What is changing, at a glance

In the King's speech delivered yesterday, 7 November 2023, it was confirmed that Parliament will consider the Law Commission's recommendations to review the Arbitration Act 1996 (the Act).

This is a welcome confirmation which could help modernise our arbitration framework, particularly where London has a reputation as a centre for international arbitration (there being over 5,000 arbitrations a year in England and Wales).

While the King's speech did not indicate whether all of the Law Commission's recommendations will be put before Parliament in the form of the existing draft Bill appended to its final report (the Report), the briefing notes refer to all the key areas of reform contained in the Report, including the following:

1. Codifying the statutory duty of independence and disclosure for arbitrators;

2. Strengthening arbitrator immunity around resignation and applications for removal;

3. Introduction of a power to summarily dispose of disputes lacking in merit;

4. Clarification of Court powers under s.44 of the Act in support of arbitral proceedings;

5. Emergency arbitrators;

6. An improved framework for challenges to awards under s.67 of the Act where a Tribunal lacks jurisdiction; and

7. A new rule on the governing law of an arbitration agreement.

We explore each of these in turn in more detail below.

Arbitrator independence and disclosure

The Report recommends codifying the common law, such that arbitrators have an express continuing duty to disclose any circumstances which might reasonably give rise to justifiable doubts as to their impartiality. In addition, an arbitrator should be under a duty to disclose any circumstances of which they are aware (or ought reasonably to be aware).

Arbitrator immunity

The Report recommends that the law is reformed to provide that an arbitrator:

(a) Incurs no liability for resignation unless it is shown to be unreasonable, which will depend on the circumstances of the case; and

(b) Should not incur costs liability in respect of an application for their removal under s.24 of the Act, unless the arbitrator has acted in bad faith.

Summary disposal

The Act does not contain explicit provisions allowing for summary disposal in the context of arbitration. Nevertheless, arbitrators arguably have an implicit power to do so, as s.33 provides that arbitrators are under a duty to adopt procedures which avoid "unnecessary delay or expense" and shall "comply with that general duty in conducting the arbitral proceedings, in its decisions on matters of procedural and evidence".

However, also under s.33, arbitrators are also under a duty to give each party a "reasonable opportunity" to put their case. If they fail to do so, their award can be challenged before the Courts in England and Wales and foreign courts may refuse to recognise or enforce it.

Against this background, the Report recommends that the Act provides that, subject to the agreement of the parties, a Tribunal may, on the application of a party, issue an award on a summary basis, with the procedure to be adopted being a matter for the Tribunal, having consulted with the parties. The Report suggests that a Tribunal may make an award in relation to an issue on a summary basis only where it considers that a party has no real prospect of succeeding on that issue. This aligns somewhat with the grounds on which an English Court may grant summary judgment in Court proceedings under CPR 24.3, namely, where (a) a party has no real prospect of succeeding on the claim, defence or issue and (b) there is no other compelling reason why the case or issue should be disposed of at a trial.

Summary disposal has the potential to resolve some disputes more efficiently and cost-effectively, and this procedure could be used to expedite a fair and efficient resolution of certain disputes.

Court powers in support of arbitral proceedings

S.44 of the Act enables the Court to make orders in support of arbitral proceedings, including in relation to the taking of witness evidence, preservation of evidence, and interim injunctions.

The Report makes a variety of recommendations in this regard, including:

(a) S.44 be amended to confirm that orders thereunder can be made against 3rd parties; and

(b) That the requirement for the Court's consent to an appeal of a decision under s.44 should not apply to 3rd parties, who should have the usual rights of appeal.

Emergency arbitrators

The Report recommends that the following options are made available:

(a) A scheme whereby an emergency arbitrator might make an order which, if ignored, could lead to the emergency arbitrator making a peremptory order, which if still ignored might be enforced by the Court (indeed this replicates the scheme already available for normal arbitrators); or

(b) To allow matters to be addressed under s.44(3) of the Act (under which, if the matter is urgent and necessary for the preservation of evidence or assets, an applicant can apply to the Court for an order).

S.67: Challenging an award on grounds of lack of substantive jurisdiction

The Report recommends that legislation confers the power to make rules of Court to implement the following: where an objection has been made that the Tribunal lacks jurisdiction, and the Tribunal has ruled on its jurisdiction, then in any subsequent challenge under s.67, the Court will not entertain any new grounds of objection or new evidence, unless it could not with reasonable diligence have been put before the Tribunal; and evidence will not be reheard, save in the interests of justice.

The Report notes that the above proposal has certain knock-on effects such that:

(a) It is consistent with s.103 of the Act (which gives effect to Art. V of the New York Convention); but that s.32 of the Act (which provides that a party can apply to the Court for a preliminary determination as to the Tribunal's jurisdiction) should be amended to confirm that this route is only available as an alternative;

(b) S.67 of the Act should 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, for reconsideration. The Report also recommends a proviso that the Court must not exercise its power to set aside or to declare an award 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; and

(c) The Act is amended to explicitly provide that a Tribunal can make a costs award as a result of a ruling by the Tribunal (or Court) that the Tribunal has no substantive jurisdiction.

Governing law

The Report recommends that a new rule be added to the Act to provide that the law which governs the arbitration agreement is:

(a) The law that the parties expressly agree applies to the arbitration agreement; or

(b) Where no such agreement is made, the law of the seat of the arbitration in question.

The above proposal would provide some welcome certainty; the current law is set out in the decision of the Supreme Court in Enka v Chubb, which held that the law governing the arbitration agreement will be the law chosen by the parties. In the absence of any such choice, the law governing the underlying contract will be implied to govern the arbitration agreement as well unless, for example, this could render the arbitration agreement invalid, in which case another law might be deemed to apply. This obviously leads to some fairly complicated and unpredictable outcomes, whereas the above default rule proposed by the Report in favour of the law of the seat of the arbitration would have the virtues of simplicity and certainty. It would also see more arbitration agreements governed by the law of England and Wales, where those arbitrations are also seated here.

At least until the Bill is passed, practitioners would be well advised to maintain clear drafting, specifying the governing law of any arbitration agreement.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.