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Contracts (Rights of Third Parties) Bill [H.L.]

3.34 p.m.

The Lord Chancellor (Lord Irvine of Lairg): My Lords, I beg to move that the Commons amendments be now considered.

Moved, That the Commons amendments be now considered.--(The Lord Chancellor.)

On Question, Motion agreed to.

COMMONS AMENDMENTS
[The page and line refer to Bill 118 as first printed for the Commons.]
COMMONS AMENDMENT

1Clause 6, page 5, line 4, after ("2") insert ("or 3")

The Lord Chancellor: My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 1. This technical amendment adds Part B of Schedule 3 to the Carriage by Air Acts (Application of Provisions) Order 1967 to the list of international transport conventions in subsection (8) of Clause 6. Contracts which are subject to the rules of the conventions in this list are excluded from the effects of the Bill. We do not believe that the Bill should interfere where other legislation already deals with the question of third party rights. This schedule is concerned with the regulation of the international carriage of cargo by air. It was inserted after the Law

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Commission had published its report, Privity of Contract: Contracts for the Benefit of Third Parties, on which this Bill is based. I beg to move.

Moved, That the House do agree with the Commons in their Amendment No. 1.--(The Lord Chancellor.)

Lord Goodhart: My Lords, we are entirely happy not only with the amendment before us but also with the other proposed amendments. The Bill corrects a longstanding defect in English law. I hope that the Government will proceed with their consideration of a more rapid procedure for dealing with non-controversial Law Commission Bills so that we can get more of them on to the statute book.

Lord Kingsland: My Lords, the Official Opposition are also content with all the amendments before noble Lords on the Bill.

On Question, Motion agreed to.

COMMONS AMENDMENT

2Clause 7, page 5, line 18, leave out subsection (4)

The Lord Chancellor: My Lords, I welcome the intimations of support from the noble Lords, Lord Goodhart and Lord Kingsland, for the amendments with which we have yet to deal. I yield to no one in my desire to find fast-track means of ensuring that Law Commission reports which are truly non-controversial are put on the statute book as speedily as possible.

I beg to move that the House do agree with the Commons in their Amendment No. 2. In moving this amendment I should like to speak also to Amendment No. 3.

Amendment No. 3 deals with arbitration and ensures that, where appropriate, the Arbitration Act 1996 applies to the enforcement of third party rights under the Bill. There is no dispute--as has been indicated by noble Lords--that this is the right policy. But it is a technical subject and we have responded to concerns raised during the Recess to clarify the Bill.

Subsection (1) of the new clause brings in the provisions of the Arbitration Act where the third party's right to enforce a substantive term in his favour is subject to a term providing for the submission of disputes to arbitration. In such a case the third party has what is called a "conditional benefit"; that is, he can take the benefits of the term on condition that he enforces it by arbitration. This subsection will ensure that, when a third party whose right of enforcement is subject to the dispute being referred to arbitration seeks to enforce his right by litigation, the promisor will be able to seek a stay of the proceedings under Section 9 of the Arbitration Act. The Bill as currently drafted would not allow the promisor to be able to do this. Those of your Lordships who are familiar with arbitration and the 1996 Act will agree, I am sure, that it would not be safe to rely on the court using its inherent power to stay proceedings that have been brought by a third party in such circumstances.

Subsection (2) of the clause is concerned with the less common situations where the "conditional benefit" approach will not apply. Subsection (2) would

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apply where the contracting parties give the third party a right to arbitrate a dispute other than one concerning a right conferred on the third party under Clause 1, such as a claim in tort made by the promisor against the third party. To require the third party to arbitrate, where he is given no other benefit, would be to impose a pure burden on him. That would be contrary to the policy of the Bill. Subsection (2) of the new clause therefore brings in the Arbitration Act only where the third party has chosen to exercise the right to arbitrate.

Amendment No. 2 deletes subsection (4) of Clause 7, which is being replaced by Amendment No. 3. I beg to move.

