What Changes will the Reform Proposals Bring to the U.K. Arbitration Act 1996?
Potential breakthrough conflict resolution reforms are being investigated out by the Law Commission of England and Wales. The comment period for input on the potential arbitration reforms is concluding next week.
In 2022, the Commission started work on a series of suggestions for reforms which included the amendments to the Arbitration Act 1996. The Commission was asked by the U.K. government to review the Act’s current workability and if there are any defects.
The reason behind the initiative did not emanate from ineffectiveness of the Act--in contrast, the law proved its efficacy for 25 years and made London “a leading destination for commercial arbitrations.” Review of the Arbitration Act 1996, Law Commission Consultation Paper at 145 (available at https://bit.ly/3MzgIFa).
The Commission is an independent body whose work is authorized by the Law Commission Act 1965. The main function of the Law Commission is to manage law reform proceedings through preparing proposals for review in Parliament.
With a view toward improving arbitration processes, the Commission published two consultation papers for open discussion. The first consultation paper, according to which the purpose of reforms was to ensure the Act’s status as the “best in class,” was issued in September 2022. A second consultation paper was published in March 2023, and followed the Commission’s request to submit further comments and ideas related to the Act.
The first consultation paper discussed several important topics, including confidentiality; independence of arbitrators and disclosure; discrimination; arbitrator immunity; summary disposal; section 44 of the Act on court powers exercisable in support of arbitral proceedings; section 67 of the Act on challenging jurisdiction in regard to arbitral awards, and section 69 of the Act, appeal on a point of law and minor reforms.
The second consultation paper covers three main issues with additional proposals forwarded by stakeholders.
The Commission said it will consider all reviews and submit its proposals to the government in the middle of this year. According to the second consultation, comments are due next week, on May 22, via this webpage, or via email to arbitration@lawcommission.gov.uk. (The second consultation also has a mail-commenting option on page iii; see the link to the paper above.) Decision-making authority on whether to accept the recommendations lies with the U.K. government--the Ministry of Justice, including with other interested departments.
Here are key sections under discussion from the first consultation paper:
1. Confidentiality
Confidentiality is a generally accepted facet of arbitral proceedings and is commonly used by disputing parties. This assertion is proven by the survey conducted by the Queen Mary University of London in 2018. According to the survey results, 87% of the respondents “believe that confidentiality in international commercial arbitration is of importance.” Queen Mary University of London & White & Case, International Arbitration Survey: The evolution of international arbitration 27 (2018) (available here).
The current law: there is no express provision about confidentiality and privacy in the Act.
The provisional proposal in the first consultation paper: The Commission proposes to maintain the status quo and rely on courts to develop the list of exceptions.
2. Arbitrator independence and disclosure
The current law: there is no express provision about arbitrators’ independence in the Act.
The provisional proposal in the first consultation paper: The Commission provisionally proposes to preserve the status quo regarding arbitrator independence. In parallel, the requirements of making disclosures which are maintained in the case law should be included in the Act.
3. Discrimination
The U.K. Supreme Court case, Hashwani v. Jivraj, [2011] UKSC 40, [2011] 1 WLR 1872 (available here), raised an important question about discrimination in arbitration. The court held that rules governing discrimination in employment law do not apply to arbitrator appointments as it is not employment relations.
The current law: there is no express requirement regarding diversity.
The provisional proposal in the consultation paper: The Commission suggests incorporating concepts found in the U.K. Equality Act into the Arbitration Act—that is, “protected characteristics.” The parties’ agreement about arbitrator’s protected characteristics should be unenforceable, unless in the context of an arbitration “a protected characteristic is an occupational requirement which is applied as a proportionate means of achieving a legitimate aim.”
The second consultation paper enhances the scope of the discrimination proposal (see discussion below).
4. Immunity of arbitrators
Arbitrators like judges have immunity as they also administer justice.
Immunity in broad terms means arbitrators are independent in their decision making, they should not be subject to legal actions, nor face liability for issuing an award and for their other judicial actions.
The prominent case of Floyd v. Barker, 12 Co. Rep. 23, 77 Eng. Rep. 1305 (1607), founded this doctrine in England in the early XVII century: “A judge, for anything done by him as judge, by the authority which the King hath committed to him, and as sitting in the seat of the King (concerning his justice) shall not be drawn in question before any other judge”.
The current law: The Arbitration Act 1996 regulates the immunity of arbitrators in section 29. Moreover, case law also found arbitrators liable for trial costs related to the challenges of an arbitrator’s impartiality.
