7
Examination of witnesses
Mr Justice Foxton and Mr Justice Henshaw.
Q28 The Chair: Welcome to the third and last of our panels of this evidence session. Thank you, Mr Justice Foxton and Mr Justice Henshaw, for coming along today to help us with the relatively circumscribed number of points that we have in relation to this Bill.
We are conscious of your position as two of His Majesty’s judges, and therefore that the answers you may be able to give in relation to certain matters must be circumscribed, on the basis that you may in the future have to make decisions on this Act. We would not want to put either of you in the position where you cannot do so. We bear that very much in mind, so tell us if there is any point that we ask you about on which you would prefer not to express a view.
Having said that, might I just ask you both in turn to say a little bit about your backgrounds and the perspective you have?
Mr Justice Foxton: I am currently the judge in charge of the Commercial Court, which is the part of the High Court with principal responsibility for arbitration-related matters. Before that, I was a barrister for 30 years at Essex Court Chambers, where I did a lot of work in arbitration or court-related arbitral matters. I am the editor of two textbooks on arbitration, one forthcoming, I hope.
Mr Justice Henshaw: I am a judge of the High Court and sit very regularly in the Commercial Court. All the judges in that court deal very often with arbitration applications. Together with Mr Justice Foxton, I co-authored the business and property court’s responses to the Law Commission’s papers, as well as a note on the Bill dealing with the retrospection point.
Before becoming a full-time judge, I was a barrister for 19 years, practising in commercial legislation, arbitration, EU and public law. Before that, I was a legislation solicitor in a City firm for 14 years.
The Chair: Thank you both very much indeed for explaining your background. Lord Haselhurst will ask the first question in relation to Clause 6A, because we would like to deal with that first.
Q29 Lord Haselhurst: We are wondering how much support we would be getting for the amendment to the new Clause 6A. I rather felt we were making progress in previous sessions, and now we have perhaps taken a step back in that there are more problems at sea and on land. We had been, perhaps, led to believe that it was all fairly straightforward.
Mr Justice Foxton: For my part, I strongly support this provision. The question of the law governing the arbitration agreement, at least from my perspective, matters for four principal reasons. It tells you how wide the agreement is; it tells you which public policy determines whether certain disputes are arbitrable; it bears on the question of separability—“If the matrix contract is attacked, does the arbitration clause fall with it?”—and it tells you what remedies are available for someone who does not comply with their obligation to arbitrate disputes, but instead tries to bring court proceedings elsewhere.
Those are all matters that most parties would regard as closely concerned with the seat of the arbitration, and so there is a strong principle case for this amendment. The certainty it provides has a strong pragmatic justification as well.
Mr Justice Henshaw: Yes, I very much agree with the policy behind this clause. It is important to have a clear rule as to which law will govern the arbitration in the very common situation that the parties have not specifically addressed it. The proposed law of the seat presumption will provide a clear rule.
Over and above that, it is important to have this proposed rule rather than leaving it to the law governing the main contract. That is for two reasons. First, there is a logical connection between the law of the seat where the parties have chosen to arbitrate and the arbitration agreement. If the parties have chosen to arbitrate in London, for example, I think it natural that they could reasonably expect to arbitrate there the types of disputes that London or English law regards as arbitrable.
The other reason is that, for arbitrations here, one of the benefits is to help avoid a potential disaster scenario where the arbitration turns out to have been ineffective by reason of the conclusions that the arbitrators reach on the merits. This is the separability point that Mr Justice Foxton has touched on.
It is not uncommon for parties to include allegations that the contract is, for example, void or voidable by reason of bribery or misrepresentation. If the arbitrators decide that that was the case, there is a danger of the arbitration agreement falling away with the contract, which means that the arbitration award has, in fact, been a waste of time. It is a void exercise.
The laws of England and Wales avoid that type of problem using the separability doctrine, and so do various other laws, but not all countries’ laws have that doctrine. This measure will help reduce the number of occasions where each type of difficulty arises.
I have one last point, if I may. I do not feel so concerned about disappointment of expectations of the parties. We are here dealing with cases where the parties have not made an express choice or a specific choice relating to the arbitration agreement. If they enter into a contract where the matrix law is a particular law, there will always e at least one other law that is relevant anyway—namely, the law of the seat—because it governs procedural matters.
The question is this: where does one allocate the law governing the arbitration agreement? For the reasons I have tried to summarise, it seems to me that this measure puts it in the right place.
