It was announced in the King’s Speech to Parliament on 7 November 2023 that the changes to the Arbitration Act 1996 recommended by the Law Commission in its Final Report on its Review of the Arbitration Act 1996 will be on the legislative agenda for the next year, and so are likely to come into effect during 2023/2024.
We gave our views on the Law Commission’s review of the Arbitration Act 1996 in Amendments to the Arbitration Act 1996? A look at the Law Commission’s Review. In its Final Report, the Law Commission stated that the consensus is that the act works well but recommended some amendments as summarised below (along with some minor corrections).
1. Codification of an arbitrator’s duty of disclosure
Currently the act only requires the arbitrator to be impartial, meaning that they must be neutral as between the arbitrating parties.
The Supreme Court in Halliburton Company v Chubb Bermuda Insurance Ltd [2018] EWCA Civ 817, however, held that there was a common law duty of disclosure on arbitrators to reveal what connections they had to the arbitrating parties or to the dispute, if those connections might go to the question of impartiality. The Law Commission consulted on whether this duty ought to be codified in the act, and has concluded that it should. It has left the question of what must be disclosed to the courts or arbitral rules to determine, however, because the Supreme Court in Halliburton v Chubb had said that what might give right to justifiable doubt as to the impartiality of the arbitrator may vary between different sectors.
Law Commission recommendation |
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That the act should be amended to provide that arbitrators have a continuing duty to disclose any circumstances which might reasonably give rise to justifiable doubts as to their impartiality. The duty would be to disclose what they actually know and what they ought reasonably to know. |
2. Strengthening arbitrator immunity around resignation and applications for removal
Under the act, arbitrators cannot be held liable for anything done or omitted in the discharge of their duties, unless that act or omission is shown to have been in bad faith. Arbitrators could still incur a liability for costs however through their resignation or removal. The Law Commission has recommended this potential costs liability be removed for arbitrators who have not acted unreasonably or in bad faith, as otherwise their impartiality could be affected by concern that they might be sued by a disappointed party.
Law Commission recommendation |
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That the act be amended to provide that an arbitrator should incur no liability for resignation unless the resignation was shown to be unreasonable, and that an arbitrator should not incur costs liability in respect of an application for their removal under section 24 of the act unless the arbitrator has acted in bad faith. |
3. Introduction of a power of summary disposal
Arbitrators already have apparent authority to order summary disposal, meaning the ability to decide a case or issue without an evidentiary hearing where they consider that a party has no real prospect of succeeding on that case or issue. They are reluctant to do so, however, fearing a challenge by a party for procedural unfairness. The Law Commission consulted on whether the Act should contain an express power for arbitral tribunals to order summary disposal and has concluded that it should, as this might reassure arbitrators, and enforcing foreign courts, as to the propriety of its use.
Law Commission recommendation |
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That the act be amended to say that, subject to the agreement of parties, an arbitral tribunal may, on the application of a party, issue an award on a summary basis, that the procedure adopted to determine any application for summary disposal should be a matter for the tribunal, having consulted with the parties, and that arbitral tribunals may make awards on a summary basis in respect of an issue only if the tribunal considers that a party has no real prospect of succeeding on that issue. |
4. An improved framework for challenges under section 67
Under the act, parties can apply to the tribunal (section 30) or the court (section 32) to determine whether the tribunal has jurisdiction. However a party can also apply to the court to challenge an award on the basis that the tribunal lacked jurisdiction (section 67). There was a concern that the act was not clear that a section 32 application cannot be made after an arbitral tribunal has already ruled on its jurisdiction, that it is only available as an alternative. The Law Commission has recommended that this be made clear in the act.
Law Commission recommendation |
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That the act be amended to confirm that section 32 is available only as an alternative to the tribunal ruling on its jurisdiction. |
There was also concern that a tribunal could rule on its jurisdiction, make an award confirming it had jurisdiction, and the objecting party could then make a section 67 application to the court challenging the award on the basis that the tribunal lacked jurisdiction. The problem is that section 67 challenges are heard by way of a rehearing rather than an appeal, which means greater costs and delay, and this situation also raises the question of whether it is fair to allow the objecting party to have a completely fresh "second go" in the courts. The Law Commission has recommended that in these circumstances the section 67 application should be by way of an appeal rather than a full rehearing. Although the argument is that if an arbitral tribunal had no jurisdiction then its ruling should have no weight at all, this was an unmerited tilting of the balance too far one way, especially since most section 67 challenges result in a decision that the arbitral tribunal did have jurisdiction.
Law Commission recommendation |
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That court rules be amended so 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 challenge under section 67 by a party who participated in the tribunal proceedings, the court will not entertain any new grounds of objection, or any new evidence, unless even with reasonable diligence the grounds could not have been advanced or the evidence submitted before the tribunal, evidence will not be reheard, except exceptionally in the interests of justice, and the court will allow the challenge where the decision of the tribunal on its jurisdiction was wrong. |
Currently under the act the only remedies for successfully setting aside an award under section 67 are to confirm the award, vary the award, or to set aside the award in whole or in part. The remedies for section 68 (for serious irregularity) or section 69 (on a point of law) also allow the court to remit the award to the tribunal for consideration, and the Law Commission has recommended that this should be the same for section 67.
