Global Vantage: The Law Commission’s Review of the Arbitration Act 1996 – Should the Act be reformed?October 2022
In our Global Vantage article in February, we reported that the Law Commission had announced that it would be conducting a review of the Arbitration Act 1996. The Law Commission has now published its consultation paper on its review, which provides its provisional law reform proposals to amend and update the Act.
This article highlights some of the key proposals for reform arising from the Law Commission’s review.
The Arbitration Act 1996 (the “Act”) provides a framework for arbitration in England and Wales and Northern Ireland. The UK Government requested that the Law Commission review the Act on its 25th anniversary to determine whether there might be any amendments to the Act, to ensure that it remains fit for purpose and that it continues to promote the UK as a leading destination for commercial arbitrations. A summary and full copy of the Law Commission’s consultation paper can be reviewed here: https://www.lawcom.gov.uk/project/review-of-the-arbitration-act-1996/.
The Law Commission’s consultation paper concludes that in general the Act works very well, and that extensive reform is not needed. However, there were a few discrete areas, where the review considered reform of the Act may be required. These areas are discussed below.
Interestingly whilst the confidentiality of arbitration is seen as one of the main benefits of arbitration, the current Act does not include any provisions on the confidentiality of arbitrations. The Law Commission considered as part of its review whether it should. However, it provisionally concluded that the Act should not codify the law in this respect, but instead, that it would be better for the law to evolve through the Courts through case law, which confirms that Arbitrations seated in England and Wales are, by default, private and confidential – see the case of Economics, Policy and Development of the City of Moscow v Bankers Trust Co and the Supreme Court case of Halliburton Co v Chubb Bermuda Insurance Ltd.
The main reasons for this are:
- They were not currently persuaded that all type of arbitration should by default be confidential; and
- If the Act did provide a default rule of confidentiality, it would be necessary for it to be qualified by mandatory exceptions. However, whilst the case law identifies a possible list of exceptions, the extent of that list is not certain and is a matter of on-going development.
- Independence of arbitrators and disclosure
Whilst a number of other arbitral rules impose a duty of independence on arbitrators, the Act does not. The Law Commission considered whether the Act should, but again provisionally concluded that it should not.
The reason provided was that it placed primary importance on the impartiality of the arbitrators as opposed to their independence. The Act already requires arbitrators to be impartial by section 33 and the Court has power to remove an arbitrator on the grounds that circumstances exist that give rise to justifiable doubts as to his impartiality, pursuant to section 24.
The review did however conclude that the Act should codify the case law, which establishes that an arbitrator is required to make disclosure of any connections to allow the parties to consider whether the arbitrator is impartial. The consultation paper recommends that the Act should be amended to provide a provision that arbitrators have a continuing duty to disclose any circumstances which might reasonably give rise to justifiable doubts as to their impartiality.
Given the importance of equality and discrimination, the review has recommended a couple of changes to the Act to limit the grounds on which a party can challenge the appointment of an arbitrator by precluding discriminatory challenges, as follows:
- the appointment of an arbitrator should not be susceptible to challenge on the basis of the arbitrator’s protected characteristics; and
- any agreement between the parties in relation to the arbitrator’s protected characteristics should be unenforceable, unless in the context of that arbitration, requiring the arbitrator to have that protected characteristic is a proportionate means of achieving a legitimate aim.
The review recommends that any discriminatory terms relating to the appointment of an arbitrator in the arbitration agreement would be unenforceable.
- Immunity of arbitrators
The review has proposed that the immunity of arbitrators should be strengthened to (a) avoid satellite litigation from unsuccessful parties to an arbitration; and (b) to support an arbitrator in being impartial (for example, by the arbitrator not wanting to make an unpopular decision due to the fear of a challenge that risks their personal liability).
The Act currently provides that ‘an arbitrator is not liable for anything done in the purported discharge of their functions as an arbitrator unless done in bad faith’ (section 29). However, the review highlights that this does not prevent an arbitrator being potentially liable for: (a) the arbitrator resigning from their appointment (even if there is a valid reason for resigning); or (b) if a party makes an application to court which impugns an arbitrator (e.g. an application to remove an arbitrator), when the arbitrator can be held liable for the costs of that application, even if the party making the application is unsuccessful.
