Law commission

Law Commission releases consultation paper on its review of the Arbitration Act 1996 | Shearman & Sterling LLP

In January 2022, the Law Commission of England and Wales launched a review of the Arbitration Act 1996 (the Act) as part of its 14th law reform programme. We shared our initial thoughts on the Commission’s review earlier this year.

On September 22, 2022, the Commission published a detailed consultation document and a shorter summary of this document, inviting comments from the public. In this article, we examine the highlights and key proposals of the consultation document.

No “root and branch” reform

The Commission’s provisional assessment is that the law “works very well” and that “major reform is neither necessary nor desired”. This assessment guides the Commission’s draft proposals in the consultation document.

We generally agree with the Commission’s initial assessment. For 25 years, the law has played a vital role in making London the world’s most popular destination for international arbitration. The stated aims of the Commission are to maintain the attractiveness of England and Wales, and English law, for international commercial contracts and dispute resolution. London already offers a stable and predictable seat of arbitration, with arbitration law generally functioning well. In our opinion, it is not necessary to make massive changes, but rather to have the possibility of making targeted improvements.

The 8 key areas of reform

In this context, the Commission’s paper focuses on the 8 areas identified during the pre-consultation phase as those which would benefit most from scrutiny. A host of minor reforms, as well as suggestions that were not on the short list of reforms, are identified separately. The document invites comments on a list of 38 consultation questions by December 15, 2022.

Codification of confidentiality obligations

The Act contains no provision on confidentiality, which under English common law is an implied term of an arbitration agreement. The Commission considered whether the Act should include a default rule that arbitrations are confidential, with a list of exceptions.

The tentative proposal is to maintain the status quo, and that the law of confidentiality is best left to be determined by the courts. Among other things, the proposal is based on the idea that trying to codify a law that is not yet certain involves a certain risk.

Independence and Disclosure

The law expressly requires that arbitrators act impartially between the parties,[1] but does not impose a duty of independence (i.e. an obligation not to have any connection with the parties) nor does it require arbitrators to disclose their connections which could affect the question of their independence or impartiality.

The Commission does not believe that an express duty of independence is necessary because it is practically not possible to ensure complete independence in modern arbitration and because, in any case, impartiality matters more (“it there is no point in requiring an arbitrator to be independent if they are biased”). It also notes that English case law requires an arbitrator to make disclosures likely to give rise to legitimate doubts as to his impartiality and proposes that his guidelines be codified in law.

Anti-discrimination and challenge of arbitrators

The Commission notes the need for greater diversity in arbitral appointments and that the case of Hashwani vs Jivraj[2] confirmed that equality legislation does not apply to arbitration.

The Commission makes the following proposal as a “world-leading initiative” that would “send an important signal on diversity and equality”:

  • A party or the person appointed by an institution to a tribunal cannot be challenged by the other party on the basis of the “protected characteristics” of the person appointed.[3] including age, gender and sexual orientation.
  • Any agreement between the parties regarding the protected characteristics of the arbitrator should be unenforceable unless the agreement is, in the circumstances, a “proportionate means to achieve a legitimate purpose”.

The proposal therefore seeks to strike a balance, ultimately limiting the grounds on which the appointment of an arbitrator can be challenged.

Immunity of arbitrators

Under the law, arbitrators are potentially exposed to liability in two scenarios: (a) when they resign (even with good cause) and (b) when a party challenges an arbitrator and the courts hold the arbitrator responsible for the costs of the bid (even sometimes if the bid fails).

The Commission considers it important to maintain the immunity of arbitrators and to allow them the freedom to make decisions without fear of legal action from a dissatisfied party, leading to personal liability.

  • On the issue of resignation, the Commission seeks suggestions on whether arbitrators should be held liable for resignation, or only if their resignation proves to be unreasonable. Both proposals have advantages and disadvantages, and the Commission considers the arguments to be “finely balanced”.
  • As for the challenges of the parties, the Commission proposes to strengthen the immunity of arbitrators and to annul the case law holding them potentially liable for the costs of unsuccessful claims.[4] It is on the basis that these cases are contrary to the wording and intent of the Act.

