Legal Q&A: The Arbitration Act consultation
Amy Roberts, Associate, CMS Cameron McKenna Nabarro Olswang LLP
THE Law Commission of England and Wales is reviewing the Arbitration Act 1996, to consider whether any amendments are required. This is a wholesale review, started 25 years after the act came into force. Given how well used arbitration is in construction disputes, the outcome will be closely watched by the industry.
The first consultation was published by the law commission in September 2022, with a response date of December 2022. Following this, the law commission published a second consultation in March 2023, with a response date of May 2023. Now that both consultations are closed the law commission will review the responses, develop policy where necessary and report its findings.
What was the focus of the first consultation?
The first consultation looked at eight key areas for discussions, which are set out below:
The Law Commission of England and Wales (the Law Commission) is reviewing the Arbitration Act 1996, to consider whether any amendments are required. 1. Confidentiality: Although arbitration remains a confidential forum, the current act does not codify confidentiality of the parties. However, the law commission proposed that, given the complex and fact-sensitive nature of confidentiality, it was not intended to codify confidentiality, instead allowing parties to deal with this on a case-by-case basis.
2. Independence of arbitrators and disclosure: The law commission considered that impartiality was more important than independence, particularly as it is far more difficult to define independence. On the basis that impartiality is covered in sections 1, 33 and 68 of the act (the latter in terms of irregularity of arbitrator duties), the law commission considered nothing needed to be amended. With regard to disclosure, the comments from the law commission followed Halliburton v Chubb (2021) AC 1083, where the Supreme Court was asked to consider the arbitrator’s duty to disclose matters that impact their impartiality and how such disclosures operate in another arbitration. In light of this, the law commission proposes amending the act to provide for a continuing duty to disclose information which may reasonably give rise to justifiable doubts as to an arbitrator’s impartiality. No further amendments are proposed to the act in relation to the arbitrator’s duty of independence.
3. Discrimination: This part of the consultation sought to deal with two aspects; discrimination within arbitration agreements in relation to arbitrators themselves (e.g. noting the requirement of ‘commercial men’ as arbitrators); and limiting the grounds on which an arbitrator’s appointment can be challenged. On the basis that the Equality Act 2010 sets out the statutory provisions preventing discrimination, the law commission proposes that unless there is a proportionate means of achieving a legitimate aim (which is a defence to some forms of discrimination), an arbitrator’s appointment should not be able to be challenged on the basis of ‘protected characteristics’ under the Equality Act 2010. Further, the law commission proposed that any agreement between parties with regard to protected characteristics should be unenforceable. In addition, the law commission proposed amending the act to ensure the language is gender-neutral, as opposed to the current male pronouns.
The act provides immunity from liability for anything done in the discharge of an arbitrator’s functions, so as to ensure arbitrators are able to perform their impartial decision-making functions.
4. Immunity of arbitrators: The act provides immunity from liability for anything done in the discharge of an arbitrator’s functions, so as to ensure arbitrators are able to perform their impartial decision-making functions. However, since enactment there has been case law whereby, following certain actions, arbitrators were removed from cases and/or ordered to pay costs by the courts. In response, the law commission proposes that such case law effectively be reversed in order to clarify that the costs of court proceedings arising out of the arbitration are covered by the arbitrator’s immunity. There was also a further query from the law commission as to whether arbitrators should remain immune from liability following resignation and the extent of any such immunity.
5. Summary disposal of issues which lack merit: There is a proposal from the law commission to provide for an explicit, yet non-mandatory, provision for summary procedure to dispose of a claim or defence lacking merit without the need for a hearing. The intention behind this is to clarify the implicit power given under section 33(1)( b) where the tribunal is required to avoid unnecessary delay or expense, which has to contend with the requirement for each party to be given a reasonable opportunity to state their case under section 33(1)( a). The proposed amendment would effectively provide arbitrators with similar powers as that afforded under part eight proceedings in England and Wales.
