10
Examination of witnesses
Professor Alex Mills, Dr Ugljesa Grusic and Toby Landau.
Q14 The Chair: Good morning. You heard my introduction because you were present when we started this evidence session. May I, on behalf of the committee, thank you all very much for coming? We have given you notice of the kinds of questions that we want to ask, but, as you will have been able to tell from the last session, there may be supplementary questions that come along.
It would be helpful if I said two further things. First, we would like you to introduce yourselves in a moment. Secondly, we have kept absolutely to schedule so far, and we absolutely have to finish by 11.30 am because of other business of the House. Mr Landau, would you like to start?
Toby Landau: Good morning. I am a barrister and an arbitrator. I have been in practice for about 30 years, both at the London Bar and now at the Singapore Bar. I am a vice-president of the Singapore International Arbitration Centre and I have worked at various other institutions around the world.
I was one of the draftsmen of the 1996 Arbitration Act. I worked for a number of years closely with Lord Saville, who was chairing the DAC at the time, and parliamentary counsel Geoffrey Sellers in order to begin from scratch to draft the Bill and then to work it up into a Bill that could be presented and then passed.
Professor Alex Mills: Good morning, everyone. I am a professor of public and private international law at University College London. I am one of the specialist editors of Dicey, Morris & Collins on the Conflict of Laws. I have an interest in arbitration law and particularly areas relating to private international law and arbitration law.
Dr Ugljesa Grusic: Good morning, everyone. I am an associate professor at UCL. I convene the arbitration module and the undergraduate conflict of laws module. I participate in arbitration as an expert witness and legal adviser.
Q15 Lord Smith of Hindhead: According to earlier evidence, this was not a particularly simple question to answer, but it is a very simple question to ask. Do you agree with the policy of new Clause 6A?
Toby Landau: I do, yes. I can explain that by making a number of short points. First, the question of the law governing an arbitration agreement is incredibly important in practice, because that law will tell you all sorts of things about the enforceability of the arbitration agreement, who the parties are, what its scope is and how to interpret it.
The next problem is that current English law is incredibly confusing on this point. Enka v Chubb just sowed more difficulty. It made it more unpredictable. It is a test that everybody is struggling with. In fact, their Lordships in the Supreme Court were divided on the issue. We need to have something simple.
In my respectful opinion, the Law Commission answer is simple, clear and workable. It is an answer that, as the Law Commission has pointed out, is in line with international practice. It cites a study of 80 jurisdictions around the world, 51% of which have this solution. This is by no means an outlier; we will be conforming with major centres around the world.
Lastly, it is consistent with party autonomy. That is because parties are still allowed to make an express choice. To focus on Lord Hacking’s question from the last panel, this is not a question of undermining people’s choice. By definition, the rule applies only where parties have not made an express choice for the arbitration agreement. Even if they have made an express choice for the matrix contract, at the moment English law infers from that that they also wanted to include the arbitration agreement.
There is a perfectly respectable counterargument, which is that they did not. What they wanted was perhaps English seat and English law governing the arbitration agreement, even if another law governs the matrix contract. They do not want to have the arbitration agreement frustrated by a different law. Ultimately, this is the right answer as a matter of policy.
Professor Alex Mills: I respectfully disagree with a fair amount of that. I agree that the law as it currently stands could benefit from clarification, but the policy that is adopted in this rule is not necessarily the right one.
The underlying principle that should be guiding the law here is party autonomy. It should be that we give effect to choices made by the parties. The effect of 6A is to say, “We will give effect to your choice only if it is in a particular form”. It is selective about what kinds of choices we will give effect to. We have all these drafting difficulties with 6A because that creates a problem for us. The problem is that we need to distinguish between which choices we will give effect to and which choices we will not. That is where we have to rely on these definitions of when it is express or specific enough.
The solution that is adopted here gets us into a lot of problems, because it is inconsistent with the underlying principles that we should be following in this area of the law.
Dr Ugljesa Grusic: I agree with the policy of the Act. At the moment, the law is very complicated. We had the Enka decision, where the Supreme Court was divided. When one reads the majority opinion, it is very complicated. The Enka decision was superseded by the Kabab-Ji decision, which again raises some points. There are indeed some other cases, including Court of Appeal cases, that, when read together with Enka, make the law quite complicated as it stands. A rule that would simplify the law is a welcome one.
