Time for Change: Reform of the English Arbitration Act

On 22 September 2022, the Law Commission of England and Wales published a consultation paper laying out proposed reforms to the Arbitration Act 1996 and posing 38 consultation questions across a broad range of topics arising from the review. An important objective of the review is to explore the potential for updating the Act in a timely manner with the intention of strengthening England’s position as a world leader in international dispute resolution.

Introduction

The Arbitration Act 1996 (the Act), described as a ‘striking innovation’ that ‘create[d] an accessible and almost complete code of conduct, embodying a consistent vision of the arbitral process…’, 1  has been in force for 25 years. Unlike arbitration laws in many other jurisdictions based entirely on the UNCITRAL Model Law, 2  the Act also drew from a long and well-developed history of arbitration in England and Wales.

Over the years, the Act has played a central role in building the reputation of London as one of the most popular seats for arbitration in the world. In order to ensure it is fit for the purpose and continues to promote England and Wales as a leading destination for commercial arbitration, 3 the Law Commission initiated a consultation in September 2022 to review the Act.  Given many views provided to the Law Commission in its pre-consultation that the Act works well, the Law Commission does not propose root and branch reform, but has nonetheless been thorough in its review.

Set out below is a summary of some of the key areas for the proposed reform.

1. Summary disposal

The Act confers wide ranging powers on arbitrators to decide upon procedures to avoid unnecessary delay or expense, and decide procedural and evidential matters. 4 However, there is no express power for a tribunal to apply summary procedures to dispose of claims (or counterclaims) that are obviously without merit. It has been suggested to the Law Commission that the absence of express powers in the Act leads to “due process paranoia”, where arbitrators avoid summary procedures over concerns of the award being challenged.

The Law Commission has proposed language expressly to recognise that it is open to tribunals to adopt summary procedures. If accepted, this proposed reform would permit a tribunal to adopt summary procedures on the application of a party (rather than on a tribunal’s own initiative). It is also proposed to be a non-mandatory provision, allowing parties to agree to disapply the provision or agree on an alternative mechanism (e.g. the summary procedures included in institutional arbitral rules that may be selected). It also proposes a specific threshold to avoid the need for a tribunal to have to determine the test which it would then have to apply in deciding on a summary disposal application. The test proposed is to permit disposal of a claim on a summary basis where it has no real prospect of success, and when there is no other compelling reason for it to continue to a full hearing. Given the popularity of London as a centre for the determination of banking, finance and construction disputes, the adoption of an appropriate summary procedure is likely to prove popular, and follows a recent trend of adoption of such procedures by leading arbitral institutions around the world.

2. Courts’ powers

Courts of England and Wales have powers under the Act to support the arbitral process by making orders: (a) on the taking of witness evidence; (b) on the preservation of evidence; and (c) relating to property and others. However, some cases have cast doubt on whether courts can make such orders against third parties, which can sometimes be necessary, in particular, to preserve property or to obtain documentary evidence or witness evidence. The Law Commission proposes amending the provisions to confirm that orders against third parties can be made. The Law Commission does, however, recognise that it may not be appropriate for a third party to be subject to the same limitations on appeals before the court as would apply to parties to arbitration. Therefore, the Law Commission rightly proposes that third parties involved in such applications would have full rights of appeal.

The Law Commission also considers how the Act might deal with the relatively recent innovation of emergency arbitration: a concept that did not exist when the Act was drafted. It is proposed not to apply generally the provisions of the Act to emergency arbitrators (recognising that they are largely a creature of institutional arbitration rules).  Leaving such mechanisms to arbitral institutions, the Law Commission also proposes that the Act should not include its own provisions for the court to administer a scheme of emergency arbitration (meaning that emergency arbitration would not be available unless the parties agreed on a separate mechanism for it).

However, to give effect to orders made by emergency arbitrators, the Law Commission proposes giving the court the power to order compliance with a peremptory order of an emergency arbitrator (which would offer a partial solution to the question of the enforceability of emergency arbitrator awards). An alternative option under consideration is to allow a party to apply to the court for an interim order with the permission of an emergency arbitrator. 

3. Challenges to jurisdiction

Under the Act, parties have a number of avenues to challenge the jurisdiction of a tribunal. The starting point (often seen as a core principle of arbitration) is that a tribunal is itself competent to rule on its own jurisdiction. It can, therefore, determine a challenge to jurisdiction itself. 5 Under the Act, a party can also apply to the court to determine the tribunal’s jurisdiction. 6 Furthermore, a party can also challenge an award of a tribunal based on its lack of jurisdiction. 7 Where the court is to review a decision of the tribunal on its own jurisdiction, should that be a review of the decision (i.e. an appeal) or a complete rehearing of the question of jurisdiction?

