In the King’s Speech to the UK Parliament on 7 November 2023, it was announced that the proposed revisions to the Arbitration Act 1996 (the Act), as recommended by the UK Law Commission, would be considered in the next parliamentary session.
On 21 November 2023, the Arbitration Bill was introduced into the UK Parliament and had its first reading. The second reading is scheduled for 19 December 2023. Given that the recommended reforms have proved uncontroversial, the Bill appears to be on the ‘fast track’ to becoming law.
The Bill adopts all the Law Commission’s recommendations. In an ‘Arbitration Bill: Factsheet’, the UK Government states that the Bill is intended to modernise UK arbitration law by updating the Act. Specifically, the revisions aim to clarify the law governing arbitration agreements, strengthen the courts’ supporting powers and enable quicker dispute resolution.
The background
In March 2021, 25 years after it was enacted, the Ministry of Justice asked the Law Commission to review whether the Act needed any revisions to update it and to ensure that it remained fit for purpose.
The Law Commission conducted two public consultations. It received responses from a large number of consultees representing various stakeholders. Based on this feedback, it concluded that root and branch reform was neither wanted nor needed.
The Law Commission’s recommendations
Broadly, it recommended:
- Codification of the statutory duty of disclosure;
- Strengthening of arbitrator immunity around resignation and applications for arbitrator removal;
- Introduction of a power to make an arbitral award on a summary basis;
- An improved framework for challenges to awards under s.67 of the Act on the basis that the tribunal lacked jurisdiction;
- A new rule on the governing law of an arbitration agreement; and
- Clarification of court powers in support of arbitral proceedings and in support of emergency arbitrators.
Confidentiality
The Law Commission decided that a default rule on confidentiality was not required. There was no one size fits all. Different default rules could apply in different arbitral contexts. Therefore, a statutory rule on confidentiality would not be sufficiently comprehensive or nuanced. However, parties could agree that their arbitration should be confidential without the need for statutory intervention.
Arbitrator independence
The Law Commission also chose not to recommend a statutory duty of independence. If the arbitrator was impartial, and was seen to be impartial, a connection to the parties should not matter. Particularly relevant to specialist arbitration associations, the Law Commission recognised that complete independence might be impossible to achieve, given the limited number of arbitrators with expertise in certain fields. Some arbitration clauses explicitly required extensive expertise in a particular sector, particularly in maritime, commodity or insurance arbitration. Those expert arbitrators would inevitably have encountered other professionals in their field over the years.
Therefore, the Law Commission concluded that perfect independence was not possible. Rather, what mattered was that arbitrators were open about relevant connections, and that parties were reassured that their tribunal was impartial.
Disclosure
The Law Commission did, however, recommend codifying the common law – as set out in the Supreme Court decision in Halliburton -v- Chubb [202] UKSC 48 – which imposes on arbitrators an ongoing duty to disclose any circumstances that might reasonably give rise to justifiable doubts as to their impartiality. Recognising this important duty in the Act would be in line with international best practice and would uphold the integrity of arbitration.
As to state of knowledge, the arbitrator should disclose any circumstances of which they are aware or ought reasonably to be aware. What they ought reasonably to know will vary from case to case. However, this standard of reasonableness aligned with the usual standard expected of similar professionals.
Discrimination
The Law Commission did not recommend any amendment to the Act to prohibit discrimination because it took the view that this would not improve diversity of arbitral appointments but could well lead to unwarranted satellite litigation and challenges to awards. Furthermore, arbitrators were already under a duty to act fairly and impartially. If they did not do so, they could be removed. Additionally, any arbitration agreement that infringed the Equality Act 2010’s provisions would be prohibited.
Arbitrator immunity/resignation/removal
Arbitrator immunity was important and should remain because it allowed an arbitrator to make a robust and impartial decision without the fear of being sued. It also promoted the finality of the dispute resolution process by preventing a losing party from suing the arbitrator.
However, the current immunity under s.29 of the Act did not extend to an arbitrator who resigned. The Law Commission, therefore, recommended that an arbitrator who resigned should not incur any liability for his resignation unless it was shown to be unreasonable. As to when a resignation might be unreasonable, this would vary with the circumstances.
In relation to arbitrator removal, there was a line of cases suggesting that the arbitrator might incur personal liability for the costs of an application to revoke their authority. The Law Commission recommended that an arbitrator should not incur any liability for the costs of such an application unless they had acted in bad faith.
