Following a comprehensive consultation process, the Law Commission has published its final report and a draft bill for reform of the Arbitration Act 1996 – the law governing arbitrations (both domestic and international) seated in England & Wales. Here we look at their final recommendations.
As covered in our previous articles on this topic, in November 2021 the Law Commission (the statutory independent body charged with reviewing and recommending changes for the reform of the law of England & Wales) announced that a review of the Arbitration Act 1996 (the "Act") would form part of its 14th programme of law reform. Under its terms of reference, it was tasked with ensuring that the Act remains fit for purpose and continues to promote England & Wales as a leading destination for commercial arbitration.
The Commission launched an initial consultation on its provisional proposals for reform of the Act a year ago. This was followed by a second more targeted consultation in March 2023, in response to feedback on discrete topics. The Commission has now published its final report, setting out in detail its reasoned recommendations for the reform of the Act, and a draft legislative Bill for government to consider.
- Duty of disclosure – the Commission recommends codifying the common law position as set out by the UK Supreme Court in 2020, namely that arbitrators have a continuing duty to disclose any circumstances which might reasonably give rise to justifiable doubts as to their impartiality. The Commission recommends only codifying the principle, while leaving its detailed application to develop through case law or arbitral rules. However, it also recommends that the duty of disclosure should be based not only on the arbitrator's actual knowledge, but also on what they ought reasonably to know – i.e. an arbitrator may in some circumstances need to make reasonable inquiries in order to discharge their duty of disclosure.
- Arbitrator immunity – the Commission recommends reforming the Act to provide that an arbitrator incurs no liability for resigning unless the resignation is shown to be unreasonable. This, they say, strikes the right balance so as not to deter arbitrators from resigning where that is appropriate – e.g. in order to comply with sanctions following the outbreak of war. The Commission also recommends that, where an arbitrator is the subject of an application for their removal, they should not incur liability for the complainant's costs unless the arbitrator acted in bad faith.
- Summary awards – this is a topic which the Commission had originally mooted for review in its previous programme of reform from 2017, and recommendations have now been made. The Commission recommends that, subject to the agreement of the parties (i.e. this will be a non-mandatory provision which parties can exclude) a tribunal may issue an award on a summary basis (i.e. without a full merits hearing). This is where it considers a party has no real prospect of success – a test which has a well-established meaning in litigation in the courts. Including such an express power of summary disposal is intended to reassure arbitrators that such a power is indeed available to them, and that a summary disposal does not necessarily offend against their duty to give each party a reasonable opportunity to put its case. Of course, if the proposal is indeed enacted on an opt-out basis, then parties may well choose not to give a tribunal this power in any event. The Commission further counsels that summary disposal should not become another procedural step invoked disingenuously by a party in an attempt to delay progress to trial.
- S.67 Challenges (lack of jurisdiction) – s.67 of the Act allows a party to challenge an award where the tribunal lacked substantive jurisdiction, for example, where it is argued there is no valid arbitration agreement. But since a party may also make such a challenge to the tribunal itself, a full rehearing in court can be duplicative, and add delay and expense to the arbitral process, and is therefore prone to be used disingenuously by recalcitrant parties in an effort to stall an arbitration. The Commission therefore recommends that, where a party objects to the tribunal, and the tribunal rules on its own jurisdiction, then on any subsequent challenge made to the court under s.67, the court should not admit any new grounds of objection or new evidence unless they could not with reasonable diligence have been put before the tribunal. This is intended to avoid parties using the tribunal as a 'dress rehearsal' before deploying further arguments in court.
- Aligning the remedies – The Commission also recommends aligning the remedies under s.67 with those under s.68 (challenges for serious irregularity) and s.69 (appeal on a point of law) such that in the event of a successful challenge, the court can either declare the award to be of no effect, or remit it to the tribunal for reconsideration. Their recommendation is that the latter should usually be the preferred course of action.
- Governing law of an arbitration agreement – as with the arbitrator's duty of disclosure, the Commission recommends codifying the common law approach to determining the governing law of an arbitration agreement (which was also set out by the UK Supreme Court in a 2020 judgment). As that decision is said to be complex and unpredictable, the Commission proposes a new rule providing that the law governing the arbitration agreement is: (1) the law the parties have expressly chosen for the arbitration agreement (as opposed to any wider contract in which it sits); or (2) where there is no such agreement, the law of the seat of arbitration.
- Court powers in support of arbitration – s.44 sets out various powers of the court to support arbitral proceedings. The Commission recommends making various amendments to s.44 to clarify that:
- the court can make orders against third parties, as well as the parties to arbitral proceedings; and
- third parties may appeal any such order made against them without consent of the court appealed from (by contrast, such consent is required where one of the parties to arbitration is making such an appeal).
- Emergency arbitrators – the Commission has proposed that the Act should support enforcement of orders made by emergency arbitrators. It proposes two parallel paths to this:
- Peremptory order - If an emergency arbitrator's award is ignored, the emergency arbitrator can issue a peremptory order which, if still ignored, could be enforced by the court
- S.44 application – alternatively, a party could use the mechanism in s.44 to apply to the court if the subject matter of the emergency arbitrator's order was urgent (e.g. an order for the preservation of assets). The Commission proposes that an emergency arbitrator be empowered to give permission for such an application to court.
Areas not being reformed
The Commission also reports on some key areas where it considered reform, but where its final report does not propose changing the law:
- Confidentiality – in the Commission's view, introducing a statutory rule on the confidentiality of arbitrations would not be sufficiently comprehensive, nuanced or future-proof to cover the wide range of arbitrations governed by the Act. If confidentiality is important to parties, they are free to agree that, and the law of confidentiality (which of course is far wider in application than just arbitration) is best developed by the courts.
- Discrimination – the first consultation proposed extending the effect of equality legislation to prohibit parties from discriminating against arbitrators on grounds or protected characteristics. However, after considering feedback, the Commission has reluctantly concluded that legislating to prohibit party discrimination in the appointment of arbitrators could cause more problems than it solves – including creating a risk of satellite litigation and a further lever for parties intent on delaying and disrupting the arbitral process to challenge arbitrators or their awards. In addition, they conclude that a non-discriminatory appointment process may not necessarily result in the desired improvement in diversity of arbitral appointments, which would diminish the impact of the reform.
- S.69 - Appeal on a point of law – the Act currently includes an "opt out" ability for parties to appeal on a point of law. Parties frequently do opt out, including by signing up to institutional rules which preclude such a right of appeal. Having taken soundings, the Commission concludes that s.69 is a defensible compromise between promoting the finality of arbitral awards, and correcting blatant errors of law.
These carefully considered recommendations represent an evolution rather than a revolution, and speak to an Act which is generally considered to be working well 25 years on. It is now for government to decide whether to accept those recommendations and whether the Bill should be introduced to parliament to complete the legislative process.
If you have any questions, please contact Gordon Bell or Tom Price.
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