The Law Commission’s provisional recommendations for reform of the Arbitration Act 1996

Introduction

On September 22, 2022, 25 years after the Arbitration Act 1996 (the Act) came into force, the Law Commission for England and Wales (the Commission) published a consultation paper containing its provisional proposals for reforming the Act. The paper contains some interesting and very welcome proposals for change and clarification, which we summarise below.

Key areas shortlisted for reform

The Commission has made it clear that the overwhelming response from the arbitration community is that the Act works well and that “root and branch reform” is not desired. It has however suggested that some aspects could be improved in order to bring the Act in line with modern arbitration practice(s) and ensure that it remains “state of the art” for use in domestic arbitration and international arbitrations.

1. Confidentiality

The Commission has provisionally proposed that the Act should not codify English law on confidentiality in arbitration. It was felt that the current regime worked well and any such codification would be complex and difficult to express, particularly when it came to identifying the necessary exceptions to the rule. The Commission concluded that this was better left to be developed by the courts.

2. Arbitrator independence and disclosure

The Commission considered whether the Act should impose express duties of independence and disclosure on arbitrators in addition to the existing express statutory duty of impartiality. The provisional conclusion was that there should be no express duty of independence. It was suggested that an express provision should be introduced to impose a continuing duty on arbitrators to disclose any circumstances which might reasonably give rise to justifiable doubts as to their impartiality. Views were also invited on whether the Act should also stipulate whether the arbitrator’s state of knowledge should be based on their actual knowledge or also upon what they ought to know after making reasonable inquiries.

3. Discrimination

The Commission considered whether the Act should be amended to prohibit discrimination in the appointment of arbitrators. It concluded that the appointment of an arbitrator should not be open to challenge on the basis of the arbitrator’s “protected characteristics” (which include age, sex, disability, religion or belief as defined in Section 4 of the Equality Act 2010) meaning that any agreement between the parties in relation to the arbitrator’s protected characteristic(s) (e.g. “the arbitrators must be commercial men”) would be unenforceable.

4. Arbitrator immunity

Whilst the Act already provides arbitrators with immunity for liability for anything done in the discharge of their functions as arbitrator (section 29), it does not protect arbitrators from incurring liability for resigning. The Commission emphasised the importance of protecting the immunity of arbitrators both as a means of upholding the finality of the process and promoting impartiality. It acknowledged that there may be valid reasons for an arbitrator to resign (e.g. where they subsequently learn of a conflict of interest) and asked consultees to comment on whether arbitrators should incur liability for resignation at all, or whether this should be limited to circumstances where there the resignation is shown to have been unreasonable.

5. Summary disposal of proceedings

Whilst section 33(1)(b) of the Act gives the tribunal the power to adopt procedures that limit unnecessary delay and expense, there are no express provisions in the Act that allow a tribunal to adopt a summary procedure to dispose of a claim or a defence that “has no real prospect of success”. The Commission reported feedback which suggested that some arbitrators were reluctant to use section 33(1)(b) in this manner due to concerns that their ruling would be challenged on grounds of serious irregularity because they had failed to act fairly by not allowing each party a reasonable opportunity to put their case (pursuant to section 33(1)(a)).

The Commission proposed that the Act should explicitly provide that an arbitral tribunal may adopt a summary procedure but that such a provision should be non-mandatory, thereby allowing parties to opt out in their arbitration agreement. It was considered that an express provision would provide reassurance to arbitrators that a summary procedure could be fair in appropriate circumstances and would help to ensure that disputes were resolved without unnecessary delay and expense.

6. Court orders in support of arbitral proceedings

Section 44 of the Act grants powers to the court to make orders in respect of arbitration proceedings. There has been some debate in case law as to whether: (i) the court can make orders against third parties; and (ii) the extent to which section 44 applies where the parties have also agreed a regime that provides for an emergency arbitrator.

(a) Orders against third parties

The Commission confirmed its view that section 44 allows the court to make orders against third parties and asked consultees whether the Act needs to be amended so that this is set out explicitly. The Commission also suggested that third parties should have the usual full right of appeal (rather than the restricted right of appeal which applies to arbitral parties who have consented to the arbitration) in respect of any orders made against them.

(b) Emergency arbitrators

The Commission suggested that section 44(5), which was originally intended to prevent the court from usurping the role of the tribunal, may be redundant in light of sections 44(3) and (4) which already restrict the court’s power to: (i) an urgent case where an order is needed to preserve evidence or assets (i.e. to preserve the status quo); or (ii) where the case is not urgent but there is agreement between the parties or with the permission of the tribunal.

The Commission proposed that the Act should be amended to empower the court to order compliance with any interim order made by an emergency arbitrator, or alternatively that consent for an application to court may be given by an emergency arbitrator, to ensure that the requirements in each case mirrored the provisions that are currently only available to a fully constituted tribunal.

7. Section 67 (Jurisdictional challenge)

The current position under English law is that a jurisdictional challenge under section 67 is dealt with in a full re-hearing in which the court re-hears all the arguments/evidence on jurisdiction that were made directly to the tribunal and no weight is given to the tribunal’s previous ruling on jurisdiction. The Commission has proposed that the challenge under section 67 should instead be dealt with by way of an appeal, in which the court would be limited to a review of the tribunal’s ruling and would not hear any oral evidence or new evidence.

The Commission also suggested that section 67 is amended to include an additional remedy that the court can order that an award on jurisdiction has no effect to ensure consistency with other similar remedies available under section 68 (challenge for serious irregularity) and to make it clear that the tribunal has the power to award costs where it has determined that it has no substantive jurisdiction.

8. Section 69 (Appeal on a point of law)

Section 69 allows a party to appeal to the court in limited circumstances where it is perceived that the tribunal has got the law wrong. The Commission’s view is that no change is needed to section 69. The Commission noted that it is non-mandatory provision from which parties can “opt out” and its conclusion was that section 69 was a “defensible compromise” between upholding the finality of the arbitral awards and ensuring that errors of law are corrected.

Other matters

The Commission also asked consultees:

• whether section 7 of the Act, which provides that an arbitration agreement is separable from the main contract in which it appears, should be made mandatory;
• whether sections 32 (application to court to decide a preliminary point on jurisdiction) and 45 (application to court to decide a preliminary point of law) should be simplified so that the additional “satisfaction” of the court requirement is removed; and
• whether the Act should expressly empower the tribunal to order remote hearings and utilise electronic documentation.

Next steps

The consultation process is open for responses until 15 December 2022, following which the Commission is expected to publish its final recommendations in mid-2023.