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Lord Lester of Herne Hill: I speak in opposition to the amendment of the noble Lord, Lord Hacking, and in support of the Minister's amendment. It seems to me that the matter is clearly dealt with in the DAC report where the advantages of a power towards security for costs is clearly out. The committee was concerned at the possible injustice that might occur but came to the conclusion after further thought that that possibility could be overstated and, for reasons given in paragraph 366(iii), it concluded that there were adequate safeguards against abuse in the Bill as it stands. I agree with that view. It seems to me that the great advantage of the Minister's amendment is that it is more user-friendly than the previous draft and it also ensures that our law is brought into line with European Community law so far as any discrimination based on nationality is concerned in making an order for security for costs.

Lord Donaldson of Lymington: Subject to guidance, I am not clear whether this is an appropriate moment to comment upon the Minister's amendment.

The noble Lord, Lord Hacking, says that security is used as a weapon; and so it is by the advocates. From the point of view of the court, it is not used as a weapon at all. It reflects the fact that as we have a system in this country whereby costs can be awarded against one party or the other it is important that there should be some system for ensuring that should that eventuality occur there are ways and means of seeing that the order is effected. That is the sole purpose. I see no reason why that should be any different for international commercial arbitrations if they are being consulted under a system of law which would enable an order for costs to be made at the end. Of course I am very conscious of the extent to which this power is misunderstood and is an obstacle to arbitration in this country. The only thought that I would like to put forward for consideration by the noble and learned Lord, the Minister, is that one might perhaps put in the word "only" so that his amendment would read:

The reality is that if somebody has assets within this country or within the European Community, there is no need for security for costs. There may be other countries outside the Community where the same is true, but in Ruritania--to take a country at random--where there is no such system, it is the very fact that one party is ordinarily resident in Ruritania which could be said to justify the making of an order for security for costs. The problem arises where somebody is resident, which does not matter, coupled with the fact that it is not possible to get at him there. I say frankly that I do not know how

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to redraft this and it may be that it should not be redrafted at all. However, I put forward the point for further consideration, if that is thought to be appropriate.

Lord Mustill: I do not know whether I am in order in referring to observations that are made in a judicial capacity here but since they were cited, I ought to comment on them. My recollection is that in using the word "idiosyncratic", I was describing the arguments addressed by one side, not using the epithet for my own purposes. I would agree with the substitution of the words:

    "An order for security for costs in arbitration is only available in a minority of jurisdictions"

The fact that it is a minority power does not mean that it is necessarily bad for that reason alone. I believe that, as my noble and learned friend Lord Donaldson has said, in a jurisdiction where there is a power to award costs, then a power to award security marches satisfactorily and helpfully with it. I would respectfully agree with everything that has been said by the noble and learned Lord, and I associate myself with Amendment No. 10, possibly with the minor adjustments proposed by the noble and learned Lord.

Lord Wilberforce: For my part, I find this particular provision the most difficult one which the Committee is now considering. I accept entirely the principle that we ought to withdraw any power to order security of costs from the court and transfer it if it is to be exercised by the arbitrators.

I view with some misgiving a general provision such as will emerge in any event, which simply says the tribunal may order a party to provide security for costs, without giving any indication as to the principles on which that order is to be made. That was met in the original text by saying that power must be exercised in the same way as it would be exercised by the court. I see the objection to that because it would necessitate referring to a great many provisions in the White Book; and also, it would frighten away many foreigners. However, to leave it absolutely open-ended does seem to me extremely difficult.

This will be regarded by arbitrators as a delightful new instrument, a wonderful new toy. They will say, "This is wonderful. We have completely unfettered discretion to order this, with the only limitation, if the noble Lord's amendment is accepted, that we must not do it on the grounds, or only on the grounds, that the party concerned is outside the jurisdiction".

I agree that the clause would be better with the Minister's amendment than without it, and it may be that is the best we can do. We have to accept the position that cases will emerge of discretions exercised by arbitrators on various grounds which will be questioned. Some body will have to be built up of practice or possibly of directions by the court. It may be quite some time before the position is stabilised. A great door of ambiguity and uncertainty is opened by this

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word "may" with the only restriction being that proposed by the Minister. I daresay that is the very best we can do, but I do not feel very happy about it.

