' House, in the presence of noble and learned Lords of Appeal, he felt like a minnow among trouts. If he felt like that, it will not be difficult to imagine how I am feeling in taking part in this debate amidst such a galaxy of legal experience and talent. I have had several extremely educational days while struggling to achieve some understanding of this subject, and since I suspect that some other noble Lords may be almost as unacquainted with the subject as I am, I shall confine myself to a few comments from the point of view of the consumer in laymen's language. Before doing so, however, I should like warmly to welcome the fact that my noble friend Lord Cockfield will be making his maiden speech from these Benches. With his wide experience in law and in many other fields, he will assuredly make up for my deficiencies, and I am greatly looking forward to hearing what he has to say.

From inquiries I have made it would seem that there is little or no argument over the need to make amendments to the Arbitration Act 1950. The nub of the problem is that in countries other than the United Kingdom and the old Commonwealth countries the decision of an arbitrator is final, with no right of appeal to the courts except in very limited circumstances. In the United Kingdom it is open to either of the parties to appeal against the decision of an arbitrator here on a question of law. Not only that, but English law refuses to allow the parties to exclude this right of appeal even if they make such an agreement together. The advantage of our system is that it has ensured that there is no divergence between the decisions of the courts and those of the arbitrators, as the noble Lord, Lord Hacking, said. The law is constantly refreshed and kept up to date. Accordingly, our law has been a popular choice for commercial interests throughout the world. However, one of the main objects of arbitration is to achieve finality in the settling of a dispute, and so some major international development contracts are now being concluded between parties who, though they prefer English law, are not prepared to accept any appeal to the courts on a question of law.

There is, I understand, unanimity of opinion that an entrenched right of appeal should be maintained for ordinary run-of-the-mill disputes of a domestic nature, and for special category disputes over maritime, insurance and commodity contracts. It is over what the noble and learned Lord, Lord Diplock, in his recent, absorbingly interesting Alexander lecture called "one-off contracts" that the problem arises. The noble and learned Lord described these as contracts in the fields of construction and supply across national frontiers, involving enormous sums of money, entered into by multinational companies or consortia, to which Governments or enterprises controlled by Governments are often parties, or in which they are intimately involved.

In the conditions of rapid inflation and high interest rates of recent years, the advantage of achieving finality to a dispute as quickly as possible is very great indeed, so arbitration in Paris, The Hague or elsewhere may be preferred. I also understand that where foreign Governments are involved there are at times political objections to submission to the jurisdiction of English courts; and the problem is further exacerbated—and this is a very serious matter—by the fact that the system is capable of being misused by successively appealing to the courts for the sole purpose of postponing the evil day of settlement. Clearly, these one-off contracts are but few in relation to the volume of disputes which are settled by arbitrators in London, but they are huge, and they make an extremely important contribution to our invisible exports.

There is therefore an urgent need, not only to speed up our arbitration procedure in respect of one-off contracts but also to prevent it from being abused. So I have read with attention the recommendations in a report to the noble and learned Lord the Lord Chancellor by Sir John Donaldson, chairman of the Commercial Court Users' Committee. These recommendations are designed: (a) to modernise the procedure for appeals to the court on questions of law; (b) to avoid abuses by preventing appeals which are wholly without merit and are instituted purely for the purposes of delay; (c) to limit successive appeals to cases in which there are special reasons for a review of the law in depth; (d) to take steps to make awards by English arbitrators more readily enforceable abroad and to improve the standards of arbitration; (e) to achieve a new situation in which every arbitration award is immediately enforceable; and, lastly (f) to deal with the extent to which the new right of appeal should be applicable in the absence of special agreement between the parties and the extent to which it should be entrenched.

It would be quite absurd for me to comment on the proposed recommendations, and I shall be eagerly awaiting the views of the noble and learned Lords, and other noble Lords who are to speak, upon them. There may, I suspect, be some difficulty in defining the special category disputes and the one-off contracts, What I think is clear is that urgent action is needed to give English arbitration what the report describes as a new look.

The report also puts forward the view that if a choice had to be made between attracting to this country a limited, albeit valuable, number of international development contract disputes or retaining the established arbitration market, there is no doubt that the latter should be retained both on economic grounds and as recognition of the contribution it makes to the long-term development of English law. However, the committee consider that acceptance of its recommendations would achieve both objects. I sincerely hope that this will be the case.