The provisional proposal in the first consultation paper: The Commission suggests strengthening arbitrator immunity and extending this immunity to the costs of court proceedings related to the arbitration.
5. Summary disposal
The current law: According to Arbitration Act Section 33(1)(b), the tribunal shall “adopt procedures suitable to the circumstances of the particular case, avoiding unnecessary delay or expense. …”
The provisional proposal in the first consultation paper: The Law Commission proposes to include an explicit provision about the availability of summary disposal (unless the parties have opted out).
6. Section 44 of the Act: Court powers exercisable in support of arbitral proceedings.
The current law: The Arbitration Act is silent on the engagement of third parties to arbitral proceedings and does not regulate emergency arbitrators.
The provisional proposal in the first consultation paper:
- Issues with third parties: the Commission considers that domestic courts have authority to make orders under section 44 against third parties and asks whether the Act needs to explicitly state it. The Commission also proposes that third parties should have a right to appeal like in domestic courts.
- Emergency arbitrator: the Commission provisionally proposes to apply the powers of a fully constituted tribunal to emergency arbitrators. This means that the court will back up the emergency arbitrator’s peremptory order in case of ignorance. Another suggestion is empowering emergency arbitrators to give permission to apply to the court under section 44(4) as constituted tribunals do. The Commission provisionally proposes that section 44(2)(a) be amended to confirm that it relates to the taking of the evidence of witnesses by deposition only (and not witness summonses).
7. Section 67 (Jurisdictional challenge)
The current law: Section 67 concerns the challenge to an arbitral award due to the tribunal’s lack of jurisdiction.
The provisional proposal in the consultation paper: The Law Commission proposes that the court should decide jurisdictional challenges under section 67 as an appeal body instead of rehearing it, provided that a party has already participated in the arbitration proceedings and the tribunal issued an award about its jurisdiction.
The second consultation paper revisits this proposal (see discussion below).
8. Section 69, appeal on a point of law.
The current law: Parties, in limited circumstances, may apply to the court under section 69 and challenge an award for a question of law.
The provisional proposal in the first consultation paper: No amendments are forwarded on section 69, however, stakeholders’ reviews are requested on whether to enhance the scope of that section or not.
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Here are minor reforms also discussed in the first consultation paper:
- Separability of the arbitration agreement under Arbitration Act section 7 gives dispositive rights to parties not to apply this rule. Separability allows the arbitration agreement to survive as a distinct agreement when a contract it is associated with or into which it has been incorporated is declared invalid, non-existent or ineffective. The Law Commission asked for comments on whether this section providing separability should be made mandatory.
- The paper discusses the amendments proposed for sections 32 (determination of preliminary point of jurisdiction), and 45 (determination of preliminary point of law). In addition, the Law Commission suggests making them more simplified and leaving only agreement of the parties or the tribunal’s permission for application to court.
- The first consultation paper asked whether the Act should expressly empower the tribunal on procedures for electronic hearings.
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The second consultation paper, as noted above, covers three main issues due to additional proposals forwarded by stakeholders. Two of them were discussed in the first consultation paper and then revisited in the second: challenges to an award under section 67 on the basis that the tribunal lacked jurisdiction, and discrimination in the context of arbitration. These are acknowledged as complex after the discussion with consultees.
1. The proper law of the arbitration agreement
This proposal emerged after the Law Commission asked stakeholders submitting their ideas and suggestions for reform. Most of them pointed out that the proper law (or “governing law”) of the arbitration agreement became a hot topic for discussion after the Supreme Court issued decision in Enka Insaat ve Sanayi AS v. OOO Ins. Co. Chubb [2020] UKSC 38, [2020] 1 WLR 4117 (available at https://bit.ly/31fqWWp).
The question emanates from international contract law disputes. For instance, both the main contract and arbitration agreement within that contract might have different governing laws. Or an arbitration agreement might have different governing law and the arbitration has the law of the seat, or it can be totally silent.
The current law: the Supreme Court decision in Enka v Chubb, sets out the answers for questions on how to determine the proper law in the arbitration agreement. The decision rules on these main issues:
- If the arbitration agreement defines the choice of law, either express or implied, the agreement will be governed by the chosen law unless it is contrary to public policy;
- If no such law was chosen for the arbitration agreement, and the arbitration agreement is part of another main contract (“matrix contract”) for which a choice of law, express or implied, was selected, then the law chosen for the matrix contract will govern;
- In some circumstances the chosen law “may” be changed--for instance, if there is a high risk that the chosen law poses threat to invalidation of the arbitration agreement itself;
- If parties have not chosen any law either for the contract or arbitration agreement, the arbitration agreement will be governed by “the law with which it has the closest and most real connection.”
