The Law Commission’s review of the Arbitration Act 1996 - polishing “a gold standard”?

The Law Commission of England and Wales has published a consultation paper setting out provisional proposals on potential areas of reform to the Arbitration Act 1996 (AA 1996), which provides the statutory foundation of English arbitration law*.

The review is a once in a generation opportunity for users of English arbitration to reflect on and examine the Act in light of their experience. The Law Commission has made it clear the Act does not require “root and branch” review or reform. Rather, the project is an opportunity to ensure English arbitration remains state of the art domestically, and a gold standard internationally.

The results of the Law Commission’s review should interest any party arbitrating under English law and/or making choices about where to arbitrate in future.

The major topics identified by the Law Commission and related provisional proposals for/against reform are:

• Confidentiality and privacy: No change is proposed, which is pragmatic given it is not appropriate for all arbitrations to be private and confidential. It would also be difficult to formulate meaningful exceptions to a general presumption of confidentiality. Instead, any development of the law of confidentiality will be left to the courts.
• Summary disposal powers for arbitrators: Proposal to give arbitrators an express power to summarily dispose of claims/defences/issues in defined circumstances. This power is arguably permissible under the Act as currently in force, but the certainty of an express provision is welcome.
• Point of law appeals against awards: No change is proposed. The current availability of point of law appeals on an opt-out basis achieves a ‘defensible compromise’ between supporting the finality of arbitration proceedings and promoting the consistency of decisions on English law.
• Jurisdictional challenges to awards: Proposal to limit court challenges to awards on jurisdictional grounds, where a party has participated in the arbitration and challenged jurisdiction, to a review of the tribunal’s decision on jurisdiction only. This gives more deference to the tribunal’s jurisdiction decision and prevents parties from having multiple opportunities to challenge jurisdiction afresh.
• Court powers to order interim remedies in support of arbitration and emergency arbitration: Proposal to confirm the availability and extent of the court’s powers in support of arbitration are to be determined by reference to the court’s equivalent powers in civil litigation. The Law Commission is also requesting views on whether the Act should state such powers may extend to third parties. A light-touch response to emergency arbitration is also suggested, including clarifying how an agreement to such a procedure interacts with a party’s ability to seek interim relief from the English courts, as well as the enforcement of the orders of emergency arbitrators.
• Independence of arbitrators and duty of disclosure: Proposal that the existing duty of disclosure based on case law be codified, bringing English law in line with international best practice. No introduction of a duty of independence is proposed.
• Discrimination and tribunal appointments: Proposal to prevent discriminatory challenges to arbitrators, highlighting the Law Commission’s commitment to diversity in arbitration.
• Immunity of arbitrators: Proposal to give arbitrators immunity in respect of costs in arbitration-related court proceedings.

In addition to the areas listed above, a number of other topics were suggested for review by stakeholders, but they haven’t been shortlisted by the Law Commission. These include that the Act should: (a) address third-party funding, including party disclosure of the fact of funding; (b) address arbitration by artificial intelligence; and, (c) include bespoke provisions for investor-state arbitrations. The Law Commission has not reached a final decision on these areas and seeks input on revisiting any of them, or any other topics not mentioned in the paper that stakeholders consider are in need of potential review and reform.

Confidentiality

Confidentiality is often cited as a reason for commercial parties to choose arbitration over court litigation. However, arbitral confidentiality is not addressed in the AA 1996.

Key point: No reform proposed by the Law Commission; the law of arbitral confidentiality is best developed as necessary by the courts.

What this means: The proposal not to codify arbitral confidentiality reflects the difficulty of accommodating the varying confidentiality requirements of different types of arbitration proceedings seated in England (for example, commercial, investor-state, sports, statutory, etc) and defining exceptions to any default rule that arbitrations seated in England and Wales are private and confidential.

