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Ken MacDonald

Partner and Head of International Arbitration, Brodies

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The need to amend the Act led to a review by the Law Commission

Washed out but not washed up – an opportunity remains to improve the arbitration landscape

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Washed out but not washed up – an opportunity remains to improve the arbitration landscape

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Ken MacDonald, Partner and Head of International Arbitration at Brodies, assesses the key reforms put forward in the Arbitration Bill and presents the case for swift re-introduction of the Bill in the new parliament

Introduction

Arbitration is a key feature of both the domestic and global dispute resolution landscape. The ability for parties to choose a bespoke resolution process with an appropriate determiner or tribunal panel to provide them with a legally binding and enforceable decision, known as an award, are but some of the reasons why arbitration has flourished.

Building on that success was the introduction of the gold standard Arbitration Act 1996 (‘the Act’), a national arbitration law, that applies to all arbitrations seated in England and Wales and Northern Ireland. The Act brought key legal rules into one place, as well as innovating on previous arrangements, but still left space for courts to develop arbitral jurisprudence. The success of the Act is reflected both in its imitation by others (Scotland for example passed its own Arbitration Act in 2010 rejecting the UNCITRAL model and largely shaping its national arbitration law on the Act) and the longevity of its application without serious need for reform.

The importance of having a national arbitration law that is fit for purpose is underlined not only by the importance of having effective additional dispute resolution options to litigation, but by the scale of the business it regulates. The Law Commission of England and Wales estimate that there are at least 5,000 domestic and international arbitrations each year seated in England and Wales, bringing a contribution to the UK economy of around £2.5 billion in fees.

London has long established itself as a leading centre for parties to resolve their cross-border disputes but competing jurisdictions, Singapore and Hong Kong to name but two, have modernised their national legislation in recent years to give them an edge on contemporary issues of importance to parties. The need to amend the Act, now over 25 years old, became clear and hence led to a review by the Law Commission with thorough consultation with relevant stakeholders in the arbitral community before the draft Arbitration Bill came into existence.

Arbitral reform

The Arbitration Bill (‘the Bill’) promised key reforms to the Act designed to clarify the law governing arbitration, facilitate efficiencies and enable the courts to provide more effective support to arbitrations. The key reforms are set out below.

Summary disposal

One of the inherent disadvantages of arbitration compared to litigation was the reluctance of decisionmakers to deal with issues summarily for fear of challenge later, on the ground that the unsuccessful party had not received a fair hearing and due process had therefore been undermined. Courts have long held the power to determine that claims, defences or issues have no real prospect of success thus weeding out unmeritorious claims at an early stage, saving parties time and cost. Due process paranoia and uncertainty about the tribunal’s power to summarily dispose of claims, defences or issues led to disputes being progressed or defended to full hearings without effective means to truncate.

The Bill introduced a new power of summary disposal enabling claims, defences or issues to be dismissed if a party has no real prospect of succeeding in a claim, defence or issue. Whilst parties were free to opt out of this provision, the default position allowed effective early resolution with confidence that an attempt to challenge the award or resist its recognition and enforcement would be readily overcome.

Adopting the same threshold test for summary determination as applied by the courts of England and Wales would level the playing field with litigation and align arbitral summary determination with summary judgments available in the court system.

Supporting emergency arbitrators

One key area in which London has in recent years been seen to lag behind other centres (such as Singapore and Hong Kong) is the arrangements in place to make the role of the emergency arbitrator more effective. With arbitral institutions making provision for the appointment of arbitrators to deal with urgent matters prior to constitution of the arbitral panel (that will ultimately decide the dispute), the need for ensuring the emergency arbitrator provides effective relief is pressing.

The Bill provided emergency arbitrators with effective powers on the same footing as other arbitrators to issue peremptory orders and to allow parties to proceed to court to convert a peremptory order from an emergency arbitrator into an order of the court. This would have readily allowed parties to enforce such orders and would have acted as a self-regulating deterrent on those that would otherwise seek to resist such attempts at the outset of the arbitral journey.

This reform would go some way to providing effective interim relief in the way litigation already provides by strengthening the enforcement regime for emergency decisions in arbitration. It would also put London at the forefront of effective support for emergency arbitrators, a key attribute in encouraging business to select it as the seat of first choice.

Challenging arbitral awards

Finality is one of arbitration’s attractive attributes compared to litigation. The Bill sought to streamline challenges to awards on jurisdictional grounds thereby supporting this feature. The approach would have streamlined costs, minimised delays and prevented the unsuccessful party from having a second bite of the cherry.