Q16 Lord Sandhurst: Mr Landau, you are happy with the principle. I have three questions, which I shall ask together because they are sequential. Do you consider that the clause achieves the policy objective with absolute certainty? If it does not, what amendments do you suggest, particularly in the light of the debate on the second reading and the evidence of Professor Green and indeed the written evidence? Finally, would Clause 6A be improved if the phrase “of itself” was omitted or indeed if any other changes were made?
Toby Landau: The drafting achieves the policy goal, with one exception. If I may answer the three questions collectively, the one recommendation I have, which I have set out in my written evidence to the committee, is that the words “of itself” should be deleted. That is because they are evidently causing confusion. We can already see that.
They are not needed, because that part of the provision 6A(2) is making a distinction between a general choice of law for the matrix contract and a specific choice for the arbitration agreement. You do not need the words “of itself” to draw that distinction. Nothing is lost by losing those words, but something is gained. Otherwise, to my mind the wording is clear, effective and sufficiently robust. The two other parts of the provision, (1)(a) and (1)(b), are self-evident. Each of those is clear and should not be changed.
With great respect, I would dissent from the view that you heard in the first panel, which was to change the word “expressly”. “Expressly” is very important. If you remove “expressly”, you are going right back into the long grass of Enka v Chubb by saying that an implied choice will be sufficient. That will take the law back to where it is. It is critical to have a bright line test, and the bright line test is “express”. Parties are free to make an express choice. If they do so, they trigger the provision.
While I have the floor, I would also say that you have another proposal before you, which may be articulated at your session next week, that I would strongly urge the committee not to adopt. That is the suggestion that the choice be limited to being located in the arbitration clause. That would mean that a choice for the governing law will be enforced only if it is within the clause itself. That cannot be right. If you have a contract that has another clause outside of the arbitration agreement, in which the parties have said, “We expressly agree that the arbitration shall be governed by French law”, that should be enforced. It will do England terrible damage if we say, “That doesn’t count, because it’s in the wrong location”. Therefore, that is not needed.
Finally, as you have in the written evidence of Mr Justice Foxton and Mr Justice Henshaw, from whom I believe you will hear next week, the courts are well able to determine what qualifies as an express agreement. It is no different from the kinds of questions that Enka v Chubb is currently raising, in any event.
Lord Sandhurst: That is very clear.
Professor Alex Mills: There is some uncertainty created, and the provision could be drafted a little better. The difficulty we face is that the rule has to draw a distinction between choices that we are going to give effect to and choices that we will not give effect to. It uses two criteria to draw that distinction, but it relies on the word “express” or “expressly” in relation to both - those criteria, which is the source of some of the confusion.
The first sense in which the word “express” is used is that the agreement has to be in writing. It is not implied. The second sense in which the word is used is that the choice has to be specific to the arbitration clause and not general. The choice has to apply expressly to the arbitration clause.
When proposed subsection (1) refers to “the law that the parties expressly agree applies to the arbitration agreement”, it is using the term “expressly” in both these senses. The choice of law must be in writing, not implied, and it must be specific to the arbitration clause, not general. Proposed subsection (2), then, is doing the work of affirming that “express” means “specific”, not just “in writing”. A general choice is not sufficient.
Incidentally, for the reasons given by Professor Green in her oral evidence to the committee, I would slightly favour leaving in the words “of itself” because it leaves open the possibility of a choice that is based on a combination of two clauses. As she explained in her evidence, without those words there is a risk that the provision would exclude that possibility. I would be in favour of leaving those words in, although I do not have very strong views on that.
We still have to draw a line between when a choice is specific enough and when it is not specific enough. There is an enormous variety of ways in which parties express their choices of law for arbitration agreements. It will be very difficult to draft very clear rules here. It will lead to difficulties for the courts in deciding when a choice is specific enough.
If this change is going to be made, it would be helpful if the legislation provided more clearly that, for a choice of law to be effective, it has to be specific to the arbitration agreement, which is to say that the choice of law must in some way expressly indicate that it applies to the arbitration agreement. The wording could be tightened up a bit to ensure that that objective is achieved.
