The Law Commission of England & Wales recently published a consultation paper which makes provisional proposals for the reform of the Arbitration Act 1996. Over the last 25 years, the Arbitration Act has played an integral part in London becoming a pre-eminent destination for international arbitration. The Law Commission’s consultation provides a timely opportunity to modernise the Act and protect London’s position. This article provides a summary of the main proposals put forward by the Law Commission and identifies how any final proposals could further embrace modernisation (for example, in relation to disclosure obligations for third party funding).
Introduction
On 22 September 2022, the Law Commission published a consultation paper, in which it unveiled provisional proposals to update the Arbitration Act 1996 (the Act). The Act regulates and provides a framework for arbitration in England and Wales and Northern Ireland. It has, since enacted, played a key role in making London a pre-eminent destination for international arbitration disputes.
The consultation paper follows a request from the UK Government that the Law Commission consider potential amendments to the Act to ensure that it continues to promote England & Wales as a leading destination for international arbitration.
The consultation paper concludes that the Act functions well and that “root and branch reform” is not necessary. It also recognises that there are difficulties in addressing changes in confidentiality and technology. Accordingly, many of the provisional proposals are relatively conservative.
Following publication of the paper, there will be a consultation period, in which stakeholders can comment on the paper and make further suggestions. Accordingly, the consultation paper leaves open several questions for consultees. The consultation period is open until 15 December 2022, following which the Law Commission will publish final recommendations for reform.
Key areas of focus
- Confidentiality
The Act does not contain any explicit provision on confidentiality and the Law Commission does not propose changing this, concluding that development of the law of confidentiality is better left to the courts. The Law Commission was not persuaded by the suggestion that all types of arbitration should be confidential by default. The majority of arbitrations are confidential because confidentiality is agreed by the parties or otherwise implied by law into the parties’ arbitration agreement. However, there are sound public policy reasons for transparency in some arbitrations, such as investor claims against states. Whilst weight is given to parties’ agreement on confidentiality or transparency, the law of confidentiality superimposes mandatory limits. It follows that any default confidentiality provision would be so qualified as to make it impractical. The Law Commission concluded that a strength of the law of confidentiality is that it can be varied by the courts on a case by case basis, preserving a flexibility approach.
- Independence of arbitrators and disclosure
The consultation paper does not propose changes to the Act’s present silence on arbitrators’ duty of independence. It is rare for an arbitrator to be completely independent from the parties or the subject-matter of a dispute, and many arbitrators are chosen precisely for their experience in a particular field. The duty of impartiality imposed by Section 33 of the Act is more important. Therefore, the Law Commission suggests codifying case law requiring arbitrators to disclose any “circumstances which might reasonably give rise to justifiable doubts as to their impartiality”.
- Discrimination
The Law Commission considered if the Act should prohibit discrimination in the appointment of arbitrators. The consultation proposes to amend the Act by adopting the language of the Equality Act 2010 to prohibit challenges based on inter alia an arbitrator’s age, disability, religion or sex. The proposal only deals with challenges to an appointment or agreements prescribing an arbitrator’s appointment. This is likely to be seen as a positive change reflecting the need for modernisation and the arbitration community’s focus on promoting equality and diversity.
- Immunity of arbitrators
The Law Commission proposes to strengthen the provisions addressing arbitrator’s immunity. Section 29 of the Act currently provides that an arbitrator is not liable for things done while executing their functions as an arbitrator unless in bad faith, save in two circumstances. The first is when arbitrators resign (arbitrators can incur liability whether they have good reasons to resign or not), and the second is when a party challenges an arbitrator’s appointment before a court (the arbitrator can be liable for the costs of that application). Concluding that the current exceptions in Section 29 undermine arbitrators’ neutrality, the Law Commission proposes that arbitrators should not be required to pay the costs of court applications, and also seeks views on whether arbitrators should incur any liability when their resignation is reasonably justified.
- Summary disposal
One of the Law Commission’s more innovative suggestions is a non-mandatory provision granting arbitrators the power to dispose of claims summarily. The Act does not currently contain an express provision permitting summary disposal of claims (a position now adopted in the rules of many major arbitral institutions). Instead, the Act grants arbitrators powers compatible with an adoption of summary procedure – for example, Section 33 provides that tribunals should avoid unnecessary delay or expense and Section 34 grants the tribunal wide powers to decide procedural and evidential matters.
The Law Commission’s consultation paper recognises the need to ensure fairness, in particular providing a party a reasonable opportunity to put its case. It concludes that fairness can be achieved through a combination of procedural due process and a suitable threshold/standard to be used (and established) by an arbitral tribunal before it can summarily dispose of any claim. The Law Commission requests views on whether the threshold test should be the “manifestly without merit” standard, or the “no real prospect of success” standard (i.e. the standard applied by the courts of England and Wales).
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Court orders in support of arbitral proceedings
According to Section 44 of the Act, the court has the power to make orders in support of arbitral proceedings. The Law Commission considered two questions:
Can the court make orders against third parties (those not party to the arbitration)?
