Law Commission Releases Consultation Paper on Its Review of the Arbitration Act 1996

Published Date
Sep 28, 2022
In January 2022, the Law Commission of England & Wales launched a review of the Arbitration Act 1996 (the Act) as part of its 14th programme of law reform. We shared our initial thoughts on the Commission’s review earlier this year.

On 22 September 2022, the Commission published a detailed consultation paper and a shorter summary of that paper, inviting comments from the public. In this post, we look at the key highlights and proposals in the consultation paper.

No ‘Root and Branch’ Reform

The Commission’s provisional assessment is that the Act “works very well” and that “major reform is neither needed nor wanted.” This assessment guides the Commission’s provisional proposals in the consultation paper.

We generally agree with the Commission’s initial assessment. For 25 years, the Act has been vital in making London the most popular destination globally for international arbitration. The Commission’s stated aims are to maintain the attractiveness of England & Wales, and English law, for international commercial contracts and dispute resolution. London already provides a stable and predictable arbitral seat, with an arbitration law that generally functions well. In our view, there is no need for wholesale change but, rather, an opportunity for targeted improvements.

The 8 Key Areas of Reform

In this context, the Commission’s paper focuses on the 8 areas identified during the pre-consultation phase as those that would benefit most from a review. A host of minor reforms, as well as suggestions that did not make the shortlist for reform, are identified separately. The paper invites comments on a list of 38 consultation questions by 15 December 2022.

Codification of Confidentiality Obligations

The Act does not contain any provisions on confidentiality, which under English common law is an implied term of an arbitration agreement. The Commission considered whether the Act should include a default rule that arbitrations are confidential, with a list of exceptions.

The provisional proposal is to retain the status quo, and that the law of confidentiality is best left to be determined by the courts. Among other things, the proposal is based on the view that attempting to codify law that is not yet certain carries a degree of risk.

Independence and Disclosure

The Act expressly requires arbitrators to act impartially as between parties,[1] but does not impose a duty of independence (i.e., an obligation to have no connections to the parties) nor require arbitrators to disclose their connections which might go to the matter of their independence or impartiality.

The Commission does not believe that an express duty of independence is needed as it is practically not possible to ensure complete independence in modern arbitration and because, in any event, impartiality matters more (“it is no good requiring an arbitrator to be independent if they are biased”). It also notes that English case law requires an arbitrator to make disclosures that might give rise to justifiable doubts as to their impartiality and proposes that their guidance should be codified in the Act.

Anti-discrimination and Challenge of Arbitrators

The Commission notes the need for greater diversity in arbitral appointments, and that the case of Hashwani v Jivraj[2] confirmed that equality legislation does not apply to arbitration.

The Commission makes the following proposal as a “world-leading initiative” which would “send an important signal about diversity and equality:”

  • A party or an institution’s appointee to a Tribunal cannot be challenged by the other party based on the appointee’s ‘protected characteristics,’[3] including age, sex and sexual orientation.
  • Any agreement between the parties regarding the arbitrator’s protected characteristics should be unenforceable unless the agreement is, in the circumstances, a “proportionate means of achieving a legitimate aim.”

The proposal therefore seeks to strike a balance, ultimately limiting the grounds on which the appointment of an arbitrator may be challenged.

Immunity of Arbitrators

Under the Act, arbitrators are potentially exposed to liability in two scenarios: (a) where they resign (even if with good reasons), and (b) where a party challenges an arbitrator, and the courts hold the arbitrator liable for the costs of the application (even sometimes where the application is unsuccessful).

The Commission considers it important to uphold the immunity of arbitrators and to allow them to have the freedom to make decisions without fear of court proceedings from a dissatisfied party, resulting in personal liability.

  • On the resignation issue, the Commission invites suggestions on whether arbitrators should incur liability for resignation at all, or only if their resignation is shown to be unreasonable. Both proposals have pros and cons, and the Commission considers the arguments to be “finely balanced.”
  • As to party challenges, the Commission proposes the strengthening of immunity of arbitrators and that case law holding them potentially liable for the costs of unsuccessful applications should be overturned.[4] This is on the basis that these cases are contrary to the wording and intention of the Act.