Lord Fraser of Carmyllie: I may unintentionally have confused matters about the two amendments that my noble friend has tabled. I do not invite the Committee to accept either of those amendments, but I invite the Committee to accept my Amendment No. 10.

The noble and learned Lord, Lord Donaldson, suggested that Amendment No. 10 might be improved by the introduction of the word "only". That proposal was to be found within the report on the Arbitration Bill, to which I referred earlier, where the draft provided included that word. My understanding of the matter is that the draftsman came to the view that it did not add anything to the provision. However, given the observation that the noble and learned Lord has now made, I wonder if I might move my amendment but give him an indication that I will, with the draftsman, reflect further on that one word addition to the clause. There is nothing further that I can usefully add.

Lord Peston: I regret to say that there is a very commonsensical question I would like to ask. This arises, as I understand it from the Minister, because a foreigner might wish to use arbitration procedures in this country, and he does not want them frightened away, or so he says. I am totally sympathetic to that. But do I misunderstand Clause 38(1) which says:

    "The parties are free to agree on the powers exercisable".

Surely, then, they should be free to agree what they would like to do about the ordering of costs, which could only arise if they had not sorted out the problem in the first place. The essence is that they are supposed to think about it in the first place because they are worried about coming here. I am not quite clear, with all respect to the noble and learned Lord, what the fuss is all about.

Lord Lester of Herne Hill: There is a difficulty with the amendment proposed by the noble and learned Lord, Lord Donaldson. I fully understand the reason for including the word "only" but I respectfully submit that it would create problems with European Community law unless we had another law to deal with European Community law separately.

One can envisage the situation where if one put in the word "only" it would not deal with a case of mixed causation or intention. If part of the reason for imposing security for costs was that an individual was ordinarily resident in another European Community State, as I understand Community law as interpreted by the English Court of Appeal recently, our wording would breach European Community law, because there must be no direct or indirect discrimination based on nationality. That would include a case of mixed motives or complicated causation where, but for the EC nationality of the individual person concerned, an order for security for costs would not have been made. Therefore, if one were to go down the road of including the word "only", I would respectfully suggest that one

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would need a further amendment at a later stage to deal with that problem of European Community law, which would not arise, of course, in relation to Ruritania.

Lord Wilberforce: Perhaps I may comment on what was said by the noble Lord, Lord Peston. Surely Clause 38(1) is not really of any help. There is a situation in which one party wants security for costs and the other does not want to give security for costs. It is quite unrealistic to suppose that the parties will agree that security for costs will be given. The situation is ex hypothesi a hostile one. I had hoped that Clause 38(1) would help but in reality, I do not think that it does.

Lord Byron: Before the Minister sits down, I was about to say something that the noble and learned Lord, Lord Wilberforce, has also partly said. Those who are arbitrating pursuant to a set of rules will often have these laid down for them in advance, whether the tribunal gives security for costs or not. Those who are arbitrating in an ad hoc way, not pursuant to a set of rules, will almost certainly not be able to reach agreement. That is why it is often important.

The introduction of the word "only" seems to me quite important. Either residence abroad is a reason or it is not a reason. As I understand the present draft, it is not a reason at all. Therefore, in seeking security for costs one would have to find some other reason and presumably one would have to convince the tribunal that enforcement was the important criterion and that there would be a difficulty of enforcement or whatever. But the actual fact of residence would not be a ground at all. Once the word "only" is introduced--and opinions may differ as to whether that is a good thing or not--it becomes a ground. Then only one other peg may be needed to hang it on. It may be said that the main reason is that the plaintiff is in Ruritania or wherever, but the claim may also be rather weak and some other small ground is given as a make-weight. It would certainly alter significantly the text if we were to introduce the word "only". We should perhaps be rather careful as to the actual intention of the amendment. As I read the amendment, it was intended to take it out as a ground completely but leave in the more material considerations of questions of enforcement and so on.

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