Moved, That the House do agree with the Commons in their Amendment No. 2.--(The Lord Chancellor.)

Lord Hacking: My Lords, I thank the noble and learned Lord for bringing this Commons amendment before your Lordships' House. For the reasons that he has given, it is clearly desirable that we should look again at subsection (4), which was introduced by the noble and learned Lord on Report. I am more than happy with the amendment that he has placed before the House. Although I should have liked, as the noble and learned Lord knows, the scope of arbitration in the Bill to have been greater, for reasons which I advanced while the Bill was passing through the House, I am extremely grateful to the noble and learned Lord that the third party has been given the right, and the mechanisms for it, to use the arbitration clause in the contract between the promisor and the promisee. Therefore, I wholeheartedly agree that we should accept this amendment and indeed all the other amendments which the noble and learned Lord has brought before the House.

This is positively my last speech as a hereditary Peer in your Lordships' House, a place which I have enjoyed and from which I have learnt much during the past 25 years. Therefore, perhaps I may say, as a departing hereditary Peer, that your Lordships' House does an enormous amount of useful work in the non-political area on technical Bills such as this and on technical aspects of political Bills. I very much hope and expect that your Lordships' House will continue with that good work.

Finally, some noble Lords have noticed that I am sporting an enormous black eye. As no one appears to have accepted my domestic explanation for it, and as a number of theories have been developed among noble Lords to whom I have spoken, perhaps I may put on record that I have not been whopped by an angry hereditary Peer who failed in the ballot! On the contrary, I believe that all hereditary Peers are seeking to leave this House with great dignity, and I am sorry that my own appearance is a little undignified.

Lord Wilberforce: My Lords, following, with great sadness, the speech of the noble Lord, Lord Hacking, whom we shall be very sorry not to see on the Government Back Benches in the future, I wish to make one remark about the two amendments. Since the Bill was last before the House, I have had some doubts as to whether it was really wise to deal in the

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Bill, which tackles the well-known problem of the enforcement of contracts by third parties, with the very special case of arbitration agreements, which is rather a labyrinth, a mire and a difficult subject. My doubts have not been assuaged by the new amendments. To that extent I would have been happier with Amendment No. 2, which simply deletes subsection(4) of Clause 7, and leave it at that. But given that the noble and learned Lord wishes and thinks it right to deal with arbitration agreements in the Bill, I wholly agree that the new clause to be inserted after Clause 7 is an improvement on the old and will probably work quite well. I just wish to express that reservation about the inclusion at all of arbitration agreements in this Bill.

On Question, Motion agreed to.

COMMONS AMENDMENT

3After Clause 7, insert the following new clause--
ARBITRATION PROVISIONS

(" .--(1) Where--
(a) a right under section 1 to enforce a term ("the substantive term") is subject to a term providing for the submission of disputes to arbitration ("the arbitration agreement"), and
(b) the arbitration agreement is an agreement in writing for the purposes of Part I of the Arbitration Act 1996,
the third party shall be treated for the purposes of that Act as a party to the arbitration agreement as regards disputes between himself and the promisor relating to the enforcement of the substantive term by the third party.
(2) Where--
(a) a third party has a right under section 1 to enforce a term providing for one or more descriptions of dispute between the third party and the promisor to be submitted to arbitration ("the arbitration agreement"),
(b) the arbitration agreement is an agreement in writing for the purposes of Part I of the Arbitration Act 1996, and
(c) the third party does not fall to be treated under subsection (1) as a party to the arbitration agreement,
the third party shall, if he exercises the right, be treated for the purposes of that Act as a party to the arbitration agreement in relation to the matter with respect to which the right is exercised, and be treated as having been so immediately before the exercise of the right.")

The Lord Chancellor: My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 3. I spoke to this amendment with Amendment No. 2.

Moved, That the House do agree with the Commons in their Amendment No. 3.--(The Lord Chancellor.)

On Question, Motion agreed to.


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