I said earlier that I was going to speak from the viewpoint of the consumer. I have learned that it is generally accepted that the standard of arbitration in London is not only as good as, but many would say better than, that in other countries; and I have understood that it is also cheaper, although the noble Lord, Lord Hacking, seemed to suggest otherwise. It is therefore not surprising that we have long enjoyed the lion's share of international arbitration business. This is, I gather, the only country where there is a special training programme for would-be arbitrators. It is run by the Institute of Arbitrators, of which the noble and learned Lord, Lord Diplock, is president. The programme includes lecture courses, correspondence courses, tutorials, practical training sessions and periods of pupilage which require attachment to very experienced arbitrators. On the successful completion of this training, the pupil gains fellowship of the Institute and is included in the panel of qualified arbitrators which is appropriate to his technical expertise. There are 38 of these panels.

So those who are drawing up a contract have much to influence them in favour of a choice of arbitration in London: the high standard of the arbitrators, the certainty of English law and the relatively reasonable cost involved. It is, therefore, relevant to ask what has gone wrong. I am told that there are two main causes: first, the tremendous increase in major installations of ports, aerodromes, refineries, steel works and so on in Arab and African countries and elsewhere in recent years; secondly, the exceptional currency fluctuations which have occurred. It is the one-off contract that I was referring to, and it is estimated that there are approximately 5,000 arbitrations on such contracts held annually in London.

In an attempt to get a perspective on the potential effect on our invisible exports, I inquired about the average cost of each arbitration—and this would include not only the arbitrators' fees but those of solicitors, barristers, expert witnesses and so on. The figure that I was given—and I cannot vouch for it—is £100,000; so that the contribution to our invisible exports could be of the order of £500 million per annum. The noble Lord, Lord Hacking, was kind enough to give me notice of the main questions that he was going to ask and I should like to refer to two of them. Those whom I consulted say that there is an urgent need for an international arbitration centre in London similar to the ICC in Paris and the church halls and the hotel suites are poor substitutes. Huge sums of money are involved and practical help to the service industries responsible for our invisible exports can be just as beneficial to our country as that given to other industries—and in some cases, noble Lords will recall, more so.

The noble Lord also asked what assistance can be given by Her Majesty's Government, to provide for the re-establishment of London as a forum for international arbitration". There was an implication in this Unstarred Question that London has already lost its pre-eminence in this field. That is not my understanding and I hope that this exaggerates the extent to which business has been driven away. In conclusion, I have the impression that the noble Lord is pushing at a door which is ajar. I hope that this is so, since it has been suggested to me that perhaps half of these one-off arbitrations could be diverted to other countries if we do not take appropriate action; so that there is a great deal at stake. If greater speed can be combined with the high standards of our arbitrators and the excellence of English law at reasonable cost we would take a lot of beating. I hope therefore that the recommendation of Sir John Donaldson will be accepted by the noble and learned Lord the Lord Chancellor and that the door will soon be opened wide to allow the passage of the necessary amendments to the Arbitration Act.

7.33 p.m.


My Lords, I, too, am grateful to the noble Lord, Lord Hacking, for raising this Unstarred Question. It is a matter of importance and one which gives me the opportunity of addressing your Lordships for the first time. I find myself, unexpectedly so far as I am concerned, in the most distinguished legal company and this makes it even more important for me to ask for the customary indulgence which your Lordships show on such an occasion. The establishment or re-establishment or development of London as a centre for international arbitration represents a contribution to the status of London as a financial centre. It is a contribution also to our invisible earnings and to our balance of payments. The United Kingdom economy operates under four major constraints all of which are linked to one another. They are: the level of the public sector borrowing requirement, the growth in the money supply, the rate of inflation and the balance of payments. Quite a lot could be said about the first three of these, but perhaps it would be more appropriate to do so on some other occasion. I shall confine what I have to say, therefore, to the balance of payments which is of direct relevance to the noble Lord's Unstarred Question.

The invisible earnings of the United Kingdom are of immense, and, indeed, crucial, importance to the solvency and stability of our economy. For more years than one cares to remember, we have been in a state of chronic deficit on our visible trade; that is, our imports have greatly exceeded our exports. Indeed, if one goes back to the beginning of the 19th century—that is, for a period of over 150 years—in only about 10 years in that period have we shown a surplus on the visible account. Since the war there has been a surplus on the visible account in three years only—in 1956, 1958 and 1971. These have all been small surpluses. The biggest of them was only £279 million. We have to rely, therefore, on our invisible earnings to bridge the gap.