It means that parties to arbitrations seated in England will, generally, continue to be subject to an implied duty of confidentiality (and privacy) in arbitral proceedings (including over the award, pleadings, written submissions, notes and transcripts of evidence). The duty exists as between the parties and also between the parties and the arbitral tribunal, whether or not the arbitration involves confidential matters, and subject to some exceptions recognised by the common law. In addition to this implied duty, parties often agree expressly to apply arbitration rules which may provide for confidentiality. Where confidentiality is particularly important to parties, it remains open to them to enter into a standalone confidentiality agreement (or address confidentiality within the arbitration agreement itself), allowing for the comprehensive protection of confidential interests.

The proposal against reform means future developments and clarifications regarding the scope of arbitral confidentiality under English law will be left to the courts. Given the challenges involved in dealing with all facets of arbitral confidentiality in a satisfactory and comprehensive way within the context of a statute, this was perhaps the only realistic option. The Law Commission considers that, far from being a weakness, it is one of the strengths of English arbitration law that confidentiality is not codified.

Summary disposal in arbitral proceedings

Historically, litigation before the English courts had, at least in one respect, an edge over arbitration due to the availability of procedures allowing for the early disposal of claims such as through summary judgment, strike out, and default judgment. However, recently arbitration institutions have sought to fill that gap by introducing efficient ways of dealing with cases that are obviously lacking in merit. Nevertheless, the Act itself is largely silent on the tribunal’s powers to deal with cases on a ‘summary’ basis.

Key point: Reform proposed by the Law Commission, giving a power to arbitral tribunals to adopt summary procedures to decide claims, defences or issues which have “no real prospect of success”, and when there is “no other compelling reason to continue to a full hearing”. Such an express tribunal power is proposed to be: (a) non-mandatory (i.e. parties can agree that it won’t apply); (b) available only on the application of a party; and, (c) subject to a requirement to consult with the parties on the form of procedure.

What this means: The availability of summary disposal powers, and their scope, will be clear within the Act. This should give: (a) parties more confidence to request the exercise of such powers by tribunals (resulting in cases being dealt with more quickly and perhaps more cheaply); and (b) tribunals greater confidence about the existence and scope of their powers without fear of acting without jurisdiction or being accused of procedural unfairness, thereby combatting “due process paranoia”.

In the absence of an express statutory power it has been unclear whether tribunals could dismiss claims or defences summarily. The proposed removal of this uncertainty is welcome. Parties concerned with the fairness of summary disposal should be reassured by the Law Commission’s statements that it will remain the case that each party shall be given a reasonable opportunity to put its case on the relevant issues. Grounding the power in statute should also reduce concerns about the international enforceability of summary awards.

Point of law appeals against arbitral awards

The final and binding effect of arbitration awards is considered by many parties as an essential feature of arbitration, and is enshrined in the AA 1996, s 58. However, appeals to the court against arbitral awards on points of law are possible, albeit that the parties can opt-out of this right in their arbitration agreement (AA 1996, 69).

Key point: No reform proposed by the Law Commission.

What this means: The status quo is preserved. 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 AA 1996, s 69. The incorporation of most leading institutional arbitration rules (such as those of the LCIA or ICC) into an arbitration agreement will generally amount to such an exclusion. Industries where point of law appeals have historically been a key part of the arbitral landscape, 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 users.

There are arguments in favour of widening access to point of law appeals, most notably to help publicly develop the common law and ensure legal consistency. The proposal to maintain the current position leaves parties with the ability to incorporate a right of appeal in their arbitration agreements, or to choose not to do so.

Challenges to awards on substantive jurisdiction grounds

There are currently various avenues available to a party who objects to the jurisdiction of a London-seated arbitration tribunal, including the right to have the question decided by the English court at different stages of the arbitration. In particular, section 67 of the AA 1996 allows a party who has participated in an arbitration and challenged jurisdiction before the tribunal to have the question of jurisdiction considered afresh by the court, without reference to the tribunal’s prior decision.

Key point: Reform proposed, principally to limit challenges to awards on jurisdictional grounds, where a party has participated in the arbitration and challenged jurisdiction, to an appeal of the tribunal’s decision on jurisdiction only (rather than, as currently, allowing a full re-hearing of the jurisdiction challenge in court).

