The Law Commission has recently undertaken a review of the Arbitration Act 1996 (the Act) which came into force over 25 years ago to ensure it remains fit for purpose and to consolidate the UK's status as a major hub for arbitration. We have taken a look at some of the key points considered in the Law Commission's recently published consultation paper and we set out below some thoughts on the Law Commission's provisional proposals, which it has published in a Consultation Paper and on which it has invited views and comments from users of arbitration. It should be noted that the Law Commission makes these proposals without reaching any definite conclusion on the matters.
Confidentiality
The Proposal
One of the major draws to resolving commercial disputes by arbitration is the confidential nature of the process. The Law Commission has considered whether confidentiality should be codified in law and extend by default to cover all arbitrations. The Law Commission's provisional proposal is that the need to retain transparency trumps the value of a codified law on confidentiality in arbitration, and that it should be left up to the Courts to develop the law of confidentiality appropriately.
Discussion
Whilst there is force in the view that the area of confidentiality needs to retain flexibility to allow judges to develop it appropriately in different areas and to reflect the broad application of the Act to many different areas of business and disputes, there is a legitimate view that some legislative action might be justified. Given the limited case law on the scope of arbitral confidentiality, it may have been preferable for the act to provide for basic provisions of confidentiality but allow the parties to agree otherwise. As an alternative, for those who think confidentiality should not be codified there could be a middle ground - for example, rather than set out the entire law on confidentiality, it might be helpful if the Act made it clear that arbitrators may reveal the existence of other arbitrations to comply with their duty of disclosure (as confirmed by the Supreme Court in Halliburton v Chubb [2020] UKSC 48).This could help to ensure that confidentiality does not stand in the way of good decision-making.
Independence and disclosure
The Proposal
The Law Commission has also proposed provisionally that there should not be a codified duty of independence on arbitrators. The reason offered for this proposal is that impartiality is considered to be the more important factor. Impartiality removes bias and means that it does not always matter whether an arbitrator is independent or not (strictly speaking, as long as connections are disclosed); a fair outcome should be reached if the arbitrator remains impartial. In an increasingly inter-connected world, imposing a strict duty of independence may result in parties finding themselves in a frustrating situation where their preferred arbitrators are unable to arbitrate the dispute.
Discussion
A partial codification of the duty of disclosure is potentially attractive to reflect and confirm the law as identified in Halliburton v Chubb. As the Supreme Court observed in that case, certain breaches of duty which have no consequence might be thought not to be worthy of being identified as breaches at all. Accordingly, not every breach of duty will result in the removal of an arbitrator or the setting aside of an award. Where breaches are sufficiently severe, it does not appear that the Law Commission is currently proposing to specify the consequences - although they note that the breach "can", but does not automatically, give rise to justifiable doubts.
Emphasis on impartiality over independence is sensible in a system where we are used to seeing counsel from the same chambers acting on different sides or as judges. Whilst independence is important this can be effectively managed by the party-driven process of appointing arbitrators. It might therefore be said that there is no need for a codified standard of independence.
Discrimination
The Proposal
Women are still around three times less likely to be appointed as arbitrators than men. However, there has been a general trend of increasing appointment of women. The Law Commission reports that in 2021 61% of a major survey felt that progress had been made with gender diversity and 31% felt that progress had been made with ethnic diversity (to note: a large majority who responded to this survey felt that progress had not been made with ethnic diversity, which is a troubling position).
To overcome discrimination and promote equality in the appointment of arbitrators the Law Commission have proposed express provisions that i) the appointment of an arbitrator shall not be suspectable to challenge on the basis of a protected characteristic (being age, disability gender reassignment, marriage and civil partnership, pregnancy and maternity, race, religion or belief, sex, and sexual orientation) and, ii) an agreement containing wording in relation to arbitrators protected characteristics should be unenforceable, unless requiring the arbitrator to have that protected characteristic is a proportionate means of achieving a legitimate aim. This exception is to allow, for example, a situation where the nationality of the arbitrator has a different nationality to the parties involved – which is often specified in arbitration agreements.
Discussion
Although it is rare to see any arbitration agreement which openly seeks to provide for discriminatory criteria in arbitrator selection, discrimination still occurs in that process. Prejudice manifests itself in the failure to choose female arbitrators or arbitrators from minority ethnic backgrounds, for example. The Law Commission's recognition of this problem and desire to address it so far as possible is surely laudable. Whilst there is concern, as the Law Commission recognises, to avoid trespassing on the parties' freedom to decide who will decide their dispute, this is arguably a price worth paying.
Immunity of arbitrators
The Proposal
Under the Act as it currently stands, arbitrators have immunity (save for potentially incurring liability when they resign and if the Court calls an arbitrator into question). The Law Commission has raised concerns that the immunity of arbitrators does not go far enough. The main apprehensions the Law Commission has surround potential cost consequences for arbitrators (for example in a situation where the Court removes them from an arbitration) and ensuring that parties do not pursue arbitrators for decisions that did not go their way. Accordingly, the Law Commission has provisionally proposed that the immunity of arbitrators be strengthened.
