One of the most significant developments to watch for this year for parties who regularly arbitrate in London will be the outcome of the Law Commission of England & Wales’s public consultation on potential reforms to the Arbitration Act 1996 (the Act).
Last September, the Law Commission (an independent UK statutory body tasked with reviewing the law) published its initial proposals for reform of the Act, the law governing arbitration proceedings seated in England, Wales and Northern Ireland for the past 25 years.
The consultation closed in December 2022, and the first half of this year will reveal which of these proposals will move one step closer to being enacted into law.
The Law Commission’s consultation paper
In its September 2022 consultation paper, the Law Commission concluded that the Act is working well and that ‘root and branch reform’ is unnecessary. Instead, the consultation aims to ensure that English arbitration legislation remains ‘state of the art’, both for domestic arbitrations and to promote London as a world-leading choice of seat for international commercial arbitrations.
The Law Commission focused on reviewing eight aspects of the law.
Confidentiality: The Law Commission proposed that the principles governing the confidentiality of London-seated arbitrations should continue to be developed by the courts under the common law on a case-by-case basis and should not be codified in statute.
Independence of arbitrators: The Law Commission proposed that the Act should include a statutory duty for arbitrators to disclose any circumstances that might reasonably give rise to justifiable doubts as to their impartiality on an ongoing basis but should not introduce a new duty of independence.
Discrimination: The Law Commission suggested a ‘world-leading’ amendment to bar challenges to arbitrator appointments based on discriminatory terms in arbitration agreements, by incorporating concepts found in UK equality law. The new provision would make an agreement between parties in relation to an arbitrator’s ‘protected characteristics’ unenforceable in the context of an arbitrator challenge, unless in the context of the arbitration, requiring the arbitrator to have that characteristic is a ‘proportionate means of achieving a legitimate aim’. The protected characteristics would be those set out in section 4 of the Equality Act 2010, namely, age, disability, race (including nationality), religion or belief, sex, sexual orientation, gender reassignment, marriage and civil partnership, and pregnancy and maternity.
Summary disposal of claims: The Law Commission proposed a new statutory provision empowering arbitrators to adopt summary dismissal procedures upon application by a party (unless the parties have opted out). The Law Commission provisionally suggested that the standard applied by the tribunal could be the same as in summary judgment proceedings before the English courts (‘no real prospect of success’ and ‘no other compelling reason to proceed to a full hearing’).
Interim relief and emergency arbitrators: The Law Commission considered that the current law does not need extensive reform. However, it suggested some limited amendments to the Act to take account of the emergency arbitrator procedures that are now available under the rules of many arbitral institutions, including with respect to court assistance to enforce orders made by emergency arbitrators.
Arbitrator immunity: The Law Commission proposed that arbitrator immunity should be further strengthened by reversing existing case law holding arbitrators liable for the costs of court proceedings arising out of an arbitration in certain circumstances.
Jurisdictional challenges: Perhaps most controversially, the Law Commission proposed that, specifically in circumstances where a party has already participated in an arbitration and subsequently challenges the tribunal’s award for lack of jurisdiction before the English courts under section 67 of the Act, that challenge should not involve a full rehearing on jurisdiction (as it does at present) but should instead take the more limited form of an appeal.
Appeals on a point of law: The Law Commission proposed that section 69 of the Act, which allows parties to appeal awards to the court on a point of law (unless that right is excluded by agreement of the parties), should be retained in the Act and not repealed.
We anticipate that commercial parties will be particularly interested in the outcome of the consultation on two issues: summary dismissal of unmeritorious claims or defences and jurisdictional challenges to awards, discussed further below.
Summary disposal of unmeritorious claims or defences
This is a matter on which the Act (like most national arbitration laws) is currently silent. A new statutory power to this effect would remove any residual uncertainty in the existing law and may embolden arbitrators to adopt summary procedures (if requested) where this would result in clear procedural efficiencies. For this reason, we anticipate that the Law Commission’s proposal will find widespread support amongst users of commercial arbitration.
It will be interesting to see whether the consultation leads to adoption of the summary judgment threshold test used by the English courts, as currently proposed by the Law Commission, rather than the ‘manifestly without merit’ test commonly found in the rules of arbitral institutions.
Jurisdictional challenges to an award
As noted above, one of the most controversial proposals made by the Law Commission relates to the nature of the review undertaken by the courts where awards are challenged for lack of jurisdiction (limited to circumstances where the party disputing jurisdiction participated in the arbitration).
Supporters of this proposal say that it will address the current issue whereby a party who has raised an unsuccessful jurisdictional objection before the tribunal has a ‘second bite of the cherry’, pursuing a costly and time-consuming rerun of its jurisdictional arguments before the English courts, including all relevant evidence, in many cases with the same result. Statistics published by the Commercial Court show that only 11 per cent of jurisdictional challenges to awards filed in 2019–2020 succeeded (see bar chart).
On the other hand, opponents of this proposal argue that the right to a full de novo rehearing on jurisdiction (rather than merely an appeal of the tribunal’s decision) is an important safeguard for parties who contend that they are not subject to the tribunal’s jurisdiction, and parties should be able to pursue a jurisdictional challenge before the tribunal without prejudicing their right to a full review by the courts in any subsequent jurisdictional challenge under section 67 of the Act. It will be interesting to see where the Law Commission lands on this important issue in 2023.