Evolution, not revolution: the Law Commission’s recommendations for reform of the Arbitration Act 1996

Introduction

The Arbitration Act 1996 (‘Arbitration Act’) is central to the regulation of arbitrations seated in England and Wales and has been instrumental in cementing London as a global hub for international arbitration. While the world of international arbitration has expanded and evolved significantly since the Arbitration Act’s enactment nearly thirty years ago, time has been kind to it: the Arbitration Act continues to function effectively in supporting London as a prominent seat for arbitration.

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’. 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 thus are focused on the practical application of the Arbitration Act, rather than being a mere academic exercise.

In its final report, released on 6 September 2023 (‘Report’), the Law Commission explained that the Arbitration Act remains fundamentally sound and holds a leading position among arbitration legislation globally. Rather than proposing root and branch reform, the Report instead sets out targeted recommendations to modernise the statute and further solidify London as a leading centre for international arbitration. The UK government will now need to decide whether it wants to take forward the changes proposed in the Report (and as set out in a draft bill included with the Report) through the parliamentary process.

The remainder of this article will discuss the Law Commission’s key recommendations and their likely impact on arbitration in England and Wales.

Amendments recommended by the Law Commission

In the broader scheme of the legal framework in which arbitrations are conducted in England, the amendments recommended by the Law Commission are relatively minor. The Law Commission considered and discussed most of the Arbitration Act’s provisions in its first consultation paper, and ultimately concluded that the Arbitration Act continues to be fit for purpose. Where the Law Commission has recommended amendments, the proposals are intended to clarify aspects of the Arbitration Act to promote procedural efficiency, to codify the existing state of English law, 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 is therefore proposed that if a Section 67 challenge is brought after jurisdictional objections were made to, 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 or material before the arbitral tribunal. Similarly, evidence will not be re-heard, save in the interests of justice. In recognition of the strong views held on this topic by consultees, the Law Commission has targeted a softer type of reform, with its proposal to be introduced through amendments to the English rules of court. This is a sensible approach, which will allow the proposal to be piloted and amended, if necessary.
2. Governing law of arbitration agreements – In perhaps its most significant proposal (which was only included for reform following input received from the first public consultation), 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 [2020] UKSC 38, in favour of a simpler and more certain statutory default rule. This proposal is to be welcomed. While it is arguable whether the law of the seat, or the governing law of the parties’ contract, should be the default governing law of arbitration agreements, the overarching merit of the Law Commission’s proposal lies in the certainty it creates, and the positive effect for commercial parties in (hopefully) avoiding drawn out debate on this topic.
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. In certain circumstances, arbitrators may therefore be required to make reasonable inquiries to discharge their disclosure obligation. 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. This again is a sensible approach, with the high-level principle defined by the Arbitration Act and the specifics left for a more flexible assessment.
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). In the authors’ view, the amendments proposed by the Law Commission on this topic correctly recognise the need to retain limited remedies against recalcitrant arbitrators or arbitrators guilty of serious misconduct.
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 by 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). Clarification of the existing uncertainty surrounding Section 44 is an important development. If implemented, this should forestall lengthy and costly litigation, and thereby has the potential to further increase the attractiveness of England as a setting for 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. Importantly – and while arbitration legislation in other global arbitration centres has taken a more inclusive approach – the Law Commission’s proposal does not call into question the efficacy of any institutional arbitral rules which confer powers on emergency arbitrators. Where parties have chosen to adopt such rules, they thus can continue to benefit from the emergency arbitrator mechanism.

Amendments considered but not recommended by the Law Commission

The Law Commission also considered changes in the following areas, among 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:

1. Confidentiality – 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 in common law will apply. This presents a balanced approach: in developing and fact-specific areas of law, the well-established reputation of the English court can be relied on as an asset to ensure that English law reflects the evolving needs of arbitration users.
2. Discrimination – The Law Commission has not proposed to introduce an express prohibition of discrimination in the appointment of arbitrators because such a prohibition, even if potentially beneficial in principle, would be unlikely to function effectively on 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. Therefore, its retention should not create any practical problems or detract from the general finality of awards issued in arbitrations seated in London.

Conclusion

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. In other words, England is not a jurisdiction which requires significant reform, with the existing legislation still functioning effectively nearly thirty 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 pragmatic and targeted, and it is the authors’ opinion that the Law Commission’s recommendations will promote the efficiency and finality of arbitration proceedings, while not introducing any unnecessary drastic reforms to existing legislation. The Report, therefore, is to be welcomed as a positive, incremental step to ensure that the Arbitration Act reflects the evolving world of international arbitration, and that England – and London – continue to have a prominent place in that world.

Adam Tahsin is a partner and Marius B. Gass is an associate at White & Case LLP
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Any views expressed in this article are strictly those of the authors and should not be attributed in any way to White & Case LLP.