Matthew Weiniger, James Freeman and Ricky Diwan.

Q28 The Chair: May I welcome you all to this third oral session of the Special Public Bill Committee on the Arbitration Bill? This session is being broadcast, as the previous sessions were, live on Parliament TV. May I welcome each of you in turn? We have, as is usual, provided you with the rough area of the questions that we would like to ask. Before doing that, I would like each of you to introduce yourself, beginning with Mr Ricky Diwan, if you would be so kind.

Ricky Diwan: I am counsel at Essex Court Chambers, specialising in international arbitration as both counsel and arbitrator. I hope you do not mind if I say this, but it is important to point out that I am acting here today in a representative capacity on behalf of a group that has made submissions to the Law Commission before and during the consultation process and in response to the committee’s call for evidence.

Just to summarise who those persons are, Salim Moollan KC has led the submission. He is a former chairman of UNCITRAL. Before the Law Commission, we had Lord Hoffmann, Lord Mance, Lord Phillips, Sir Richard Aikens, Sir Bernard Rix and Sir Christopher Clarke as well as other members of Brick Court Chambers. Given that Lord Hoffmann and Lord Mance were involved in the Second Reading of the Bill, they were not included in our response to the call for evidence. We have consulted with Lord Hoffmann on some of the things that I will express today.

The Chair: You can tell us that when we get to it.

Ricky Diwan: Yes, that is fine.

Matthew Weiniger: Good morning, everybody. I am a partner at Linklaters, where I am the chair of global international arbitration group. I have been practising international arbitration for about 30 years, mainly as counsel.

James Freeman: Good morning. I am a partner at Allen & Overy, the law firm. I am head of our international arbitration practice in London. It may also be relevant to note that I sit on the board of the London Court of International Arbitration. I am also a member of the arbitration committee of the City of London Law Society. You will be hearing from the chair of that committee, Michael Davison, in the second session.

Q29 Lord Haselhurst: This is the first and fundamental point to put to you at this stage. Do you agree with the policy of the clause?

Ricky Diwan: Speaking for myself and on behalf of the group, yes, absolutely. I can develop this now or when we come to drafting.

The Chair: You can comment when we come to more detailed questions.

Ricky Diwan: Emphatically, yes, we agree with the policy.

Matthew Weiniger: I am glad that I can make it interesting by disagreeing. We do not agree with the policy of the clause. We do not think it takes into account the people who draft arbitration clauses in wider contracts. There are many more of those people than there are arbitration practitioners. The voice of the contract drafters has not been heard in this debate as much as that of the arbitration users.

If you are a French lawyer, you are drafting a contract governed by French law and you have agreed, for whatever reason, to have arbitration in London, you may be surprised to learn that you are introducing an entirely new governing law into your contract. If you were to make this amendment, the question would be, “Does an English law arbitration agreement operate as you would expect within that French contract? Would a commercial party appreciate that the question had arisen in the first place just by choosing England as the place of arbitration?”

There are other points, but that is our main objection.

James Freeman: I fall in Ricky Diwan’s camp rather than Matthew Weiniger’s. I do support the policy behind the provision. Perhaps there are two policies.

The first question is, “Should the conflicts of law rule be put on a statutory footing?” I support that. The common law test in Enka has proven difficult to apply in practice, as reflected by the Enka decision itself and indeed subsequent cases. We now see a third case going to the Supreme Court in the UniCredit Bank v RusChemAlliance case on the question of what law governs an arbitration agreement. Users are ill served by this lack of clarity, so I support putting the rule on a statutory footing.

Secondly, I also support the choice of law of the seat being the default as opposed to the law of the matrix contract. As the Enka decision discussed, there can be unfortunate consequences if the law of the matrix contract is different from English law: important aspects of the arbitration agreement, such as inseparability and arbitrability, are potentially subject to a foreign law, which seems odd in an English-seated case.

I disagree with Matthew Weiniger. When users turn their minds to the specific question of what law should govern the arbitration agreement and the options are discussed, which happens sometimes in more sophisticated commercial contracts, my experience is that they generally come round to the law of the seat as the choice rather than the law of the matrix contract.

The Chair: Thank you very much.

Q30 Lord Sandhurst: I will ask a rolled-up question addressing the three parts that you have noted, and I will start with Mr Diwan, if I may. You have accepted the policy. Have you also had an opportunity to look at this document? In fact, you drafted it. You produced this document.

Ricky Diwan: Yes.

Lord Sandhurst: As far as you are concerned, implicitly you think that the draft clause does not achieve the policy objective with sufficient certainty.

Ricky Diwan: That is correct.