The provisional proposal in the second consultation paper: The Commission suggests that the law of the arbitration agreement should be the law of the seat, unless the parties expressly agree otherwise in the arbitration agreement itself.
The reasoning behind the proposal: The Emma v. Chubb process is complex and raises several problems in application. If the arbitration agreement, which is governed by the law of England and Wales, has chosen a different juridical seat, then parties tend to provide expert review on how foreign governing law should govern the arbitration. This burdens parties with more costs and delay.
Moreover, the application of foreign law decreases the chances of the application of the law of England and Wales. That law, according to the second consultation, appears more ADR-friendly than foreign law in terms of arbitrability, separability, confidentiality, and in having a wider scope of the application of the arbitration agreement. If foreign law is not as generous as the law of England and Wales, parties might be deprived from these advantages.
Parties, however, might not be happy with the proposed rule. The second consultation paper notes, first, that parties might expect the governing law of the matrix contract to lead the arbitration agreement as well.
Second, different governing laws for matrix contract and arbitration agreement can create serious problems--for example, one can be a party to a dispute under the governing law of the matrix contract yet not be considered a party under the arbitration agreement’s governing law.
Third, as mentioned above, different governing laws can cause extra costs and delay as parties might be required to present expert evidence about foreign law.
Fourth, the potentially restrictive nature of foreign law as compared to England and Wales may exist because of “sound public policy reasons” that should be respected.
2. Challenging jurisdiction under section 67
As mentioned earlier, section 67 provides a basis for challenging an award only due to the tribunal’s lack of jurisdiction. The court has authority to decide whether the tribunal has jurisdiction to rule on the matter under section 67. In the first consultation paper, the Commission forwarded an idea to give the court the competence to hear the challenge only in the form of an appeal, instead of a full rehearing, which would increase costs and delays. The Commission, however, received comments from consultees about the language of the proposal and revised its proposal.
Experts challenged the Commission’s wording regarding the nature of an “appeal.” Pursuant to the experts’ view and Law Commission’s acknowledgement, “appeal” can effectively cover “rehearing.” The Commission proposes limits on challenges. It also mentions that there is no need to amend anything under a section 67 challenge.
Specifically, the proposal states that “(1) the court should 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; (2) evidence should not be reheard, save exceptionally in the interests of justice; and (3) the court should allow the challenge only where the decision of the tribunal on its jurisdiction was wrong.” See Review of the Arbitration Act 1996, Second Consultation Paper, above at 39.
3. Discrimination
Discrimination was discussed widely in the first consultation paper, and it was proposed that in order to protect arbitrators from discrimination some employment law rules should be applicable to arbitrators as well (discussed above).
In the second consultation paper, the Commission, after getting several comments from consultees, proposes to consider it justified to demand the appointment of an arbitrator who has a different nationality other than parties. The Commission also emphasizes that it is not advocating that an arbitrator always be of a different nationality, but finds this request justified.
Consultees also raised another important issue in the second consultation. The discrimination happens not only in the terms of appointment, but it also occurs in the appointment itself and sometimes continues during the course of the arbitration process.
As a result, the Commission is proposing to prohibit “discrimination generally in an arbitration context.” It adds a third discrimination query for comment, asking what remedies should be made where discrimination occurs.
Reviews
During the consultation phase, the international law firm of Bryan Cave Leighton Paisner announced the results of an arbitration survey it conducted among 116 respondents, asking for thoughts about the U.K. Arbitration Act 1996 reforms.
The key survey findings showed that most of the participants (74%) seem satisfied with the Act. One of the interesting results is about confidentiality, with 83% of respondents preferring either including a general principle of confidentiality in the Act or fully codifying the duty of confidentiality.
Another interesting source for getting acquainted with opinions on the consultation papers is the Response to the Law Commission Review of the Arbitration Act 1996 published by the Centre of Construction Law & Dispute Resolution at King’s College London. For instance, King’s College London disagrees with the Law Commission’s proposals regarding discrimination. To be clear, the response backs an arbitrator appointment being susceptible to challenge on the basis of the arbitrator’s protected characteristics.
But, according to the response, new requirements would create enforcement difficulties because the “characteristics that are and are not protected by the Equality Act 2010 tend to be intertwined.” The response, the Centre states, could lead to litigation. Thus, the response is against codifying proposals about discrimination in the Act and leaving the solution to “non-legislative measures.”
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The author is a CPR Spring 2023 intern in Baku, Azerbaijan. She is a recent LLM graduate from the University of Missouri-Columbia School of Law.
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