The Law Commission’s final proposals for reform of the Arbitration Act 1996

Following a detailed period of consultation, the Law Commission of England and Wales has published its final report containing various proposals to update and reform the Arbitration Act 1996 (the “AA”), the main statute which regulates arbitration in England and Wales, and Northern Ireland. We take a short look at its conclusions.

Background to the Law Commission’s report 

The Law Commission is a UK statutory body whose task is to keep the law under review and to recommend reform. How the AA might be improved has been part of its latest programme of review. The Law Commission opened up a formal consultation in September 2022, followed by a second consultation paper in March 2023.

Its project has focused on modernising amendments (rather than root and branch reform) whilst the consultation papers have prompted vigorous discussion and debate amongst the UK arbitration community, and beyond. Numerous responses were submitted. Now, the Law Commission’s report, released on 6 September, contains its final proposals for reform. It is accompanied by a draft bill to illustrate how they might be implemented.

The report’s recommendations

The main reforms proposed by the Law Commission are in the following areas:

Codifying arbitrators’ duty of disclosure: The AA provides that arbitrators have a duty of impartiality. Case-law (see Haliburton) has recognised that includes a duty to disclose circumstances which might reasonably give rise to justifiable doubts about their impartiality. The Law Commission has concluded that statutory recognition of that duty would be beneficial. In its view, this would make the rule more accessible, and extend it to pre-appointment discussions, whilst keeping the flexibility of the case-law. The statutory duty of disclosure would be based on what the arbitrator ought reasonably to be aware (rather than actual knowledge).

Immunity: Although the AA provides some immunity for arbitrators in the discharge of their functions, the Law Commission recommends extending protection to resignation (unless it was unreasonable) and costs liability in respect of applications for an arbitrator’s removal (unless they have acted in bad faith).

Summary disposal: Despite recognition that arbitrators likely have summary powers under their general procedural discretions, the Law Commission recognised that an express statutory provision might reassure arbitrators. It therefore proposes the inclusion of a default power of summary disposal, exercisable on application by a party, and subject to a test of no real prospect of success on the relevant issue.

Section 44 AA and third parties: s.44 AA concerns the powers of the court to support arbitral proceedings (for example through orders to preserve evidence). Given the arbitral context, there has been some debate as to whether these can be made against third parties. The Law Commission proposes amendments to make it clear that this should not, per se, be a bar; the powers are simply the same as the court has in relation to court proceedings.

Emergency Arbitrators (EAs): EA provisions in institutional rules has post-dated the AA, so the report acknowledges that the AA could better support EAs and proposes aiding the enforcement of their orders in two ways. By allowing them to (i) following non-compliance, issue a peremptory order which can be enforced by the court and (ii) allowing an EA to give permission for an application under s.44 AA to be made. Otherwise, the report concludes that it is not necessary to bring EAs within the AA any further.

Challenges to a tribunal’s award on jurisdiction under s.67 AA: Currently, this involves a full rehearing of the matter by the court (Dallah). This attracted fairness/efficiency based criticism; particularly where a party has argued the point before the tribunal. Against this were important arguments concerning access to court for parties who have not agreed to arbitrate. As a compromise, the report recommends that s.67 be amended to permit court rules to be made which, in such cases, would limit the ability of parties to rely on new grounds, or evidence, before the court, and restrict its ability to re-hear evidence.

Applicable law of an arbitration agreement: This question arises most acutely where the applicable law of the parties’ main contract does not “match” the seat of arbitration (e.g. German law contract, English seat of arbitration). In recent years, it has attracted judicial attention in England -  culminating in the UKSC decision in Enka.

Although, in such circumstances, parties often take the practical step of including an express choice of law to specifically govern their arbitration clause (which would avoid such a debate), the operation of the default approach of Enka, where the parties have not, attracted comment. Concerns were that it still left room for uncertainty, and that it favoured the application of foreign law (which, it was said, might offer a less favourable outcome on issues such as separability and scope of the arbitration clause; whilst also requiring categorisation of which non-mandatory provisions of the AA were affected by the foreign law). Whilst acknowledging reasonable concerns with its proposal for change, and that there was no conclusive argument in favour, the Law Commission has recommended addressing those issues. It proposes the introduction of a new (non-retrospective) default rule in favour of the law of the seat of arbitration; albeit with provision for the parties to agree otherwise (for example, in favour of the law of their main contract) provided they do so specifically.

No proposed reform: The report also deals with a number of specific areas in which no reform would be recommended. Notably, the Law Commission decided not to proceed with specific proposals intended to address the possibility of discriminatory conduct in arbitration. It noted that the general law, to a degree, impacts on the actions of all actors in an arbitration - with the main gap being the parties’ ability to appoint arbitrators. The report concluded that legislative intervention in that area could lead to unwarranted satellite litigation without increasing diversity in tribunal appointments.

What next?

It is for the UK Government to consider the Law Commission’s report and decide whether to legislate accordingly; so progress going forward will, naturally, be subject to government priorities, and parliamentary time. Accompanying the report’s release was a statement by the Parliamentary Under Secretary of State in the Ministry of Justice, Lord Bellamy KC which acknowledged the importance of arbitration and stated that it would “respond to the Law Commission’s report shortly.”