Lord Sandhurst: That is why you produce these amendments. Would you like to explain to the committee, then, the amendments that you suggest and why you are suggesting them?

Ricky Diwan: Yes, with pleasure.

Lord Sandhurst: We all have a copy of them. I do not have to read it in, do I?

The Chair: No, everyone has a copy. You also have a copy of Professor Mills’ amendments.

Ricky Diwan: We do. With great pleasure, I will try to explain our thinking. It is important to start by identifying the policy rationale behind the amendment. In our submission, that should inform the draft.

In very brief summary, in England and Wales, through parliamentary legislation—ie the Arbitration Act—and the courts have developed a safe and stable system of international arbitration principles, which promote the fair and efficient conduct of arbitration. We have already heard about separability, arbitrability and one-stop adjudication. Those are critical core principles that ensure the efficient conduct of arbitration. The expectation of parties who come to arbitrate in London is to benefit from that system. Therefore, it is vital both to them and to London as a market that they should continue to benefit from those principles.

As a matter of policy, therefore, we say that it is vital that those benefits are not easily displaced by a choice of foreign law for the substantive contract. If they wish to displace it, it has to be an opt-out. That is the purpose of Clause 6A. It is intended to be an opt-out from a default rule. We say that, as a matter of policy, that should be done in the clearest possible way so that it is a conscious decision. This goes back to what was just said about drafting these clauses. It should be a conscious decision done in the clearest possible way.

There is therefore an issue as to testing that hypothesis of policy against the draft. There are two ways in which you can draft. The first is an open rule. I will come on to Professor Mills’ draft, but we would submit that the existing draft is an open rule. It sets out a combination of a default rule, the law of the seat, and party autonomy, the right of the parties to depart from that default rule, without specifying exactly how they are to effect the opt-out.

The alternative is a closed rule. That is the intention behind what we have put forward to the committee—I will come on to that in a moment—which specifically prescribes how the parties are to effect an opt-out. I would point out that the Law Commission initially adopted a closed-rule approach further to the proposals we had put and then departed from it in the draft Bill for reasons that we would say are not fully explained.

The problem is that you cannot have an open rule and absolute certainty in ensuring the policy is fulfilled. Can I give you one concrete example of that? Dr Grusic addressed this briefly in his written submissions. There is a quite well-known case called Kabab-Ji that went to the Supreme Court. I argued the case. The agreement in that case was defined to include all its terms, which therefore included the arbitration agreement.

There was an applicable law clause for the agreement. The Court of Appeal held that that meant there was an express choice for the arbitration agreement, even though it did not specifically refer to the arbitration agreement. That is a problem. That was endorsed implicitly by the Supreme Court in Kabab-Ji. In fact, the Kabab-Ji case was also referred to in Enka.

On its current drafting, in my respectful submission Clause 6A will mean that in a situation where there is this kind of agreement, where there is boilerplate language and there has not been a specific consideration of the arbitration agreement, you will have opted out from the default rule, or at least there will be sufficient argument to make that point, subject to the purpose of this clause and getting into legislative history—the debates before you—even though the parties will not have made a conscious decision. That is a concern to us. There would be a simple way of defeating Clause 6A, we would say.

The new draft proposed by Professor Mills is quite clearly an improvement on that, because it requires that the parties agree the law that applies specifically to the arbitration agreement. That still begs the question what “specifically” means and how you do it. In that context, a Kabab-Ji type situation, depending on how you construe the purpose of the provision, may still fall within the parties having “specifically” by saying that the governing law applies to all the provisions. That is why we have proposed what we have.

We have tried to present a closed rule. Apologies for taking quite so long, but we had originally proposed, as everyone will be aware, that the choice should be specifically in the arbitration agreement. There should be a closed rule that, if the parties want to select an applicable law for the arbitration agreement, it should be in the arbitration agreement.

With the benefit of all the discussion that has taken place, we recognise—this is the purpose of the amendment—that that is too narrow. This is what Sarah Green from the Law Commission said in its evidence last week. The parties may specifically say in the main contract, “The arbitration agreement shall be governed by X”. Without referring to the arbitration agreement, they may say, “Clause X, which is the arbitration clause, is governed by X”.

Our language is intended to capture the three scenarios that we see are realistically capable of arising. As a matter of policy, why not require parties to do that in order to achieve certainty?

As you will see from 6A(2) in the proposed amendment, the parties shall have expressly agreed the law that applies to the arbitration agreement only if that express choice of law is in the arbitration agreement—that was our original suggestion—and specifically relates to it or specifically references it. The difference between “relates to” and “references” is the situation where you cross-refer but do not expressly in terms say “arbitration agreement”. It is intended to capture the scenario where there was a conscious decision to choose a different law for the arbitration agreement.