Summary Disposition of Claims

The need for summary judgment in law was first raised by stakeholders during the 2017 13th Law Reform Program and is one of the most important proposals in the document.

The Commission notes that the law already “probably” provides for a summary procedure, even if there are no express provisions. However, the absence of express provisions has made arbitrators reluctant to adopt such procedures fearing a legal challenge to their award on grounds of lack of fairness.

The Commission therefore proposes (rightly in our view) the introduction of a summary “opt-out” procedure which is not mandatory in the law. However, the threshold test of what would trigger summary proceedings, i.e. whether claims should be “manifestly without merit” or have “no real prospect of success” and what this means in practice, remains open to debate.

Interim measures ordered by the Court in support of arbitral proceedings (article 44)

We recently published an article on potential reforms to the powers of courts in support of arbitral proceedings under section 44 of the Act.

As noted in this article, Section 44 of the Act empowers courts to make orders in support of arbitral proceedings. However, Section 44 is not entirely clear on a number of matters that have been the subject of ongoing debate, including (a) the applicability of Section 44 to third parties, and ( b) the interaction of Article 44 with the emergency arbitrator provisions. .

On the issue of third parties, the Commission proposes to clarify that the powers of the courts are enforceable against third parties in appropriate cases, while granting third parties a full right of appeal and requiring that evidence be taken by deposition rather than by summons.

With regard to the applicability of article 44 when the parties have agreed on the provisions relating to the emergency arbitrator, the Commission proposes:

  • Clarifying that the provisions of the Act, including with respect to appointments of arbitrators, should generally not apply to emergency arbitrators;
  • Clarifying that where the emergency arbitrator is empowered to make interim orders, the parties may still request the assistance of the courts for interim measures as long as the requirements of Article 44 are met;[5] and
  • Added a provision to the Act to ensure compliance when a party ignores an emergency arbitrator’s interim order.

Jurisdictional Challenges to Arbitral Awards (Article 67)

Under Article 30 of the law, a party challenging the jurisdiction of the arbitral tribunal may request the tribunal to rule on its own jurisdiction. If it is not satisfied with this decision (that is to say if the Tribunal considers that it is duly seized of the matter), the party may, under section 67 of the Act, request court to rule on the jurisdiction of the Tribunal.

A challenge under Article 67 potentially involves a full hearing, with the court reconsidering the evidence and arguments. The Commission considered whether it would be more appropriate for it to be an appeal instead, that is to say a limited review of the Tribunal’s decision.

The Commission’s proposal is that in such circumstances a request under Article 67 should function as an appeal. Among other reasons, the Board believes this will limit the delays and costs associated with a full re-hearing. It will also be fairer insofar as the party that loses a challenge to jurisdiction before a Tribunal will then not be able to obtain new evidence and develop its arguments in a subsequent challenge to the jurisdiction of the Tribunal before a tribunal.

Appeals on a Point of Law (Article 69)

Section 69 of the Act allows a party, in limited circumstances, to appeal to the court to set aside an award due to incorrect application of the law.

The Commission considered two competing proposals: on the one hand, that section 69 be repealed to strengthen the finality of awards and, on the other hand, that its scope be broadened so that the court has more to consider questions of law.

The provisional proposal is to maintain the status quo, in particular because:

  • Section 69 is rarely invoked and does not appear to cause regular delays; and
  • Section 69 is not mandatory. Parties may opt for a broader or more restrictive right of appeal according to their preference, and there is no compelling reason to change this practice.

Next steps and comments

The Commission’s proposals are provisional and subject to the consultation exercise. The Commission intends to publish the final recommendations by mid-2023, when the government will decide whether or not to implement the recommendations.

Our first impression of the proposals is that they make sense and do not present any major surprises. We aim to examine them in more detail in the following articles. Proposals that deviate from the status quo, such as those relating to anti-discrimination and summary grievance resolution, are of particular interest. As always, the devil is in the details and the successful implementation of these proposals will depend on careful articulation of the changes and precise definition of their scope.

Footnotes

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