The Law Commission's Proposed Revisions to the Arbitration Act 1996

Confidentiality

Under English law, the default position is that arbitrations are private and confidential, although there has been much debate in recent years over the legal basis for that position. As a result, in its review, the Commission considered whether it should codify English law on confidentiality of arbitrations but concluded that, at this juncture, the Act should not be so amended. The Commission’s rationale in reaching this decision was two-fold: (i) the existing jurisprudence on confidentiality (and its exceptions) is still evolving and is better left to be developed by the courts and (ii) confidentiality should not be the default for all types of arbitrations, as there is a growing trend towards transparency and the publication of arbitral awards, while some types of arbitration, such as investor-State disputes, even operate with a default position of transparency. The Commission decided that variety of approaches to confidentiality offered by the different arbitral rules provides sufficient flexibility such that “in practice the current regimes usually work well”.

Independence of Arbitrators and Disclosure of Potential Conflicts of Interest

There is presently no duty of independence expressly imposed on arbitrators under the Act, though section 33 does obligate the tribunal to act fairly and impartially. The Consultation Paper provisionally proposes that the Act should not be amended so as to impose an express duty of independence upon arbitrators, such duty being present in some arbitral rules and foreign legislation. Inherent in this decision is the belief held by the Commission that the duty of impartiality already imposed by section 33 is paramount. According to the Commission, “if an arbitrator is impartial, it does not matter if they are not perfectly independent – as long as any connections are disclosed to the parties, so that the parties can consider the matter for themselves”.

Regarding the disclosure of potential conflicts of interest, the Commission proposes that the Act be amended to reflect the case law such that it provides that arbitrators have a continuing duty to disclose any circumstances which might reasonably give rise to justifiable doubts as to their impartiality. This would bolster the extant section 24, pursuant to which an arbitrator can be removed by the court if there are justifiable doubts as their impartiality.

Summary Disposal

The Act does not expressly grant arbitrators the power to summarily dismiss claims, which has caused some arbitrators to avoid summary dismissal in fear of a challenge on the grounds that they have not provided the given party a full opportunity to be heard. The Commission therefore proposes that a new provision be added to the Act that provides explicitly that a tribunal may adopt a summary procedure to dispose of a claim or defence. Crucially, the proposed provision would be non-mandatory; parties would be able to agree to opt out from it in their arbitration agreement. The Commission suggests that the threshold for summary dismissal align with the threshold for summary judgment in court proceedings in England and Wales, namely that the claim/defence must have no real prospect of success and there exists no other compelling reason for it to continue to a full hearing.

Discrimination

Certain arbitrator appointment clauses contain discriminatory language, such as a requirement that the arbitrators be “commercial men”. Regrettably, employment laws against discrimination in England and Wales do not apply to arbitrator appointment clauses in light of the Supreme Court’s ruling in Hashwani v Jvraj [2011] UKSC 40, which decided that an arbitrator is not appointed under a contract of employment and so employment law rules against discrimination do not apply. The Commission suggests that the Act be amended so that any agreement related to a “protected characteristic” (as defined under section 4 of the Equality Act 2010) be rendered unenforceable. There would, however, be an exception in circumstances where it would be appropriate to require an arbitrator to have a particular characteristic, such as requiring the arbitrator have a different nationality from the parties. The Commission also proposes prohibiting any challenge to an arbitrator based upon a protected characteristic.

Court Orders in Support of Arbitral Proceedings: section 44 – Third Parties

Section 44 of the Act empowers the court to make interim orders in support of arbitral proceedings. There has been confusion amongst practitioners as to whether section 44 applies to third parties. In the Consultation Paper, the Commission expressed its belief that the court can indeed make orders under section 44 against third parties, but in lieu of reaching a firm conclusion on the issue, the Commission asks consultees whether section 44 should be amended to provide this explicitly. Interestingly, the Commission provisionally proposes that, where orders are indeed made against third parties, those third parties should have the usual full right of appeal, rather than the restricted right of appeal which applies to parties to arbitration.

Emergency Arbitrators

Since the Act was drafted, there has been a dramatic proliferation in the accessibility and use of emergency arbitration, mirrored by the introduction of provisions for the appointment of emergency arbitrators in the rules of most of the major arbitral institutions.

The Consultation Paper therefore considers whether revisions to the Act are required to accommodate emergency arbitration, a concept which did not exist at the time the Act was first drafted. The Commission concludes that the provisions of the Act should not apply generally to emergency arbitrators. It does, however, recognise a need to support the emergency arbitration process and suggests two means of providing such support. First, it is suggested that the Act could empower the court to order compliance with a peremptory order of an emergency arbitrator, mirroring the provision currently only available to a fully constituted arbitral tribunal. Second, and in the alternative, the requirements for obtaining an interim court order could be extended such that an application to court under section 44(4) could be made with the permission of an emergency arbitrator as well (when permission currently can only come from a fully constituted arbitral tribunal). The Commission asks consultees which approach they prefer.

