On 6 September 2023 the Law Commission ("the Commission") published its final report on reforms to the Arbitration Act 1996 ("the Act"). The review was requested by the Ministry of Justice in March 2021 and involved two rounds of consultations. Its purpose was to ensure that the Act remains fit for purpose and "continues to promote England and Wales as a leading destination for commercial arbitration". The report, which runs to 189 pages, includes a draft Bill for Parliament to enact the Commission's recommendations, covering areas from discrimination in arbitration proceedings to jurisdictional challenges. Below is a summary of the changes you need to know about.
The 10 headline reforms were as follows:
- New, simpler rule on the governing law of arbitration agreements (s.1 draft Bill)Consultees to the review said that the current law regarding the governing law of arbitration agreements, set out in a Supreme Court decision, is complex and unpredictable. In response, the report proposed a new rule to be added to the Act, providing that the governing law will be what the parties explicitly agree or, where there is no agreement, the law of the seat of the arbitration. The Commission noted this would preserve party autonomy as well as providing simplicity and certainty.
- Arbitrator's general duty of disclosure concerning impartiality (s.2 draft Bill)The Commission recommended a new general principle to disclose circumstances that might reasonably give rise to justifiable doubts as to the arbitrator's impartiality. No detailed rules were suggested, in order to retain the flexibility of the common law to make decisions on specific circumstances. If adopted, the duty will extend to circumstances the arbitrator is or ought reasonably to be aware of.
- New threshold standards for challenges to arbitrator immunity (ss.3, 4 draft Bill)Two standards were proposed for liability where an arbitrator has resigned or been removed. Where an arbitrator has resigned, the Commission recommended that a complainant must show that the resignation is unreasonable. Where they have been removed, the complainant must show that the arbitrator has acted in bad faith.
- Single route to preliminary determination of jurisdiction (s.5 draft Bill)There was a recommendation that the Act should make clear that a preliminary determination of jurisdiction by the court is an alternative to the ruling of an arbitral tribunal, and cannot be made after a tribunal ruling.
- Explicit tribunal power to award costs following jurisdictional challenges (s.6 draft Bill)Another recommendation in relation to jurisdictional challenges concerned costs. The Commission said that arbitral tribunals should have an explicit power to award costs where there has been a ruling that it has no jurisdiction to hear a claim.
- Explicit power for an arbitral tribunal to grant a summary disposal (s.7 draft Bill)The report notes that although the arbitral tribunal has a duty to adopt procedures that avoid unnecessary delay and expense, there is also a duty to give each party a reasonable opportunity to put their case. This has led to 'due process paranoia', discouraging arbitrators from using a summary disposal procedure. The Commission recommended a provision stating that an arbitral tribunal may, on the application of a party, summarily dispose of a case. The standard would be whether the case has 'no real prospect of success', the same as the civil standard in England and Wales. Both the power to make a summary award and the threshold standard could be varied by agreement of the parties in the arbitration agreement.
- New routes to enforce orders of emergency arbitrators (s.8 draft Bill)The review looked at the role of emergency arbitrators ("EAs"). The Commission did not recommend that a scheme of EAs should by administered by the court, or that the whole Act apply generally to EAs. However, it did recommend that where an EA makes an order that is ignored by a party, the EA should be able to make a peremptory order, which would then be enforceable by the court. As a parallel alternative, report noted that an applicant can already apply to the court for an order under section 44 of the Act where the matter is urgent, or with the permission of the EA where it is not.
- Explicit power for an arbitral tribunal to make orders against third parties (s.9 draft Bill)Due to uncertainty created by conflicting case law about whether orders can be made against third parties to arbitration arbitral proceedings, the Commission recommended amending the Act to make the power explicit. In contrast to the parties in the proceedings, who have limited appeal rights, third parties would enjoy all the usual rights of appeal against such orders.
- New court remedies against tribunal awards regarding jurisdictional challenges (s.10 draft Bill)The Commission recommended that section 67 of the Act should be amended to provide two additional remedies against tribunal awards following jurisdictional challenges: (1) declaring the award to be of no effect, in whole or in part; and (2) remitting the award to the tribunal, in whole or in part, for reconsideration. The former remedy would only be available where the latter remedy would be inappropriate.
- New court rules limiting jurisdictional appeals (s.11 draft Bill)The report notes an arbitral tribunal's power to decide its own jurisdiction to hear a claim. Where an appeal is made to the court regarding jurisdiction, a Supreme Court decision ruled that the appeal must be by way of a full rehearing. The Commission considered that this amounted to a 'dress rehearsal' for the losing party, and recommended that new rules of court should be made that evidence will not be reheard and no new grounds of objection can be made. It said that amending court rules allowed for greater flexibility if amendment is needed.
The other minor reforms recommended were the following:
- Time limits for appeals to the court amended (s.12 draft Bill)The Act provides that court appeals may not be brought before the expiry of any arbitral appeal or review. However, the arbitral tribunal might still be dealing with a correction to an award, or whether to grant an additional award to a claim that was presented to a tribunal but not dealt with. In these cases the time limit still runs from the expiry of any arbitral appeal or review. The Commission recommended changing the time limit in these circumstances so that time runs from the date of any material correction or additional award.
- Confirmation of appeals from applications to stay proceedings (s.13 draft Bill)The Commission recommended an amendment to the Act to confirm that an appeal is available from a decision of the High Court to the Court of Appeal for applications to stay legal proceedings, as the current drafting is not clear, although the House of Lords has held that the apparent preclusion of an appeal is a drafting error.
