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14 September 2023 • 22 minute read

Arbitration Act 1996: Law Commission final recommendations for reform: a gold standard polished?

Written by:James CarterAnna MillsBarry Fletcher

The highly anticipated recommendations for reform of the Arbitration Act 19961, accompanied by draft amending legislation, have been released by the Law Commission of England and Wales2, following a year-long consultation which included the publication of two consultation papers3.

In this article we summarise the key recommendations for reform and highlight points to consider when drafting arbitration agreements.

 

Our take

The consultation offered a once-in-a-generation opportunity for users of English arbitration to reflect on the Act. The Commission’s starting assumption was that the Act did not require “root and branch” review or reform. Instead, the aim was to ensure English arbitration remains state of the art domestically, and a gold standard internationally.

While consensus on all topics was never going to be achievable given the wide range of stakeholder perspectives and priorities engaged, the authors of this article consider the Commission has delivered a sensible and balanced overall package for reform.

The authors welcome, in particular, the proposed new section of the Act which provides that parties are free to select expressly the governing law of the arbitration agreement, but if they fail to do so, the governing law of the arbitration agreement will be the law of the seat of the arbitration*. From a client perspective, such a simple, readily identifiable rule makes practical, commercial sense. It also avoids the potential for confusion and argument and costly satellite litigation. From an international arbitration perspective, the alignment of client choice of arbitral seat and the governing law of the arbitration agreement presents more certainty regarding the legal implications of party choice of “London arbitration”, and aligns with, for example, the approach taken under French and Swedish law on this issue.

 

What has been proposed?

In the table below, we provide a quick guide to the headline recommendations:

Topic
Recommendations
*Governing law of the arbitration agreement

Reform proposed?: Yes

Key points:

  • The Act should include a new section stating that parties may expressly agree the law of the arbitration agreement (which could be in the arbitration agreement or otherwise), failing which the governing law of the arbitration agreement will be the law of the seat of the arbitration.
  • The Act should make clear that express party choice of the governing law for a matrix contract including an arbitration clause will not (of itself) amount to an express choice of the governing law of the parties’ arbitration agreement.
  • The proposed new section of the revised Act states that the default rule will only apply to arbitration agreements concluded on or after the date the revised Act enters into force. It is the only proposed amendment to the Act which is subject to such a caveat. The authors do not believe that this approach was subject to consultation. As such, there may be further debate about it.

We discuss this topic in greater detail in the following article.
Arbitrators’ duty of disclosure

Reform proposed?: Yes

Key points:

  • The Act should include a statutory duty on arbitrators to disclose any relevant circumstances which might reasonably give rise to justifiable doubts as to their impartiality in relation to the (potential) arbitration proceedings (codifying the common law duty confirmed by the UK Supreme Court in Halliburton v Chubb [2020] UKSC 48).
  • As drafted, the statutory duty would be a continuing one, and an individual would be under a continuing duty to disclose what they actually know and what they ought reasonably to know (rather than limited to their actual knowledge). The Commission does not recommend requiring arbitrators to always make enquiries in this regard.
  • In its report, the Commission noted that what will actually need to be disclosed in a particular case will likely vary between sectors.
Arbitrator independence

Reform proposed?: No

Key points:

  • The Commission makes no recommendation for the Act to be amended to require arbitrators to be independent (as well as impartial) of the parties. The Commission takes the view that with duties of impartiality and disclosure already in place, there is no need for a further, and potentially unworkable, duty of independence.
Summary disposal of claims/defences

Reform proposed?: Yes

Key points:

  • The Act should provide expressly that, subject to contrary party agreement, a tribunal may, upon the application of a party, issue an award determining a claim (or an issue arising in a claim), but only where a party has no real prospect of succeeding on the claim or issue, or a party has no real prospect of succeeding in the defence of the claim or issue.
  • As an additional procedural safeguard, before a tribunal exercises such a power (following a procedure the tribunal has determined), the parties must be given a reasonable opportunity to make representations to the tribunal.
Arbitral confidentiality

Reform proposed?: No

Key points:

  • The Commission is not recommending that the Act address arbitral confidentiality. This was another hotly debated topic during the consultation period.
  • Many reasons are given by the Commission, including that different forms of arbitration attract different confidentiality and privacy expectations (for example, investor-state arbitrations where transparency is generally favoured). As such, one size does not fit all, and a statutory rule on confidentiality would not, according to the Commission, be sufficiently comprehensive, nuanced or future-proof.
  • As the Commission notes, if parties reach agreement on arbitral confidentiality (for example, in their arbitration agreement or by incorporating arbitral rules that deal with this issue), such agreements will continue to be recognised by English law (subject to some exceptions). The Commission also notes that English law does recognise arbitral confidentiality based on a number of legal bases and subject to non-exhaustive exceptions.
Section 44 of the Act (court powers in support of arbitration)

Reform proposed?: Partial

Key points:

  • The Act should state explicitly that interim orders made by the English court in support of arbitration can be made against third parties, and any third parties affected by such orders should have rights of appeal should they wish to object. Note: a full right of appeal is not available for parties or proposed parties to the relevant arbitration proceedings.
  • With respect to section 44(5) (which provides the court shall act only if tribunal, etc, has no power to act or cannot do so effectively), no repeal is proposed, and no change is proposed to section 44(2)(a) of the Act (the court’s power to make orders regarding taking of witness evidence) to, for example, limit the power to evidence taken by deposition.
Emergency arbitration

Reform proposed?: Partial

Key points:

  • The Commission does not recommend a separate, comprehensive scheme for emergency arbitrators and emergency arbitration within the Act.
  • Instead, the Act should provide for the enforcement of emergency arbitrator orders which are not complied with, mirroring the existing statutory regime for court enforcement of regular tribunal orders. Other minor amendments are proposed.
Section 67 of the Act (substantive jurisdiction challenges to English-seated arbitral awards)

Reform proposed?: Yes (but not statutory)

Key points:

  • The Commission is not recommending statutory reform to deal with the perceived negative effects of so-called “second bites of the cherry” section 67 applications. These are cases where a participating party to the arbitration objects unsuccessfully to the tribunal’s jurisdiction during an arbitration and that party subsequently challenges the tribunal’s award in court for lack of jurisdiction under section 67 of the Act. This was one of the most discussed and contentious issues during the consultation.
  • Instead, the Commission recommends that the Civil Procedure Rules Committee (CPRC) considers addressing the impact of such cases in the Civil Procedure Rules (and that the power to make sure rules of court be included within the Act).
  • In this regard, the Commission recommends that: (1) a challenging party may only make new objections or present new evidence relating to jurisdiction if it can demonstrate that such objections could not have been raised, and such evidence could not have been put, before the tribunal in the arbitration with reasonable diligence; and, (2) that there be no rehearing of oral evidence during a section 67 claim unless the court determines this to be in the interests of justice.

Other amendments related to section 67 are proposed but are outside the scope of this article.
Arbitrator liability (when ceases functions)

Reform proposed?: Yes

Key points:

  • The Act should provide that an arbitrator should incur no liability for resignation unless the resignation is shown to be unreasonable in all the circumstances.
  • Further, the Act should provide that an arbitrator should not incur costs liability in respect of an application for their removal under section 24 of the Act, unless the arbitrator has acted in bad faith.
Arbitral discrimination

Reform proposed?: No

Key points:

  • With reluctance on its part, the Commission is not recommending the Act address any issues relating to discrimination.
  • The Commission notes that the topic is too complicated and raises too many issues to be dealt with as part of this reform project, and there is a (well-founded) fear of making English arbitration worse rather than better with any statutory intervention. The Commission also does not consider that statutory reform would improve diversity of arbitral appointments. Instead, the Commission commends the various initiatives in the arbitration community aimed at increasing such diversity.
Section 69 of the Act (point of law appeals in English-seated arbitrations)

Reform proposed?: No

Key points:

  • No reform is proposed with respect to this relatively unique feature of English arbitration law.
  • As such, appeals against awards on points of English law will remain possible subject to the ability of the parties to expressly waive or contract out of section 69.
  • The incorporation of most leading institutional arbitration rules (such as those of the LCIA or ICC) into an arbitration agreement will often amount to such an exclusion.
  • Industries where point of law appeals have historically been a key part of the arbitral process, such as shipping/maritime disputes resolved ad hoc by reference to the London Maritime Arbitrators Association (LMAA) Terms, will be untouched by the Law Commission’s project, which should be welcomed by many users.

