Important changes are proposed for the law governing arbitration within England and Wales. A year after the publication of its first consultation seeking views on reform of the Arbitration Act 1996 (the “Act”), the Law Commission has published its report together with a draft Bill. The hope is that the new amending Act may take effect this year or in any event ahead of the expected 2024 general election.
This article will explore the main proposed changes, highlighting the Commission's efforts to modernise the Act to ensure that more than two decades after the Act's inception, England & Wales, and particularly London, will remain a global seat of choice for arbitration.
Taking on board the views of consultees, the Law Commission has concluded that ‘root and branch reform’ is not needed and noted a consensus in its consultations that the Act works well. Instead, it has proposed a few major initiatives and clarifications to the current Act, together with some minor reforms. We give an overview of the main proposals below and also note a few of the more significant areas which the Law Commission has decided to leave unamended. Bird & Bird participated in both consultations and the Law Commission has kindly noted several of our comments. Overall, we welcome the proposed changes which we consider strike a balance between incremental improvement and endorsing what has proved a successful and enduring piece of legislation.
In November 2021, the Law Commission initiated a review of the Act, the cornerstone legislation governing arbitration in England, Wales, and Northern Ireland.
It carried out two public consultations in September 2022 and March 2023. These consultations sought input from legal professionals and stakeholders to assess the suitability of the current Act and consider potential areas for reform. The Report and draft Bill is the Law Commission’s final recommendations based on those Consultations.
The topic of which law should govern an arbitration agreement, in the absence of an express choice, has been the subject of various decisions and much debate both in the UK and internationally, and not all jurisdictions follow the same approach. The issue arises from the fact that the arbitration clause or agreement in a contract is considered separate from the main contract and so can, and often is, governed by a law different to the main agreement. The choice is typically between the law of the seat chosen for any arbitration or the governing law of the main contract. The English law position was settled in the 2020 UK Supreme Court decision of Enka v Chubb. Enka states that, in the absence of an express choice of the governing law of the arbitration agreement, the law governing the main contract will generally be implied as the law governing the arbitration agreement. Where there is no choice of the law governing the main contract, the arbitration agreement will be governed by the law with which it is most closely associated, which will usually be the law of the seat.
While this decision was rooted in established contractual and choice of law principles, the position was considered by many arbitration practitioners to be unsatisfactory as it had the potential to undermine the parties’ choice of London as a supportive arbitral seat where the application of a different law to the arbitration agreement could lead to satellite litigation on issues of scope and arbitrability which would not arise under English law. The Law Commission agreed this position needed to change to ensure simplicity and certainty. As such, the draft Bill recommends (in line with the views expressed by many practitioners, including Bird & Bird) a default rule that the law of the seat should govern the arbitration agreement in the absence of an express agreement otherwise. It is important to note that this approach is proposed only to apply to arbitration agreements made after the legislation comes into effect.
Arbitrators have a legal duty to disclose to the parties any circumstances which might reasonably give rise to justifiable doubts about their impartiality, as established by the UK Supreme Court in 2020 in Halliburton v Chubb. This duty falls to be assessed against the circumstances when the disclosure might be made. The Law Commission's initial consultation paper recommended that this common law duty be codified and included in the Act. Most respondents agreed with the proposal, but some expressed concerns about the need to create a statutory duty and how it would work in practice.