Proposed reform of the UK Arbitration Act – more bark than bite?

December 2023 | EXPERT BRIEFING | LITIGATION & DISPUTE RESOLUTION

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Arbitration is a consensual process by which one or more parties agree to resolve any disputes between them before an independent tribunal, rather than submit them to domestic court systems. It is of wide application to all manner of disputes, large and small, domestic and international.

In the UK, arbitration is a major industry and London has long since been a popular choice of seat. Arbitration relies to some extent, however, on domestic law for support, and most jurisdictions have developed and implemented legislation which allows domestic courts to facilitate and support the arbitral process to varying degrees. English law is no exception.

The Arbitration Act 1996 provides the legal framework applicable to all arbitrations, domestic and international, commenced on or after 31 January 1997 that have their seat in England, Wales or Northern Ireland, with certain sections of general application even if the seat of arbitration is outside those jurisdictions.

The Act introduced radical changes to English arbitration law, consolidating older outdated arbitration legislation, and memorialising legal rules and principles that had developed from case law, resulting in increased party autonomy and limited court intervention. A quarter of a century on, the Act continues to function effectively and has played a key role in securing the UK’s world-leading reputation for arbitration. London has become a global centre of excellence for arbitration and it continues to play a significant role in the UK economy.

Legislative changes and updates in other jurisdictions and institutional rules prompted the UK government in 2021 to ask the Law Commission to consider potential amendments to the Arbitration Act to ensure it continues to be ‘state of the art’, effective and responsive, to maintain London’s position as a global arbitration centre. Anyone hoping for a radical shake-up will be disappointed.

The Law Commission’s two public consultations, conducted sequentially, concluded that wholesale reform of the Arbitration Act is not necessary or desirable, and that root and branch reform of the Arbitration Act was not needed (or wanted by arbitration users). Instead, the Law Commission has set out targeted recommendations to modernise the Act, proposing several improvements purportedly to bring greater clarity and certainty to the law. But is it change for change’s sake?

The Law Commission has identified six areas for reform, outlined below.

Codifying the law on arbitrators’ duty to disclose conflicts of interest. When parties appoint arbitrators, there is an obvious expectation that the appointee will be independent and free from any conflict of interest or any real or apparent bias. Challenges to arbitrator appointments are often made on the basis of conflicts of interest, and it is clearly a matter of concern for arbitration users. Common law prescribes only that an arbitrator is under a continuing legal duty to disclose matters that might reasonably give rise to justifiable doubts as to their impartiality.

It is proposed that the Arbitration Act includes an express duty to disclose what an arbitrator actually knows and also what an arbitrator ‘ought reasonably to know’. This a more onerous requirement than similar provisions in international and institutional rules and will be welcomed by the majority of responders to the Law Commission’s consultation. How it plays out in practice remains to be seen and will be addressed by courts or arbitral institutions on a case by case basis.

Strengthening arbitrator immunity. Another proposal is to strengthen the immunities enjoyed by arbitrators, recommending in particular that arbitrators should incur no liability due to resignation (unless unreasonable) and should not be liable for the costs of an application to court to remove the arbitrator (absent bad faith), thereby ensuring neutrality and robust decision making.

Summary dismissal of claims. Hot on the heels of similar changes implemented in the institutional rules of major arbitral institutions such as the London Court of International Arbitration, International Chamber of Commerce, the Singapore and Hong Kong International Arbitration Centres, and the International Centre for Settlement of Investment Disputes, this proposal is arguably one which will have the most positive impact, expressly providing for the ability of arbitral tribunals to dismiss unmeritorious claims at an early stage; an additional case management tool to assist in the resolution of claims in the most efficient way possible. It is considered to be a ‘world-leading development’ for national arbitration legislation and a welcome innovation to improve the efficiency of international arbitration proceedings.

The proposal is that such an application should be party-driven, with the tribunal ultimately having discretion as to whether to entertain it. A claim or issue should be dismissed if it reaches the threshold of ‘no real prospect of success’ (rather than the ‘manifestly without merit’ measure found in other institutional rules), reflecting the default position in English Court proceedings, thereby providing a wealth of jurisprudence explaining its meaning. It does include a degree of flexibility and autonomy; there is no formal procedure nor time limit prescribed, meaning that parties can continue to reassess the merits of their positions throughout the arbitration process. This proposal should give comfort to defendants that frivolous and vexatious claims will be dispensed with quickly, thereby reducing unnecessary cost and delay.

