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Lord Fraser of Carmyllie moved Amendment No. 2:

Page 14, line 17, leave out ("party") and insert ("claimant").

The noble and learned Lord said: My Lords, noble Lords will recall that Clause 38(3), which deals with security for costs, was amended in Committee. In amending the subsection the term "party" was used to describe those against whom an order for security of costs could be made. It would be unjust to enable a tribunal to order security for costs against a respondent as the price for being allowed to defend himself. A defendant in litigation cannot be required to do so. Therefore we need to limit the subsection to the ordering of costs against a claimant which by virtue of Clause 82 includes a counterclaimant. I beg to move.

On Question, amendment agreed to.

Lord Fraser of Carmyllie moved Amendment No. 3:

Page 14, line 19, leave out ("party") and insert ("claimant").

On Question, amendment agreed to.

Clause 57 [Correction of award or additional award]:

Lord Fraser of Carmyllie moved Amendment No. 4:

Page 22, line 1, leave out from ("any") to second ("the") in line 2 and insert ("claim (including a claim for interest or costs) which was presented to the tribunal but was not dealt with in").

The noble and learned Lord said: My Lords, this is a small drafting change. Unless any noble Lord wishes me to elaborate on it, I beg to move.

On Question, amendment agreed to.

Clause 61 [Award of costs]:

Lord Hacking moved Amendment No. 5:

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: My Lords, I spoke to a similar amendment in Committee, but in a divided army. As the Minister will recall, another solicitor of the Supreme Court--I cannot detect his presence in your Lordships' Chamber--the noble Lord, Lord Byron, argued to the contrary. I beg to move the amendment again on Report because I believe it to be an important matter.

I submit that the process of arbitration in which the parties consensually agree how to resolve their dispute should be different from the process of adjudication in the law courts. In the law courts the rule is that costs follow the event. As I argued at Second Reading and in Committee, that does not always produce a fair result.

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One can see that it produces a fair result in a simple dispute, perhaps as regards a road accident, when the issue is whether or not a defendant is at fault. If the defendant is at fault, the order of costs should clearly be against him. If he is not at fault, and therefore in the judgment of the court the plaintiff should not have brought proceedings, it is clear that the plaintiff should bear the costs of those proceedings.

However, the commercial world is much more complicated. As has been shown in a number of cases, in the more complex cases brought before the courts, the issues can be narrowly decided in favour of one party rather than another. It is not a world of black and white but of shades of grey. In those circumstances, the rule that costs follow the event operates in an unfair way.

Having identified that the rule of costs can produce an unfair result in the court process--I produced more detailed argument at Second Reading--it is of paramount importance that the arbitrator should be free to decide costs according to his best judgment. That is the law at present. That was the proposal in the draft Bill in July produced for consultation by the committee chaired by Lord Justice Saville. Only since then has the measure been introduced into the draft Bill that the arbitrator should start on the basis of applying the rule that costs follow the event.

I submit that the arbitrator should be left free. He should not be restricted in his order for costs but should do what is fair between the parties. It may well be fair, for example, for him to make no order for costs, or to make an order for costs in certain circumstances against the winning party. He should not be tied down by the principle that costs follow the event.

It is because I feel strongly for the reasons I have advanced to your Lordships that I ask noble Lords to accept the amendment. In so doing it gives freedom to the arbitrator to award costs as he thinks fair and right.

Lord Ackner: My Lords, I resist the amendment. I do not see any provision in Clause 61 which ties the arbitrator down. Subsection (2) provides from the very outset that it is,

    "Unless the parties otherwise agree".
Therefore before embarking upon considering the discretion of the arbitrator, the parties can themselves agree how they wish the matter to occur. If they do not agree, the arbitrator is in a position to avoid an unfair result because of the exception in subsection (2). I should have thought it an advantage for parties to know at the outset what is the usual provision, unless they agree to the contrary, in regard to costs. I see no restriction which can operate unfairly, or at all, in the clause as it now stands.

Lord Fraser of Carmyllie: My Lords, I have little to add to what I said on the point in Committee. Although my noble friend Lord Byron is not present, I have no reason to believe that he has departed from the strong approach he took.

In debate a number of other noble Lords pointed out that the principle that costs follow the event is well established and has stood the test of time well.

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The principle is followed in litigation. While in some procedural matters there is merit in making a distinction between litigation and arbitration, in this case I see no valid reason for arbitration to diverge from the courts. It seems to me entirely fair as a general principle, and that it should be stated as a general principle, that costs should follow the event.

However, as the noble and learned Lord, Lord Ackner, pointed out, the tribunal has the discretion to disapply the principle where it considers that it would be inappropriate to do so. That is spelt out expressly in subsection (2). Even more importantly possibly, if the parties really do not like the principle set out in Clause 61, they are entirely at liberty to devise some other arrangement. It would seem to me that the clause as presently drafted should be maintained within the Bill.

Lord Hacking: My Lords, at least I do not speak from a divided camp, although I do not have supporters. I shall withdraw the amendment, but I must make two comments.

First, the noble and learned Lord, Lord Ackner, referred to Clause 61(2) which states,

    "Unless the parties otherwise agree".
The reality is that parties do not start to agree on issues of costs before the proceedings have begun. In the practical world, I suggest that while there is that power of the parties otherwise to agree, they do not address that matter or come to any other agreement on costs.

Secondly, as the noble and learned Lord said, it is quite right that discretion is available to the arbitrator not to apply the general rule that costs follow the event. However, the central point I seek to make is that the process of arbitration should be different and should be seen to be different from the court process. I tabled the amendment for that reason and I still believe that I was right in tabling it. Lord Justice Saville's committee was right in the first place; the provision was not in the committee's draft which was produced last July. I was seeking to persuade your Lordships to agree with the original decision of that committee, which I suggest was right. Alas, however, I regret that I do not have support and in those circumstances I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

3.30 p.m.

Clause 66 [Enforcement of the award]:

Lord Fraser of Carmyllie moved Amendment No. 6:

Page 24, line 14, leave out subsection (3).

The noble and learned Lord said: My Lords, the clause as drafted gives a non-exhaustive list of grounds on which leave to enforce an award in the same manner as a judgment shall not be given by the court. The list is non-exhaustive, but we see a danger in specifying only some of the relevant matters. Parties may be led astray by thinking that matters which are not mentioned are not covered. That is not the case.

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We have given some thought to constructing an exhaustive list, but it would be difficult to be absolutely sure that all matters had been covered. On balance now we think it would be preferable to exclude the list altogether from the Bill. I beg to move.

On Question, amendment agreed to.

Lord Fraser of Carmyllie moved Amendment No. 7:

Page 24, line 26, at end insert ("or by an action on the award").

The noble and learned Lord said: My Lords, the clause deals with the enforcement by the court of the tribunal's award. Clause 66(5) saves the position of the recognition and enforcement of an award under other enactments or rules of law. The Geneva and New York Conventions are mentioned particularly, and we think that there is merit in making it clear that parties have a right also to recognition and enforcement by means of an action on the award. I beg to move.

On Question, amendment agreed to.

Clause 74 [Immunity of arbitral institutions, &c.]:

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