Additionally, the Commission proposes repealing section 44(5) of the Act, which provides that the court will only act if the tribunal has no power or is unable for the time being to act effectively. The purpose of section 44(5) is to prevent the court from overstepping into the domain of the arbitral tribunal. However, it is the Commission’s belief that this provision is now seemingly redundant due to the operation of sections 44(3) and 44(4).

Section 44(3), which can be invoked whether or not the tribunal has been constituted or an emergency arbitrator appointed, provides that, if the case is urgent, a party can apply for a court order if necessary to preserve evidence or assets. The Commission is comfortable that, pursuant to this provision, the court is only preserving the current state of affairs rather than usurping the decision-making role of the arbitrator, while the requirements of urgency and necessity under the provision, coupled with the court’s residual discretion, provide sufficient safeguards against the court’s overstepping into the tribunal’s domain.

Meanwhile, section 44(4) provides that, if the case is not urgent, a party can apply to court (for an order about the matters listed in section 44(2)) only with the agreement of the other parties to the arbitration, or the permission of the tribunal.

It is also hoped that the repeal of section 44(5) would put an end to the confusion caused by the perceived consequence of the Gerlad Metals v Timis [2016] EWHC 2327 (Ch) case, which has led many practitioners to query whether the existence of emergency arbitrator provisions precludes an application to the court under section 44(5).

Appeal

Section 67 – Appeal rather than Rehearing

The current position is that the regime under the Act requires a full hearing on jurisdiction in the event that a party has objected to the jurisdiction of the tribunal. In a departure from said regime, and in an effort to improve the efficacy of the arbitral process, however, the Commission suggests that, in the event a party objects to the tribunal’s jurisdiction, and the tribunal has subsequently ruled on jurisdiction in an award, any subsequent challenge under section 67 of the Act should be by way of appeal and not a rehearing. It is hoped that such a revision will reduce the delay and cost associated with the arbitral process, as well as eliminating any potential unfairness arising from the fact that, presently, the losing party can raise new arguments before the courts that were not raised before the tribunal. This is therefore a welcome innovation which will tangibly contribute to the efficacy of arbitration.

Moreover, the Commission proposes that the Act expressly clarify that the arbitral tribunal is able to make an award of costs in consequence of an award ruling that it has no substantive jurisdiction.

Section 69 – no revision

Section 69 of the Act allows a party to appeal to the court on a question of law arising out of an arbitral award. This is a rather unique provision in the sense that is not shared universally among arbitral institutions and foreign legislation, including the UNCITRAL Model Law. The Commission recognizes that while some stakeholders have suggested that section 69 should be repealed in order to increase the finality of arbitral awards, others have suggested that the circumstances in which an appeal under section 69 can be brought should be expanded, so that the court has more opportunity to consider questions of law. The Commission therefore does not propose any reform to section 69, concluding that it operates as a defensible compromise between these two positions, which causes no structural or regular delays given that it is rarely invoked.

Arbitrator Immunity

Section 29(1) of the Act provides that “an arbitrator is not liable for anything done or omitted in the discharge or purported discharge of his functions as arbitrator unless the act or omission is shown to have been in bad faith.” A line of case law has developed, however, which says that arbitrators can incur liability for the costs of applications to court. The Commission takes issue with this precedent, concluding that such cases are, in fact, contrary to the wording and intention of the Act. It therefore proposes that the Act should reverse this line of cases and expressly provide that arbitrator immunity extends to the costs of court proceedings arising out of the arbitration.

Comment

Overall, the Consultation Paper and its reform proposals are to be welcomed by practitioners and users of arbitration, given that the proposed changes bring clarity to uncertain areas of the law and seek to streamline the arbitral process, thereby increasing efficiency and reducing costs. The most significant areas of proposed change would appear to be the introduction of summary procedure, which would allow the early dismissal of unmeritorious claims and counterclaims, the proposal to shift from a rehearing to an appeal under section 67, which should prevent a party from raising new arguments on appeal, and the proposed repeal of section 44(5), which should bring an end to confusion caused by the perceived consequence of the Gerald Metals v Timis case, which has led many practitioners to query whether the existence of emergency arbitrator provisions precludes an application to the court under section 44(5).

Regarding next steps, the provisional proposals are part of a broader formal consultation exercise. The Commission invites responses to the Consultation Paper from interested parties. Such responses can be submitted here, until 15 December 2022. The Commission will make final recommendations to the UK Government, which will take into account, inter alia, the responses of consultees, before further consultation on a draft Bill. Vinson & Elkins RLLP will provide updates on the developments of the Consultation Paper and its outcomes as soon as they become available and report on the final wording of the Act when it is eventually enacted.

For more information, you can find the Commission’s Consultation Paper on the Arbitration Act 1996 here.