Lord Sandhurst: Mr Weiniger, you have heard that. Are you persuaded?

Matthew Weiniger: I am not persuaded as to the policy.

Lord Sandhurst: But what if you are going down that route?

Matthew Weiniger: If you are going down that route, it should be drafted with the most clarity possible to express the fact that you are making a policy decision that may be counterintuitive to others. The drafting should be as tight as possible. I had seen Professor Mills’ wording. Talking about “specifically” rather than “expressly” was an improvement.

If you are going down this policy route, you will set up a situation where the test for governing law in the first part of the Arbitration Act is different from the test for the governing law and enforcement in Section 103, which is something that has been addressed to you all before. If we were to have a rule designed like this, it would be so different from the 103 test applied in the New York convention that there would be no doubt whatever as to what policy we were trying to achieve and that it would be a different policy from the common law.

Lord Sandhurst: If we were going down this route, you would be content with the version that has been put forward. That is helpful.

Matthew Weiniger: I have not had enough time to review this in detail. Professor Mills’ wording was an improvement on the original draft.

James Freeman: I think it is agreed that the goal is to achieve a situation where the default is the law of the seat unless the parties choose otherwise and, to be clear, the choice of law in the matrix contract is not enough.

Clearly, there is more than one way to skin that cat. My personal view is that, if the words “of itself” were deleted from subsection (2), that would be sufficient. There are other ways of achieving that goal. Ricky Diwan kindly shared his draft with me outside. That works too.

I tend to think it is still helpful for the user who is reading the Arbitration Act, as a guide to English arbitration law, to specify that the choice of law in the matrix contract is not enough. In other words, if Ricky Diwan’s draft were adopted, I still think a version of subsection (2) of the current draft is also a helpful provision.

Lord Sandhurst: Do you have a comment on that?

Ricky Diwan: I see no difficulty in making clear what is not sufficient. I would suggest it is probably redundant, though, in the situation where you have a closed rule. If you are defining what has to be done, anything else is insufficient by definition.

I do not have a problem with it, but the purpose of a closed rule is to make it clear what needs to be done and that anything else is not sufficient. It is implicit in the drafting that governing law would not be enough.

Q31 Lord Hacking: If I may address all three of you, the drafting and existence of 6A(2) has caused a lot of difficulty not only to us—we are making the decision on it—but to a number of our witnesses. A number of them have advised us that Clause 6A(2) should be removed from the Bill. To give one example, the London Court of International Arbitration gave that precise advice.

If I may just move to Mr Diwan, you sent us a written submission that was signed by a very illustrious group of arbitrators headed up by Lord Phillips, Sir Richard Aikens, Christopher Clarke and so forth. In that draft—I am turning to page 5 of your draft—you draw attention to an alternative way of dealing with 6A, which is to put a small addition into the drafting of 1A and then you add, at the bottom of that paragraph, “One could then also drop Clause 6A(2)”.

What is puzzling me is why you have not left it there and why you have brought in this new clause, which brings back the troublesome Clause 6A(2).

Ricky Diwan: The answer to that is that we did consider everyone else’s evidence on the issues of party autonomy and the fact that there should be a certain level of flexibility as to how parties choose to opt out of the default rule. We wanted to ensure very clear drafting of that opt-out provision. In the prior proposal, which we put in our written submission, that would not have been fully achieved. As I mentioned earlier, we also accept that it should not be limited to being in the arbitration agreement.

Lord Hacking: Falling back on your submission, on page 5 of your written statement—

The Chair: If I may intervene, it will be much easier if we stick to the draft that is in front of us, if we can, rather than what was put in as part of his written submissions.

As I understand it, Mr Diwan, you have been addressing us on the draft you gave us this morning, in which you modified the position that you took in your submission.

Ricky Diwan: Yes. We did. Apologies if I did not make this clear. That modification was designed to cater for some of the points that were made against it specifically by Mr Landau and perhaps others. They said that limiting it to just being in the arbitration agreement, which was our original proposal, would be an infringement on party autonomy.

The Chair: As I understand it, what you put on page 5 of your submissions is no longer what you are suggesting. You are suggesting what is in front of us.

Ricky Diwan: Yes, that is correct.

Lord Sandhurst: You are aiming to keep party autonomy so that parties can opt out, but, if they do so, it must be done clearly or they have not opted out.

Ricky Diwan: That is right.

