Law Commission’s Second Consultation Paper on Review of the Arbitration Act 1996

C&C Blog 24April23 BannerBackground

The Law Commission is currently in the process of reviewing the Arbitration Act 1996 (“Act”).

On 22 September 2022, the Law Commission published its long-awaited first consultation paper, which set out various proposals for reforms to the Act. Whilst the consultation paper noted that stakeholders considered that “root and branch reform is not needed or wanted”, these proposals would still constitute the most significant reforms to the Act since it came into force over 25 years ago. The Law Commission’s proposed reforms are “designed to ensure that arbitration law is efficient, effective and responsive to modern developments [and look to] help the UK to consolidate its status as a global centre for international dispute resolution.”

Within this first consultation paper, various amendments were proposed, the most notable of which include the following:

  1. The Act should provide explicitly that an arbitral tribunal may adopt a summary procedure to dispose of a claim or defence where there are no real prospects of success (akin to summary judgment under the CPR), though this would be non-mandatory.
  2. In codifying the existing case law, the Act should be amended to provide that arbitrators have a continuing duty to disclose any circumstances which might reasonably give rise to justifiable doubts as to their impartiality.
  3. Proposals relating to discrimination, in particular that the appointment of an arbitrator should not be susceptible to challenge on the basis of the arbitrator’s protected characteristics (those identified within section 4 of the Equality Act 2010), and that any agreement between parties in relation to the arbitrator’s protected characteristics should be unenforceable (unless in the context of that arbitration, requiring the arbitrator to have that protected characteristic is a proportionate means of achieving a legitimate aim – referencing agreements requiring arbitrators of a neutral nationality).
  4. The immunity of arbitrators should be strengthened, to preclude liability for court costs.
  5. Where a party has participated in arbitral proceedings, and has objected to the jurisdiction of the tribunal, which has ruled on its jurisdiction in an award, any subsequent challenge under Section 67 of the Act should be by way of an appeal and not a rehearing. 
  6. Clarification of the circumstances in which the English courts have the power to make certain orders (as listed in Section 44(2) of the Act – i.e. taking of the evidence of witnesses), in particular when court orders in support of arbitration proceedings can be made against third parties and when the parties have agreed to a regime which provides for emergency arbitrator appointment. 

Second Consultation Paper

After receiving responses to the first consultation paper, on 27 March 2023, the Law Commission published its second consultation paper, which set out a further three topics:

  1. Proper law of the Arbitration Agreement.
  2. Challenging jurisdiction under Section 67
  3. Discrimination in Arbitration Appointments

Proper Law of the Arbitration Agreement

Whilst this issue was not addressed within the first consultation paper, in light of responses received, the Law Commission has now set out a proposal on this point. 

The current case law in England and Wales for determining the proper law of an arbitration agreement is set out within the Supreme Court decision in Enka Insaat Ve Sanayi A.S. v OOO Insurance Company Chubb [2020] UKSC 38. Which held as follows:

  1. If there is a choice of law, express or implied, directed to the arbitration agreement itself, then that chosen law will govern the arbitration agreement. This is unless that choice of law is contrary to public policy. 
  2. If there is no such choice, and if the arbitration agreement forms part of a matrix contract, and if there is a choice of law, express or implied, for the matrix contract, then that chosen law will also govern the arbitration agreement. 
  3. However, that chosen law “may” be displaced in some circumstances – for example where there is a serious risk that the chosen law might render the arbitration agreement invalid.
  4. If there is no choice of law anywhere, the arbitration agreement will be governed by the law with which it has the closest and most real connection. According to the majority, this will be the law of the seat of the arbitration.

However, the Law Commission noted that the process in Enka v Chubb is complex and its application in any given case was likely to leave room for argument. Further various problems arise, including that this judgment would lead to many more arbitration agreements being governed by foreign law, which may lead to an increased need for foreign law expert evidence and would oust the law of England and Wales on a number of important topics, including separability, arbitrability, scope and confidentiality.

As such, the Law Commission proposed that a new rule be introduced to the Act to the effect that the law of the arbitration agreement is the law of the seat, unless expressly agreed otherwise in the arbitration agreement itself. 

Challenging Jurisdiction Under Section 67

This issue was previously raised within the first consultation paper, in which the Law Commission proposed that where a party has participated in arbitral proceedings, and objected to the jurisdiction of the tribunal, which has ruled on its jurisdiction in an award, any subsequent challenge under section 67 should be by way of an appeal and not a rehearing. 

The Law Commission stated that it was reconsulting on this topic as consultees had expressed strong views on both sides of the debate. 

Various criticisms were made as to the language of ‘appeal’ as this could encompass a rehearing and could give rise to ambiguity. As such the Law Commission’s proposal would focus on the limits of a challenge under section 67, and set out the updated provisional proposal as follows:

  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.

Though the Law Commission suggested this should be encapsulated in the rules of court rather than legislation, and allow for the proposals to be piloted and amended if necessary. 

Further, in its second consultation paper, the Law Commission noted in the responses that an argument was set out against its proposed reform, on the ground that if a party did not agree to arbitration, the tribunal should never be ruling in the first place. This was effectively rejected by the Law Commission, on the basis of ‘competence-competence’, a principle recognised internationally including in the UNCITRAL Model Law. This is the idea that the tribunal should be able to rule on its own jurisdiction and perhaps also before a court does. 

The Law Commission’s proposal says that where a tribunal rules on its own jurisdiction before a court does, there is reason for some deference to be shown to that ruling and the process which led to it. 

Discrimination in Arbitration Appointments

Discrimination was discussed within the first consultation paper, the Law Commission retains its initial provisional proposals, but further discusses the issue of discrimination following consultee responses, identifying new topics for potential reforms.

Firstly, in respect of the issue of nationality of arbitrator, the Law Commission now includes a proposal that it should always be justified to require the arbitrator to have a nationality different from the parties, noting there is precedent for this in both the UNCITRAL Model Law and several institutional arbitration rules. 

Secondly, the Law Commission expanded its consideration of discrimination beyond arbitrator appointments, inviting responses on whether there should be a general prohibition against discrimination in an arbitration context, and if so, what remedies should apply. 

What’s Next

The Law Commission has invited responses to its proposals in the second consultation paper by 22 May 2023, after which all of the responses received will be reviewed before final proposals are made to Parliament.