UK Law Commission publishes recommendations for Arbitration Act 1996 reforms, en…

The Law Commission of England and Wales has now published its “Review of the Arbitration Act 1996” report (the Report), setting out its final recommendations for reforms to the Arbitration Act 1996 (the Arbitration Act). 

The Report and accompanying draft legislation amending the Arbitration Act will now be considered by Parliament.  If approved, the proposed amendments are likely to be enacted into law in late 2023 or 2024.  A summary of the Law Commission’s recommendations is set out below. 

Key proposals for reform

The Law Commission’s report follows an extensive consultation and review process that began in January 2022 (in which Freshfields participated), following a direction from the UK Ministry of Justice for the Law Commission to determine whether any amendments to the Arbitration Act were necessary to ensure that the Act remains “fit for purpose” and continues to promote England and Wales as a leading destination for international arbitration. 

The Law Commission has made the following key proposals for reform in the Report:

1. Governing law of an arbitration agreement

The current leading authority under English law concerning the governing law of an arbitration agreement is the Supreme Court’s decision in Enka v Chubb [2020] UKSC 38, in which the majority of the Court held that, in the absence of an express choice of law clause for the arbitration agreement, there is a presumption that the governing law of the arbitration agreement is the same as the governing law of the wider contract in which the arbitration agreement is contained. 

In the Report, the Law Commission has recommended that the Arbitration Act be amended to provide that, unless the parties have expressly agreed otherwise, the governing law of the arbitration agreement will be the law of the seat of the arbitration.  The Law Commission has proposed that this rule should only apply prospectively – i.e., to arbitration agreements concluded after the proposed amendments are enacted. 

2. Power to make awards on a summary basis

Summary dismissal procedures are frequently used in court litigation (at least in common law jurisdictions) where it is manifestly clear that a party’s position on an issue, claim or defence lacks any merit.  In general, however, arbitration has made less use of summary dismissal procedures – perhaps in part due to “due process paranoia” informed by the duty of tribunals to ensure that a party has a reasonable opportunity to present their case (see our more detailed article on summary dismissal, here). 

In the Report, the Law Commission has recommended that the Arbitration Act be amended to provide that, unless the parties agree otherwise, the tribunal may, upon application, make an award on a summary basis in relation to a claim, or a particular issue arising in a claim, if the tribunal considers that: (a) a party has no real prospect of succeeding on the claim or issue; or (b) a party has no real prospect of succeeding in the defence of the claim or in relation to the issue.  If enacted, this provision should give tribunals greater confidence to use summary dismissal procedures in London-seated arbitrations. 

3. Challenges to awards on the basis of alleged lack of jurisdiction

Under section 67 of the Arbitration Act, an award issued by a tribunal in a London-seated arbitration can be challenged before the English courts on jurisdictional grounds.  At present, a jurisdictional challenge under section 67 involves a complete re-hearing of the issue of jurisdiction and all related evidence, in all circumstances. 

In the Report, the Law Commission has recommended that the Arbitration Act (and related court rules) be amended to make separate provision for circumstances where the section 67 application: (a) relates to an objection as to the tribunal’s jurisdiction on which the tribunal has already ruled; and (b) is made by a party that took part in the arbitration proceedings.  In such circumstances, the Law Commission has recommended that the following rules apply: (a) a ground for the objection that was not raised before the tribunal must not be raised before the court (unless the party did not know and could not with reasonable diligence have discovered that ground at the time it took part in the proceedings); (b) evidence that was not heard by the tribunal must not be heard by the court (unless the party could not with reasonable diligence have put the evidence before the tribunal at the time it took part in the proceedings); and (c) evidence that was heard by the tribunal must not be re-heard by the court, unless the court considers it necessary in the interests of justice. 

4. Court powers in support of arbitral proceedings

Section 44 of the Arbitration Act empowers the courts to make orders in support of arbitral proceedings, including injunctive relief.  In order to address uncertainty over whether such orders can be obtained against third parties, i.e. entities that are not parties to the arbitration agreement, the Law Commission has recommended that section 44 be amended to make clear that the courts are empowered to make orders against third parties.  The Law Commission has also recommended that where an order is made against a third party under section 44, the third party should not require the permission of the court that has made the order before bringing any appeal. 