Lord Hacking: Can I turn to Matthew Weiniger and the submission from Linklaters? In your submission, you draw specific attention to 6A(2). Starting on page 6 at paragraph 3.4, you describe the potential advantages of getting rid of Clause 6A(2). You remain enthusiastic on page 7 about the removal of 6A(2) and all the advantages that it would have. You then appear to change your mind in 3.8 and say, “Having said that, we think that there could be a significant degree of resistance”. Can I persuade you to go back to your earlier paragraphs?

Matthew Weiniger: This has been a subject of significant debate in these evidence sessions, and we have reflected on the position. As I expressed, if you are going to have a policy that reduces flexibility, which we all accept is the price of this policy, you need to draft it in the most rigid way possible.

However, as the draft currently put forward by Mr Diwan and Professor Mills’ previous draft allow, if the parties turn their minds to it—in the general principles of the Bill, we are talking about parties who have not turned their minds to this—and they want to specifically agree a different law to apply to their arbitration agreement, they should be free to do so. If we are going down the policy route, let us implement that policy in the most effective manner possible.

Lord Hacking: Is the nub of this argument that 6A(2) has comprehension difficulties? Lord Mance, for example, thought the courts may fail to get through the tangle. Those are my words rather than Lord Mance’s. Surely there is great advantage in getting rid of a clause that has a comprehension difficulty and makes the whole of Clause 6A much more complicated.

Matthew Weiniger: I think the opposite, with respect. Clause 6A(2) makes the operation of Clause 6 more rigid and clearer. The fact that it specifically and greatly differs from Section 103 is going to provide clarity that this is a different solution to the common law solution.

Q32 The Chair: Could we ask one last question before we move on to Section 67? There has been some controversy as to whether the provision should apply to all contracts, whenever made, unless arbitration has been commenced. Is that a policy you agree with?

Ricky Diwan: Speaking for myself and the group, we fully support that. We have explained why. It does not make sense to have a dual system. No Arbitration Act since 1889 has had a dual system. There has always been a transitional provision.

I have one final point. In terms of users and how they, over the last 20 years, could manage their arbitration clauses, pre Enka there were two opposing Court of Appeal decisions on whether the law applicable to the seat or governing law should apply, C v D and SulAmerica. It is very difficult to see how it can be argued to the contrary that parties would have managed their contracts on the basis of one system or another.

Matthew Weiniger: I have been involved in arbitrations that have arisen 20 or 30 years after the clause was drafted. It would be thoroughly unsatisfactory for parallel systems to exist for such a long time. I support this draft.

James Freeman: I entirely agree with what Matthew Weiniger has just said. The entire 1996 Act was introduced in accordance with a transitional provision that is consistent with what is being discussed now. That caused no difficulties.

I also agree with Ricky Diwan. This is not a reversal of an existing state of the law. It is a clarification of a situation where there is a great deal of uncertainty. It is desirable that that uncertainty is eliminated as swiftly as possible, in my view.

Q33 Lord Ponsonby of Shulbrede: Does Section 67 make clear that the ultimate decision on the jurisdiction of the arbitrators is a matter for the court alone? I will start with you, Mr Diwan.

Ricky Diwan: It makes it clear in the sense that it does not address the issue at all, and therefore the common law rule applies. The Dallah rule and the Azov Shipping rule apply. We are satisfied that, because it does not seek to do what the Law Commission originally proposed, which is to change a rehearing to a review, the common law rule applies. The common law rule is perfectly clear.

Matthew Weiniger: Yes, I would agree. It is very clear that the Bill is doing nothing to disturb the power of the court to revisit jurisdiction. That is the right call.

James Freeman: I agree that the clause does not address that question. The situation remains as it is, which is a good thing.

Q34 Lord Marks of Henley-on-Thames: The first question I want to explore is the restriction on the evidence and submissions that can be put before the court for its determination. That includes (3B), which is the rules of court provision, and indeed the restrictions in (3C). Are they sufficiently clear?

Ricky Diwan: We wholeheartedly endorse the views of Mr Justice Henshaw and Mr Justice Foxton. We have concerns about the language and whether it is restrictive. We are concerned that the way (3C) is introduced—“Provision is within this subsection if it provides that”—is restrictive.

Without rehearsing the history, the courts have demonstrated incredible case management powers in the context of Section 67. If the rules committee is going to be putting forward rules, it should have maximum discretion. There should not be limitations or restrictions. There is a temporal issue under this provision, which is whether it can revise rules that it has created under these powers. So there is that issue too.

There is one other final point, on which members of the committee have already picked up. This was pointed out by Mr Justice Foxton and Mr Justice Henshaw, which is the interests of justice point. It appears in only one sub‑provision and not the others, but it should apply to all of them. There has to be discretion on these things because everything is fact-specific in the context of Section 67.

