Modernising and cementing the attractiveness of arbitration in the UK, or further evolution? What you need to know about the Arbitration Bill

Arbitration is used as an alternative to litigation and typically provides parties with a binding means of resolving domestic or international disputes via effective, confidential, and impartial process. All parties must agree to submit the relevant dispute to arbitration via an arbitration agreement or contractual clause.

The Arbitration Act 1996 (“AA 1996”) applies to arbitrations seated in England, Wales, or Northern Ireland, and contains the applicable legislative framework.   The Arbitration Bill will modernise this law by updating the AA 1996 ensuring that this remains current and attractive to parties.   The reforms therefore aim to make arbitration quicker, cheaper, and more efficient for parties and to help cement the UK as a global leader in this space.

What is being reformed?

There are six main changes to be aware of:

1. Introduction of a default statutory rule determining the law governing the arbitration agreement

• A consistent source of debate in the courts concerned whether the law governing the arbitration agreement should, in the absence of an express choice by the parties, align with the general choice of law in the main contract (often referred to as the matrix contract), or with the law of the seat.
• The new default rule will replace the current position determined by the Supreme Court in Enka[1], which states that, in the absence of an express party choice, the law of the matrix contract governs the arbitration agreement (where such law was expressly selected by the parties) unless there is an exemption or good reason to depart from this.
• It is expected that the new default rule will provide greater certainty and apply to all arbitration agreements irrespective of their date (subject to any saving or transitional provisions). However, it will not apply to arbitrations or court proceedings commenced before the new default rule comes into effect.
• Therefore, if contracts containing arbitration agreements are entered into and a dispute arises following the date the new default rule is effective, then the statutory rule will apply (regardless of the agreement date), unless the parties have expressly agreed the law governing their arbitration agreement.
• It is thought that having a clear default rule on the applicable governing law, which applies regardless of the chosen seat, should help to streamline enforcement proceedings, and avoid further satellite litigation around enforcement.

2. New power of summary disposal

• This power will facilitate the dismissal of an award on a summary basis if one party deems that the other has “no real prospect of succeeding” on a claim, defence, or issue.
• Parties will have a reasonable opportunity to make representations to the tribunal on this.

3. Emergency arbitrator powers and orders

• Emergency arbitration enables parties to obtain urgent protective measures before the constitution of a tribunal.
• Two proposed changes intend to assist in the enforcement of emergency arbitrator’s orders.
• Emergency arbitrators will have the same means as other arbitrators to enforce their peremptory orders; and
• Emergency arbitrators will have the same power as other arbitrators to give arbitral parties permission to apply to court for a Section 44 order (i.e. increasing the courts’ supporting powers, including around evidence or interim injunctions).

4. Arbitrator’s impartiality: codification of an arbitrator’s duty of disclosure

• The Bill includes a statutory duty on arbitrators to disclose any circumstances which might reasonably give rise to justifiable doubts as to their impartiality.  This aims to clarify earlier case law, follow international best practices, and to promote greater trust in arbitral processes.
• An arbitrator will need to disclose what they know and what they ought reasonably to know. Case law is likely to further develop this area.

5. Process for challenging an award on jurisdictional grounds

• Currently Section 67 challenges (challenging an award on jurisdictional grounds) involve a full rehearing before the courts.
• The Bill provides that where an objection has been made to the tribunal that it lacks jurisdiction, and the tribunal has ruled on its jurisdiction, then in any subsequent Section 67 challenge by a party who has partaken in the arbitration the court will not entertain any new grounds of objection, or any new evidence and evidence will not be reheard (save in the interest of justice). The approach will therefore be more akin to an appeal, rather than a full hearing.
• The intention aims to avoid parties from having “a second bite of the cherry” with the benefit of hindsight, e.g. if they are unhappy with a decision, while keeping the overall associated time, duplication, and costs down.

6. Extension of the scope of arbitrators’ immunity

• Arbitrators will not be liable for their resignation (provided their resignation is not deemed unreasonable) or the costs of any application for their removal (provided it is not demonstrated that they have acted in bad faith).
• This is designed to reassure arbitrators when determining their jurisdiction (or resignation) while preventing parties from incurring wasted costs due to improper resignations.

The importance of the reforms

At the highest level, it is hoped that the reforms will cement London’s reputation as the prime location for the resolution of legal disputes amidst the threat of growing competition from other centres, such as Singapore. The AA 1996 is now over two and a half decades old and there is a palpable risk that other jurisdictions are offering more contemporary and attractive arbitral frameworks. For example, Singapore updated its legislation in 2023 and ranked equal with London as the preferred choice of seat according to earlier research from Queen Mary University . Similarly, Dubai and Sweden updated their legislation in 2018, and Hong Kong in 2022. The Bill therefore seeks to address comments from the industry and to prevent the UK from stagnating whilst its competitors continue to grow in the field.

Arbitration is worth more than £2.5 billion annually to the British economy and the Bill plans to further facilitate its continued success[3].   According to the Justice Minister, Lord Bellamy:

“The UK is a globally-respected hub for legal services, with English and Welsh law the bedrock for the majority of international disputes, and the Arbitration Bill will ensure businesses from around the world continue to come here to resolve their disagreements”[4].

These legislative reforms are therefore seen as important and appear to have been generally welcomed during the earlier consultation process.   In addition, England and Wales still appear an influential jurisdiction globally, with some international arbitration laws following elements of the AA 1996 (as well as certain foreign courts indicating confidence in the related legal principles).

More specifically, it is anticipated that the new default statutory rule will provide clarity on the law of arbitration.   This development will no doubt be of interest to those drafting or negotiating contracts, as well as those looking at the dispute resolution provisions in live claims.

Furthermore, efficiency is a big driver of the reforms.   Arbitrators will be able to expediate decisions on issues that have no real prospect of success.   Such a change better aligns arbitrations with summary judgment processes available in court proceedings, although the application and understanding of this in international arbitrations has been questioned by some legal commentators.   Similarly, emergency arbitration orders will hopefully enable time-sensitive decisions to be made more promptly.   Several of the changes, such as those surrounding Section 67 challenges and the extension of the scope of arbitrators’ immunity are also clearly designed with overall streamlining and cost savings in mind.

Notably, the proposed changes to provisions around discrimination and confidentiality, as raised in earlier consultations, did not make their way into the Bill.

Status of the Bill

The Bill was introduced under the special fast track procedure since it was considered uncontroversial and is based upon the Law Commission’s recommendations, however the clock is now ticking before the general election is called.

As at early May 2024, the Bill is at the Report stage in the House of Lords.   It will still need to go through a third reading in the House of Lords and the House of Commons before it is capable of receiving Royal Assent.  Once enacted, the new law will automatically come into force in England and Wales, and the Government has indicated proposals for the same for Northern Ireland too.   Scotland has its own arbitration legislation pursuant to the Arbitration (Scotland) Act 2010.

[1] Enka Insaat Ve Sanayi AS (Respondent) v OOO Insurance Company Chubb (Appellant) [2020] UKSC (Enka) 38

[2] Government ‘Arbitration Bill: Fact Sheet’, arbitration-bill-factsheet.pdf (publishing.service.gov.uk)

[3] Government Press Release, ‘Modernised laws to secure UK as world leader in dispute resolution’, published 22 November 2023 – Modernised laws to secure UK as world leader in dispute resolution – GOV.UK (www.gov.uk)

[4] Quote taken from Government Press Release above.