arbitration

Changes to the Arbitration Act? Reform or leave it alone

Evolution, not revolution – the Law Commission recommends limited reforms to the English Arbitration Act 1996.

Although nearly 30 years old, the Act continues to function effectively and supports London’s position as a global arbitration centre. Nonetheless, in 2021, the UK Government asked the Law Commission to consider potential amendments to the Arbitration Act to ensure it continues to be, in the Law Commission’s words, “state of the art”. In its final report on this review process, released on 6 September 2023 (the “Report”), the Law Commission explains that wholesale reform of the Arbitration Act is not necessary or desirable. Instead, the Report sets out targeted recommendations to modernise the statute and further solidify London as a leading centre for international arbitration.


Amendments recommended by the Law Commission

The Report recommends only limited amendments. They are intended either to clarify aspects of the Arbitration Act to promote procedural efficiency, or to reflect evolving user practice since the Arbitration Act took effect. Significant proposed changes include the following:

1. Challenges to jurisdiction under Section 67 of the Arbitration Act

Section 67 of the Arbitration Act entitles a party to challenge an arbitral award on the ground that it was made by an arbitral tribunal without jurisdiction. Such challenges are currently subject to full “de novo” re-hearings. The Law Commission has concluded that this approach gives the challenging party an unjustifiable “second bite of the cherry”. It therefore is proposed that if a Section 67 challenge is brought after jurisdictional objections were made, and decided, by the arbitral tribunal, new objections and new evidence should be put before the courts only when the party can show that it could not, with reasonable diligence, have advanced the same points / material before the arbitral tribunal. Similarly, evidence will not be re-heard, save in the interests of justice.

2. Governing law of Arbitration Agreements

In perhaps its most significant proposal, the Law Commission suggests the introduction of a new section to the Arbitration Act relating to the governing law of arbitration agreements. This would provide that, in the absence of an express choice by the parties, arbitration agreements are governed by the law of the seat of arbitration, even where this differs from the broader governing law of the parties’ contract. The choice of a law governing the parties’ contract would not itself constitute an express choice of law for the arbitration agreement. In effect, the Law Commission thus recommends abandoning the complicated test prescribed by the UK Supreme Court’s decision in Enka v Chubb , in favour of a simpler and more certain statutory default rule. Notably, the Law Commission did not originally propose any reform in this area but included this recommendation following input from its first public consultation.

3. Arbitrator disclosure

Under existing common law rules, an arbitrator is under a continuing legal duty to disclose matters that might reasonably give rise to justifiable doubts as to their impartiality. The Law Commission has recommended that this headline principle should be codified and incorporated into the Arbitration Act, with the duty extending to what an arbitrator actually knows and ought reasonably to know. The matters which might reasonably give rise to justifiable doubts, or questions regarding the scope of any disclosure, will depend on all the relevant circumstances and will be addressed by courts or arbitral institutions on a case-by-case basis.

4. Arbitrator immunity

It also has been proposed to strengthen the immunities enjoyed by arbitrators. In particular, the Report recommends that arbitrators should incur no liability due to resignation (unless the arbitrator’s resignation is shown to be unreasonable) and should not be liable for the costs of an application to court to remove the arbitrator (unless the arbitrator has acted in bad faith).

5. Summary disposal

It is proposed to confirm in the Arbitration Act that arbitral tribunals have the power (on the application of a party) to render awards on a summary basis where an issue has “no real prospect of success”. While summary dismissal procedures have become widespread in institutional arbitral rules, the proposed express support would be a “world-leading development” for national arbitration legislation and a welcome innovation to improve the efficiency of international arbitration proceedings.

6. Court orders in support of arbitrations

Section 44 of the Arbitration Act empowers courts to make orders in support of arbitrations. For example, orders for the inspection and preservation of evidence or freezing injunctions. It is proposed to confirm expressly that the courts can make such orders against third parties. This would be determined on the ordinary rules applicable in court proceedings, but with third parties enjoying full rights of appeal (compared to the restricted rights of appeal available to parties to the arbitration).

7. Emergency arbitrators

Finally, the Report also proposes that emergency arbitrators should be given the same pathways to enforce their orders as other arbitrators. They should be empowered to make final and binding orders, which can be enforced by the courts. Emergency arbitrators should also be able to grant permission for applications to the courts under Section 44(4). However, these amendments are carefully targeted – the Law Commission has made clear that the Arbitration Act should not apply generally to emergency arbitrators.

Summary

The Law Commission’s recommendations are intended to fine-tune, rather than revolutionise, the legislative framework for arbitration in England and Wales. The proposed changes are limited in scope. This reflects the Law Commission’s conclusion that the Arbitration Act remains fundamentally sound and holds a leading position amongst arbitration legislation globally. In other words, England is not a jurisdiction which requires significant reform, with existing legislation still functioning effectively almost 30 years after its enactment.

The Law Commission’s conclusions are based on a process that was intended to instil confidence in its recommendations. Views were gathered from a broad range of interested parties through a lengthy public consultation process. They are clearly reflected in the Report. The proposed changes are thus intended to be pragmatic. The changes are targeted to ensure that the Arbitration Act reflects the evolving needs of arbitration users.

The Law Commission’s proposed amendments to the Arbitration Act (included as a draft bill with its Report) will now need to make their way through Parliament. If passed, they will likely be implemented as law in late 2024.


For all your dispute resolution needs, please do not hesitate to contact our experienced dispute resolution team at Bond Adams LLP Solicitors. You can contact us on 0116 285 8080 or email us at lawyers@bondadams.com.

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