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Lord Brightman moved Amendment No. 7:

Page 11, line 19, at end insert--
("( ) An arbitrator is nevertheless liable for any costs of the arbitration thrown away if by reason of his own default or the default of his employee or agent he fails to take a step necessary for the proper and expeditious conduct of the arbitral proceedings.").

The noble and learned Lord said: This amendment arises out of Clause 29 which confers general immunity on an arbitrator. I entirely support Clause 29 (1) as it stands subject to one point. It seems to me that if costs are thrown away as a result of an arbitrator's negligence, then perhaps he should not escape liability. The sort of scenario that I have in mind is this. An arbitration is arranged to take place on Monday. By error of the arbitrator's secretary, "Tuesday" is written into his diary. Therefore, the Monday hearing is totally aborted. Of course there will be the expenses of hiring the premises where the arbitration is to take place, expenses, no doubt, of witnesses who are not called upon and expenses of solicitors and perhaps of counsel. Therefore I propose an amendment to Clause 29 providing that an arbitrator is to be liable:

Since I tabled the amendment I have received a wholly unsolicited letter from my noble and learned friend Lord Denning, who unfortunately is not able to be here. He wrote to say that he entirely supports the amendment and has asked me to inform the Committee of that fact.

In the amendment I have referred to "costs thrown away". There is an alternative expression which is "costs wasted". Both expressions are commonly used in the courts in England and are to be found on page 1069 of the 1985 edition of the Supreme Court Practice.

I have also used the expression

    "fails to take a step necessary for the proper and expeditious conduct of the arbitral proceedings".

I suggest that if the amendment is accepted in principle, it might be improved by adopting from Clause 41 the words:

    "failure to do something necessary for the proper and expeditious conduct of the arbitration".

Then there can be no debate as to what is meant by the word "step" in the arbitration. There is nothing else that I wish to say about the amendment. I beg to move.

Lord Mustill: Perhaps I may raise a point on the amendment. I did not give my noble and learned friend Lord Brightman the courtesy of speaking to him about it first because I have only just seen the amendment. Clause 33(1)(b) provides that the arbitrator shall,

    "adopt procedures ... avoiding unnecessary delay or expense".

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I feel a little apprehension about creating a liability on the arbitrator in certain circumstances. For example, if he had made a peremptory order which would have hastened the arbitration he would be in breach of his obligations under Clause 33(1)(b) and would be made liable for the wasted costs which resulted from the arbitration taking longer than it should have done. So far as I am aware, there has never been a case in which an arbitrator has been held liable for that kind of wasted cost. For the Act as amended not only to recognise the possibility but to impose a liability for such a waste might be thought to be going rather further than what I believe the intent of the amendment conveys. I simply offer that thought to the Committee before the Question is actually put.

Lord Donaldson of Lymington: I have two worries about this amendment, both of which I have made known to the noble and learned Lord. The first is much the same as that set out by my noble and learned friend Lord Mustill. I was appointed an arbitrator some two years ago in a quite absurd dispute, the details of which do not matter. Beyond writing a pained letter saying, "Would it be a good idea if they got on with it", I have done nothing.

I have done nothing, because I have set the principle that the bottom line is that the parties are entitled to run or not run the arbitration as they wish. But there is no doubt that, in order to obtain an expeditious resolution of this absurd dispute, I should have made peremptory orders left, right and centre. I should really resent very much if either party turned round at a late stage and said "A whole lot of costs had been wasted while we had been consulting our solicitors over and over again, because you didn't make a peremptory order."

The answer of my noble and learned friend Lord Brightman to that, which may be a good answer, is that I am not in default in failing to take that step, but I am bound to say that I would rather not be at the mercy of one of these disputants in all the circumstances.

My other worry is that if an arbitrator--for example, my noble and learned friend's clerk--puts the date of the arbitration and the wrong date in his calendar, that would be a perfectly proper fact to take into consideration when deciding what his fee for the arbitration should be. I venture to think that that is the way in which it ought to be dealt with. If we are to have a straight liability here as an exception to the general exemption contained in the clause, arbitrators will be forced to take out insurance. As a very occasional arbitrator, if I had to start taking out insurance, for my part I would cease to arbitrate at all.

Lord Roskill: With hesitation, I venture to differ from anything that my noble and learned friend Lord Brightman puts forward, but I respectfully echo what has fallen from the lips of my noble and learned friends Lord Mustill and Lord Donaldson.