Lord Sandhurst: Would you be minded to send the committee your proposed draft subsequently?
Professor Alex Mills: I would be very happy to do that.
Lord Sandhurst: Would you perhaps circulate it to your two witnesses and see whether you can agree?
Professor Alex Mills: Yes.
Dr Ugljesa Grusic: Clause 6A pursues two aims. The first is to remove the possibility of implied choice. The second is to overturn a part of the Enka decision, where the Supreme Court basically said, “If you choose the law to govern the matrix contract, you also choose, either expressly or impliedly, depending on the wording, the law to govern the arbitration agreement”. The proposal currently achieves those two goals.
However, the use of the words “of itself” creates a problem of interpretation, because it inevitably raises the question, “What more is needed for the parties to agree on the law that will govern their arbitration agreement?” There are a number of possibilities here that may or may not satisfy the relevant test.
In the arbitration agreement in the Kabab-Ji case, for example, there was a very broad arbitration clause, but there was also a definition at the beginning of the contract as to what the term “agreement” means. That was considered by the Supreme Court to amount to an express choice. The Law Commission did not deal with this particular situation. It is a bit unclear at the moment whether the situation that arose in the Kabab-Ji case would lead to the existence of an express choice.
You can also think of some other situations where a clause worded in a particular way will give rise to the question as to whether the parties have made an express choice that satisfies the wording in Clause 6A. For example, you can have a provision that has the title “governing law and dispute resolution”, which contains the arbitration agreement and the choice of law agreement. The question may then arise, “Is this sufficient to amount to an express choice for the arbitration agreement?”
Ultimately, I would advise you to remove the wording “of itself”. I agree with Professor Mills that you should specify that a specific agreement is needed: namely, an agreement that specifically aims to choose the law to govern the arbitration agreement. That should amount to an express choice for the purposes of this clause.
There is one additional point that I would like to mention that has not been raised so far, at least in this session: the relationship between Clause 6A and Section 103(2)(b) of the Arbitration Act. Section 103(2)(b) of the Arbitration Act already contains a choice of law provision for determining the law applicable to the arbitration agreement. This particular choice of law rule applies only where the English courts are determining the law applicable to the arbitration agreement in the context of deciding whether to recognise or enforce a foreign arbitral award. This is a provision that implements Article 5(1)(a) of the New York convention.
In the Enka case and the Kabab-Ji case, the Supreme Court was very clear that this particular clause is the same as the common law position. If Clause 6A is adopted, we will have two choice of law provisions in the Act. If one follows what the Supreme Court said in the Enka case and the Kabab-Ji case, we will have two different choice of law rules that apply to two different stages of the arbitral process.
The rule in Section 103(2)(b) would apply to recognition and enforcement of foreign arbitral awards, whereas Clause 6A will apply in all other situations. If indeed Section 103(2)(b) reflects the common law position, we will have two very different choice of law rules in one Act. The Supreme Court itself says that it is illogical, incoherent, inconsistent and undesirable to have two different choice of law rules within one legal system. That is something that the committee should take into account.
Q17 Lord Sandhurst: Do either of our other witnesses wish to comment on that last point about the possible conflict or conflicts?
Toby Landau: Yes, if I may. Technically, if Section 6A is inserted into the Act, it will not apply to Section 103 because it will be in Part 1 of the Act. Part 1 of the Act is not New York convention. This will be a statutory choice of law rule that will be only for the first part of the Act. It does not affect awards that are coming into this jurisdiction for recognition and enforcement under the New York convention. For that latter category of case, Section 103(2)(b) will apply with its own choice of law rule, which is a New York convention rule.
It just so happens, as the Law Commission explained, that the rule in 103(2)(b) is similar, if not identical, to the rule that this Bill is going to introduce, which is a default rule that the applicable law is that of the seat. There should not be any difficulty at all.
Even if the English courts were to read that differently going forward, I see no problem with that at all, because these are two separate functions that the court is performing. On the one hand, it is enforcing and regulating English arbitrations. On the other hand, it is dealing with incoming awards from seats in other jurisdictions. There is no difficulty.
