The Law Commission has published its eagerly anticipated report into the Arbitration Act 1996 (“Act”), following a Ministry of Justice request back in March 2021.
By that request, the Law Commission was tasked with determining whether any amendments to the Act were needed to ensure that it remains “fit for purpose” and “continues to promote England and Wales as a leading destination for commercial arbitration”. In doing so they approached a wide range of stakeholders for input, consultation and feedback. That process should give comfort to the efficacy and scope of the proposed reforms.
The Law Commission’s report is welcome. Their view is that the Act is indeed fit for purpose. This is clear by not only the rejection of wholesale reform, but by the nature of the reform that is proposed, which largely codifies or clarifies the existing position. Where more substantive change is recommended, the proposed reform is suggested with the key factors of party autonomy, practicality, certainty and fairness at the forefront.
Practitioners should feel heartened by the proposed changes, which are sensible and readily applicable. The key findings are set out below.
Recommendations for reform
Those limited amendments which the Law Commission do propose are set out below. As will be seen, they largely operate to codify existing procedures, reflect the practical reality or otherwise streamline the approach.
In one of the more substantive changes, and in order to avoid uncertainty following the Supreme Court decision in Enka v Chubb, the Law Commission proposes that a new rule be added to the Act that provides that the law which governs the arbitration agreement is:
- The law that the parties expressly agree applies to the arbitration agreement; or
- Where no such agreement is made, the law of the seat of the arbitration in question.
Practitioners will notice that this wording drops the law of the matrix contract as a potential route to find governing law. The Law Commission favoured this approach for certainty and also practical utility, so that more arbitrations are conducted in the governing law of their seat.
Challenges to substantive jurisdiction (Section 67)
Challenges to the Court under section 67 should be by way of review rather than full “de novo” rehearing, with no new evidence or grounds of objection permitted. This is to avoid delays and unnecessary costs.
Further, it is proposed that the remedies under Section 67 should be amended to align with Section 68 (challenging an award for serious irregularity) and Section 69 (appealing an award on a point of law).
The impartiality of arbitrators is a core tenet of the proper conduct of arbitration as reflected in the express duty of impartiality contained at Section 33(1) of the Act. English common law also recognises that arbitrators have a continuing duty to disclose any circumstances which might reasonably give rise to doubts as to their impartiality (see the Supreme Court decisions in Halliburton v Chubb. The Law Commission has recommended codifying this element of the common law and extending it to including not only circumstances of which they are actually aware, but also those of which they ought reasonably to be aware.
Arbitrator immunity (Section 29)
The Law Commission looked at Section 29 in the context of the resignation and removal of arbitrators and recommended strengthening that immunity, proposing that:
- In the context of Resignation, an arbitrator incurs no liability for resignation unless the resignation is shown to be unreasonable.
- In the context of Removal, an arbitrator incurs no costs liability in respect of an application for their removal under section 24 unless the arbitrator has acted in bad faith.
Although Section 33 of the Act arguably implicitly provides for summary disposal (by virtue of a duty to adopt procedures “which avoid unnecessary delay and expense”), the reality is that the duty of tribunals to give each party a reasonable opportunity to put their case acts as a chilling effect, meaning that in practice arbitration has made limited use of summary dismissal.
In a welcome development, the Law Commission has recommended providing explicitly for a summary disposal procedure on the application of a party and subject to the agreement of the parties, subject to the “no real prospect of success” test consistent with the English High Court. It is hoped more parties will, where appropriate, take advantage of this process and tribunals will have the confidence to use it.
Court powers in support of arbitral proceedings (Section 44)
The Law Commission proposed that Section 44 should be amended to confirm explicitly that orders under Section 44 can be made against third parties, with those third parties having the usual rights of appeal (as opposed to requiring the court’s consent to an appeal). Protecting the third parties’ usual rights of appeal is to reflect that they had part in the choice of Arbitration as the method of dispute resolution, and so should not be punished by precluding their appeals process.
It was thought unsuitable to include a scheme of emergency arbitrators to be administered by the Court, or to apply the Act generally to both emergency and normal arbitrators alike. However, a recommendation was made to support the court enforcement of the orders of emergency arbitrators, by granting emergency arbitrators the same tools as normal arbitrators to confront parties ignoring orders, and by amending Section 44(4) to allow an emergency arbitrator to also give an applicant permission to seek an order from the Court.
Issues considered for reform but in which no proposals were necessary
There is to be no codification of common law duties of confidentiality, which are now well-developed. Duties of confidentiality are not suitable for a one-size-fits-all approach that legislation would impose and the Law Commission considered this area best left to the common law.
Similarly, there is no need to stipulate a statutory duty of independence by ruling against connections to parties. The key consideration is not connection, which can be tenuous, or practically unavoidable, but rather impartiality, in which the existing rules suffice.
No discrimination legislation in the appointment of arbitrators should be included, because it would be unlikely to improve diversity of arbitral appointments, and could lead to unwarranted satellite litigation or challenges to awards, particularly by a cynical participant.
Appeals on Points of Law (Section 69)
No reforms were proposed to Section 69 as the Act as drafted strikes a fair balance.
Practitioners should welcome the Law Commission’s recommendations and their scope. They reflect an intention to update and clarify the current processes, rather than any desire to upend what has been, and continues to be, the Act that underpins a world-leading centre for commercial arbitration. The proposed reforms, if enacted, should give comfort to this jurisdiction’s reputation for balancing the key demands of party autonomy, efficiency, simplicity and fairness.
The Law Commission’s Report and accompanying draft legislation will now be put before Parliament for approval. If approved, the recommended amendments are likely to be enacted into law in late 2023 or early 2024.