May I illustrate this by last year, which was a good year so far as the balance of payments was concerned. Last year we had a deficit of £1,600 million on the visible account. There was a surplus of almost the same amount on the invisible account, leaving us over-all with only a small deficit. Even these figures understate the importance of our invisible earnings. First, the surplus on the invisible side is struck after deducting Government expenditure overseas of some £2,500 million on defence, our contribution to the EEC, the maintenance of our embassies and representation abroad, the interest on overseas borrowings and so on. The surplus on the private account was no less than £4,000 million. Secondly, total invisible receipts last year exceeded £15 billion—equal to about half of our total visible exports and sufficient to pay for half of our total import bill. Thirdly, we in the United Kingdom have the biggest net invisible surplus after the United States.

In recent years there has been a tendency for people to talk as if North Sea oil would solve all our problems, including that of the balance of payments. Indeed, concern was expressed in some quarters that we would show such a big surplus that the pound would be driven up to unrealistically high levels and thus damage our export trade. The second half of last year did, in fact, show an immense improvement. There was a small surplus on the visible account and a big surplus on the invisible account, meaning that over-all in the second half of last year we showed a considerable surplus. Unfortunately, the current year has not started too well. In the first three months there was a deficit on the visible exceeding £500 million and, despite the very welcome improvement which has occurred in the month of April, when there was a visible surplus of £236 million, in the first four months of this year, we still show a deficit on the visible account which has to be made good, of course, by our invisible earnings.

One very important factor which needs to be taken into account in considering the effect of North Sea oil is that, while North Sea oil makes an important contribution on the visible side of the account, there is an offsetting liability on the invisible side reflecting the earnings of the foreign companies operating in the North Sea. Despite North Sea oil, therefore, the balance of payments remains an important constraint. That this is so comes out clearly in the Budget judgment. Even with the present depressed level of output and the high level of unemployment, there is a real fear that on present policies—and I refrain on the present occasion from commenting on those policies—too rapid expansion will suck in imports and precipitate a new balance-of-payments crisis. North Sea oil may have saved us from immediate disaster; but taking the longer term view, the most that can be said is that it has put us back roughly where we were before the oil price explosion in 1973: that is, in a state of precarious balance relying upon a surplus of our invisible account to finance a persistent deficit on the visible account. We remain therefore crucially dependent on our invisible earnings. Nothing has happened to change this; and we need to develop and encourage every possible way of increasing our invisible earnings.

There has been a lot of talk recently about the "regeneration of British industry". However important that may be—and I do not in any way dispute it—it is vital that we should not allow a legitimate concern for the state of British industry to result in the kind of attitude which regards the manufacture of physical objects as "good" and the provision of services as "bad". On the contrary, the development of services is a normal concomitant of economic progress, and the development of services for export is of unqualified benefit to the economy as a whole.

A major contribution to our invisible earnings comes from the earnings of the City of London in banking, insurance, investment and a wide range of other services. Indeed, it is the sheer variety of services offered by the City of London which is one of the major attractions the City has to offer. May I illustrate my point by a simple example. Last year 19 Queen's Awards for Export were given for invisible exports. One of these was given to the management consultancy firm of a leading firm of chartered accountants in the City of London. This is an interesting example of the way that the provision of services in the export field can be expanded in new and valuable directions.

English jurisdiction is often chosen by foreign parties for arbitration even where the proper law of the contract is other than English law. The development of London as a centre for international arbitration would add to the prestige of the United Kingdom and would clearly be of benefit to the United Kingdom's invisible earnings not only for itself but also for the use it would attract of complementary services such as insurance, brokerage and foreign exchange.

Some years ago, when I was a member of the original National Economic Development Council, which at that time was under the chairmanship of the noble Lord, Lord Selwyn-Lloyd, we published a study of the British economy under the title: Conditions Favourable to Faster Growth. Before the public relations people took a hand in this, the title had been: Obstacles to Faster Growth. It has always seemed to me that the concepts underlying these two titles; namely, the removal of obstacles and the creation of favourable conditions, are the best and the most apt description of the proper role of Government.

I am only too happy to leave the legal aspects of this matter to the noble and learned Lords who will be speaking later in the debate. But looking at it from the point of view of the general national interest, I suggest that the Government could very happily follow the line that I have just indicated in giving the assistance and encouragement for which the noble Lord asks for the re-establishment and development of London as a centre for international arbitration.

7.45 p.m.


My Lords, the habit which I seem recently to have assumed, of bobbing up and down in this Chamber, has the advantage that it has given me the opportunity of listening to a number of maiden speeches and being able to congratulate those who have made them. I can assure the noble Lord, Lord Cock-field, that he required no indulgence from those of us sitting on these Cross-Benches, or indeed from anyone else at all. I listened to his speech with the greatest interest and admiration because it filled out those portions of the debate with which the lawyers speaking in it are not capable of dealing.