What this means: This is likely to be one of the most controversial aspects of the proposals. It removes the right which parties currently have to have their jurisdiction challenge re-heard by a court if they are unhappy with the decision of the tribunal. It means that in future parties will need to make a choice if they decide to bring a jurisdiction challenge:

• to bring the challenge before the tribunal and then be limited in their recourse to the court to grounds of appeal only; or
• to elect not to challenge jurisdiction before the tribunal but to bring the challenge directly to the court at first instance.

The reform seeks to achieve a balance between giving the tribunal’s decision sufficient weight (the current position arguably makes the tribunal’s decision redundant), whilst retaining the court’s ultimate power to rule on jurisdiction.

This proposal also prevents parties having two first instance opportunities to challenge jurisdiction, which has time and cost implications, as well as the risks of: (a) unfairness (by allowing the losing party to develop its arguments and potentially, obtain new evidence); and (b) the court deciding differently to the tribunal. It will give parties a greater degree of certainty, although it allows room for appeals so that the court still has the final say. The proposal would also make the right of challenge more limited than in various other pro-arbitration countries, such as the US, Australia and Hong Kong, where a rehearing rather than an appeal is the general position. This may give English arbitration law a point of difference that could be attractive in terms of efficiency.

Court powers to order interim measures in support of arbitral proceedings and emergency arbitration

The English courts have certain default powers exercisable in support of arbitral proceedings, i.e. making orders: (a) on the taking of witness evidence, (b) on the preservation of evidence, (c) relating to property, (d) for the sale of goods, and (e) granting an interim injunction or appointing a receiver (AA 1996, s 44).

However, confusion has emerged (and been only partially addressed by the courts) about whether those powers are exercisable in the same way as in English civil litigation, specifically in relation to the power to make orders impacting third parties. The interaction between AA 1996, s 44 and emergency arbitration/arbitrators has also given rise to uncertainty in recent years.

Key point: Views are sought on whether the relationship between AA 1996, s 44 and third parties should be clarified within the Act itself. On emergency arbitration, it is not proposed that the provisions of the Act should apply generally to emergency arbitrators, but views are welcomed on whether it is necessary to clarify that emergency arbitrator provisions in arbitral rules need not restrict access to relief from the court under AA 1996, s 44.

What this means: The Law Commission’s proposed approach in this area is one of amplification and minor amendment to achieve clarity. The Law Commission considers it to be clear that the availability and extent of the court’s powers to make the various orders set out above (including with respect to binding third parties) is determined by reference to the court’s equivalent powers in civil litigation. However, views are sought on whether it would be preferable for AA 1996, s 44 to be amended to clarify that such orders may be made against third parties subject to the rules applicable in domestic legal proceedings.

As for emergency arbitration proceedings and emergency arbitrators, the Law Commission is not inclined to legislate extensively to accommodate this development in international arbitration practice. Instead, views are sought on repealing AA 1996, s 44(5) in order to make it clear that agreeing to the application of emergency arbitrator provisions (such as those contained in the LCIA Arbitration Rules) does not preclude recourse to the English courts under AA 1996, s 44 (which has been a widely-held view in light of the decision in Gerald Metals v Timis [2016] EWHC 2327 (Ch)). The Law Commission also seeks views on how the Act should deal with non-compliance with the orders of emergency arbitrators.

Subject to the final recommendations of the Law Commission, reforms in this area should clarify two of only a few grey areas that have been grappled with by the English courts since the Act came into force over 25 years ago.

Independence of arbitrators and a duty of disclosure

The impartiality of an arbitration tribunal is a fundamental principle that is enshrined in various parts of the AA 1996. However, there is no explicit duty of independence or duty requiring arbitrators to disclose circumstances affecting their impartiality in the AA 1996. This is an issue which has given rise to significant controversy, including high profile litigation over recent years.

Key point: Reform proposed. No introduction of a statutory duty of independence, but the introduction of a statutory duty of disclosure is proposed.

What this means: There would be a statutory duty for arbitrators to disclose any circumstances which might reasonably give rise to justifiable doubts as to their impartiality. Although the codification of the duty is new, the legal duty already exists (confirmed by the Supreme Court’s 2020 decision in Halliburton v Chubb[2020] UKSC 48).

