Evolution, not revolution – the Law Commission recommends limited reforms to ensure that the Arbitration Act (1996) remains state of the art
7 min read
Time has been kind to the English Arbitration Act 1996. Although nearly 30 years old, it 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.
The Law Commission approached its review pragmatically and sought input (and buy-in) from arbitration users through two public consultations. Its first consultation paper in September 2022 concluded that root and branch reform of the Arbitration Act was not needed (or wanted by arbitration users). Accordingly, the Law Commission's subsequent review only addressed discrete topics raised by its study of the Arbitration Act and the responses received from consultees. An (originally unplanned) second consultation paper followed in March 2023 to cover a proposal prompted by responses to the first consultation, as well as to obtain input on the Law Commission's evolving thinking on the most controversial topics. The Law Commission's conclusions therefore reflect a considered approach, focused on the practical application of the Arbitration Act, rather than a mere academic exercise.
In this alert, we outline the Law Commission's key conclusions and recommendations, as set out in its final Report.
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 (e.g., 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: i.e., 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.
Amendments considered but not recommended by the Law Commission
The Law Commission also considered changes in the following areas, amongst others, but ultimately found that the status quo continues to be satisfactory, or that possible changes, even if desirable in theory, would be unworkable in practice:
No statutory rule of confidentiality is proposed. The Law Commission has concluded that one-size-fits-all codification would not be suitable. The position therefore remains that parties can agree express confidentiality obligations should they wish to do so. Absent such agreement, the default rules developed at common law will apply.
The Law Commission has not proposed to introduce an express prohibition of discrimination in the appointment of arbitrators because this type of prohibition, even if potentially beneficial in principle, would be unlikely to function effectively at a practical level. Notably, the Law Commission considered that any prohibition may not actually improve the diversity of arbitrators and would be difficult to police, while carrying a risk of satellite litigation and disingenuous challenges to awards. In areas other than the appointment of arbitrators, prohibitions on discrimination already exist and should be applied more rigorously.
3. Appeals on Points of Law
The Law Commission considers that the availability of appeals on points of law under Section 69 of the Arbitration Act should be maintained. These types of appeals were seen to still function well, by striking a balance between the finality of arbitration awards and the ability to correct blatant errors of law (which is considered highly desirable in some industries). In any event, Section 69 is not mandatory and in practice, many institutional arbitral rules simply exclude the possibility of such appeals.
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, reflecting 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 and are clearly reflected in the Report. The proposed changes are thus intended to be pragmatic and targeted to ensure that the Arbitration Act reflects the evolving needs of arbitration users.
Taken together, we expect that the amendments proposed by the Law Commission will promote the efficiency and finality of arbitration proceedings, whilst not unnecessarily introducing drastic reform to existing legislation. The Report therefore is to be welcomed as a positive, incremental step in maintaining London's position as a major centre for international arbitration and dispute resolution more generally.
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 2023 or 2024.
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This article is prepared for the general information of interested persons. It is not, and does not attempt to be, comprehensive in nature. Due to the general nature of its content, it should not be regarded as legal advice.
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