The noble Lords, Lord Hacking and Lord Cullen of Ashbourne, have already declared on my behalf the special interest which I have in this debate as president of the Institute of Arbitrators. But I also share with the rest of your Lordships the more general interest in preserving and nurturing an important invisible export which, as the noble Lord, Lord Cockfield, mentioned, brings with it not merely fees to the lawyers, the experts and the arbitrators concerned in the arbitration itself, but brings too in its train to the City of London a great deal of other valuable work which helps our balance of payments.

London has traditionally been the world centre of international arbitrations, particularly in the maritime, insurance and commodity fields. Foreigners who are parties to contracts in these fields, though the contracts have no geographical connection with this country, have chosen and still choose to have their contractual obligations governed by English law and settled by London arbitration. There are two interrelated reasons for that: first, that English law provides the most complete and detailed code of commercial law; it gives certainty to the legal rights which arise in a great variety of circumstances and so avoids disputes. The interrelated reason is that in London there has grown up a body of arbitrators whose experience and skill cannot be equalled anywhere else in the world.

It is a characteristic of English arbitration not shared by the arbitration laws of any other country that, although the arbitrator is the sole judge of facts, there is a machinery by which the courts can correct him if he goes wrong about the law applicable to the facts that he has found. As has already been mentioned, any party can ask him to submit to the High Court for opinion any question of law which arises. Although in theory no doubt the arbitrator can refuse, in practice that is a request which, as the law stands at present, it is difficult for him to resist. And if he does, under the present system, state a case for the opinion of the court, this inevitably involves delay in the enforcement of the award because it cannot be enforceable until the court has decided. The potentialities of delay are not limited to the time when the matter comes before the commercial court at first instance—and that, alas! is often long enough—but from the decision of the commercial court there is a right of appeal to the Court of Appeal, with another delay getting on for a year, and a possible appeal, but only with leave, to the House of Lords.

Properly used, this system of case stated is invaluable. It has played a major role in the development of English commercial law, and that development is one of the reasons why English law is the preferred law in so many international conflicts. It ensures justice according to law and not according to the individual arbitrator's whim: but it is open to abuse where it is used simply as a means for delaying the date when payment of the amount of the award will become enforceable.

When I was at the Bar and when I was sitting in the commercial court—alas! that is a long time ago now—there were very few complaints about abuses of the case stated system. The answer was that the sanctions of costs and awarded interest upon the sum outstanding were sufficient to make it not worth while, but, as the noble Lord, Lord Cullen, pointed out, in recent years, when inflation is high, interest rates are high and credit squeeze makes liquidity so important, it is often very much in the economic interest of the party against whom the arbitrator is making his award to delay the date of payment for as long as possible. That, think, is why the impression has got about that there is no real finality in English arbitration.

As the noble Lord, Lord Hacking, has pointed out, and as I can corroborate from my own experience, this is preventing the acceptance of London arbitration and the choice of English law as the proper law in the great international long-term multi-million contracts in which Governments or Government agencies are very often parties. I do not take so gloomy a view as the noble Lord, Lord Hacking, but I do think it is urgent that this kind of work—and it is a new kind of work and a new kind of contract which did not exist when I was at the Bar—should not be driven away to other centres which are only too anxious to take the invisible export to their own country rather than leave it to ours.

As the noble Lord, Lord Cullen, pointed out, urgent consideration has been given to this both by those who are customers of arbitration and by the courts who are concerned; and that consideration has led to a broad consensus of opinion on the proper cure. May I just give it in a sentence or two, because there are two aspects to it. One is to prevent the abuse of the case stated system in those contracts where the case stated system is accepted by the parties, and the other is the question of the right to contract out of the provisions of the Act, which provide in effect for appeal to the court upon a question of law.

So far as the case stated system itself is concerned, there is, I think, a general consensus of opinion that the power to appeal upon a point of law should he available only upon leave of the court itself. When the application is made to the court it should be granted only sparingly, and the court should be ready to impose the condition, if it thought there was any question of the real purpose of the appeal being to delay payment, that the money be paid into a joint account or brought into court pending the appeal. Secondly, in order to avoid this right of appeal to the Court of Appeal, as of right, there should be no right of appeal from the decision of the High Court to the Court of Appeal unless the High Court—I am speaking of the commercial court—specifies that there is involved there a question of law which is of interest and importance to other persons engaged in the same kind of activity or trade.

