Only limited reform recommended for the Arbitration Act 1996

In a November 2022 blog [1], I discussed a Consultation Paper1 published by the UK Law Commission, which contained a number of provisional proposals in respect of reforming the Arbitration Act 1996 (the “Act”). These were focused on maintaining the effectiveness and efficiency of the arbitral process.

After some two and half years (the consultation process began in March 2021) and consulting hundreds of stakeholders, the Commission has published its final report in which it has decided to reform…very little.  

Now, I hasten to add that the contents of the Law Commission’s final report [2] are not surprising. Industry feedback at the time of the consultation was that major reform was neither needed nor wanted, and why would it be? The UK is typically seen as a world leader for international arbitration, with London being the world’s most popular seat. That reputation very much rests upon the effectiveness of the Act, which sets out the framework for arbitration in England, Wales and Northern Ireland. Therefore, and as I said in my earlier blog, there was very much an “if it ain’t broke, don’t fix it” mentality prior to and during the consultation period. 

So, what made the cut? 

A new rule on the governing law of the arbitration agreement 

Presently, the law governing an arbitration agreement is the law chosen by the parties to that agreement. However, the common law position2 is that if an arbitration agreement does not specify a choice of law, then the law chosen to govern the matrix contract (the matrix contract being the main contract between the parties, which is treated as separate from the arbitration clause or agreement to which it refers) will be implied in the arbitration agreement unless it renders the agreement invalid. Where there is no choice of governing law in the matrix contract, the arbitration agreement will be governed by the law with which it is most closely associated, which is usually the law of the seat of the arbitration.  

To simplify the above, the Commission has recommended that where there is no express agreement in the arbitration agreement regarding the governing law, the law of the seat of arbitration will apply. This proposal certainly assists in making the arbitral process more efficient as the current common law position is still very much open to interpretation and additional satellite litigation.  

Summary disposal of issues which lack merit

The Commission has also proposed that the Act should include an express summary judgment procedure to allow arbitrators to dispose of meritless matters put before them in the same manner as the English Courts where a party has no real prospects of success in respect of a certain issue. 

The above is not a drastic proposal when you consider that, arguably, arbitrators already have the power to adopt a summary procedure as they are obliged to adopt procedures which avoid unnecessary delay and expense.3 However, it was apparent that many arbitrators were reluctant to adopt a summary procedure out of what the report refers to as “due process paranoia” and a concern for their express duty under the Act to act fairly and to give each party a reasonable opportunity to put their case.4

Although parties are free to opt out of or limit the summary process, I imagine the introduction of an express summary judgment procedure will be warmly welcomed both in terms of introducing certainty for arbitrators and ensuring claims remain streamlined by eliminating meritless points. 

Challenging a tribunal’s jurisdiction

The Consultation Paper originally asked whether the procedure for challenging a tribunal’s jurisdiction should be amended from a full rehearing to an appellate review.

At present, the Act allows a party to challenge a tribunal’s decision as to its own jurisdiction in court5 and that any such challenges must be undertaken by way of a full rehearing.6 Let’s face it, a complete rehearing is hardly efficient; essentially resulting in duplication of time and costs, nor is it technically fair…second bite of the cherry anyone?  

In response, the Law Commission has recommended that where a party seeks to challenge a ruling on jurisdiction, and has participated in the arbitration proceedings in question, the Court will not entertain any new grounds of objection or any new evidence, save in the interests of justice. It is proposed that this change will be made through procedural rules rather than an express amendment to the Act.   

Immunity of arbitrators

Should an arbitrator’s immunity to legal liability be strengthened?

In short, the Commission has decided that yes, it should. The Act currently states that an arbitrator is not liable for anything done in the discharge of their functions unless done in bad faith. This is subject to two exceptions: (i) where an arbitrator potentially incurs liability when he or she resigns; and (ii) when an arbitral party makes an application to the Court which accuses an arbitrator of bad faith.  

The Commission has proposed that an arbitrator would not incur any liability for resigning unless it can be shown that the resignation was unreasonable, and that an arbitrator will not incur costs liability in respect of an application for their removal unless it can be shown that they acted in bad faith. 

The above is a positive step in supporting the finality of the dispute resolution process and preventing parties who are disappointed by the conduct or outcome of arbitral proceedings from pursuing further satellite litigation against the arbitrator in question. 

Independence and disclosure

There is currently no express duty within the Act that requires that arbitrators be independent, i.e., that they have no connection to the arbitrating parties or the dispute. This is not surprising given that arbitrators are already subject to a statutory duty of impartiality7 under the Act. In any case, if an arbitrator is impartial then technically it does not matter if they are not “perfectly independent”, just so long as they disclose any connections to the parties. 

Considering the above, the Commission has recommended that the principles from the Halliburton case setting out when an arbitrator should disclose a connection8 will be codified with the result that arbitrators have a continuing duty to disclose any circumstances which may reasonably give rise to justifiable doubts as to their impartiality. This will require disclosure of matters within the arbitrator’s actual knowledge and also what he or she ought to reasonably know.

Interim measures

Finally, section 44 of the Act sets out the powers that a court can exercise in support of arbitral proceedings, such as orders for the preservation of evidence. While orders under section 44 can be made against arbitral parties, there is uncertainty as to whether those orders can be made against third parties. The Commission has therefore proposed that the Act be amended to confirm what orders the Court can make against third parties under section 44 of the Act. 

As the Commission acknowledges, the foregoing does not create a one-size-fits-all regime, but it does provide some much-needed clarity where previously the case law on this topic has been uncertain. 

What’s next? 

Ultimately the Commission’s recommendations are a matter of fine tuning the arbitral process rather than completely overhauling it. This is to be expected given previous industry feedback was “if it ain’t broke, don’t fix it”.

Personally, I think there was one area that did need to be fixed: discrimination. In an industry where, for example, women are three times less likely to be appointed as arbitrators than men,9 the initial proposals which would have barred a party changing an arbitrator’s appointment based on their “protected characteristics",10 looked promising and certainly a means of ensuring the UK remained an up-to-date world leader in arbitration. 

It is therefore somewhat surprising and disappointing that the Commission has not sought to address and confirm the issue of discrimination.

That aside, the Commission’s recommendations are certainly a welcome addition to streamlining the arbitral process and ensuring it remains as efficient and cost friendly as possible for parties.

Note: this blog was published in International Quarterly Issue 36. For the previous and next articles in that edition, click the links below.

Previous article [3] | Next article [4]

• 1. https://www.lawcom.gov.uk/project/review-of-the-arbitration-act-1996/ [5]
• 2. Enka v Chubb [2020] UKSC 38
• 3. Arbitration Act, section 33(1)(b)
• 4. Arbitration Act, section 33(1)(a)
• 5. Arbitration Act, section 67
• 6. Dallah v Pakistan [2010] UKSC 46
• 7. Arbitration Act, section 33
• 8. Halliburton Co v Chubb Bermuda Insurance Ltd [2020] UKSC 48
• 9. Consultation Paper, paragraph 1.31
• 10. Defined by section 4 of the Equality Act 2010 as age, disability, gender reassignment, marriage and civil partnership, pregnancy and maternity, race, religion or belief, sex, and sexual orientation.