Q30 Lord Sandhurst: You have my heard my questions earlier. Does the draft clause achieve the policy objective with absolute certainty? If not, what amendments would you make? There has been discussion not least of the words “of itself”. You have also, I hope, had an opportunity to look at the document that is Professor Mills’ draft as reamended by the Brick Court group, if I can call them loosely that, and Lord Hoffmann. What is your preference?
Mr Justice Foxton: I am not going to comment, for reasons Lord Thomas outlined, on whether any particular formulation will achieve any particular result, because it is entirely possible that that topic will confront us at some stage.
What I will say is this. There were attempts by arbitral institutions in their rules to address this point long before Enka. The London Court of International Arbitration had a rule that said this rule and any arbitration agreement to arbitrate on these rules will be governed by English law unless the parties provide otherwise. I am aware of at least two LCIA tribunals, one chaired by a retired Court of Appeal judge, that held that the mere choice of law in the matrix contract was enough to provide otherwise. That is a real concern, and that is why something along the lines of 6A(2) is necessary to avoid a risk that this does not achieve the desired outcome.
In relation to how that is done, I certainly felt that the Mills draft using a concept of that which is specific was a considerable step forward. This is not an issue that is unknown in law. You generally get issues where you incorporate words and terms from one contract into another, where we apply a higher test for incorporation of arbitration agreements in jurisdiction clauses than we do other terms.
What this language that Professor Mills has put forward is looking to do is, through the concept of specificity, to have, as it were, a higher threshold to depart from the defaulting provision. I have only this morning had a look at the work of Mr Diwan and his team. It is along similar lines to the Professor Mills suggestion. Both represent an advance on the Law Commission Bill, but I will not offer a view as to which of the two might be the best way forward.
Lord Sandhurst: That is very diplomatic.
Mr Justice Henshaw: As we mentioned in our note, it always seemed to us that the policy objective came through reasonably clearly from the drafting as it stood. Also, we made the point that judges will have the benefit of the Law Commission’s paper when having to decide these types of points.
The Mills drafting, in fact, uses both the word “expressly” and the word “specifically”, and it is easy to see why they may both play a part. For example, one of the concerns arising from the Enka decision is the idea that, if you have expressly chosen the matrix law, you have thereby also expressly chosen the law to govern the arbitration agreement, so it is necessary to deal with that possibility. As regards “specifically”, there has been mention of the Kabab-Ji type clause, which says something along the lines of, “This agreement and all its provisions shall be governed by X law”. That is an express agreement, but is it specific? It seems to me, first, that there is a benefit in using those terms.
As for subsection (2), again it seems to me there might be a risk, which this clause seeks to address, that the Enka principle could be interpreted as involving a choice that is both express and specific, even though it might not appear so. I can certainly see the merits in the way the matters have been expressed in this reformulated drafting.
Q31 Lord Ponsonby of Shulbrede: We are on amendments to Section 67 now. Does the clause make clear that the ultimate decision on the jurisdiction of the arbitrators is a matter for the court alone?
Mr Justice Foxton: I would agree with the previous panel that the law is clear, and the clause does nothing to disturb that clear position.
Mr Justice Henshaw: I agree.
Q32 Lord Marks of Henley-on-Thames: On the issue of proposed subsection (3C), you have answered both the questions I wanted to address in paragraph 18 of your evidence and in the preceding explanation.
Your position is that the rules committee, whether or not strictly rightly, might feel constrained by the provisions of (3C) unless it were made clear that there should be no limit to their power, either in making new rules or in amending rules in the light of experience, and that the provisions of (3C) would therefore be illustrative rather than determinative. Do I fairly express your conclusion?
Mr Justice Foxton: That is a very fair summary. Amending rules of court can be a very speedy process, amending Acts of Parliament perhaps less so, so we are keen to have maximum flexibility to modify such rules as are implemented in the light of the experience of their operation.
Mr Justice Henshaw: I would just add that, even if the rules committee felt comfortable, it might none the less lead to some satellite legislation if it is not made sufficiently clear.
Q33 Lord Marks of Henley-on-Thames: Adding to that, it follows from the fact that we are all agreed that the court should be the ultimate arbiter of jurisdiction.
Coming to the next question, you have also said that the interests of justice saving provision should apply to new grounds and new evidence, just as it applies to rehearing evidence that had been heard before the arbitration.
Mr Justice Foxton: We do. We see scope perhaps for issues that are not in contemplation now that might surface. Some flexibility with a concept such as that to address them as and when the need arises would be beneficial.
Mr Justice Henshaw: Yes. I agree again.
Q34 The Chair: In the course of the evidence this morning, the view was expressed that the general tenor of the 1996 Act has been to put it all into the Act, and having references to rules of court in the way in which it is done on such an important question might put people off, if I can use that vernacular expression. Do you have any comment on that or on how it could be expressed in drafting this provision so that it did not put people off?