May I now refer to the power to contract out. At present there is no such power, but I think there is a consensus of opinion that there should be power to contract out and to say that we will have no appeal to the court on a point of law at any time after the dispute has arisen. Also, I believe that in some circumstances there should he a right to contract out by provision in the contract before the dispute has arisen. Here it is important—and I think we have pretty well reached agreement upon this—to draw a distinction between the standard form in commercial contracts and contracts in the standard form which have been the great source of arbitration in London in commercial matters. Those contracts have been referred to as "one off" contracts, where the arbitration clause had been negotiated between parties negotiating on equal terms, who have given their minds to it and who recognise the consequences of it.

A distinction in the kind of contract to which the noble Lord, Lord Hacking, has referred—the "one off" contract which he says (and I agree with him) is being diverted from London now—is undoubtedly something to which the parties will have given their minds. It will have been negotiated on equal terms and there should be no difficulty about allowing them to contract out. In a standard form of contract on the market, say, upon the Baltic Commodity Markets, you have really a "take it or leave it" contract. In those circumstances, some demonstration should be made that the parties have given their minds to it and have really intended to get this finality without the appeal on a question of law. Probably their best way of doing that is to register it in the High Court.

These reforms are not controversial, but they are urgent. The trend away from London of these great international contracts, unless corrected, may become irreversible, because once New York lawyers get into the habit of recommending Stockholm, the Hague, Geneva or wherever it may be, it will be very difficult to reverse that habit and get them to recognise London. Because of that urgency, I hope that the Government will be able to find time for a Bill to be introduced in this Session, and if it contains the kind of provisions which have been discussed and have been produced by the consultation which has been going on between the interested parties up to the last few days, it will be a Bill which ought to go through on the "nod" and not take up much of your Lordships' time.

8.1 p.m.


My Lords, first I should like to express appreciation and gratitude to the noble Lord, Lord Hacking, for asking this Question and for initiating this short but very important debate. I should also like to add to what my noble and learned friend Lord Diplock has said, in appreciation and admiration of the maiden speech of the noble Lord, Lord Cockfield. He has drawn upon his great experience to emphasise the great importance of the subject matter of this debate to the economy of the country.

At this late hour, I do not intend to repeat the very formidable case for reform, which I suggest has been made by the noble Lord, Lord Hacking, and by my noble and learned friend Lord Diplock. But there are some wider issues, and some more profound issues, raised in this discussion than servicing our invisible exports by studying the legitimate desires of those concerned in these vast inter national one-off contracts. I have no doubt that it is possible to introduce, and to introduce without much controversy, legislation that would take care of that very limited and very important class of business.

No doubt, it could be done by introducing a distinction between contracts with an international element, and entirely home-based contracts. It is a distinction about which I, as an old-time law reformer, have some apprehension when I consider it. This class of distinction can lead to difficulties in the general law. Nevertheless, if the requirement be as compulsive as the noble Lord, Lord Hacking, suggests that it is—and my noble and learned friend Lord Diplock has said that the requirement is there, though he is not as gloomy as the noble Lord, Lord Hacking—let us see whether something can be done. But there are dangers in piecemeal law reform, and it is because of my awareness of those dangers that I have ventured to say a few words in the course of this debate.

In the course of his eloquent speech, the noble Lord, Lord Hacking, indicated that there was a case not only for reform of Section 21 of the Arbitration Act—that is, the special case procedure section—but for general and wider reform of our arbitration laws. I happen to agree with the noble Lord. I think that there is a case both for reform of the section and for wider reform of our arbitration law. But this is a requirement which arises from sources other than the international one-off contract, which we have been largely discussing in this debate.

As the noble Lord, Lord Cullen, suggested, there are two classes of persons who may find themselves involved in disputes which are amenable to the arbitration process; and I am not now considering the international one-off contract. First, there is the British-based business and trade which for years has, by a system of standard contracts, made use of arbitration clauses. As my noble and learned friend Lord Diplock mentioned, much of our highly developed commercial law has developed by the application of the special case or case-stated procedure to arbitrations taking place within trades and within businesses.

It would be wholly wrong for your Lordships' House to think that the only demand for reform of Section 21—that is, the special case procedure—comes from those interested in international contracts. There is a widespread view, among business and among professional arbitrators, that there should be a limit imposed upon the special case procedure, in regard to home-based business which makes use of arbitration clauses. I suspect that the noble Lord, Lord Hacking, had that factor, among others, in mind when he was pressing for reform of Section 21.

As my noble and learned friend Lord Diplock said, our commercial law owes its highly developed and articulated character and certainty to judicial decision, which has been made possible by the case-stated procedure. That is true, and yet today British business would like to see less judicial review and more finality in the awards of arbitrators. For myself, I think that Btitish business has a case, just as I know that those concerned with international arbitration have a case. But it is a difficult case, and there are very difficult questions, advantages and disadvantages to be balanced.