I suppose some of us ought to declare an interest here. The fundamental fallacy in this is not only that referred to by the noble and learned Lord, Lord Mustill, but it also overlooks the fact that the jurisdiction in arbitrations is consensual and not compulsory. This

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seeks to put upon an arbitrator a duty of getting on with an arbitration. Under the new doctrines of case management, the Bill may now be right in the commercial court, but it is not right for an arbitration which is under the control of the parties. There are now ways and means of getting arbitration struck out under other clauses of the Bill if the parties do not proceed with it, but it is no part of the duty of an arbitrator or umpire to become involved. He is there to decide what the parties ask him to decide. He is not there to take any initiative.

The proposed amendment has two limbs to it. I have dealt with the first. The second part states,

    "or ... he fails to take a step necessary for the proper and expeditious conduct of the arbitral proceedings".

What does that involve? Is he to ring up? Is he to say get on with it? I do not know. However, I venture to suggest, with profound respect, that this amendment is misconceived.

Lord Lester of Herne Hill: Any advocate in the presence of noble Lords, all of whom are noble and learned Lords, must speak with profound humility and hesitation. However, like the noble and learned Lords, Lord Donaldson and Lord Roskill, I have serious doubts about the amendment. I wonder whether the answer lies in the protection given by Clause 24 on the power to remove the arbitrator, because subsection (1)(d) contemplates a situation where,

    "he has refused or failed--

(i) properly to conduct the proceedings, or (ii) to use all reasonable despatch in conducting the proceedings".

I note from the departmental report that one matter that one might wish to revisit at Report stage would be to give the judge who removes the arbitrator a wider discretion to withdraw the arbitrator's immunity but to impose a ceiling on the amount of liability in extreme circumstances. That is not a matter for us now to consider. However, it seems to me that the mischief might be better dealt with under Clause 24 than giving liability at large in the way proposed by the noble and learned Lord, Lord Brightman.

Lord Hacking: Those of us who are not noble and learned Lords must have some temerity to disagree not only with three noble and learned Lords, but also with the noble Lord, Lord Lester, who is a highly qualified lawyer. However, the noble and learned Lord, Lord Brightman, needs a friend, and I am willing to offer friendship to him on the principle that arbitration should be conducted in a proper and expeditious way; and if the fault lies with the arbitrator, I see no reason why he should not pick up the financial penalty.

The noble and learned Lord, Lord Donaldson, whom we do not wish to discourage from presiding over arbitrations, is worried about insurance. All I have to say to the noble and learned Lord and to other noble Lords is that all the rest of us who are in the marketplace offering professional services must have insurance, and I do not see any reason why arbitrators should not contemplate that as well.

Lord Fraser of Carmyllie: It may be helpful, before the noble and learned Lord, Lord Brightman, responds

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if I contribute briefly to this interesting debate. It might be helpful if I outline the thinking, as I understand it, behind the clause. The purpose of the clause is to confer immunity upon members of the tribunal, their employees and agents in respect of arbitral functions, other than those discharged in bad faith. There is some doubt whether arbitrators have such immunity at the moment at common law and this provision would clarify the situation.

Like judges, arbitrators need to be able to act and make decisions based solely on the merits of the case. Justice must be uppermost in their minds and they should not have to worry about whether they will be sued for the decisions they make or indeed about taking out insurance against the prospect of being sued. At the same time, it will stop recalcitrant parties, who have no solid grounds for challenging an award, from suing the arbitrator as an alternative. In this way, the finality of the arbitral process is strengthened.

An important point to note is that the arbitrator is not protected if he acts, or fails to act, in bad faith. There is sufficient case law to underpin what we mean by bad faith, and we need only refer to the case of Melton Medes v. Securities and Investments Board to establish certain clear principles. What we are talking about is malice in the sense of personal spite or desire to injure for improper reasons, or knowledge of the absence of power to make the decision in question. I think there is a clear dividing line between acts of bad faith and behaviour which falls short of it.

What seems to me to be important is that there are sanctions elsewhere in the Bill, to which in particular the noble Lord, Lord Lester, referred, which can be used against an arbitrator whose behaviour falls short of bad faith. Clause 33, to which the noble and learned Lord, Lord Mustill, referred, imposes a general duty on the tribunal to act fairly and impartially and to avoid unnecessary delay and expense. If an arbitrator fails to comply with these requirements, in particular if he has refused or failed to conduct the proceedings properly or with reasonable speed and a party has suffered substantial injustice as a result, that party can apply to the court under Clause 24 to have the arbitrator removed. The court has the power to make such an order as it thinks fit with regard to the entitlement of the arbitrator to his fees and expenses, an approach which the noble and learned Lord, Lord Donaldson, also urged as a useful alternative to the proposal that is contained within the amendment of the noble and learned Lord, Lord Brightman.

I hope that that explanation of the Government's view of this important clause is helpful to the Committee.

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