Professor Alex Mills: They are dealing with two separate situations. I accept that, although there is a bit of a concern. If the English courts were to have different choice of law rules for these two different situations, there would be a risk of incoherence in the approach there.
The difficulty is that Section 103 refers to the test that is essentially set out in the New York convention, which reflects the traditional common law position. That is not the position that is being introduced by this reform in 6A, because it does not require that the choice be specific to the arbitration clause. The modification that is proposed to be introduced in this new Section 6A risks creating this difference in approach in these two different contexts.
That is one of the reasons why I am not in favour of the policy that is being supported by 6A. If 6A were introduced, nothing could be done about that. Section 103 cannot be changed without the UK stepping outside of its New York convention obligations, so we would just have to live with that inconsistency in approach if 6A were adopted.
Q18 Lord Haselhurst: Should Clause 6A apply to all arbitration agreements, whenever made, unless an arbitration has already been commenced?
Dr Ugljesa Grusic: Yes. That is perhaps a slightly unusual approach, because usually new choice of law rules apply prospectively and not retroactively. The Arbitration Act is an Act that governs arbitration, so the answer to this question is yes. That approach is followed in the Scottish Arbitration Act. As far as I know, it has not led to any problems in practice.
Professor Alex Mills: I understand the concerns about the desirability of avoiding dual regimes, but specialists in choice of law will tell you that the practice for choice of law rules is always not to have retrospective effect. This is because choice of law rules are not just for the courts or for an arbitral tribunal but for private parties to rely on to know what their rights and obligations are. In particular, I do not accept that the current law is so unclear that parties cannot have expectations. That is a bit unfair to the Supreme Court’s decision in Enka.
The outcome would be that we would have multiple regimes, which does make the rules more complex. I accept that that is a disadvantage, but if we retrospectively change the law governing some parties’ arbitration clauses, there is a significant risk that we will disrupt their expectations about what they agreed on.
Toby Landau: I believe that the current proposal is correct. It should apply to all arbitration agreements. There should be no concern about retroactivity. The issue of retroactivity is very well worked out in this area of law. This has been an accepted approach since the Arbitration Act 1889. It was the Arbitration Act 1934 transitional provision; it was the Arbitration Act 1996 transitional provision; it is the Arbitration (Scotland) Act 2010 transitional provision.
There is no principled reason for separating out a governing law clause from all the other clauses that have an equal and sometimes even greater impact on what one might say is the expectation of the parties. The truth is that, if you do not have an express agreement on the law governing the arbitration agreement, it is not so obvious what the parties’ expectations are. That is the very debate.
There is a respectable argument to say that their expectation is that the law of the seat will govern the arbitration agreement. When you compare it to all the other provisions that are brought in with retroactivity, there is no reason to distinguish on this one. On the contrary, it would cause chaos, because arbitration agreements are long running. You might have parallel regimes for many decades to come, which so far the legislature has been very alert to avoid.
Q19 Lord Marks of Henley-on-Thames: The first question relies on the proposition, as you will have heard from the first panel, that everybody appears to agree that, in policy terms, the ultimate decision on a challenge to the jurisdiction is a decision for the court, because the court is the arbiter of the tribunal’s distinction in the last analysis. Does the new Clause 67 make it clear that the ultimate decision on jurisdiction of the arbitrators is a matter for the court alone?
Toby Landau: Yes, it is very clear. That is because the proposition that has been outlined is now absolutely clear as a matter of English law. There is nothing in this wording that displaces it. All this wording does is to say that rules of court may be promulgated.
Professor Alex Mills: I would agree with that, with one exception, which comes back to a point you made in the previous panel, which is the lack of inclusion of the words “unless the court considers it necessary in the interests of justice” in two of the subsections here. That provision should be added to those subsections to confirm that the court has control over what evidence or arguments can be made before the court. That ensures that the court does have the final decision.
Dr Ugljesa Grusic: I agree with that.
Q20 Lord Marks of Henley-on-Thames: Professor Mills has just moved into the next brace of questions. I have in mind the overriding objective to deal with cases justly. Are the restrictions on the evidence and submissions that can be put before the court for its determination sufficiently clear? Secondly, on any application under Section 67, should it be ultimately for the court to determine whether it is in the interests of justice what it should hear and receive by way of evidence, submission or otherwise?