I suggest that this is a reason why the general reform of Section 21 of the Arbitration Act might be considered by the noble and learned Lord the Lord Chancellor as worthy of urgent reference to the Law Commission. The newly appointed Chairman of the Law Commission is one of our most distinguished commercial lawyers and judges, and I suggest that under his leadership there could be no body better placed than the Law Commission to take on board not only the specific reform of Section 21, but that wider reform of our arbitration laws to which the noble Lord, Lord Hacking, referred.

There are advantages in this because the second group of persons affected by our arbitration laws (they were mentioned by the noble Lord, Lord Cullen), the consumers and others who are not traders or merchants, are from time to time faced with having to deal with traders and merchants and find arbitration clauses imposed upon them. In recent years we have advanced a long way with reforms to protect the consumer and others in like case against unfair and unreasonable exclusion clauses in the standard contracts under which so many of us have to obtain the services and the goods that we require.

If one is going to help British-based business by a reform of Section 21— as I have suggested we should do and which I have suggested should be referred as a question to the Law Commission—then our reforms have got to be such as to make sure that we are not imposing upon consumers and others the burden of an arbitration clause without recourse to the courts which they do not want and which, if they had the strength and bargaining power, they would resist. And so it is, as in all law reform problems, a two-faced difficulty. One wants to reform Section 21, but one wants to ensure that the ordinary man who is outside the magic circle of the traders and merchants has still got recourse to the ordinary courts and the ordinary law of the country.

Of course, there is a basic question which lies well below the surface of this debate and which affects international contracts just as much as it affects contracts which are wholly domestic in character—that is the preservation of the rule of law as administered by our courts in accordance with the common law and Statutes passed by Parliament. There is a risk, even in making the concession to international trade which is sought in this debate that there is going to be one rule for some and another rule for others. If one extends reform, as I should like to see it extended to give to business something like the same facility of arbitration without recourse to the courts, one has got to do it in a way which will overall preserve the one rule of law for all of us in this Kingdom whether we be consumers, traders or persons concerned in international contracts.

Nothing that I say should be taken to diminish the case for dealing urgently with the international contracts, but I do ask that the wider reforms which the noble Lord, Lord Hacking, has suggested, I think rightly, are needed in our arbitration law should, now that we have this opportunity and the matter has been thrown into the crucible, be referred to the Law Commission so that under the guidance of its new chairman, highly qualified in this field, our arbitration laws can very soon he reformed, not on a piecemeal basis but on a wider basis applicable to a greater section of the community than those interested only in these international contracts.

8.15 p.m.


My Lords, we have already had two very learned speeches and I had not determined to speak, but I was slightly stirred to my feet by the remarks of the noble and learned Lord, Lord Scarman, which might perhaps lead one to suppose that there is greater divergence than in fact exists in this House as to what needs to be done. There are three problems: there is the case of the international contract, called, I think slightly misleadingly, the one-off contract, which is a new phenomenon which has come over the horizon recently and which we have suddenly begun to understand as something very important in our economic life. We came across it the other day in relation to State immunity, and it became obvious that this phenomenon called for a recasting of the law on that subject, so it seems quite clearly to call for a recasting of the law on arbitration.

I said "one-off" was misleading, because it is a fact that there are a great number of these contracts of various types which are becoming well known and well accepted by law in all contracts with States and agencies behind the Iron Curtain; they tend to have a certain pattern. All contracts with certain developing countries seem to have a certain pattern. The pattern is gradually shaping itself, and shaping itself to our detriment if we do not adjust ourselves to it. I am entirely at one with the noble and learned Lord, Lord Diplock, and with the noble Lord, Lord Hacking, in urging that this is a problem to be treated very rapidly and very simply—I say simply by allowing those who wish to contract out of the case-stated procedure.

The second point is also sketched by the noble and learned Lord, Lord Diplock—some reform of the case stated procedure itself. There may perhaps be not quite so much consensus on that as on the other subject, depending on what admiration one has or does not have for the procedure itself. At any rate that is a matter which can be handled quite simply, together with the so-called one-off contract, in the ambit of a short Bill. I would most urgently urge the noble and learned Lord, if he can, to say that there will be legislation on those two subjects which perhaps, it' not going through on the nod as the noble and learned Lord, Lord Diplock, said, ought to be capable of being passed within the limits of perhaps a limited debate and discussion on a few points.

The wider reform of the law of arbitration is no doubt something which ought to he undertaken and requires consideration by perhaps the Law Corn-mission. I would very much hope that these two other matters which are in themselves quite separate, quite concrete and extremely urgent should not be deferred pending the wider examination. I hope that the noble and learned Lord will be able to reassure us that, whatever attractive perspectives there are for longterm law reform, they will not impede concrete steps on the two matters which are now ripe for decision by Parliament.