Increased support of arbitration proceedings and emergency arbitrators. Because arbitration is a contractual process, the arbitral tribunal only has jurisdiction over the parties to the arbitration agreement. The Arbitration Act already provides support to parties seeking to secure witness and documentary evidence from each other, but its application to third parties is unclear, and lacks certainty, which has led to third parties intentionally or otherwise disrupting the proceedings by destroying documents and evidence without any recourse against them. It is therefore proposed to confirm expressly that courts can make such orders against third parties (subject to full rights of appeal), thereby providing greater certainty and consistency and bringing English law in line with other major arbitration centres around the world, and aligned with court litigation. Emergency arbitrators are to be empowered to make final and binding orders, which can be enforced by the courts, thereby elevating the effectiveness of an emergency arbitrator appointment.

Improving the ability to challenge the jurisdiction of the tribunal. Section 67 of the Arbitration Act is a non-mandatory provision which allows a party to challenge the tribunal’s jurisdiction, and if it is not satisfied with the tribunal’s ruling it can ask the court to rehear that question. A successful appeal to the English court under section 67 results in a full ‘de novo’ rehearing, meaning that the court can currently rehear the evidence on jurisdiction as well as the arguments, which inevitably means delay and increased costs.

This approach also gives the challenging party an unjustifiable ‘second bite of the cherry’, as it allows the appellant to reargue its case in light of the tribunal’s findings and reasonings and respond to them accordingly, with new evidence and argument. The proposed amendment to the Act provides that a party will now only be able to challenge the tribunal’s ruling on jurisdiction without deploying new arguments, new evidence and without rehearing of evidence, subject to certain limited exceptions. This is an astute recommendation, recognising the unsatisfactory, impractical and unfair nature of the existing approach and will be well received by arbitration users.

Clarity on the law governing an arbitration agreement. It is a popular misconception that the law of the contract is also the law that governs the arbitration agreement. It is not. The law of the contract is substantive, the law of the arbitration agreement, largely procedural. In most jurisdictions, the arbitration agreement is a separate agreement that requires an express choice of law. If parties have not agreed the law that applies to the arbitration agreement, a dispute can arise as to the law that should apply, which has led to complicated tests arising from case law and inconsistency in institutional rules and domestic legislation. It is perhaps the most contentious issue among arbitration practitioners. This proposed reform is driven by responses to the first consultation, demonstrating that arbitration users have arguably found this to a real source of frustration.

The Law Commission has proposed the introduction of a new section to the Act relating to the governing law of arbitration agreements, providing that, in the absence of an express choice by parties, arbitration agreements are to be governed by the law of the seat of arbitration, even where this differs from the broader governing law of the parties’ contract, which would not itself constitute an express choice of law for the arbitration agreement. This reflects the actual practice when parties expressly choose the governing law of their arbitration agreement and reflects the prevalent approach in 80 jurisdictions around the world.

What is clear from the proposed reforms is that the Arbitration Act is still very much fit for purpose, with users considering that only fine tuning is required. The key reforms are pragmatic, and clearly directed at practical improvements to cost and time efficiency, aligning the Act with a number of institutional rules and targeted to ensure that the Arbitration Act reflects the evolving needs of arbitration users. The recommendations aim to reinforce the UK’s position as a leading seat for arbitration by providing a clear and comprehensive legal framework while maintaining the flexibility of the law and respecting the autonomy of the tribunal and the parties’ choice to resolve their disputes through arbitration.

The Law Commission’s proposed amendments to the Arbitration Act (included as a draft bill with its report) will now make their way through parliament. If passed, they will likely be implemented as law in 2024.

Chloe Carswell is a partner at gunnercooke LLP. She can be contacted on +44 (0)7989 500 046 or by email: chloe.carswell@gunnercooke.com.

Chloe Carswell

gunnercooke LLP