The Law Commission proposes that where a party has participated in the arbitration, while objecting to the jurisdiction of the arbitral tribunal, and the tribunal has ruled on its jurisdiction in an award, any subsequent challenge to the court should be by way of appeal only and not rehearing.  The view of the Law Commission is that the alternative approach is giving the party ‘two bites of the cherry’ by allowing it to challenge jurisdiction, fully, twice.  This is potentially one of the most controversial aspects of the proposals. While it is correct that a party would potentially get two attempts to challenge jurisdiction, the alternative is for a tribunal, that may not actually have jurisdiction, to make a decision, which is then only reviewed by a court. The proposal also creates a potentially negative effect, in that it may dissuade parties from participating in the arbitration at all, in order to preserve the right to challenge the jurisdiction of the tribunal fully before the court.

4. Discrimination

The Law Commission supports the proposition that arbitration benefits when it is free from prejudice. Where it sees that prejudice may arise is in the appointment of arbitrators. An area of previous controversy has been where specific characteristics of an arbitrator are required as part of the arbitration agreement. Is it permissible for those characteristics to include protected characteristics (e.g. ethnicity, religion or gender)? The idea of such requirements seems contrary to principles of diversity, inclusion and equality, and indeed, there has been a recent push in many parts of the world to achieve more gender diversity among arbitrators. Yet there are certain specific uses of arbitration, where all parties may be of a particular faith or ethnicity. In such circumstances, is a requirement that the arbitrator be of the same ethnicity or religion as the parties a problem? Conversely, many international arbitral institutions adopt mechanisms to avoid appointing arbitrators of the same nationality as a party. In order to strike the right balance, the Law Commission proposes that the appointment of an arbitrator should not be susceptible to challenge on the basis of a protected characteristic (i.e. an arbitrator cannot be challenged due to a protected characteristic that they may or may not have) and that an agreement between the parties relating to an arbitrator’s protected characteristics should be unenforceable, unless having that protected characteristic is a proportionate means of achieving a legitimate aim.

That seems to strike the right balance between avoiding prejudice, while at the same time, permitting arbitrations to proceed with an arbitrator with protected characteristics if all parties have agreed.

5. Arbitrator immunity

Arbitrators have broad immunity from liability while discharging their functions. 8  However, an arbitrator may incur liability in the event of resignation and, in light of some recent court decisions, 9 an arbitrator may incur personal liability for costs where a party makes an application to court to remove that arbitrator.

The Law Commission has indicated that it does not consider those cases to reflect the intentions of the Act. Therefore, the Law Commission proposes that the immunity of arbitrators be extended to include immunity from costs liability arising out of arbitration-related court proceedings. 

Although the Law Commission does not make a specific proposal in relation to the liability of arbitrators if they resign, it seeks comments on whether liability should only be imposed if the resignation was unreasonable.

6. Confidentiality

One of the most valued characteristics of international arbitration for many parties is confidentiality. The Act in its present form says nothing about confidentiality.  Case-law establishes that confidentiality of the arbitration is an implied term, subject to a number of exceptions to the general rule. 

Many users have called for the Act to be amended to codify the current common (case-) law on confidentiality since it would offer more clarity and certainty. For international commercial arbitration, confidentiality is undoubtedly seen as a benefit. However, there are other types of arbitrations (including investor/state arbitration) where there is more likely to be a presumption that arbitration proceedings are not confidential. To codify in statute a law of confidentiality would therefore require either a classification of different arbitrations in order to identify what might or might not be confidential, or to include confidentiality provisions on either an opt-in or opt-out basis. Having considered the options, the Law Commission does not propose to make any addition to the Act in relation to confidentiality, since it believes a single rule does not accommodate the range of arbitrations operating under the Act. To some, this is the most controversial omission from the recommendations.

7. Technology

The Act says little about technology, but some commentators consider that this is a missed opportunity to modernise the Act. The Law Commission does acknowledge that arbitral institutions and other bodies 10 have devised rules for remote hearings and electronic documentation, which are compatible with the Act in its current form. Any updates to address developing technology would run the risk of becoming quickly out of date, and would in all likelihood increase the time needed for consultation and drafting.  However, that may result in amendments being needed sooner, such as where technological advances make the potential for arbitration conducted with the assistance of artificial intelligence more realistic.  Given the 25 years that passed since the Act was last reviewed, it should be assumed that any round of revisions may have to last another 25 years, which might run the risk of the Act becoming out-dated.  Indeed, some jurisdictions openly promote their ability to update their arbitration laws quickly. The Law Commission faces a dilemma – attempt to make the Act more ‘technology ready’ for future unspecified developments, or leave this for a later review and run the risk that the Act might become out of date.

Concluding remarks

Overall, while each proposal would be a minor amendment, the cumulative effect of the above proposals would represent some significant changes to practice that, if applied, would require parties and counsel to consider carefully the implications for arbitration, and how it is incorporated into parties’ agreements.

The Law Commission has invited responses to its consultation paper by 15 December 2022. After the consultation has completed, the Law Commission will then analyse the responses and ensure further stakeholder engagement as appropriate. We will report on future developments in subsequent editions of the Disputes Digest!