Discussion
In some regards, the Law Commission's reasoning in suggesting that arbitrators' general immunity should extend to court costs is problematic. Ordering costs is always discretionary and case law shows that costs orders against arbitrators are exceptional. Maintaining a discretion to make such orders can nevertheless ensure that arbitrators who honestly contest their removal will not be ordered to pay costs if and when they resign (assuming that in contesting the challenge they are acting rationally). Without costs orders, the sanctions available against misbehaving arbitrators are very limited.
Summary disposal
The Proposal
Whilst the Act allows arbitrators flexibility to adopt procedures to avoid unnecessary delay and expense and decide all procedural matters, the Act, as it stands, does not provide for an equivalent of summary judgment. The Law Commission has proposed for discussion that a provision be included in the Act, allowing arbitrators to summarily assess disputes when one party's case is fanciful. However, this is proposed as a non-mandatory provision to be agreed by the parties within the arbitration agreement and would require an application by one of the parties. As to the test to be applied when deciding such applications, this remains up for debate; the Law Commission are considering following the tried and tested English Court approach of "no real prospect of success", or an alternative standard of "manifestly without merit".
Discussion
The Law Commission's proposal to introduce an express provision permitting (and tacitly encouraging?) summary disposal is arguably attractive as it should promote the narrowing of disputes and limit incurring costs on hopeless claims. That said, one concern is that there may be a danger that this provision unfairly benefits larger firms representing powerful clients, who have little fear of the summary determination process. The smaller or less well-resourced party in an arbitration might feel that this process could be abused against them or used as a way to extinguish their claims without fuller exploration or investigation.
Section 44 – interim relief
The Proposal
Section 44 of the Act allows the Court to make certain orders for interim relief in arbitrations, subject to conditions. The Law Commission's consultation paper provisionally proposes to extend the Court's powers so that orders can be made against third parties in arbitrations and, in doing so, third parties should be allowed a full right of appeal which is not restricted. The Law Commission also suggests that section 44(5) (providing that the Court should only act to the extent that the Tribunal cannot for the time being act effectively) might be repealed, on the basis that it is not necessary given the provisions of sections 44(3) and (4) (providing that the Court can act to preserve evidence or assets when urgent, or where the parties or Tribunal agree).
Discussion
It might be thought that the provisions of section 44 were already sufficiently clear, although if perfect clarity is being sought then there is evidently room for improvement. Arguably one exception to that might be the removal of section 44(5), which might be said to be a retrograde step in relation to preserving the spirit of non-intervention and respect for the parties' chosen forum which was the intention behind including that provision in the first place.
Emergency arbitrators
The Proposal
The Law Commission has proposed that the Act should be amended to tackle a situation where an emergency arbitrator issues an interim order which one of the arbitral parties ignores. Two suggestions have been made for the resolution of this. First, that the Act be amended to empower the Court to order compliance with an emergency arbitrator's peremptory award. This mirrors the position currently only available where a fully constituted tribunal is in place. Second, and alternatively, a party can apply to the Court for an order (under section 44(4) of the Act) with the permission of an emergency arbitrator (rather than the permission from a fully constituted tribunal as is currently required). The Law Commission has invited consultees to indicate which approach they prefer.
Discussion
Given the relatively recent emergence of emergency arbitrators' orders and the fact that this is now an effective and popular part of the arbitration toolkit, the suggestion for clearer provision to be made for their enforcement is to be welcomed.
Jurisdiction and section 67
The Proposal
Currently an arbitral tribunal is able to rule on its own jurisdiction under section 30 of the Act and a party may apply to Court for a determination on the Tribunal's jurisdiction under section 32 of the Act. If the Tribunal makes an award which a party wishes to challenge on the basis that the Tribunal had no jurisdiction, the party can apply to the court under section 67 of the Act. Concerns have been raised regarding circumstances where a tribunal has ruled that it has jurisdiction to hear the claim but a party then applies to the Court under section 67 challenging the jurisdiction. The Law Commission has considered whether this should result in a rehearing or an appeal and has provisionally proposed the latter. Accordingly, any subsequent challenge to jurisdiction under section 67 (where the tribunal has ruled on its own jurisdiction) would be dealt with by an appeal.
Discussion
Whilst lengthy and costly rehearings by a court may be instinctively unattractive, it is difficult to see how in English law any other solution could overcome the "bootstraps problem" inherent in appealing a tribunal's finding on its own jurisdiction. The Law Commission relies on an appeal to deal with any errors by the Tribunal in this regard, but English lawyers may query the extent to which this offers a principled solution. Decisions of fact are virtually immune from appeal (yet mistakes can and are frequently made in the real world) and it might be argued that the appeal itself (rather than a rehearing) gives the decision of the tribunal an imprimatur of legitimacy when it remains an open question whether it had any such legitimacy in the first place.
The Law Commission's proposal that a subsequent challenge under section 67 should only be by way of an appeal is problematic. Why should a party be prevented from contesting the merits simply because they are contesting jurisdiction? The problem is heightened when the issue as to jurisdiction is highly fact-based, such as in cases of fraud. Is the tribunal entitled to make an assessment of the evidence and a finding on the basis of which jurisdiction rests, and limit the court to an appeal of its decision? Whilst limited court intervention is a hallmark of, and generally welcomed in, arbitration, some provision may be needed at least to allow the court to conduct a rehearing in appropriate cases.
Conclusion
The Law Commission's report is a refreshingly clear and decisive consideration of the issues about the existing legislation. There is scope for considerable further discussion, however, before the final decisions are made.
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