 

What happens next?

It is now for the UK Government to decide whether to accept the Commission’s recommendations (in whole or in part). The Commission has prepared draft amending legislation in the form of a Bill (annexed to the final report), which the UK Government may decide to introduce into the UK Parliament. We expect that such non-partisan law reform, which is important to maintain London’s leading role as a centre for international dispute resolution, should pass smoothly, subject to parliamentary time being available.

Justice Minister, Lord Bellamy has (rather hopefully) said: “Arbitration is a vital measure to help people and businesses resolve disputes swiftly and effectively, without the expense of going through court proceedings. This process must be underpinned by effective laws, and we will respond to the Law Commission’s report shortly so we can maintain the UK’s reputation as a world leader in resolving legal disputes.”

 

Reflecting on the recommendations: key points for parties or counsel drafting arbitration agreements

While we remain at the recommendations stage, there are some points of practice in relation to some of the issues discussed during the consultation period which parties may wish to adopt regardless of what happens next:

  • Governing law of the arbitration agreement: Despite the decision of the UK Supreme Court in Enka v Chubb [2020] UKSC 38, there remains scope for uncertainty, under English law, as to the governing law of an arbitration agreement, absent express choice by the parties. To avoid doubt and potential dispute, parties should express their choice of governing law of the arbitration agreement in writing, in addition to setting out the governing law of the matrix contract. If the Commission’s reforms are made law, the absence of party choice will result in the law of the seat of the arbitration agreement being deemed to be the governing law of the arbitration agreement, which may, or may not, accord with party intention. As discussed in our article, the law of the arbitration agreement determines important matters such as the separability of the arbitration agreement, the arbitrability of disputes, the scope of the arbitration agreement, and the confidentiality and privacy of the arbitral proceedings. As such, certainty as to the governing law of the arbitration agreement is highly desirable. Further, as the proposed new section will, as currently framed, only apply to arbitration agreements concluded on or after the date the revised Act comes into force, it is worth clause drafters being aware of this potential rule now and including their express choice of governing law of the arbitration agreement in writing.

    •  

  • Arbitral confidentiality: While some national laws (including English law) and arbitral rules (such as those of the LCIA) often make provision for arbitral confidentiality, it is not always the case. Given confidentiality is often a key concern for parties when choosing to arbitrate rather than litigate before national courts, it may be prudent to include express provisions regarding arbitral confidentiality in the arbitration agreement itself or in a standalone confidentiality agreement between the parties.

    •  

  • Summary disposal of claims and defences: If the summary disposal of claims and defences is not considered appropriate for the parties in the context of their transaction and potential disputes, it is possible to exclude the possibility of the tribunal exercising such a power with exclusionary wording. While many parties may not wish to exclude the possibility of this power being exercised at the contracting stage (which may result in the quicker and cheaper determination of the parties’ dispute without compromising fairness), contracting out may be appropriate in some circumstances. For example, it would be appropriate where any potential disputes are likely to be complex and unsuitable to be determined on a summary basis.

    •  

  • Point of law appeals on English law: While no reform in this area is recommended, the exercise serves as a reminder that such appeals are available in English-seated proceedings on an opt-out basis. If the parties’ chosen arbitration rules incorporated into the arbitration agreement do not exclude such appeals (which is typically the effect of choosing, for example, the LCIA and ICC rules), parties may wish to consider whether such appeals should be available in any future disputes between them.

The above points are, of course, just some of the relevant considerations when drafting arbitration agreements. If you would like to discuss the reform project or any other arbitration-related matters, please contact the authors of this article.

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1England and English are used in this article as convenient shorthand for England and Wales/English and Welsh, unless the context indicates otherwise. Part I of the Act applies to arbitrations seated in England, Wales and Northern Ireland.
2Review of the Arbitration Act 1996
3See our previous coverage: The Law Commission’s review of the Arbitration Act 1996 and Law applicable to arbitration agreements: Law Commission consults on new statutory rule

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