Summary disposal
The Act contains no explicit provision allowing for summary disposal, but arbitrators have an implicit power to use summary disposal. The Law Commission recommended that there be an express statutory power for a tribunal to issue an award on a summary basis, subject to the parties’ agreement. Summary disposal had the potential to resolve some disputes more efficiently. The Law Commission also proposed that the threshold for summary disposal should be ‘no real prospect of success’.
Court powers in support of arbitral proceedings (s.44 of the Act)
The Law Commission recommended that the current power under s.44 to make orders against the parties to the arbitration in support of the arbitration proceedings should be extended to third parties also. However, the third party in question should have the usual rights of appeal in respect of such an order (such rights of appeal are limited for parties to the arbitration).
Emergency arbitrators
The Law Commission did not think that the Act should provide for a scheme of emergency arbitrators to be administered by the Court. Emergency arbitration was only appropriate where the parties had agreed to the rules for its administration. Nor should the Act apply generally to emergency arbitrators. However, the Act should support the enforcement of the orders of emergency arbitrators.
The Bill reflects the Law Commission’s views by providing emergency arbitrators with the power to issue peremptory orders and apply to the Court to order compliance with them or otherwise apply directly to the Court to issue its own order.
Challenging an award for lack of substantive jurisdiction
The Supreme Court has previously indicated that any challenge to the Court under s.67 of the Act (on the grounds of lack of substantive jurisdiction) should be by way of a full rehearing. The Law Commission thought this could result in delays, increased costs and a risk that the hearing before the tribunal that was asked to deal with its own jurisdiction becoming no more than a dress rehearsal.
It recommended, therefore, that where the tribunal has already ruled on its own jurisdiction, the Court dealing with any subsequent challenge by a party who has taken part in the arbitral proceedings should not entertain any new grounds of objection, or any new evidence, unless it could not with reasonable diligence have been put before the tribunal, and should not as a general rule rehear evidence.
It also recommended amending s.67 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 or in part, for reconsideration. Further, that the Court should not itself set aside or 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 matter back to the tribunal.
Appeal on point of law
The Law Commission recommended no change to s.69, which deals with appeals on a point of law and is an opt-out’ provision. It thought that s.69 was a good compromise between promoting the finality of arbitration awards by limiting appeals and correcting clear errors of law.
Governing law
In Enka Insaat Ve Sanayi AS -v- OOO Insurance Company Chubb [2020] UKSC 38, the Supreme Court decided that where the parties to an arbitration agreement have not specified its governing law, then by implication the arbitration agreement is governed by the same law as the main contract unless there is good reason to find otherwise. If the main contract has no express governing law, then the arbitration agreement is governed by the law with which it is most closely associated, usually the law of the seat.
This outcome meant that many arbitration agreements would be governed by foreign law because they rarely specified a governing law and the main contract was often governed by foreign law. The Law Commission favoured a solution that meant more arbitration agreements would be governed by English law. Specifically, it proposed that where the parties had not agreed an express choice of law to govern their arbitration agreement, then the law of the seat should apply. Further, that an express choice of law governing the main contract should not be taken as an express choice on the governing law of the arbitration agreement also.
It justified this recommendation on the basis that English law was pro-arbitration in a way that some foreign systems of law might not be.
Impact of the Bill
The new legislation is of wider relevance beyond the purely domestic, because the UK is a leading international arbitration center. English law is the primary choice of governing law for international commercial contracts: for example, 80% of global maritime deals and 80% of the global grain trade are reportedly governed by English law.
Furthermore, London is one of the most preferred seats of arbitration globally. Among others, the London Court of International Arbitration (LCIA), the International Chamber of Commerce (ICC), the London Maritime Arbitrators Association (LMAA) and the Grain and Feed Trade Association (GAFTA) are all based in London.
As estimated by the Law Commission, there are at least 5,000 domestic and international arbitrations in England and Wales every year worth £2.5 billion to the economy in fees alone.
The Ministry of Justice has highlighted that arbitration does not exist in a vacuum but has significant spill-over effect for other related sectors. According to an impact assessment, the Government believes that modernising the arbitral framework sends a clear message that the UK is serious about seeking international business.
Comment
Other jurisdictions – Hong Kong, Singapore, Dubai and Sweden – have updated their own arbitration laws in recent years. The UK Government, therefore, rightly thought it appropriate to review the Act and modernise it insofar as necessary.
We await to see whether, as predicted by the impact assessment, a new Act will have ‘multiplier effects on the wider UK economy.’