- Simplification of the test to apply to the court to determine preliminary points of law or jurisdiction (s.14 draft Bill)Where a party seeks to apply to the court to determine a preliminary point of law or jurisdiction, it can apply where there is agreement between the parties. It can also seek the permission of the tribunal, but in this case the court must be satisfied that (1) the application is made without delay; and (2) for points of jurisdiction only, there is a good reason why the matters should be decided by the court. The report noted that it is peculiar that agreement of the parties suffices but permission from the tribunal does not. The Commission recommended removing these criteria, so that applications require the agreement of the parties or permission of the tribunal only.
- Repeal of sections 85 to 87 of the Act (s.15 draft Bill)The Commission recommended that sections 85, 86 and 87 of the Act be repealed, which concern distinctions between domestic and international arbitration agreements brought over from earlier legislation. After decades of the Act being in force it was considered unnecessary to retain those sections, or desirable to introduce these distinctions.
Areas where no recommendation was made
- A default rule of confidentiality of arbitration proceedings was considered and rejected on the basis that any rule would not be sufficiently comprehensive, nuanced or future proof.
- A statutory duty of arbitrator independence was rejected. The report noted that what is important is not any connection of the arbitrator to the parties but its effect on impartiality and apparent bias.
- No reform was recommended to discrimination law in the context of arbitrations. The Commission suggested that the current law is already satisfactory to cover arbitrations.
- No recommendation was made to amend section 44(2)(a) of the Act concerning evidence, to clarify that it relates to the taking of witness evidence by deposition only, as the current drafting causes few problems in practice.
- No recommendation was made to repeal section 44(5) of the Act concerning the court's power to act if a tribunal has no power or is unable to. Even though the section might not add much practically, the Commission considered it has value as a statement of principle.
- No amendment was recommended to section 103 of the Act, which gives effect to Article V of the New York Convention 1958 regarding jurisdictional challenges to foreign arbitral tribunal awards.
- No reform was recommended regarding section 69 of the Act, which deals with appeals on points of law. The Commission considered whether it should be repealed, but decided that it provided a compromise between the finality of arbitral awards and correcting blatant errors of law.
- Section 7 of the Act provides that an arbitration clause survives the failure of the main contract. The Commission was not persuaded that making this separability mandatory (i.e. prohibiting parties from contracting out of this section) was in the public interest.
- No recommendation was made regarding developments in technology, such as electronic documentation, remote hearings, and digital signatures. The Commission accepted that reference to these might preclude something else that becomes appropriate as technology develops.
- It was not recommended to change the heading of section 39 of the Act to refer to provisional orders rather than provisional awards. Awards and orders have different enforcement mechanisms. However, case law has made the issue 'live' and the Commission wished to avoid unintended consequences.
- No changes were recommended to the wording of section 70 of the Act, concerning security for costs orders, which had attracted some criticism for being circular.
This was a broad review of the Act and the report proposed some sensible amendments that, if implemented, will provide helpful clarity in numerous areas, especially concerning the law governing the arbitration agreement. The major changes recommended demonstrate that the reforms are intended to update, rather than revolutionise, the Act. This, in our view, is the correct approach. The Act has shown itself to be close to ‘best in class’ in the almost 30 years it has applied, and a significant re-write was unnecessary.
Codification of an arbitrator’s continuing duty of disclosure is both sensible and welcomed, as is the proposal that the duty incorporates circumstances of which an arbitrator ought reasonably to be aware (s.2 draft Bill). Similarly, the recommendation of an express provision enabling disposal of an arbitration and the issuing of an award on a summary basis (s.7 draft Bill). The Commission makes the observation that the power to do so likely already exists in the Act, but that the duty of the arbitrator(s) to give each party a reasonable opportunity to put its case circumscribes use of such a tool on the basis of ‘due process paranoia’. This is undoubtedly true. Facing unmeritorious defences that have close to zero chance of success is the bane of many an arbitration practitioner; it is hoped that with a firmly established provision in a revised Act, arbitrators will have a stiffened resolve to give such defences short shrift. Appropriate protections are incorporated into the recommended amendments in this area to ensure that that the parties remain in control of the procedure, ensuring that the arbitration process remains party-led.
The Commission’s recommendations concerning the governing law of the arbitration agreement simplify the approach that has become somewhat confusing following a significant volume of English case law (s.1 draft Bill). While the Supreme Court in Chubb v Enka wrestled with the development of an appropriate methodology for determining the governing law, its many strands risk more confusion and increased time/costs associated with satellite issues being ventilated by practitioners. The proposed simplification provides certainty for both practitioners and those drafting contracts with arbitration provisions.
It is perhaps disappointing to see that the Law Commission has refrained from proposing the inclusion of provisions related to discrimination. While it would appear the Commission was eager to recommend the inclusion in the Act of provisions related to discrimination, it appears that consultees both (a) considered the Act and English anti-discrimination law (Equality Act 2010) to be sufficient, and (b) were wary of such express provisions causing unintended consequences, such as their use enabling challenges to an award based on a breach of discrimination provisions in the selection of arbitrators. We have sympathy with both sides in this respect; while arbitration clauses providing for a discriminatory selection process may well be immoral and serve to reduce diversity in arbitrator selections, in our experience such truly discriminatory provisions are rare. In addition, we recognise the concerns of the arbitral community to avoid the inclusion of additional provisions to the Act that might be utilised for disingenuous challenges to awards.
It will be interesting to see how the draft Bill is addressed by Parliament. However, from our perspective we would be happy with the well-considered and appropriate tweaks to a thoroughly good piece of legislation.