Mr Justice Foxton: There are important procedural aspects of court-related arbitration challenges that you will not find anywhere in the 1996 Act. Some of them are very beneficial. We have a summary strikeout procedure for hopeless Section 67 and Section 68 challenges that is intended to promote the policy of speedy finality in the Act and, where people get awards in London, to ensure that meritless challenges do not hold those up. It has never been a wholly comprehensive statement of every procedural aspect relating to court challenges. There are other things that we might do with the benefit of the behavioural nudge this provision might give the rules committee to improve our procedures even further.
I do not object to a signal in the Act that the rules committee, as it were, can join them in the promotion of speedy finality with efficient procedures. I am just keen that the hands of the rules committee are not tied at the same time.
Mr Justice Henshaw: On the question, “Shouldn’t it all be in the Act?”, the Law Commission, when it came round to this ultimate approach, saw this very much as a case management matter. It specifically contemplated that the committee may well need to make adjustments as things went along in the light of experience. The only practical way of doing that is to have it in the rules of court, rather than all fully set out in the statute.
The Chair: As I understand from your answers to Lord Marks, you would like the drafting with interests of justice included, while making quite clear that the rules committee had an overriding power to do what it thought was just and was not circumscribed in the way subsection (3C) circumscribes it. Have I understood your evidence correctly?
Mr Justice Henshaw: That is absolutely right.
Mr Justice Foxton: Yes.
Q35 Lord Hacking: If we could go back to 6A, Mr Justice Foxton reminded us of the rules of the LCIA. If you are conducting an arbitration under the LCIA, those rules clearly specify the seat of the arbitration and what is the governing law.
When we are dealing with 6A, we are dealing only with the non-institutional arbitrations, otherwise called the ad hoc arbitrations, but it is still important. With the clarity of 6A(1), is there any need at all to have 6A(2)?
Mr Justice Foxton: From my perspective, yes, because the LCIA’s attempts to address this through something akin to 6A(1) alone failed, precisely because it was said that the choice of law of the matrix contract was enough to oust the LCIA’s presumptive choice of English law for the arbitration agreement.
Lord Hacking: Was that appealable? I do not know that particular case, but you seem to be basing that on the misfortune of a case rather than the general practice.
Mr Justice Foxton: There are two decisions that I am aware of. Mr Diwan was counsel in one of them. I thought that either Mr Justice Henshaw or I might have to deal with it, but the case settled at the court level. I am aware of another case, which suggests that this is not an isolated difficulty.
Mr Justice Henshaw: At a more general level, the risk is that, if you have a provision about the law governing the matrix contract as a whole, that will be an express provision. Perhaps it is also a provision, like the Kabab-Ji clause, that these provisions apply to the whole of this agreement and all its clauses, for example.
Somebody might suggest that that is an express agreement and that it is specific to the arbitration agreement because it is specific to all the clauses, so there is still merit in making clear, in the way that this subclause does, that that overarching governing law for the contract as a whole is not to be regarded as something that satisfies the requirements of what you are looking for here as regards a law to govern the arbitration agreement.
Lord Hacking: It is clear that 6A overrides the decision made in the Kabab-Ji case. Without going into the detail of that, it was, I think, specifically agreed between the parties, or certainly ruled on by the tribunal in Paris, that the seat of arbitration was, in fact, Paris. The English judge said—and this was supported all the way up to the Court of Appeal—that, for the purpose of enforcing the award in the UK, we should switch to the seat. Have you any worry that that has been wrongly displaced by the proposed 6A?
Mr Justice Henshaw: No, I do not think so. The effect of 6A(2) is simply to put beyond doubt that what is needed in order to avoid the default rule applying is highly specific to the arbitration agreement itself, and that will provide the clarity that everyone is looking for.
Mr Justice Foxton: I agree. The principle that, if there is no specifically clear choice of a law governing the arbitration agreement, it is the law of the seat that applies has a very distinguished pedigree. You will find it in the New York convention. All we are debating is the best way of avoiding dispute and ensuring clarity as to when there has been a sufficient choice to displace the law of the seat. Past experience suggests that something along the lines of 6A(2), without getting into particular wordings, would be beneficial to that end.
The Chair: Can I ask other members of the committee whether they have any questions of the judges? On the committee’s behalf, thank you very much for taking the time to come down, listen to the other evidence and assist us as you have done very greatly this morning. We are particularly grateful to both of you in affording us the benefit of your great experience and wisdom. Thank you very much.
