The Law Commission has concluded its review of the Arbitration Act 1996 and published its final report, which sets out its proposed reforms to the Act. The Commission considered a multitude of possible changes to the Act during the consultation period and concluded that only a limited number of amendments are necessary in order to achieve practical clarity and efficiency for an otherwise well-functioning piece of legislation.
The key changes to the Act 1996 recommended by the final report relate to:
- The Arbitrator’s duty of disclosure
- Arbitral awards on a summary basis
- The governing law of arbitration agreements
- Challenges to Jurisdiction under s.67 of the Act
We comment on each of these key changes below.
The Arbitrator’s duty of disclosure
The final report recommends a codification of the position under common law that arbitrators have a continuing duty to disclose any circumstances which might give rise to justifiable doubts over their impartiality. The recommendation does not go as far as to detail what ought to be disclosed but states that this will vary from case to case and thus it will be a matter for the courts to decide when such issues are litigated.
In addition, the final report recommends that those matters that arbitrators are under a duty to disclose extends beyond circumstances which the arbitrator has actual knowledge of, to those they ought reasonably to be aware of. The final report recommends this higher standard of disclosure due to the importance of the appearance of arbitrator impartiality in promoting England and Wales as the preferred choice of seat within arbitration agreements.
Arbitral awards on a summary basis
The final report proposes that the Act 1996 should confer an explicit power on arbitrators to issue an award on a summary basis where it considers that a party has no real prospect of success on that issue, implementing the same standard as used by English Courts.
While the Commission understand arbitrators to already implicitly possess such a power by reason of their duty to avoid unnecessary delay and expense (such power is expressed under the LCIA rules), it was seen by many to contradict of another duty imposed on arbitrators, namely that they give each party a reasonable opportunity to put forward their case. The current position under the Act 1996 has thus been criticised by some for leading to ‘due process paranoia’, discouraging arbitrators from using summary disposal. The Commission hopes that this reform will enable arbitrators to confidently dispose of arbitrations on a summary basis where appropriate.
The final report stipulates that the power of summary disposal should be subject to the agreement of the parties, meaning that parties are able to opt out. In addition, summary disposal should only be available on application by a party and the arbitrator must consult with the parties to ensure compliance with their duty under s.33 of the Act 1996 by giving the parties a reasonable opportunity to put forward their case.
The governing law of arbitration agreements
In what is possibly its most significant reform, the final report recommends the introduction of a new rule on how to determine the governing law of the arbitration agreement. The report proposes that, unless the parties expressly agree otherwise, the law of the chosen seat of arbitration will govern the arbitration agreement. This is a welcome change to the principles presently used to determine the law of an arbitration agreement, as established by the UK Supreme Court in Enka v Chubb [2020] UKSC 38, which have been deemed complex and risk creating satellite litigation.
Challenges to Jurisdiction under s.67 of the Act
Changes are also proposed to the way in which jurisdictional challenges under s.67 of the Act 1996 are heard. The current regime allows for existing evidence to be re-heard and new evidence to be adduced. The Commission considered the current procedure gives the challenging party a second bite of the cherry. The final report proposes the introduction of procedural rules that will prevent any new grounds of objection, new evidence or the rehearing of evidence unless a party could not, with reasonable diligence, have raised them before the arbitral tribunal.
Other reforms
In its final report, the Commission propose a strengthening of the immunity of arbitrators to ensure that they are not at risk of incurring liability for resignation, nor of bearing the costs of any application by a party to have the arbitrator removed.
The Commission’s report seeks to clarify the powers of the court to make orders in arbitral proceedings under s.44 of the Act 1996, for example for the preservation of evidence and freezing injunctions, by expressly confirming the court’s power to make such orders against third parties. However, unlike the parties to the arbitration, third parties will be able to appeal such orders without obtaining the consent of the court.
The Commission’s report also proposes amendments that enable emergency arbitrators appointed under the arbitral rules to make final and binding orders in the same way as other arbitrators, thus allowing them to be enforced by the courts.
At the heart of the Commission’s reasoning behind the proposals is a desire to promote both the efficiency and the finality of arbitral proceedings within England and Wales. The Law Commission’s prioritisation of the need for finality of arbitral proceedings is nowhere more apparent than in its decision not to expressly prohibit discrimination in the appointment of arbitrators. The potential reforms considered by the Commission during the consultation period included prohibiting parties from challenging the appointment of an arbitrator on the basis of a protected characteristic, such as race, as well as rendering any agreement between parties requiring arbitrators to possess certain protected characteristics unenforceable (unless the requirement be deemed a proportionate means of achieving a legitimate aim).
Whilst this review was a perfect opportunity for the Law Commission to address the discrimination that exists within the legal industry, they ultimately decided not to recommend these reforms in their final report due to the risk it posed for potential misuse by parties who might use it to disingenuously challenge arbitral awards.
