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Lord Fraser of Carmyllie: I indicated to the noble and learned Lord, Lord Donaldson, that I would reflect further on this matter. I may have been too hasty in saying that it was exclusively the draftsman who had determined that the word "only" should be removed from the proposed amendment. My improved understanding of the situation is that it was removed as the result of a wider range of advice available to the draftsman.

However, in view of the observations that have subsequently been made by the noble Lord, Lord Lester, and the noble Lord, Lord Byron, I should still like to hold to my undertaking to the noble and learned Lord, Lord Donaldson, that I will reflect on it. But there is clearly a body of opinion within the Committee which would indicate that the draft that is before your

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Lordships on the Marshalled List is correct. I will nevertheless stick to my undertaking to reflect upon the matter.

Lord Hacking: I am not quite sure what my noble and learned friend proposes to do about his Amendment No. 10.

Lord Fraser of Carmyllie: I shall move it.

Lord Hacking: In hearing all the argument, as your Lordships have, it was a delight that the one non-lawyer in our company made the winning argument on Clause 38(1) in making Clause 38(3) redundant, but when the noble and learned Lord, Lord Wilberforce, intervened, I realised that there could be a situation in the ad hoc setting up of an arbitration (rather than the institutional setting up of arbitration rules) where the parties would not be able to agree and I reluctantly come back to the position that if we are to have such a power, it has to be written into the statute book. My argument still remains that we should not have such a power. As my noble and learned friend the Minister said, the concept of security for costs is alien to many who are not familiar with our system of costs and the way in which we conduct legal proceedings, let alone arbitration proceedings.

It is clear that I do not have the Committee with me. I never expected to have a noble and learned Lord with me and, as I do not have the Committee with me, it is my intention--although I still ask my noble friend to reflect on my observations--to withdraw Amendment No. 9.

Amendment, by leave, withdrawn.

Lord Fraser of Carmyllie moved Amendment No.10:

Page 14, line 18, leave out from ("arbitration") to end of line 20 and insert--
("This power shall not be exercised on the ground that the party is--
(a) an individual ordinarily resident outside the United Kingdom, or
(b) a corporation or association incorporated or formed under the law of a country outside the United Kingdom, or whose central management and control is exercised outside the United Kingdom.").

On Question, amendment agreed to.

[Amendment No. 11 not moved.]

Clause 38, as amended, agreed to.

Clauses 39 to 44 agreed to.

Clause 45 [Determination of preliminary point of law]:

Lord Fraser of Carmyllie moved Amendment No. 12:

Page 18, line 13, leave out ("unless the court certifies") and insert ("which shall not be given unless the court considers").

The noble and learned Lord said: In speaking to Amendment No. 8, I also spoke to Amendment No. 12. I beg to move.

On Question, amendment agreed to.

Clause 45, as amended, agreed to.

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Clauses 46 to 60 agreed to.

Clause 61 [Award of costs]:

Lord Hacking moved Amendment No. 13:

Leave out Clause 61 and insert the following new Clause--

Award of costs

(".--(1) The parties are free to agree on the power of the tribunal as regards the award of costs.
(2) Subject to the agreement of the parties, the tribunal shall determine the costs of the arbitration and decide which of the parties should bear the costs and in which proportion between the parties the costs should be borne.").

The noble Lord said: I beg leave to move Amendment No. 13. In my professional capacity and in the professional capacity of my noble friend Lord Byron who sits besides me, we have to advise. My noble friend is not in my practice and I am assuming therefore that he advises--as I have to advise--on the issues of costs to clients whether they arise as a matter of litigation or whether they arise as a matter of arbitration. I have to tell the Committee that cost is an extremely important element in a client's decision-making. It is an important element because large sums of money are at stake and because of the rule that the loser pays all. That can act as a deterrent for a party asserting his or her rights in litigation or arbitration. It applies the more so in litigation when one brings in the further ingredient of payments into court.

The other major unsatisfactory feature about the issue of costs is the system of taxation. I am not observing whether that is right or wrong, but the fact is that now, when a bill is taken to a taxing master to be taxed, there is a severe reduction of the awardable or recoverable costs of the party who has had the order for costs in his favour. The winning party is fortunate if that party gets as much as half of his costs on taxation.

That is the background to the amendment I have put before the Committee. In supporting the amendment I would say that the arbitrator should not be tied to the rule of costs following the event. There should be a separation between the conduct of litigation and the conduct of arbitration on this issue. It is highly undesirable to have that rule written in, and it should be left to the discretion of the arbitrator, who should have complete freedom. The rule of costs following the event, when one party has narrowly lost and one has narrowly won, results in the unhappiness of the losing party having the order for costs against him and then the next unhappiness is the winning party thinking that he will recover all his costs and derive a benefit from the system; he then does not benefit because he only recovers half of his costs. The issue of costs is a serious issue for the parties and this is why I have moved this amendment which is designed specifically to give complete discretion to the arbitrator.

Lord Byron: My noble friend Lord Hacking mentioned my name and although I share the same profession as he does, I cannot support him in this amendment. In so far as his amendment differs from the printed clause only in relation to whether costs should follow the event, subject to certain exceptions as set out

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in the Bill, or whether there should be complete discretion, my experience is slightly different from that of my noble friend Lord Hacking.

If there is a complaint, it tends to be that arbitrators do not quite follow the rules and do not necessarily allow that costs should follow the event--they can sometimes be quite wayward. The rule that costs should follow the event is well understood and easy to operate. There are ways in which parties can protect themselves and, in any event, the clause has within it a discretion where it appears that circumstances dictate otherwise. I cannot support my noble friend in this amendment.

Lord Donaldson of Lymington: I intervene only to say that I see nothing wrong in principle with costs following the event. I fully understand that there are difficulties where somebody is short of the amount and is caught for costs in those circumstances. The arbitrator would have a discretion if he thought there should be some tempering of the wind.

It must be remembered that if that presumption is abolished, it becomes very difficult to keep the system of Calderbank letters, or payments into court or some equivalent, which are so important in encouraging settlements before an award is made. Therefore, I am against that.

The question of taxation is a different one altogether. I am bound to say I was very surprised that the noble Lord was complaining about the taxation for two reasons: first, because it does not appear to have occurred to him that perhaps the taxing masters might be right; and, secondly, because certainly when I knew more about these things than I now do, I never heard of a commercial solicitor allowing his costs to be taxed by the taxing masters--they were always taxed by a third firm of commercial solicitors.

Lord Roskill: Perhaps I may add to what my noble and learned friend Lord Donaldson said on the last point. For what it is worth, my own experience as an arbitrator has been that the solicitors involved invariably arrange for the costs to be taxed not by a taxing master but by an experienced costs clerk in a third firm of solicitors.

On the other point, I venture to agree with what the noble Lord, Lord Byron, said. This clause as drafted does all that is necessary.

Lord Fraser of Carmyllie: There is little that I can usefully add to the three contributions that have been made to this debate. The principle that costs follow the event is well established and I believe it has indeed stood the test of time. Should circumstances arise which the noble and learned Lord, Lord Donaldson, indicated and someone is short of a few pounds, as both he and the noble Lord, Lord Byron, have pointed out, a discretion is provided within the clause as drafted.

The only further point that I make is directed to the noble Lord, Lord Peston. Again, this is a non-mandatory clause. If the parties wish to devise a principle other than costs following the event, they are at liberty so to do.

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