The Law Commission reflected on the current position under the Act, recognising that, in appropriate cases, the court can already make orders against third parties under Section 44. The Law Commission is, however, seeking views from consultees on whether the right should be made explicit.
Is section 44 of the Act available when arbitral parties have agreed to emergency arbitrators under the applicable arbitral rules?
Again, the Law Commission reflected on the current position, recognising that there is some confusion and lack of clarity in the current wording of Section 44. The Law Commission’s view is that Section 44 allows any party that meets the Section 44 requirements to seek the assistance of the court even when emergency arbitrators are present under any applicable arbitral rules. To address the lack of clarity, the Law Commission asks consultees to consider the repeal of section 44(5), which states that the court will act only if the arbitral tribunal has no power or is momentarily unable to do so.
The Law Commission also asks for consultees’ views and preferences in relation to what should happen if an emergency arbitrator issues an interim order which an arbitral party ignores. It puts forward two possible options: First, the Act could empower the court to order compliance with a peremptory order of an emergency arbitrator, mirroring the provision available to a fully constituted arbitral tribunal. Alternatively, the requirements for obtaining an interim court order could be extended so that an application under section 44(4) could be made with permission of an emergency arbitrator as well.
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Challenging the jurisdiction of the tribunal
Section 67 provides that a party to arbitral proceedings may, after an award on the merits or jurisdiction, apply to the court to challenge the award on the basis that the tribunal lacked substantive jurisdiction. The Law Commission provisionally proposes the Act should clarify that, where a party has participated in an arbitral process and objected to the tribunal’s jurisdiction (with an award subsequently rendered by the tribunal), any Section 67 challenge should be made by way of appeal (without the need for a rehearing of the merits). This would effectively reverse recent case law, which has established that a full hearing is required even where there has been a jurisdictional challenge during the arbitral process itself. The Law Commission also recommends amendments to clarify the remedies available, and to clarify that a tribunal can issue a costs order even when ruling that it has no jurisdiction.
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Appeals on a point of law
The Law Commission does not advise amending Section 69, which allows a party (in limited circumstances) to challenge an award on the basis of an error in law. It is the Law Commission’s view that Section 69 strikes a compromise between safeguarding the finality of arbitral awards and ensuring that errors of law are corrected, so the law is applied consistently. Furthermore, Section 69 is non-mandatory and parties can agree a different position on appeals on points of law. Arbitration agreements and arbitral rules have long settled on their preferred relationship with section 69, by opting-in or opting-out, and the Law Commission considers that there is no need to amend this.
Missed opportunities?
The Law Commission’s consultation paper does not seek consultees’ views on certain issues, for instance whether there should be mandatory disclosure obligation in circumstances where a party has obtained third party funding. As third party funding becomes increasingly commonplace, it is arguable that making disclosure of third party funding mandatory under the Act would prevent some of the procedural inefficiencies typically associated with third party funding in arbitration, for example, applications for disclosure and challenges to tribunals’ independence and impartiality. The issue has now been addressed by a number of arbitration institutions such as the ICC, SIAC and the HKIAC, who have sought to incorporate a mandatory disclosure obligation in their arbitral rules, and the consultation process might have provided a good opportunity for consultees to debate the merits of this type of provision.
The Law Commission may also have missed an opportunity to propose explicit reference in the Act to important technological developments, specifically remote hearings and electronic service of documents. The consultation paper recognises that the Act does not refer explicitly to modern ways of working, including holding remote hearings, issuing electronic awards or using electronic documents during proceedings. However, the Law Commission’s view is that these technological developments are already compatible with the Act as currently drafted, and that no amendments are necessary. This is particularly in light of Section 34 of the Act which grants tribunals the right to agree any procedural matter (including giving procedural directions for remote hearings and electronic documentation). The Law Commission has requested consultees’ views on whether the Act should be amended to make specific reference to remote hearings and electronic documents. Whilst it may be true that amendments are not strictly necessary, this consultation might have provided a good opportunity for England & Wales to show clear commitment to embracing modern technology, helping the arbitration community to address climate change (by reducing travel and paper waste) and reducing costs for parties wherever possible. Other arbitral destinations, including the Netherlands, have already made the commitment through explicit reference to technological developments in legislation.
Conclusions
Overall, the proposals seek to fine-tune, rather than revolutionise, the framework for arbitration in England & Wales. Although the proposals are primarily aimed at evolution, there are certain suggestions, like the introduction of an explicit provision for a summary disposal, that are likely to be particularly welcomed as a modern and practical revision to the Act.
With contribution from Leone Astolfi, trainee
Sherina Petit will be taking part in a panel discussion at the London Shipping Law Centre upcoming hybrid event, The Law Commission’s Consultation Paper on the Arbitration Act 1996, at the International Dispute Resolution Centre on 15 November 2022. The panel will be chaired by the Honourable Mr Justice Henshaw and promises to be a lively discussion about the Law Commission’s preliminary proposals. If you have suggestions ahead of the LSLC’s event or would like to discuss the proposals with us, please contact the authors of this article.