At present such challenges involve a full rehearing with consequent delays and costs. The Bill (as originally presented to parliament) sought to restrict the basis of such challenges to exclude grounds of challenge not previously asserted to the tribunal when it ruled on jurisdiction and not to consider new evidence. Further, the proposed innovations sought to avoid the court rehearing evidence heard by the tribunal. The Bill, introduced in the House of Lords of the UK Parliament, had both its first and second readings before its review at the committee stage where provision was made to allow new arguments and new evidence where it was in the interests of justice to do so. That notwithstanding, these innovations would make such challenges more like an appeal than a fresh reconsideration.

Third parties

A limitation of arbitration has been uncertainty on the limits of compelling third parties, with support from courts, to comply with decisions of the tribunal. The Bill sought to address this and align arbitration with litigation by strengthening the powers of courts to make orders in support of arbitration against those who are not parties to the arbitral dispute, thus resolving conflicting court decisions in this area.

Duty of disclosure

Following the Supreme Court decision in Halliburton v Chubb, which addressed an arbitrator’s common law duty to disclose any circumstances that might reasonably give rise to justifiable doubts about arbitrator impartiality, the Bill sought to provide statutory footing for disclosure. This codification of the common law would align English law with international best practice and provide accessible clarity on what is expected from those seeking arbitral appointment and those taking it. An arbitrator must disclose both what they know and what they ought reasonably to know. What disclosures are required and whether there is an obligation on the arbitrator to conduct investigations would be fact centric. The creation of a statutory duty would promote trust in the arbitral process as it would extend to pre-appointment discussions and is not dependent on an interpretation of the arbitrator’s contract of appointment.

Arbitrator immunity

The Bill sought to extend arbitrator immunity but not at the expense of parties’ legitimate interests to challenge arbitrator behaviour where appropriate.

Where an arbitrator resigns from office, they would be safe from costs exposure if sued unless their decision to demit office was unreasonable. If an arbitrator is removed from office through court application, costs would be awarded against them only if they had acted in bad faith.

These innovations enhance protection for arbitrators without compromising the integrity of the arbitral process and ensuring arbitrators are accountable for their actions. They would instil greater confidence in arbitrators making robust decisions without fear of a legal suit.

The law of the arbitration agreement

A new default rule is proposed in the Bill to determine the governing law applicable to the arbitration agreement where parties do not expressly provide for this in their contractual arrangements. The default law would be the law of the seat of the arbitration. This statutory innovation would reverse the current common law landscape that provides that the law of the matrix contract governs the arbitration agreement.

This proposed rule would be retrospective in part. It would not reverse the position in respect of existing litigation or arbitration proceedings on the default rule coming into effect, but would apply immediately to all arbitration agreements whatever their date of inception. The justification for retrospectivity is to avoid the necessity of dealing with two regimes for determining governing law for decades to come given the inevitable time lag between contract creation and the commencement of arbitral disputes.

Wash Up

The expectation that the Bill would pass through parliament expeditiously with Royal Assent being received in Summer 2024 was widely held. The problem with expectations however is that events tend to get in the way.

The apolitical nature of the Bill reflected by its journey commencing in the House of Lords, seems by constitutional convention, to have made it ineligible for consideration in the short period for Bills in Parliament to be fast tracked under the Wash Up procedure prior to parliament’s prorogation for the general election. That said, the Bill had not yet been scrutinised by the House of Commons, so was unlikely to be selected for Wash Up in any event.

This is hopefully not an opportunity lost but merely one deferred given the degree of scrutiny already afforded to the Bill that was promoted by the Law Commission after thorough consultation with arbitral stakeholders.

Next steps

A legitimate debate could be had on whether to use the deferment as an opportunity to reshape a fresh Bill considering the parliamentary journey of its predecessor and to reflect on whether some of the issues omitted from the Bill ought to be put into a new one. Areas that could be considered again, to name but a few, are whether to include a statutory rule on confidentiality, an express reference to remote hearings and electronic documentation and to reform appeals on points of law.

In the writer’s opinion, a swift re-introduction of the Bill in the new parliament is to be preferred. Perfection is the enemy of good and the need to ensure that the UK is a centre of arbitral excellence for decades to come should take priority over possible further improvement of proposed arbitration legislation. Lord Bellamy, the Justice Minister in the pre-election administration, summed the issue up well: “The UK is a globally respected hub for legal services, with English and Welsh law the bedrock for the majority of international disputes, and the Arbitration Bill will ensure businesses from around the world continue to come here to resolve their disagreements.”

With other centres having already modernised their national arbitration laws to achieve many of the reforms set out in the Bill, time is of the essence. Any new administration should see the passing of an Arbitration Act as an easy win on the legislative agenda and one which further cements the reputation of the UK as the seat of choice to resolve international disputes.

The Bill may be washed out having not achieved the wash up, but all efforts should be made to seize the opportunity to improve the arbitration landscape by introducing another arbitration bill to take its place in the next parliamentary term.

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