Professor Mills’ answer has drawn attention to the fact that in new subsection (3C)(c) the courts are given the power to consider the interests of justice in relation to hearing new evidence that was not before the tribunal. It is not given that saving provision in relation to grounds that were not raised before the tribunal or evidence that was not heard before the tribunal but that could have been.
Toby Landau: To understand the genesis of this provision, one has to make a distinction between principle and case management. The principle is clear, which is competence-competence. The court has the final say. Case management is how the Law Commission has decided to address the concerns, the concern being that there are some cases where it is inappropriate to have a full re-hearing ab initio, but there are other cases where it is entirely appropriate. You cannot legislate for that in advance, so you give discretion to a rules committee.
The idea here is a good one, but I would endorse the evidence you have in the submission from Mr Justice Foxton and Mr Justice Henshaw on this point. There are two corrections that ideally should be made. I should make clear that this departs from my written evidence to the committee, in which I did not make these points. I agree with what they have said.
The first point is that the wording is not clear that the principles in (3C) are not exhaustive. The rules committee could do something different from (3C), because (3B) says “may in particular provide provision within subsection (3C)”. It is unclear whether it is just within (3C) or whether it could be beyond (3C). That may raise questions of challenges later to the rules committee. That is point number one. That should be broadened to say “without limitation”.
The second observation is the one that has already been articulated, which is that the saving provision in subsection (c), “necessary in the interests of justice”, should be broadened to cover the entire provision, because there are many situations beyond just that sub-provision where the interests of justice will demand a particular result, and they are not covered.
Professor Alex Mills: I would agree with that.
Dr Ugljesa Grusic: I would add a brief note. The aim of the proposal, according to the Law Commission, is to introduce a softer type of reform. The implementation of our recommendation through court rules is a compromise that might allow these changes to be amended. The view of the Law Commission is that they are proposing this now, but it may be possible to change this in the future.
If there is any doubt that the proposal is too prescriptive, it should be made clear in the Act that there is nothing in the Act that precludes the rules committee from basically changing rules of court in the future in this respect.
Lord Marks of Henley-on-Thames: Does that, Dr Grusic, tie in with what Mr Landau was saying: that the rules committee’s power can go wider than (3C)?
Dr Ugljesa Grusic: I think so, yes.
Lord Marks of Henley-on-Thames: The last question goes back to what we have just been talking about. Do the provisions of the amendments curtail the power of the rules committee in drafting the rules applicable to Section 67 applications or in subsequently revising them in the light of operation in practice? I do not ask you to repeat anything that has just been said, but is there anything you wish to add on that last question to what has been said in the answer to the second question earlier?
Toby Landau: There is the risk that I have already articulated, but I would just say that this provision is unusual in primary legislation, in that it starts to structure the discretion of a rules committee. When we drafted the 1996 Arbitration Act, there were many places where we decided not to put something in the Act but leave it for secondary legislation and rules. The point we had then was not to interfere in any way with rules committees, because life changes in unpredictable ways. In primary legislation, you cannot always know what the factors might be that are relevant in 10 years’ time, and then you have to change the primary legislation.
This is a little dangerous in that way, because it is more detail than you would normally have for rules committees, which goes back to my previous point that it is important to make sure that it is without limitation.
Professor Alex Mills: I would agree with that. It is very important that this is understood to be by way of guidance rather than constricting the power of the rules committee to develop the appropriate rules and adapt them as necessary in future.
Dr Ugljesa Grusic: I agree with all of that. There is agreement in the room on what the aim of the proposal is. It is just a matter of implementing it properly.
The Chair: May I thank you again very much for coming to help us this morning with our scrutiny of the Law Commission’s Bill? Thank you for the suggestions that you very carefully made and for the debate that you have engendered. We are particularly grateful to you all for sparing the time and coming along.
That concludes our evidence today. We shall be sitting for one further evidence session in a week’s time. By the end of that session—there will be a day or two more if people wish to put in any further written evidence—we will have concluded the evidence that we are allowed to receive within the rules that govern the operation of this committee. Thank you all very much indeed.