Law Commission recommendation |
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That section 67 be amended to provide the remedies of: declaring the award to be of no effect, in whole or in part; and remitting the award to the tribunal, in whole in part, for consideration – with the proviso that the court must not exercise its power to set aside or declare an aware to be of no effect, in whole or in part, unless it is satisfied that it would be inappropriate to remit the matters in question to the tribunal for reconsideration. |
The act also does not state that any costs rulings made by an arbitral tribunal before a ruling that it does not have jurisdiction are nevertheless still enforceable. The Law Commission considers that this should be the position and that the act should make this clear.
Law Commission recommendation |
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That the act be amended to provide explicitly that an arbitral tribunal is able to make an award of costs in consequence of a ruling by the tribunal or by the court that the tribunal has no substantive jurisdiction. |
5. A new rule on the governing law of an arbitration agreement
The question of whether the act should contain a rule on the governing law of the arbitration agreement was not one raised in the Law Commission’s original consultation, but concern was raised about the Supreme Court’s decision in Enka v Chubb that unless the parties have agreed otherwise, the governing law of the arbitration agreement is the system of law with the arbitration agreement is most closely connected with. The concern was that this approach was far too complex and unpredictable with the risk of satellite litigation on the issue, and that to provide simplicity and certainty, the governing law should be the law of the seat (if the parties have not agreed otherwise). The Law Commission has agreed that the act should be amended to provide for this.
Law Commission recommendation |
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That the Arbitration Act be amended to provide that the arbitration agreement is governed by the law of the seat, unless the parties expressly agree otherwise. |
6. Clarification of court powers in support of arbitral proceedings, and in support of emergency arbitrators
Section 44 of the act sets out the powers that a court can exercise in support of arbitral proceedings, such as powers to make orders for the preservation of evidence, sale of goods and appointment of a receiver. Orders can be made against the arbitral parties, but there is currently uncertainty over whether they can be made against third parties, and that if they can, that they do not have the same right of appeal as for court proceedings. The Law Commission has recommended amending the act to make it clear that section 44 applications can be made against third parties but that they have the usual rights of appeal.
Law Commission recommendation |
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That section 44 of the act be amended to confirm that court orders under that section can be made against third parties, and that the requirement for the court’s consent to an appeal of a decision made under section 44 should not apply to third parties, who should have the usual rights of appeal. |
Since the act came into force, some institutional rules now allow for parties to apply on an interim basis to an emergency arbitrator, before an arbitral tribunal is constituted, who can make similar orders as the courts under section 44. The Law Commission consulted on whether any amendments to the act were required in relation to emergency arbitrators but concluded that general amendments were not required (it noted suggestions that the act should be amended to make it clear that a party could apply to the court under section 44 even where emergency arbitrator provisions were available, but said that this was unnecessary and resulted from a misunderstanding of case law). It did recommend, however, that the act be amended to deal with the situation where an interim order made by an emergency arbitrator is ignored by an arbitral tribunal.
Law Commission recommendation |
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That section 44 of the act be amended to empower an emergency arbitrator, whose order has been ignored, to issue a peremptory order, which, if still ignored, might result in the court ordering compliance, and to allow an emergency arbitrator to give permission for an application under section 44. |
So what didn’t make it into the final recommendations?
The key consultation points that did not make it into the final recommendations are:
- Confidentiality – the Law Commission considered whether there should be an express duty of confidentiality in the act. It noted that different default rules for confidentiality can apply in different arbitral contexts, and arbitral rules reveal a wide variety of approaches, and concluded any statutory code would create more problems than it would solve. It said that if parties agree that their arbitration is confidential, then that already provides the maximum protection available under the law of England and Wales, and it would be better for the courts to develop the law on confidentiality on a case by case basis.
- Discrimination – the Law Commission considered whether there should be provisions in the act to prohibit discrimination in arbitral proceedings. There are however already several ways in which the law is already concerned with discrimination in arbitration proceedings. The Law Commission said that perhaps the only significant discrimination not covered by existing laws was by the parties in whom they appoint as an arbitrator, but that it had reluctantly concluded changing the act to deal with this would cause more problems than it solved, as it would not improve diversity of arbitral appointments but could lead to unwarranted satellite litigation and challenges to awards.
- Appeals on a point of law – the Law Commission asked whether section 69 which allows a party to challenge an arbitral award to the court on a point of law should be reformed, either on the one hand to enhance the finality of awards (so limiting appeals), or on the other hand to allow some mechanism of oversight to correct at least obvious errors of law (enabling more appeals). The Law Commission concluded that the current wording strikes a defensible compromise finality of appeals and correcting blatant errors of law.