For parties, the proposed codification should bring further clarity to the circumstances in which arbitrators are required to make disclosures to the parties and when challenges can be brought to remove arbitrators for potential bias. This change also brings English arbitration in line with international best practice and so should be welcomed. The consultation paper leaves open the question of whether the state of knowledge required for an arbitrator’s duty should be specified, and if so, whether the duty should be based on actual knowledge or what ought to be known after the making of reasonable inquiries. Input on these points is sought from stakeholders in the consultation.

The proposal not to introduce a duty of independence appears a pragmatic one, reflecting the difficulty of establishing independence in what remains a relatively small pool of arbitrators and counsel, and where the duties of disclosure and impartiality make the need for a separate duty of independence unnecessary.

Discrimination and arbitral appointments

Although diversity is increasingly (and rightly) a focus in international arbitration, equality legislation does not extend to arbitration, in particular where an arbitration agreement specifies who can be appointed to the tribunal in terms that might be considered discriminatory.

Key point: Reform proposed:

• to exclude the possibility of challenges to arbitral appointments based on protected characteristics (as defined in the Equality Act 2010); and
• to make any agreement between the parties in relation to the arbitrator’s protected characteristics unenforceable unless, in the context of that arbitration, requiring the arbitrator to have that characteristic is a proportionate means of achieving a legitimate aim.

What this means: The proposal makes discriminatory terms regarding the appointment of an arbitrator in the arbitration agreement generally unenforceable. It would also not be possible for a party to challenge the appointment of an arbitrator on discriminatory grounds, i.e., on the basis of the protected characteristics under the Equality Act (age, disability, gender re-assignment, marriage and civil partnership, pregnancy and maternity, race, religion or belief, sex, and sexual orientation). The provision would be defensive, so would not provide any additional grounds to challenge arbitrators, but is intended to defend against challenges which are made on discriminatory grounds.

This may not have a significant practical effect for parties because most challenges to arbitrators are not based on protected characteristics. However, it demonstrates a clear anti-discrimination message (described in the consultation paper as a world-leading initiative) from the Law Commission given that there is currently nothing preventing discrimination in arbitration, and is reflective of the need (noted by many users of arbitration) for arbitration to continue moving towards achieving greater diversity, including in arbitrator appointments. It does, however, also raise enforcement risks given that one of the grounds for resisting enforcement under the New York Convention is that “the composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties” (Article V.1(d)). The consultation paper flags this but says that it is “more important that the law in England and Wales takes a stance against discrimination”.

Extending immunity of arbitrators with respect to costs in arbitration-related court proceedings

Arbitrators generally have immunity from liability under the AA 1996 from liability for anything done in the discharge of their functions as an arbitrator. However, they may still incur liability: (a) when they resign; and (b) for costs, if a party makes an application to court to remove them, even if that application is unsuccessful.

Key point: Reform proposed, extending the immunity of arbitrators to immunity from costs liability in arbitration-related court proceedings. There is also a consultation on whether arbitrators should incur liability for resignation, and if so, whether the liability should only be incurred if the resignation is proved to be unreasonable.

What this means: Under this proposal, arbitrators could be confident that they will be protected from costs liability in satellite litigation, for example, in relation to court proceedings to remove an arbitrator. This supports the finality of awards by discouraging satellite litigation against arbitrators, and supports the impartiality of arbitrators by protecting them against pressure to conform to party demands or risk personal liability.

So, what’s next?

The Law Commission welcomes responses to the consultation paper by 15 December 2022. These can be provided by completing an online form, by email (arbitration@lawcommission.gov.uk), or by post (although if responding by post, sending by email too is encouraged).

The Law Commission will review the responses to the consultation, engage with respondents and stakeholders, and ultimately publish its final recommendations for law reform by mid-2023. It will then be for the UK Government to decide whether to implement any recommendations.

If you’d like to discuss the implications of potential reforms in this area, a member of the DLA Piper International Arbitration team would be pleased to speak with you. Do get in touch with Philip Chong (Head of International Arbitration for Europe), the authors of this article, or your usual firm contact.

*England 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.

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