The Law Commission's Final Report on its review of the Arbitration Act 1996: Steady as she goes


The Law Commission of England and Wales (LC) has published the eagerly anticipated conclusion of its review of the Arbitration Act 1996. Given the popularity of London as a seat of arbitration for parties from around this world, this will be of great interest to arbitration practitioners globally.

Businesses and users of arbitration will be pleased to know that the changes (although they are quite limited) are generally directed towards promoting efficiency, avoiding unnecessary argument and reinforcing the tribunal's power to make decisions.

Overall, the LC seems to have concluded that if it ain't broke, don't fix it – their recommendations include some significant changes but are broadly a light-touch approach to reform, maintaining the structure of the act and many of the core principles which are already well-established.

A snapshot of the report: 

  • New provision for summary disposal in arbitration
  • Court rules to tighten the scope of arguments and evidence in jurisdiction challenges
  • More support for emergency arbitrators' orders
  • Governing law of the arbitration agreement to be the law of the seat in default
  • A clarified arbitrator's duty of disclosure but with reinforced arbitrator immunity

Summary disposal

The LC has made it clear throughout the consultation that it favours some sort of provision for deciding claims without a full hearing, to help make arbitration more efficient and avoid unwarranted delays.

The LC's proposal is that the Act should provide that (if the parties' arbitration agreement allows it) the tribunal may issue an award summarily if a party has no real prospect of succeeding.  It will be for the Tribunal to decide how it will make decisions summarily, having consulted with the parties.

Naysayers will maintain that the proposed amendment adds little and merely expresses a power that the tribunal have always had. However, an express provision may reassure arbitrators that they can resolve cases summarily without being challenged for failing to hear the losing party.

Section 44 (court powers in support of arbitral proceedings)

The LC noted that the current form of section 44 does not make it clear that injunctive and other orders may be made against a party that is not a party to the arbitration. Views of judges have differed about whether or not the Court has this power.

The LC proposes that Section 44 should be amended to confirm that orders may be made against third parties. To ensure fairness, the LC suggests that a third party's appeal against such an order may be brought with the permission of the appeal court, and not only where the court granting the order gives permission (which is the present position under section 44).

Emergency arbitrators 

The LC proposes to amend the Act to empower an emergency arbitrator, whose order has been ignored, to issue a peremptory order. If such order is ignored, the Court may order compliance. The revisions to the Act also include permitting emergency arbitrators to give permission for a Section 44 application to be made pursuant to Section 44(4).  These changes seek to support the emergency arbitrator process by formally recognising it in the Act for the first time and seeking to add tools to enforce emergency orders.

Otherwise, the LC has declined to make the provisions of the Act generally apply to awards made by emergency arbitrators. This means that emergency arbitrator awards will not be enforceable in the same way as awards made by a tribunal appointed in the normal way.

The LC did not follow the encouragement of some contributors to the consultation to go further. It seems that the LC was concerned to avoid unintended consequences by applying parts of the Act to a process which was not even imagined when the Act was originally drafted (since emergency arbitrators were essentially unknown at that time).

Section 67 (Challenging the award: Substantive Jurisdiction)

There has been a hot debate over reform of section 67. The old question of whether a decision by arbitrators who have no jurisdiction should have any status at all has been at the heart of this discussion. Currently, a court deciding whether a tribunal had jurisdiction will decide the question de novo – allowing new evidence to be called, and new arguments to be made, in many cases. 

The ugly spectacle of long court hearings to determine issues already heard once before the tribunal (and parties strategically deploying new arguments before the court) has encouraged the reformers. Most commercial parties will agree. But some contributors feel that the underlying principle is more important than correcting this inefficiency.

The LC has rejected the suggestion that giving more status to the decision of the tribunal on its own jurisdiction is a heresy. But it has concluded that it will not recommend a change to the Act itself, save to empower the making of court rules to adjust the court's approach to hearing challenges.

The LC recommends that rules of court provide that where an objection has been made to the tribunal that lacks jurisdiction, and the tribunal has ruled on its jurisdiction, that in any following challenge under Section 67 by a party who has taken part in the arbitral proceedings:

  1. The court will not entertain any new grounds of objection, or any new evidence, unless it could not have been put before the tribunal.
  2. evidence will not be reheard, except in the interests of justice.

The proposed amended Act will also confirm that section 32 (determination of preliminary point of jurisdiction) is only available as an alternative to the tribunal ruling on its jurisdiction, and not after a tribunal ruling.

To correct a potential gap in the law, the LC also recommend that the Act should explicitly provide that an arbitral tribunal can make an award of costs after a ruling that the tribunal has no substantive jurisdiction.

The effect of the revised framework is likely to encourage a party seeking to challenge an award on jurisdictional grounds to focus their minds more carefully on the merits of a proposed challenge.

Governing Law 

Since the Supreme Court decision in Enka v Chubb, the court has generally held the law governing the arbitration agreement to be the same as the substantive law governing the parties' contract.

The LC has proposed that the default position should be that the arbitration agreement is governed by the law of the seat, unless expressly agreed otherwise by the parties. 

Whilst arguing over the law governing the arbitration agreement has been fertile territory for lawyers, it is not surprising that the LC has called for a clearer position which reflects the legal place which the parties have chosen for the arbitration.

Arbitrator independence and disclosure

The LC has confirmed that the law should expressly state the continuing duty of arbitrators to disclose any circumstances which might reasonably cause justifiable doubt as to their impartiality, in accordance with the expression of the duty by the Supreme Court in Halliburton v Chubb.

The LC has also suggested that this duty should apply to "An individual who has been approached by a person in connection with the individual’s possible appointment as an arbitrator" – avoiding any doubt as to whether or not the duty arises before appointment.

The proposed amended law will also provide that arbitrators must disclose matters which they actually know and ought reasonably to know.

This proposed amendment provides some helpful clarity, although the scope for argument about the compliance with the duty in each case is obvious. The proposed amendment also does not spell out what the consequence of a breach of the newly codified duty will be.

Arbitrator immunity

The LC has recommended the strengthening of arbitrator immunity around resignation and applications for removal. The draft amended law provides that arbitrators should not incur liability on resignation, unless such resignation is shown to be unreasonable.

The draft provides that arbitrators will not be ordered to pay the costs of any challenge proceedings under Section 24 of the Act, unless the arbitrator has acted in bad faith.

These changes do offer more protection to arbitrators, which should reassure them that they will be protected from liability in all cases save where their conduct has strayed into the sort of outlying territory which was seen in cases where costs of removal proceedings were ordered against arbitrators under the Act.

Practitioners will be alive to the difficulty of showing that an arbitrator has acted unreasonably, and the even greater challenge of persuading a court to find bad faith by an arbitrator.

Minor Reforms

The LC has also recommended the following minor reforms:

  • The Act should confirm that an appeal is available from a decision of the Court under Section 9 (stay of legal proceedings).
  • Applications made pursuant to Section 32 (determination of preliminary point of jurisdiction), or Section 45 (determination of preliminary point of law), merely require (i) the agreement of the parties or (ii) the Tribunal's permission.
  • Section 70(3) of the Act be amended such that if there has been a request, made under  Section 57 or an alternative regime agreed by the parties, for a correction or additional award material to the application or appeal, time will run from the date of the correction or additional award; or (if the request is refused), the date on which the applicant or appellant was notified of the result of that request.
  • Sections 85 to 88 of the Act should be repealed.

So, there we have it – the LC has resisted making changes to the Act which will require any aspect of the law to be reinvented. Even if the recommendations do not please everyone, it may be that they avoid upsetting anyone too much, and smooth out some obvious wrinkles in the law.

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