Lord Marks of Henley-on-Thames: I was going to come to the interests of justice point separately.

Ricky Diwan: I am sorry.

Lord Marks of Henley-on-Thames: No, that is absolutely fine. On the question of discretion, you raised the temporal point. Is your evidence that the rules committee ought to have the ability to change the rules if they do not look to be working in an ideal fashion?

Ricky Diwan: Undoubtedly, yes. This provision is really no different from the arbitration practice direction that exists in the CPR rules. That gets updated and modified to take account of practice, what is going on and things that do or do not work. Unquestionably, as more experienced and sophisticated things happen, there should be discretion to change the rules.

Lord Marks of Henley-on-Thames: Do you take the view that the present drafting looks like—whether it technically is will be a matter for others—a restriction that would be unwelcome?

Ricky Diwan: On the face of it, yes.

Lord Marks of Henley-on-Thames: Mr Weiniger, you have heard those questions. Could you address them in that granular fashion?

Matthew Weiniger: Yes. The first question was whether the restrictions on the evidence and submissions are sufficiently clear. The precise content of the restrictions will depend on the actual rules that are drawn up, but the basic parameters of the restrictions seem fair and reasonable. They apply only in certain limited circumstances. Those circumstances, where a point is being contested before the tribunal with limited safeguards, seem correct to us.

On the interests of justice exception, the proposed amendment to Section 67 is a case management amendment. It should be carried out along sensible case management principles. We believe that the interests of justice escape valve, if we may so call it, permits this. It should be applied to all of the section.

Standing back, one of the purposes of the exercise of updating the Arbitration Act is to maintain London’s position as a pre-eminent centre for international arbitration. One of the reasons for its current high standing is the quality of the Commercial Court, in particular its decisions relating to arbitration cases. To give an interests of justice discretion to Commercial Court justices would seem to us to be a way of enabling this provision to go forward and to be met well. It will improve the current situation without interfering with the competence- competence principle as set out in Dallah and those cases.

James Freeman: My answer to the question as to the clarity of these provisions is a qualified yes. This provision is going to stand out a little bit in the Arbitration Act, which otherwise sets out with tremendous clarity the general principles of English arbitration law. This somewhat complicated provision, which allows for rules of court to be made, does stand out from the rest of the Act.

My own view is that there was, as I understand it, a clear consensus that the procedural constraints set out in the proposed subsection (3C) were almost universally supported across the London arbitration world. Therefore, in my view, they could have been included straight into the Act. There is already a similar provision in Section 73 restricting the ability of a party to challenge when they are relying on grounds that they did not put before the tribunal. These are similar sorts of things. I feel they could have been included in the Act.

We have not gone down that road. I do not have a visceral objection to the way forward that has been set out in the Bill. If we are going down this route, it is fundamental that the rules should be capable of change. That is the rationale for putting them in rules of court rather than in the Act. If that is not clear—I agree with Ricky Diwan that it is probably not—that should be clarified.

I am otherwise content with the drafting of (3C) as it stands, including in relation to the interests of justice point.

Lord Marks of Henley-on-Thames: Do you accept Mr Diwan’s point that something needs to be in there to say that it is without limitation on the rules committee’s powers?

James Freeman: Yes.

Lord Marks of Henley-on-Thames: Turning to the interests of justice, you have all said something on it. I think you will all agree that there is no justification for the distinction between the three limbs: new grounds, new evidence and rehearing evidence.

At the moment, the interests of justice—I liked the phrase—escape valve applies only to rehearing evidence. Can any of you see any reason why it should not apply to all three limbs?

Ricky Diwan: I cannot see a reason. It should.

Matthew Weiniger: There is no reason that it should not. It should.

James Freeman: It is always a good thing in fact-sensitive situations to allow an element of discretion. I also would not oppose the inclusion of those words in all three parts.

The Chair: I was going to ask the members of the committee whether there were any other questions that they wanted to ask you. We have covered comprehensively the points on which we sought evidence. If there is anything you would like to amplify in anything that you have said, please take this opportunity to do so.

Ricky Diwan: Not on my part, no.

Matthew Weiniger: I have nothing further.

James Freeman: No, thank you.

The Chair: May we thank you very much indeed for the time you have given to considering these matters? We thank you, Mr Diwan, and your group of people for the care that they have taken in providing us with an alternative draft. We are grateful to you all for coming along and helping us in the way you have. Thank you very much indeed.

We will now stay on air while we reorganise the people who are sitting on the chairs in the front row. Thank you very much.