England & Wales Law Commission consults on reform of the Arbitration Act 1996 with proposals intending to support London’s leading role in international arbitration

The use of arbitration as a medium for resolving all types of disputes has grown exponentially since the Arbitration Act 1996 (the ‘Act’) came into force over 25 years ago. It seems an appropriate time, therefore, to review the Act against developments in the wider business environment and reforms in other jurisdictions. The Law Commission was asked by the UK Government to review the Act to ensure it remains fit for purpose and continues to promote the UK as a leading destination for commercial arbitrations. On 22 September 2022, the Law Commission published a consultation paper containing provisional law reform proposals for the Act (the “Paper”)[1]. We outline the main areas being considered for reform below.

Provisional Areas for reform

The consultation paper identifies eight provisional areas for reform and several minor amendments that fall outside of these topic areas.

1. Summary disposal of issues which lack merit

The absence of a clear route to summary disposal of bad claims and defences is a notable difference between arbitration and litigation in the England & Wales courts, and is on the wish-list for many commercial parties.

The paper proposes that the Act should incorporate an express provision for summary procedure in arbitration, to improve efficiency. Currently, the Act requires the arbitral tribunal to adopt procedures which avoid unnecessary delay and expense (section 33(1)(b)). However, there is no express provision for the early disposal of proceedings with no merit. The Law Commission proposes a non-mandatory (“opt-out”) provision to allow tribunals to adopt a summary procedure if applied for by a party to dispose of a claim or a defence. The threshold remains open to consultation, but suggestions include claims/defences which are “manifestly without merit” or with “no real prospect of success”.

The English court has previously shown itself willing to support a form of summary process (e.g. Travis Coal Restructured Holdings LLC v. Essar Global Fund Limited [2014] EWHC 2510 (Comm) in respect of enforcement of an award made in New York), and various institutional rules have adopted such provisions into their rules. The proposed change would fit with this discernible direction of travel to make the tribunal’s powers more explicit and to encourage their use where appropriate.

2. Interim measures ordered by the court (section 44) – orders against third parties and provisions in support of emergency arbitrations

The Law Commission proposes changes to section 44 of the Act which provides that the court has power to make orders in support of arbitral proceedings. These include the taking or preserving of evidence, and – most importantly - the granting of an interim injunctions.

Orders against third parties

The Law Commission considers that the existing section allows the court to make orders against third parties in appropriate cases, although it does not definitively conclude that this is the case. If it does, there is also the issue of third parties who are subject to court orders being limited to a restricted right of appeal (as applies to arbitral parties) but who did not agree to arbitration (and would not be parties to the arbitration proceedings). The Paper asks whether this should explicitly be set out in the Act.

Emergency arbitration

Emergency arbitration is a new development since the Act was passed. Under many institutional arbitration rules, emergency arbitrators may be appointed on an urgent and temporary basis to grant emergency relief (such as an order to maintain a status quo, or for the sale of perishable goods), which will apply until the main arbitral tribunal can be appointed and consider the merits of the matter. Are these emergency arbitrations covered by the Act? The Law Commission’s provisional view is that the Act should not apply to emergency arbitrators save for one exception.

This exception deals with the thorny issue of the reach of the decision in Gerald Metals v Timis & ors [2016] EWHC 2327 (Ch). This concerned the jurisdiction of the court to grant interim relief which under section 44(5) of the Act is limited to situations where “the tribunal has no power or is unable for the time being to act effectively”. In that case, the court held it had no jurisdiction since the issue had already been raised in an application for the appointment of an emergency arbitrator by the London Court of International Arbitration, which application had been refused. That decision led some users of arbitration to disapply emergency arbitration provisions in case they would be seen by the court to preclude it from granting interim relief.

The paper proposes the revocation of section 44(5) for redundancy, which will also solve the uncertainty caused by the Gerald Metals decision.

The question then is whether and how the Act should provide for the enforcement of interim orders by emergency arbitrators. The Law Commission suggests various approaches and seeks views as to the preferred approach. Singapore and Hong Kong have each made provision for the enforcement of orders of emergency arbitrators, although each has taken a different approach.

3. Jurisdictional challenges against arbitral awards (section 67)

The paper considers situations where an arbitral tribunal has ruled on its own jurisdiction (pursuant to section 30), which decision is then subject to a challenge before the court (under section 67). Section 67 does not set out how the application to challenge should proceed. Currently, such a challenge is conducted by way of a rehearing of the application before the tribunal, in which the decision of the tribunal is given no weight. This is supported by the UK Supreme Court decision in Dallah v Pakistan [2010] UKSC 46. However, the Law Commission has considered whether this should instead take place as an appeal of the tribunal’s decision so as to avoid a “dress rehearsal” situation where a party asks the tribunal to rule on its own jurisdiction in full knowledge that it will disagree with an unsuccessful ruling, and may then obtain new evidence and develop its arguments for a rehearing at court. This problem, and the associated time and costs of a full rehearing, could be avoided if jurisdictional challenges are heard by the court as an appeal, where no new evidence can be submitted, and the court will only review the tribunal’s decision.