5. Court powers in support of emergency arbitrators

In recent years, arbitral institutions have introduced provisions in their procedural rules allowing for the appointment of an “emergency arbitrator”, a sole arbitrator appointed by the institution to hear an urgent application for interim relief at the outset of arbitration proceedings which cannot wait until the tribunal is constituted.

In the Report, the Law Commission has recommended an amendment to the Arbitration Act to facilitate the enforcement of orders made by emergency arbitrators.  Under sections 41 and 42 of the existing Act, if a party fails to comply with any order or directions made by a tribunal without showing sufficient cause, the tribunal may issue a “peremptory order” stipulating a deadline for compliance, and if the party still fails to comply, the English courts may make an order under section 42 of the Act requiring the party to comply.  The Law Commission has proposed that sections 41 and 42 be amended to make clear that this procedure is also available in respect of orders or directions made by an emergency arbitrator. 

6. Arbitrator’s duty of disclosure

The impartiality of arbitrators is key to the proper conduct of an arbitration and, as such, the Arbitration Act contains an express duty of impartiality: see section 33(1).  English common law also recognises that arbitrators have a continuing duty to disclose any circumstances which might reasonably give rise to justifiable doubts as to their impartiality (see the Supreme Court’s decision in Haliburton v Chubb [2020] UKSC 48 – and our report on the case here).  However, case law has left unresolved the question as to whether an arbitrator’s duty of disclosure is limited to circumstances of which they are actually aware or also extends to circumstances of which they ought reasonably to be aware. 

In the Report, the Law Commission has recommended that an arbitrator’s duty of disclosure should extend to circumstances of which they ought reasonably to be aware. 

7. Arbitrator immunity

Section 29 of the Arbitration Act provides that an arbitrator is not liable for anything done or omitted in the discharge of their functions as arbitrator (unless they act in bad faith).  However, issues have arisen in relation to whether an arbitrator retains their immunity if they resign or are removed by a court, with a line of case law suggesting that an arbitrator can incur liability for the costs of an application for their removal. 

So as to support arbitrators resigning in circumstances that are reasonable and appropriate (e.g., in the context of sanctions), the Law Commission has recommended in the Report that an arbitrator’s resignation should not give rise to any liability for the arbitrator unless it is shown that the resignation was unreasonable in all the circumstances.  The Law Commission has also recommended that arbitrators should not incur any liability in connection with an application for a court order for their removal unless they have acted in bad faith. 

Areas where no reform has been recommended

Notably, the Law Commission has decided not to recommend reforms in respect of certain other issues raised by stakeholders during the consultation process.  In particular, these include the following:

  • Confidentiality: The Law Commission has declined to introduce a provision in the Arbitration Act regarding the confidentiality of arbitral proceedings and awards.  Although the Arbitration Act does not contain any provision on confidentiality, there is well developed case law on the confidentiality of arbitration proceedings in English common law.  The Law Commission concluded that any statutory provision for confidentiality in the Arbitration Act could not be “sufficiently comprehensive, nuanced or future-proof”, and that this aspect of English arbitration law is best left to the common law.
  • Availability of interim relief: Following the decision of Leggatt J (as he then was) in Gerald Metals v Timis [2016] EWHC 2327, there has been some uncertainty as to whether and in what circumstances parties will be able to seek interim relief from the English courts under section 44 of the Arbitration Act if their arbitration agreement adopts institutional rules which provide for the appointment of an emergency arbitrator or the expedited formation of a tribunal.  The Law Commission has not recommended any reforms to section 44 (and, in particular, section 44(5)) to address this uncertainty, as it has concluded that no such reforms are necessary.  The Commission states in the Report that “the current wording of section 44 already allows an arbitral party to apply to court, even if emergency arbitrator provisions have been agreed, as long as the requirements of section 44 are fulfilled in the usual way”.