Law commission

Global Vantage: Law Commission Review of Arbitration Act 1996 – Should the Act be Reformed?

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 released its consultation paper on its review , which provides its draft legislative reform proposals to amend and update the law.

This article highlights some of the key reform proposals arising from the Law Commission’s review.

The Arbitration Act 1996 (the “Law”) provides a framework for arbitration in England and Wales and Northern Ireland. The UK government asked the Law Commission to review the law at its 25e anniversary to assess whether there might be any changes to the law, to ensure it remains fit for purpose and 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 viewed here: https://www.lawcom.gov.uk/project/review-of-the-arbitration-act-1996/.

The Law Commission’s consultation paper concludes that in general the law works very well and that major reform is not necessary. However, there were a few distinct areas where the review considered reform of the law may be needed. These areas are discussed below.

  1. Privacy

Interestingly, while arbitration confidentiality is considered one of the main advantages of arbitration, the current law does not include any provision on the confidentiality of arbitrations. The Law Commission considered as part of its review whether it should. However, he tentatively concluded that the Act should not codify the law in this regard, but rather that it would be preferable for the law to evolve through the courts through case law, which confirms that arbitrations sitting in England and the Wales are, by default, private and confidential – see the case of Economics, Politics 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 convinced that all types of arbitration should by default be confidential; and
  • If the Act provided for a rule of confidentiality by default, it would have to be accompanied by mandatory exceptions. However, while case law identifies a possible list of exceptions, the scope of this list is uncertain and is subject to ongoing development.
  1. Independence of Arbitrators and Disclosure

While a number of other arbitration rules impose a duty of independence on arbitrators, the law does not. The Law Commission questioned whether the law should be, but again tentatively concluded that it should not.

The reason given was that it placed paramount importance on the impartiality of the arbitrators rather than on their independence. The law already requires arbitrators to be impartial under Article 33 and the Court has the power to remove an arbitrator on the grounds that there are circumstances which give rise to justifiable doubts as to his or her impartiality, in accordance with Article 24 .

However, the review concluded that the Act should codify the case law, which establishes that an arbitrator is required to disclose any relationship to allow the parties to determine whether the arbitrator is impartial. The consultation paper recommends that the Act be amended to include a provision that arbitrators have a continuing duty to disclose any circumstances that could reasonably give rise to justifiable doubts as to their impartiality.

  1. Discrimination

Given the importance of equality and discrimination, the review recommended some changes to the law to limit the grounds on which a party can challenge the appointment of an arbitrator by excluding discriminatory challenges, as follows :

  • the appointment of an arbitrator should not be able to be challenged on the basis of the protected characteristics of the arbitrator; and
  • any agreement between the parties regarding the arbitrator’s protected characteristics should be unenforceable unless, in the context of that arbitration, requiring the arbitrator to have that protected characteristic would be a proportionate means of achieving a legitimate objective.

The review recommends that any discriminatory clause relating to the appointment of an arbitrator in the arbitration agreement be unenforceable.

  1. Immunity of arbitrators

The review proposed that arbitrator immunity be strengthened to (a) avoid satellite litigation by losing parties to an arbitration; and (b) to help an arbitrator be impartial (for example, by the arbitrator not wanting to make an unpopular decision due to fear of a challenge that risks his personal liability).

The law currently provides that “an arbitrator is not liable for anything done in the purported exercise of his duties as an arbitrator, except if done in bad faith” (article 29). However, the review points out that this does not preclude an arbitrator from being potentially liable for: (a) the arbitrator’s resignation (even if there is a valid reason for resigning); or (b) if a party makes a request to the court that challenges an arbitrator (for example, a request to remove an arbitrator), when the arbitrator may be liable for the costs of such request, even if the party making the request is unsuccessful.

The review suggests that:

  • case law that holds arbitrators potentially responsible for the costs of legal proceedings should be reversed; and
  • they asked those consulted whether they considered that arbitrators should incur liability in the event of their resignation, or perhaps only if their resignation turned out to be unreasonable.
  1. Summary elimination

The Act does not currently contain an express provision for the use of summary settlement of a claim, for example, for a claim without legal basis. The review considered whether the law should and tentatively proposes that the law contain an explicit, non-binding provision that an arbitral tribunal may adopt summary proceedings to dispose of a claim or defence. The proposals provided that it would require a request from one of the parties and that the summary procedure to be adopted would be for the arbitral tribunal, in the circumstances of the case, in consultation with the parties.

  1. Court orders in support of arbitration proceedings

The review also considered whether changes should be made to section 44, which provides that the court has the power to make orders in support of arbitral proceedings.

The Law Commission considered two issues, first, whether section 44 allows the court to make section 44 orders against third parties. On this point, the Law Commission is of the view that the court may, in appropriate cases, make orders against third parties and asks those consulted whether this should be made explicit in statute.

Second, the Law Commission considered, in the event that the parties had agreed to a regime by which emergency arbitrators can make interim orders, whether this limited the parties’ ability to apply to the court for interim orders. . The review tentatively concludes no, provided the requirements of Article 44(3)-(5) are met.

The Consultation Paper proposes that Article 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 this regard, has no power or is not momentarily able to act effectively” should be repealed on the grounds that the requirement to prevent the court from encroaching on the arbitral tribunal’s proper domain may now be redundant .

The consultation paper also recommends possible amendments to the Act to deal with the scenario where an emergency arbitrator issues an interim order that an arbitrating party ignores. This situation is currently not provided for by law and the consultation document proposes either to empower the court to order the execution of a peremptory order of an emergency arbitrator, or, alternatively, to extend the conditions to obtain an interim order from the court so that an application to the court under Article 44(4) could be made with leave of an emergency arbitrator.

  1. Challenge to the jurisdiction of the Tribunal

Under section 30 of the Act, the Tribunal may rule on the question of its own jurisdiction unless otherwise agreed by the parties. In addition, according to Article 67 of the law, a party may ask the court to challenge an award on the ground that the court lacks jurisdiction. However, this award could be the Tribunal’s award on jurisdiction and current case law dictates that such a challenge is potentially a full rehearing, which could be lengthy and costly. The Law Commission proposes that such a challenge be an appeal, as opposed to a full rehearing.

The Law Commission also proposes that Section 67 of the Act be amended to include the additional remedy that the court may declare the award ineffective, and that an arbitral tribunal should be able to award costs as a consequence of a decision to award that it has no material competence.

  1. Appeals in cassation

Section 69 of the Act allows a party, in limited circumstances, to appeal to the court and the court to reconsider the disputed question of law.

The review focused on whether the circumstances in which a party can appeal an award should be expanded or whether Article 69 should be repealed altogether.

The consultation document states that they are not currently proposing any changes to Article 69 to ensure the finality of arbitral awards and to ensure that errors of law are corrected, so that the law is applied in a consistent and common way to all.

Although the Law Commission has proposed a number of amendments to the law summarized above, the majority are relatively minor. The review did not propose any major changes or reforms, indicating that the law is still functioning well and fit for purpose despite its 25 years of operation.

Responses to the consultation document are expected by December 15, 2022.