4. Appeals on a point of law (section 69)

Under section 69 of the Act, where an arbitral tribunal makes a decision under the law of England & Wales, any party may appeal to the court for a point of law to be reconsidered. Section 69 is non-mandatory and may be excluded by the agreement of the parties. It is excluded by many institutional arbitration rules, but typically remains available in the many ad hoc arbitration held in London. While the provision is somewhat unusual by international standards, amongst other potential benefits, it provides a route for the development of the common law by the courts even from cases heard in arbitration.

The paper proposes that no changes be made to section 69. It considers that there currently exists a fair compromise between ensuring the finality of awards by arbitral tribunals and allowing for an error of law to be corrected where the parties have not opted-out of the provision.

5. Confidentiality

Arbitrations seated in London are generally subject to an implied obligation of confidentiality, although the boundaries of that obligation will depend on the circumstances. There have also been questions raised about whether and how far such confidentiality is appropriate in cases involving public interests, such as investment treaty arbitrations.

The issue of whether the Act should codify the law of confidentiality in arbitration is a contentious one. Indeed, this same topic was considered two decades ago in drafting the Act and deciding not to attempt a codification. In the meantime, many commercial parties expressly provide in their arbitration agreements for the process to be confidential, and it is also a provision of several institutional arbitration rules.

The paper proposes, once again, that the Act should not include a codification of the law of confidentiality in arbitration. Not least since this would need to be qualified by mandatory exceptions, so that the law could override a confidentiality agreement between parties if necessary. Given the fact-sensitive nature of such an exercise, and the difficulty of combining a general duty with a list of exceptions, the Law Commission suggests that codifying the law in its current state would have little practical value and would not improve the current, functioning confidentiality regime.

6. Independence of arbitrators and disclosure

The Act imposes a duty of impartiality on arbitrators in section 33. However, some arbitral rules and legislation in other jurisdictions impose an additional duty of independence on arbitrators. The paper proposes that the Act should not impose this additional duty on arbitrators.

Rather, the Law Commission suggests a codification of existing case law to state a continuing duty on an arbitrator to disclose any circumstances relevant to the dispute which might reasonably give rise to justifiable doubts as to their impartiality.

7. Discrimination

The paper makes two proposals concerning the integration of UK equality legislation into the Act to prevent discriminatory restrictions on the appointment of arbitrators and would be a ‘world-leading’ initiative if passed into law. Firstly, an arbitral appointment should not be challengeable based on the arbitrator’s ‘protected characteristics’ (which include, but are not limited to, age, disability, race, religion or belief and sex). Secondly, any agreement between parties in relation to the arbitrator’s protected characteristics should be unenforceable. The second rule would be excepted only where the requirement of an arbitrator to have a protected characteristic is a proportionate means of achieving a legitimate aim; for example, there may be a requirement that the arbitrator has a nationality different to that of the parties or that the arbitrator is a member of a particular religious community as the dispute concerns details of a particular religious practice.

8. Immunity of arbitrators

The paper proposes that the immunity of arbitrators (section 29) be expanded to cover situations in which they do not currently benefit from immunity. At present, arbitrators can incur liability when they resign, even if the resignation is for good reason (e.g. a conflict of interest arises). Moreover, if a party wishes to challenge the arbitrator and makes a court application, case law holds that the arbitrator can be liable for the costs of the application, whether it is successful, or not. The Law Commission suggests a reversal of case law concerning liability for costs of the application. As for liability for resignation, the Law Commission asks if it should be abolished entirely or in part.

Minor amendments

The Law Commission proposes other minor amendments to the Act. These include making the separability of an arbitration agreement a mandatory clause, confirming that an appeal is available from a court decision to stay proceedings, simplifying the requirements for an application for court determination of preliminary matters, and empowering tribunals to order the use of technology in arbitration proceedings.

What happens next?

The proposals raise many sensible and pragmatic suggestions designed to uphold the important place of arbitration in the current legal system.

Bird & Bird’s London Dispute Resolution team will submit a response to the consultation paper. If you would like to discuss any of the proposals, and our response, or if you have suggestions, please contact the authors of this article.

With thanks to Harry Ferguson for his input with this article.

[1] In July 2021, Nick Peacock and Louise Lanzkron of Bird & Bird in London responded to the Law Commission’s consultation with comments on whether a review of the Act should take place. Their contribution to the paper is noted in its acknowledgements.