8.18 p.m.

The LORD CHANCELLOR (Lord Elwyn-Jones)

My Lords, I am sure that your Lordships will be grateful to the noble Lord, Lord Hacking, for having given the House the opportunity of examining, and indeed emphasising, the role of London as a forum for international arbitration. His own commitment to the importance of it may be gauged from the fact that he has indeed flown the Atlantic in order to fly this highly important flag, and we are grateful to him for his enthusiasm and for giving the Government the opportunity tonight of learning from experts in this field the importance of the issues that have been raised and the urgency of dealing with them.

May I join with other noble Lords who have spoken in congratulating the noble Lord, Lord Cockfield, on his admirable maiden speech. There is nothing that this House of experts likes more than someone who speaks with authority based on his own experience, practice and learning on the matters in which he takes part in in debate. Although I doubt whether I shall always agree with his views on the economic scene, the whole House will look forward to hearing him frequently in debate and we are already aware that there has been a powerful reinforcement to our ranks.

The arbitration services that are provided in London, through the London Court of Arbitration and other organisations, clearly are of very great importance. That importance has been identified tonight. They already have a high reputation in many fields, and I venture to think that perhaps the Unstarred Question which has been placed on the Order Paper by the noble Lord is a little misleading when it speaks of the "re-establishment" of London as a forum for international arbitration. Not only has it been such a forum for many decades—centuries even; it still is. As the noble and learned Lord, Lord Diplock, said, perhaps we need only to reflect upon its role in settling disputes in the maritime world, in commerce and in the commodity fields.

We have had indications tonight of the contribution that these services make to the commercial community. They play a part in earning foreign currency for the United Kingdom and therefore, as the noble Lord, Lord Cockfield, indicated, help with our balance of payments. The noble Lord mentioned a figure of £500 million. That is a figure certainly to attract the attention of any Government, since the question of the balance of payments is obviously of great importance to our economic life.

Above all, I recognise that the services provided in the field of arbitration represent an important element in the wide range of legal and financial services provided by the City to the international commercial world. The Government are clearly concerned, as they ought to be, that these services should be as efficient as possible. To that end, certainly we shall consider—I think we have already done so—what steps can be taken to improve the services, so far as it is appropriate for a Government to intervene. I call in support of our readiness to help the fact that this Government introduced what is now the Arbitration Act 1975, which enabled the United Kingdom to ratify the New York Convention on Arbitral Awards. In addition, the Government participated in the work of UNCITRAL—I am afraid that it is one of these hieroglyphics which we gradually learn to recognise—which stands for the United Nations Commission on International Trade Law, in producing its own arbitration rules which have been widely adopted.

However, arbitration is by its very nature predominantly a private service provided for the private sector. The noble Lord, Lord Hacking, referred to "the private dignity of arbitration proceedings"; so it is a domain with which the Government have little direct contact. It is only where it is clear that there is some inherent legislative defect that I believe the Government or Parliament should intervene. This may sound like a rather conservative point of view, but I believe it to be right in this context. From what has been said in this debate, from what we have been able to read, and in particular from the conclusions of the Commercial Court Committee and the London Arbitration Group, the defects in the case stated procedure may well be such an instance and must clearly be re-examined as a matter of urgency, especially on the two points which the noble and learned Lord, Lord Diplock, and others have emphasised. The points which have been made in this debate with such authority and experience will, of course, be very seriously considered.

As we have heard, the present system has been subject to a number of criticisms, not all of them centred around the workings of the case stated procedure. On this latter point, I should like to express my own gratitude and that of the Government for the valuable work done by the Commercial Court Committee under the highly expert chairmanship of the Honourable Mr. Justice Donaldson. Unfortunately, I have only just seen his report. If I may say so, the noble Lord, Lord Hacking, has rather jumped the gun in bringing forward this subject for debate tonight. As one noble Lord said, the discussions up to the last few days have resulted in certain conclusions being reached after long discussion and questioning. With regard to any help which may be required by the Government from expert consideration, while I am the first to acclaim the value of the work of the Law Commission, certainly this is a field where there is no lack of advice that those expert in the field have already given and will later give. I bear in mind that the report of the Commercial Court Committee is still in draft. Whether or not there will be any further elaboration of it remains to be seen.