Summary Disposal of Claims

The need for a summary judgment procedure in the Act was first mooted by stakeholders during the 13th programme of law reform of 2017 and is one of the most important proposals in the paper.

The Commission notes that the Act “probably” already allows for a summary procedure, even though there are no express provisions. However, the lack of express provisions have made arbitrators hesitant to adopt such procedures fearing a court challenge of their award on the grounds of lack of fairness.

The Commission therefore proposes (in our view, rightly) the introduction of a non-mandatory ‘opt-out’ summary procedure in the Act. However, the threshold test of what would trigger the summary procedure, i.e., whether the claims should be “manifestly without merit” or have “no real prospect of success” and what that means in practice, is left open to debate.

Interim Measures Ordered by the Court in Support of Arbitral Proceedings (Section 44)

We recently published a post on potential reforms regarding the courts’ powers in support of arbitral proceedings under Section 44 of the Act.

As set out in that post, Section 44 of the Act empowers the courts to issue orders in support of arbitral proceedings. However, Section 44 is not entirely clear on a number of topics which has been a matter of ongoing debate, including in particular (a) the applicability of Section 44 to third parties, and (b) the interaction of Section 44 with emergency arbitrator provisions.

On the third-party issue, the Commission proposes clarifying that the courts’ powers are exercisable against third parties in appropriate cases whilst giving third parties a full right of appeal and requiring witness evidence to be taken by deposition rather than summonses.

As regards the applicability of Section 44 where the parties have agreed emergency arbitrator provisions, the Commission proposes:

  • Clarifying that the provisions of the Act—including in relation to arbitrator appointments—should generally not apply to emergency arbitrators;
  • Clarifying that where the emergency arbitrator is empowered to make interim orders, the parties can still seek the assistance of the courts for interim relief as long as the requirements of Section 44 are met;[5] and
  • Adding a provision to the Act to ensure compliance where a party ignores the interim order of an emergency arbitrator.

Jurisdictional Challenges Against Arbitral Awards (Section 67)

Under Section 30 of the Act, a party that objects to the jurisdiction of the Arbitral Tribunal may ask the Tribunal to rule on its own jurisdiction. If it is dissatisfied with that ruling (i.e., where the Tribunal holds that it is properly seized of the matter), the party may, under Section 67 of the Act, ask the court to rule upon the Tribunal’s jurisdiction.

A Section 67 challenge potentially involves a full hearing, with the court revisiting the evidence and arguments. The Commission has considered whether it would be more appropriate for this to be an appeal instead, i.e., a limited review of the Tribunal’s ruling.

The Commission’s proposal is that in such circumstances an application under Section 67 should operate as an appeal. Among other reasons, the Commission believes that this will limit delays and costs associated with a full rehearing. It will also be more fair in that the party that loses a jurisdictional challenge before a Tribunal cannot then obtain new evidence and develop its arguments when subsequently challenging the Tribunal’s jurisdiction before a court.

Appeals on a Point of Law (Section 69)

Section 69 of the Act allows a party, in limited circumstances, to appeal to the court to overturn an award due to incorrect application of the law.

The Commission considered two competing proposals: on the one hand, that Section 69 should be repealed to enhance the finality of awards, and on the other hand, that its scope should be expanded such that the court has more of an opportunity to consider questions of law.

The provisional proposal is that the status quo should remain, including because:

  • Section 69 is rarely invoked and does not appear to be causing regular delays; and
  • Section 69 is not mandatory. The parties can opt for a more expansive or more restrictive right of appeal as they prefer, and there is no compelling reason for this practice to be changed.

Next Steps and Comments

The Commission’s proposals are provisional and subject to the consultation exercise. The Commission intends to publish final recommendations by mid-2023, at which point the Government will decide whether to implement the recommendations.

Our initial impression of the proposals is that they are sensible and do not present any major surprises. We aim to consider these in more detail in subsequent posts. Of particular interest are the proposals that deviate from the status quo, such as those in relation to anti-discrimination and summary disposal of claims. As always, the devil is in the detail and the successful implantation of these proposals will depend on carefully articulating the changes and precisely defining their scope.

Content Disclaimer
This content was originally published by Shearman & Sterling before the A&O Shearman merger