The Law Commission’s final report on its review of the Arbitration Act 1996: Maintaining UK’s leading reputation for arbitration?

The UK Law Commission has published a final report containing recommendations for reform (the “Report”) of the Arbitration Act 1996 (the “Act”) – the law governing the procedure around every arbitration seated in London.  Rather than a complete overhaul of the legislation, the Law Commission has focused its recommendations on fine-tuning the legislation to keep it in line with the evolving priorities of arbitration users and to maintain London’s popularity as a major centre for international arbitration.  It is likely to lead to the amendment of the Act in 2024.

Background

15 years on from the Act coming into force, the UK Government requested a review of the Act to ensure that it provides a modern and effective legislative framework so that the UK’s world leading reputation for arbitration is solidified.

The Law Commission began its review in January 2022, published its first consultation paper in September 2022 and second consultation paper in March 2023.  A broad range of consultees, including law firms, barristers’ chambers and universities, provided detailed responses which have also been published alongside the Report.

The Report’s recommendations:

The feedback the Law Commission received from consultees is that the Act is largely fit for purpose and major reform is not necessary.  In the Report, the Law Commission’s recommendations are focused on a number of major initiatives.  The core of these are:

1. Codification of an arbitrator’s duty of disclosure:  The Report recommends that the common law position under Halliburton v Chubb, which provides that arbitrators have a continuing duty to disclose any circumstances which might reasonably give rise to justifiable doubts as to their impartiality, be codified in the Act.  The reasoning is based on the importance of this duty and the belief that its codification would be more in line with international best practice.

The Report suggests that this duty of disclosure should extend to pre-appointment discussions and that case law should be developed so it is clear the duty includes circumstances of which an arbitrator ought reasonably to be aware.

The Report confirms that it is only the general principle which should be codified.  The Act should not prescribe what needs to be disclosed nor what an arbitrator ought reasonably to be aware of, as such details will vary from case to case.  This is an attempt to strike a balance between establishing the principle, while maintaining a sufficient level of generality to suit the nuances of each dispute.

2. Strengthening arbitrator immunity:  The current position under the Act is that an arbitrator may lose their immunity and risk incurring liability if they resign from their position, or if a party applies to the court for their removal.  The Report recommends that the law should be reformed so that an arbitrator cannot incur liability for resignation unless the resignation is shown to be unreasonable.  In addition, an arbitrator should not incur costs liability where there has been an application for their removal, unless the arbitrator has acted in bad faith.

3. Introduction of a power of summary disposal:  The Law Commission’s recommendations are aimed at ensuring summary disposal is used as a fair and efficient resolution of disputes, as opposed to it becoming an additional interim procedural step.  The Law Commission suggests the Act should expressly provide that, subject to agreement of the parties, an arbitral tribunal may issue an award on a summary basis (some commentators having asserted that this power is already implicit in the Act).  It emphasises that this should only be available on the application of a party, rather than on an arbitrator’s instigation and that it should be subject to the usual test that there be “no real prospect of success”.

The hope with this recommendation is that it provides a framework to ensure that the process for summary disposal is fair whilst also providing some comfort that the process is sufficiently robust for arbitrators and foreign courts enforcing awards made in England and Wales.

4. A revised framework for challenges under s67:  The ruling of a tribunal can be challenged before the court under section 67 of the Act on the basis that the tribunal did not have jurisdiction.  The current position under Dallah v Government of Pakistan is that if there is any challenge under section 67 then this must be by way of a full rehearing (with a party being able to introduce new evidence and arguments not run before the tribunal).

On this issue there were strong views for and against reform.  On the one hand, the current position can be seen as favouring the challenging party - the hearing before the tribunal could become a form of “dress rehearsal” where the losing party can seek to obtain new evidence and develop their arguments for another hearing before court.  Whereas others see the current approach as protecting access to the court for those that have not agreed to arbitrate.  Overall, there was consistent majority support in favour of reform.

As a compromise between the two positions, the Law Commission outlines that reform should be effected through court rules as opposed to any change in legislation.  The changes proposed include:

• Limits on any new grounds of objection, or any new evidence, unless it could not have been put before the tribunal.
• Limits on new evidence being heard unless if it is found to be in the interests of justice.

5. A new rule on the governing law of an arbitration agreement:  There was general agreement amongst consultees that the current position on the governing law of an arbitration agreement is complex and unpredictable.  The current law is set out in Enka v Chubb which provides that in the absence of specific choice by the parties, then the law of the contract will be implied to govern the arbitration agreement as well – unless it renders the arbitration agreement invalid.  The Report expresses concern that this position risks causing unnecessary cost and delay and could result in arbitration agreements being governed by a foreign jurisdiction (which may not be as supportive of arbitration).

In order to avoid this, and increase simplicity and certainty, the Report recommends a new rule be added to the Act, so that the law which governs the arbitration agreement is the law that the parties expressly agree applies to the arbitration agreement or, if no such agreement is made, the law of the seat of the arbitration.

6. Clarification of court powers:  While the Act under section 44 currently provides the court with power to make orders in support of arbitral proceedings, the Report discusses a number of potential reforms that could be made.  The two most important relate to third parties and emergency arbitrators.

Third parties - There has been disagreement over whether the powers set out in section 44 extend to third parties, so the Law Commission recommends that the Act be amended: (i) to confirm explicitly that this power extends to orders against third parties, and (ii) to establish that the court’s consent is not necessary for third parties appealing an order made against them.

Emergency arbitrators - The Law Commission makes clear in the Report, consistent with the view of the majority of consultees, that the Act should not apply generally to emergency arbitrators.  The Report does recommend that the Act should support court enforcement of the orders of emergency arbitrators and proposes both of the following options into the framework of the Act: (i) empowerment of an emergency arbitrator, whose order hasn’t been followed, to issue a peremptory order, or (ii) ability for emergency arbitrators to give permission for applications to the court under s44(4).

There are certain issues which are discussed in the Report, but the Law Commission concluded that no reform is necessary:

• Confidentiality:The Report looks at whether there should be a statutory default rule of confidentiality, with a list of exceptions, but decides against this.The reasoning being that a singular statutory rule could not sufficiently reflect different arbitral contexts.Many commentators have noted that this appears to be a lost opportunity to clarify what is currently a case law driven regime.
• Discrimination:The Law Commission decided against proposing the introduction of a specific prohibition on discrimination in the Act (in addition to the wider prohibitions which apply at law).This is for a variety of reasons, including concern about negative practical consequences which might result and because the majority of consultees felt that existing remedies were sufficient.
• Appeals on Points of Law (Section 69):The Law Commission considers that appeals on points of law under section 69 of the Act should be maintained. The Report sees section 69 of the Act as a compromise between promoting the finality of arbitral awards while correcting clear errors of law.
• Court Intervention (Section 44(5)):The Law Commission does not recommend the repeal of section 44(5) of the Act which sets out the threshold for court intervention.The Report points to its value as a statement of principle that court intervention in arbitral proceedings should be less rather than more.

Conclusion

It is now for the UK Government to decide whether to accept the recommendations of the Law Commission and to decide whether the draft legislation should be introduced to Parliament.  We are hopeful that this will be reviewed by Parliament promptly, particularly given Justice Minister Lord Bellamy’s statement that they 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”.

If introduced by Parliament, these reforms will not cause drastic change to the UK’s legislative framework for arbitration.  We believe the amendments will be a positive adaptation to already sound legislation so that the UK’s reputation as a safe place for international arbitration is maintained.