I am grateful to the committee for considering the issues with which we have to deal with commendable speed and thoroughness, taking into account, as they did, among other things the work of the Joint Committee of the London Court of Arbitration and others, sitting under the chairmanship of Mr. Clifford Clark. I think I am right in saying that a variety of views has been apparent in their deliberations, but they reached an agreed conclusion. I understand that the London Arbitration Group, under the chairmanship of Mr. Mark Littman, went through a similar process of study and difference but that they reached an agreed conclusion. We must all be grateful to them for the work that they have done with such vigour and speed.

It has been clear from this debate that there are two features which run through the consideration of the case stated procedure. On the one hand, there is general agreement that it has served a valuable purpose in the development of English commercial law, in that, as has been said, it has allowed authoritative judgments to be given on points which would normally be the subject of arbitration. This has led to a measure of consistency, of certainty and authority which is of immense value in commercial law—as, indeed, the noble Lord, Lord Cullen of Ashbourne, mentioned in the course of his speech, If he will permit me to say so, in this operation and in this achievement, the noble and learned Lord, Lord Diplock, has played the outstanding part.

On the other hand, the case stated procedure is, as has been indicated tonight, felt not to be appropriate in certain international contracts, some of which are classified as "one-off" contracts. I confess that it was not a description which produced clarity in my mind in a flash. In case the noble Lord, Lord Cullen of Ashbourne, thinks that he is out of step in not fully understanding it, as he modestly confessed, I understand that the London Arbitration Group tried to define "one-off" contracts but found it difficult to do so. It may well be that they will fall into the category of the definition of drunkenness being like an elephant—easy to identify but hard to describe.

At any rate, what we have in mind has been illuminated tonight by the noble and learned Lord, Lord Wilberforce, and by the noble and learned Lord, Lord Diplock. Clearly it is a special category which requires urgent consideration. The loss of the advantage of the hearing of proceedings in London of long-term multi-million pound contracts makes me, as one who at one time practised at the Bar, tremble. But, seriously, this is clearly an area of very great importance and, with this background of skills, integrity and competence which has earned the admiration of the world in the legal field, if there are any procedural or legislative bars in the way to limit this work coming to London, then clearly we must seek to do what we can about it.

There is the reconciliation of the two views that I have mentioned of the value of judgments on appeal and the difficulties faced in the kind of circumstances which, as we have heard, have led to important cases not coming to this country. This is apparently a continuing and may be even an increasing process. This is clearly not a simple problem. The report of the Commercial Court Committee, in so far as I have been able to study it in any depth, makes it clear that there is no simple rule applicable to every kind of case. So this must be sorted out and worked upon.

In their view the inescapable application of the case-stated procedure under Section 21 of the Arbitration Act—I mean inescapable so far as the parties are concerned—is only one facet of the problem, and they conclude that amendments to that procedure should form part of a rather wider series of amendments to the Arbitration Act, including the substitution of a limited right of appeal on points of law for the present Section 21. I note that their report ends with the words The Committee is strongly of opinion that it is important that English arbitration be given a comprehensive new look as part of a single operation and that this be done at the earliest possible moment". Whether or not that is consistent with the view of the noble and learned Lord, Lord Diplock, we can at least, so to speak, deal with it separately—I will not use the term "piecemeal", because whether or not that is appropriate I should like to consider—but whether that is practicable, and in the not too long term is the best way of dealing with it, is one of the factors which the Government will have to consider. As I have said, we cannot afford—and I mean that—to lose this work, especially if it can be won without doing damage, on the other side, to the principles which have operated in the arbitration field and which have maintained for this country the reputation it holds. Those engaged in arbitration are well aware of the fact that we live in a highly competitive world in which anybody providing an international service has to examine continuously the operation of that service. This we must do and we are certainly willing to do.

As I have said, I have only just received the draft report of the Commercial Court Committee. Frankly, I have not been able to consider what steps should be taken with regard to its very important proposals, nor have I yet been able to discuss the matter with my colleagues. I am afraid one does not move quite so fast in so few days in any Government who have to deal with matters of great importance like this. But I can assure the House that, in view of the urgency and importance of what we have been discussing tonight, we will consider the report of the Commercial Court Committee and we will consider the clear and eloquent submissions which have been made tonight as speedily as we can.

However, I am afraid that at this stage I cannot commit the Government further than that. This is a large, important and difficult field, and clearly something must be done. But I certainly should not like to be a party to a long-term reference over a vast area if it is possible, as the noble and learned Lord, Lord Diplock, suggested, to identify what can be, so to speak, "hived off" as a matter that could be dealt with fairly soon. At this stage, I cannot commit the Government further than that. I repeat the importance that we attach to the maintenance of London as a forum for international arbitration and our commitment to maintain it.