Chapter 1 – Introduction

• 1. In our Report of February 1996 we discussed the provisions of the Arbitration Bill as introduced in the House of Lords in December 1995. In of that Report we set out some recommendations for changes to some of the provisions of the Bill, having considered the speeches made in the House of Lords on the Second Reading and some comments and suggestions from others; and having also carried out our own re-examination of the Bill. This Report discusses the changes that were made to the Bill during its passage through Parliament and thus the differences between that Bill and the Arbitration Act 1996, which received the Royal Assent on 17 June 1996. All these changes were recommended by the Committee, though some differ from or are in addition to the suggestions originally made in . Not all the changes suggested in were adopted, but again this met with the approval of the Committee, after yet further reflection and consideration of comments and suggestions made to us.
• 2. Certain decisions were also taken by the DAC after the Act received the Royal Assent, with respect to the commencement of its provisions. These are also discussed with respect to the particular sections affected, and in the context of the transitional provisions.
• 3. This Supplementary Report is to be read in conjunction with our Report of February 1996. The numbering of sections corresponds to the Act in its final form. As several sections were added to the Bill during its passage through Parliament, some of the references are slightly different from those in of our February 1996 Report.

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  4. The new Order 73 of the Rules of the Supreme Court, together with the new Allocation Order (which stipulates the Courts to which arbitration applications may be made) have been included in to this Report, together with a short commentary. The new Order 73 has been completely recast in order to reflect the changes brought about by the Act and to simplify the procedure for Court applications concerning arbitration. Although drafted in consultation with some members of the DAC, the new rules were not within the latter’s remit, and are therefore included here simply for ease of reference.
• 5. By the Arbitration Act (Commencement No. 1) Order 1996 (S.I. 1996 No. 3146), the Act (with the qualifications set out in that Order) comes into force on 31st January 1997. This Order also contains transitional provisions. The Order is reproduced in , together with a short commentary.

Chapter 2 – Part I of the Act

Section 2. Scope of application

• 6. Clause 2 of the Bill as introduced in the House of Lords in December 1995, read as follows:
  • “2. – (1) The provisions of this Part apply where the law of England and Wales or Northern Ireland is applicable, or the powers of the court are exercisable, in accordance with the rules of the conflict of laws.
  • (2) They apply, in particular –
    • (a) to matters relating to or governed by the arbitration agreement, where the applicable law is the law of England and Wales or Northern Ireland; and
    • (b) to matters governed by the law applicable to the arbitral proceedings, where the seat of the arbitration is in England and Wales or Northern Ireland.
  • (3) The following provisions apply whatever the law applicable to the arbitration agreement or the arbitral proceedings:
    • (a) sections 9 to 11 (stay of legal proceedings);
    • (b) section 43 (securing the attendance of witnesses) and section 44 (court powers exercisable in support of arbitral proceedings); and
    • (c) section 66 (enforcement of arbitral awards).
  • (4) The court may refuse to exercise any power conferred by this Part if, in the opinion of the court, the fact that the seat of the arbitration is outside England and Wales or Northern Ireland, or that when designated or determined the seat is likely to be outside England and Wales or Northern Ireland, makes it inappropriate to exercise that power.”
• 7. This provision was explained at paragraphs 23 to 25 of our Report of February 1996. The intention was to set out a clear statement identifying the scope of application of the Act, without attempting to codify any rules of the conflict of laws. The basic elements of this clause, as originally drafted, may be summarised as follows:
  • (i) Clause 2(1) simply provided that the Act applies wherever English law is found to be applicable to an arbitration, or where the powers of the English Court are exercisable in relation to an arbitration. Whether or not English law is applicable, and whether or not the powers of the English Court are exercisable, are both matters to be determined by reference to appropriate rules of the conflict of laws, which are to be found elsewhere.
  • (ii) Clause 2(2), as originally drafted, further refined this basic principle by recognising that different elements in an arbitration may well be governed by different laws. The law governing the merits of the dispute (e.g. a choice of law clause in a contract) may not necessarily govern the arbitration clause itself, as the latter constitutes a separate agreement. Similarly, the law governing the procedure of the arbitration may well be a different law from that governing the merits of the dispute. Consequently, if the arbitration agreement

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    was governed by English law, those provisions in the Act which concern arbitration agreements would apply (clause 2(2)(a)). Similarly, if the seat of the arbitration was in England and Wales or Northern Ireland, those parts of the Act which concern the arbitral procedure (as distinct from matters of substance) would apply (clause 2(2)(b)). This further refinement was necessary in order to avoid the danger that all the provisions of Part I of the Act would be imported if English law is found to govern one particular aspect of an arbitration. For example, an arbitration may have a French seat, with French law governing the procedure, but English law governing the arbitration agreement. In such a situation, only those provisions of the Act which concern arbitration agreements should apply. It would be quite wrong to apply provisions of the Act which concern arbitral procedure, as this would be governed by French law. Indeed, if this were not the case, a choice of English law to govern an arbitration agreement would entitle a party to invoke the jurisdiction of the English Court wherever the seat of the arbitration might be, thereby endowing the English Court with an unacceptable extra-territorial jurisdiction.
  • (iii) The remaining parts of the original clause 2 made specific provision for the New York Convention (clause 2(3)(a) and (b) – stays of legal proceedings and the enforcement of awards) and enacted, section 25 of the Civil Jurisdiction and Judgments Act 1982 (clause 2(3)(b) – powers in support of foreign arbitrations).
• 8. In of our February 1996 Report, at paragraph 357, we recommended that the original clause 2(2)(a) be slightly amended in order to make clear that the applicable law referred to there was the law applicable to the arbitration agreement, rather than the law applicable to the substantive agreement.
• 9. Following the introduction of the Bill into Parliament, we had the benefit of further detailed discussions with a number of leading arbitration experts from abroad, and took the opportunity of reconsidering this provision. It is fair to say that whilst there was unanimous support for the inclusion of such a provision identifying the scope of the Act, there was considerable disquiet as to the clause as drafted. It was felt that the provision was sound in principle, but unworkable in practice, for the following reasons:
  • (i) The clause was complicated and extremely difficult to understand. To this end, it appeared to defeat its own object.
  • (ii) In order to apply clause 2(2), it was necessary to be able to identify all those provisions of the Act which concerned the arbitration agreement, as distinct from all those that concerned the arbitral procedure. As explained above, if for example English law governed the arbitration agreement, but not the arbitral procedure, by virtue of clause 2(2) only those provisions in the Act which concerned the arbitration agreement (as opposed to the arbitral procedure) would apply. The provisions of the Act had therefore to be individually characterised and separated in this way.