6. Interim measures ordered by the court in support of arbitral proceedings (s44 of the act): The law commission considered reform in relation to interim court orders made against third parties. In particular, whether amendments were required to the act with regard the taking and preservation of witness evidence, although it is the law commission’s view that this is already allowed under s44 of the act. In addition, the law commission sought responses in relation to emergency arbitration proceedings/emergency arbitrators, particularly in regard to preservation of witness evidence and whether courts could make interim orders where parties have already agreed to allow emergency arbitrators to make interim orders. The law commission’s proposals include repeals to certain parts of s44 of the act to make the position clear.
There is a proposal from the law commission to provide for an explicit, yet non-mandatory, provision for summary procedure to dispose of a claim or defence lacking merit without the need for a hearing.
7. Jurisdictional challenges against arbitral awards (s67 of the act): Under the act, a party may challenge any arbitral award in court if the award has been made without jurisdiction. Any such challenges can take the form of a full rehearing of the dispute. The law commission is alive to the potential unfairness of such rehearing and proposed bringing in provisions to allow for appeals by default (rather than a rehearing).
8. Appeals on points of law (s69 of the act): In limited circumstances, the act allows a party to appeal to the courts should the party consider the arbitrator has erred in applying the law. The law commission considered that the current drafting of the act achieves balance between the finality of arbitral awards and the ability to ensure errors of law are corrected. Therefore, no amendments were proposed.
What was the focus of the second consultation?
Following the responses to the first consultation, the law commission considered that, in light of Enka v Chub (2020) UKSC 38, the proper law of the arbitration agreement required discussion and potentially reform (this was covered in some additional queries set out within the first consultation). A second consultation was published to deal with this. In addition, the law commission took the opportunity to revisit two of the issues of (i) jurisdictional challenges against arbitral awards (s67 of the act) and (ii) discrimination.
Following the responses to the first consultation, the law commission considered that, in light of Enka v Chub (2020) UKSC 38, the proper law of the arbitration agreement required discussion and potentially reform.
1. The proper law of the arbitration agreement: Following the findings of the Supreme Court case Enka v Chubb, which held that a choice of law governing the main contract is to be the governing law for any subsequent arbitration where there is no express statement to the contrary, the law commission has proposed an amendment to the act. This would see the act incorporating provisions confirming that the governing law of the arbitration agreement is the law of the seat unless the parties expressly agree otherwise within the arbitration agreement.
2. Jurisdictional challenges against arbitral awards (s67 of the act): Further to responses from the first consultation, the law commission has modified its proposal to be:
a. 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;
b. Evidence should not be reheard, save exceptionally in the interests of justice; and
c. The court should allow the challenge only where the decision of the tribunal on its jurisdiction was wrong. The law commission proposed that this process be encapsulated in rules of court, rather than in legislation, on the basis that the proposals are largely procedural and would fit well within court rules.
The responses to the first consultation included suggestions that it should always be justified to require the arbitrator to have a nationality different from the parties.3. Discrimination: The responses to the first consultation included suggestions that it should always be justified to require the arbitrator to have a nationality different from the parties. The law commission believes that the nationality of an arbitrator is inconsequential, provided they are impartial. However, it acknowledges that the appearance of impartiality is important – i.e. having an arbitrator with a neutral nationality can appear more impartial. Therefore it is proposed it should be justifiable to require an arbitrator to have a separate nationality from the parties. In addition, following concerns raised in relation to discriminatory appointments (rather than discriminatory arbitration agreement terms), as well as potential discrimination during the arbitration proceedings themselves, the law commission has proposed a general prohibition on discrimination and has opened the question up to consultation of potential remedies.
Comments
It is helpful to see that the law commission is alive to case law and societal changes and is keen to review and amend the legislation where appropriate. It is unsurprising however that the proposed changes to the act are limited, given that the act is functioning generally well. Instead the proposed amendments seek to update the act to reflect changes to arbitration practice over the last 25 years, aiming to ensure that arbitration in England and Wales remains relevant and able to compete with other jurisdictions.
Amy Roberts, Associate, CMS Cameron McKenna Nabarro Olswang LLP
amy.roberts@cms-cmno.com
www.cms.law @cms_law