The review proposes that:
- the case law which holds arbitrators potentially liable for the costs of court applications should be reversed; and
- they have asked consultees whether they consider that arbitrators should incur liability for resignation at all, or perhaps only if their resignation is shown to be unreasonable.
- Summary disposal
The Act does not currently provide an express provision providing recourse to summary disposal of a claim, for example, for a claim that lacks legal merit. The review considered whether the Act should and provisionally proposes that the Act should provide an explicit, non-mandatory provision providing that an arbitral tribunal may adopt a summary procedure to dispose of a claim or defence. The proposals set out that it would require an application by one of the parties, and that the summary procedure to be adopted would be a matter for the arbitral tribunal, in the circumstances of the case, in consultation with the parties.
- Court orders in support of arbitral proceedings
The review also considered whether there should be any amendments made to Section 44, which provides that the court has power to make orders in support of arbitral proceedings.
The Law Commission considered two points, firstly whether Section 44 allows the court to make orders pursuant to section 44 against third parties. On this point, the Law Commission is of the view that the court can, in appropriate cases, make orders against third parties and it asks consultees whether this should be made explicit in the Act.
Secondly, the Law Commission considered, in the event that the parties have agreed a regime by which emergency arbitrators can make interim orders, whether that limited the ability of the parties to ask the court to make interim orders. The review provisionally concludes that it did not, provided the requirements of section 44(3)-(5) are met.
The consultation paper proposes that section 44(5), which provides that ‘the court shall act only if or to the extent that the arbitral tribunal, and any arbitral or other institution or person vested by the parties with power in that regard, has no power or is unable for the time being to act effectively’ should be repealed on the basis that the requirement to prevent the court from overstepping into the proper domain of the arbitral tribunal may now be redundant.
The consultation paper also recommends possible amendments to the Act to address the scenario when an emergency arbitrator issues an interim order which an arbitral party ignores. This situation is not currently provided for in the Act and the consultation paper proposes either empowering the court to order compliance with a peremptory order of an emergency arbitrator, or, in the alternative, extending the requirements for obtaining an interim court order so that an application to court under section 44(4) could be made with the permission of an emergency arbitrator.
- Challenging the jurisdiction of the Tribunal
Pursuant to section 30 of the Act, the Tribunal can rule on the question of its own jurisdiction unless otherwise agreed between the parties. Furthermore, pursuant to section 67 of the Act, a party can apply to court to challenge an award on the basis that the tribunal lacks jurisdiction. However, that award could be the Tribunal’s award on jurisdiction and the current case law states that such a challenge is potentially a full rehearing, which could be long and costly. The Law Commission proposes that such a challenge should be an appeal, as opposed to a full rehearing.
The Law Commission also proposes that section 67 of the Act should be amended to include the further remedy that the court may declare the award to be of no effect, and that an arbitral tribunal should be able to make an award of costs in consequence of an award ruling that it has no substantive jurisdiction.
- Appeals on points of law
Section 69 of the Act allows a party in limited circumstances to appeal to the court and for the court to reconsider the contested question of law.
The review considered whether the circumstances on which a party can appeal an award should be expanded or whether, section 69 should be repealed altogether.
The consultation paper states that they are not currently proposing any changes to section 69 to ensure the finality of arbitral awards and to ensure that errors of law are corrected, so that the law is applied consistently and in common to everyone.
Whilst the Law Commission have proposed a number of amendments to the Act as summarised above, the majority are relatively minor. The review has not proposed any major amendment or reform, which indicates that the Act is still working well and is fit for purpose despite its 25 years of being in force.
Responses to the consultation paper are due by 15 December 2022.
If you would like to discuss this article further and/or would like any advice in relation to the consultation paper, please contact Antony Smith email@example.com or Anna Braden firstname.lastname@example.org.Download PDF