The Arbitration Bill’s changes clarify important aspects of English arbitral law, reinforcing London’s position as a leader in international arbitration.

On 21 November 2023, the UK government unveiled its long-awaited plans to update and modernise the legal framework applicable to arbitrations in England, Wales, and Northern Ireland through amendments to the Arbitration Act 1996. In line with the recommendations of the Law Commission in its September 2023 report (a summary of which can be found in Latham’s previous Client Alert), the government has opted for targeted reform over root-and-branch changes, focusing on clarifying a number of important aspects of arbitral law which have become contentious in recent years. The result is a suite of practical revisions (the Arbitration Bill 2023) that will provide greater certainty to parties and help maintain the UK’s position as a leading destination for international arbitration.

What Will Change?

The most significant changes set out in the Arbitration Bill 2023 include:

• confirming that the law applicable to the arbitration agreement will be the law of the seat, not the governing law of the contract, absent express choice of the parties;
• codifying the duty of disclosure to which arbitrators are subject at common law;
• introducing an express power for arbitrators to dispose of issues summarily;
• strengthening arbitrator immunity around resignation and removal; and
• clarifying the court’s power to make preliminary determinations on a tribunal’s jurisdiction, and to make orders in support of arbitral proceedings against third parties.

New Default Rule on Law of the Arbitration Agreement

In a significant move, the Bill reverses the position which has prevailed in the UK since the Supreme Court’s decision in Enka v. Chubb[1] that, in the absence of express choice by the parties, the law applicable to the arbitration agreement will generally be the governing law of the main contract. The position now will be that unless the parties have expressly agreed which law will apply to their arbitration agreement, it will be governed by the law of the seat. This amendment has the benefit of promoting simplicity and providing certainty on an issue which has been the subject of considerable debate in recent years. Arbitration parties should note that this new default rule will have retrospective effect and will therefore apply to any arbitration agreements, not only those entered into after the date the amendments come into force.[2]

Statutory Duty of Arbitrators to Disclose Doubts as to Impartiality

As part of their statutory duty to remain impartial when exercising their powers under Section 33(1)(a) of the Arbitration Act 1996, arbitrators are obliged to disclose any circumstances that might reasonably give rise to justifiable doubts as to their ability to remain impartial. This duty of disclosure was recognised by the UK Supreme Court in Halliburton v. Chubb.[3] The Bill codifies this duty and renders it a mandatory provision under Schedule 1 of the 1996 Act.[4] Notably, the statutory duty reaches beyond common law provisions in that an arbitrator will be required to disclose not only facts of which they are actually aware, but also those of which they ought reasonably to be aware.[5]

Tribunal’s Powers to Summarily Dispose of Claims

In recent years, as part of a push to promote efficiency in international arbitration, the rules of leading arbitral institutions (including the London Court of International Arbitration (LCIA), the Singapore International Arbitration Centre (SIAC), and the Arbitration Institute of the Stockholm Chamber of Commerce (SCC)) have been updated to clarify that arbitrators have the power to dispose of claims or issues on a summary basis if they manifestly lack merit. The Bill will bring the Arbitration Act into line with these rules by explicitly conferring the power on tribunals, on the application of a party, to summarily dismiss a claim, a defence, or a specific issue if it has no reasonable prospects of success.[6] The Bill therefore removes any doubt as to the power of arbitrators at common law to make awards on a summary basis.[7] This provision will not be mandatory, but it will apply unless the parties have agreed otherwise. While the change is welcome to reassure arbitrators that they possess all the available tools to dispose of cases as expeditiously as possible, the question remains as to what extent these powers, once implemented, will be used in practice. The risk of challenge — the so-called “due process paranoia” — may still operate to dissuade tribunals from too readily disposing of cases on a summary basis.

Confirmation of Powers of Emergency Arbitrators

Under certain institutional rules, sole arbitrators may be appointed on an urgent and interim basis to decide applications before the tribunal is fully constituted. The 1996 Act, however, postdates such an innovation. The Bill brings the powers of such emergency arbitrators in alignment with that of regular arbitrators, including the power to issue peremptory orders (under Section 41 of the 1996 Act) or to apply for a court order (under Section 42) in cases of non-compliance.

Widening of Arbitrator Immunity from Costs Liability

Arbitrator immunity is an important facet of proceedings to allow arbitrators to make robust and impartial decisions without fear of exposure to being sued by a disappointed party for any act or omission performed in the discharge of their arbitral functions. While Section 29 of the Arbitration Act already provides for arbitrator immunity from suit, this has not stopped courts from holding arbitrators liable for costs caused by their resignation or removal. The Bill mitigates the risk of resignation or removal for arbitrators by extending their immunity to cover both situations unless the arbitrator has acted in bad faith,[8] or their resignation can be shown to have been unreasonable.[9]

Clarification of Power to Make Orders in Support of Arbitral Proceedings Against Third Parties

Section 44 of the Arbitration Act enables the court to grant various interim relief orders in support of arbitral proceedings, including evidence preservation orders, orders on the taking of witness evidence, orders relating to property, interim injunctions, and receivership appointments. At present, uncertainty remains as to whether such orders can be made against not only the parties to an arbitration, but against third parties as well. The Bill clarifies the position by confirming that such measures can be made against those who are not parties to the arbitral proceedings.[10] However, unlike parties to an arbitration (whose rights of appeal against a Section 44 order are restricted), the Bill provides for third parties to have the usual rights of appeal in respect of an order for interim relief made against them.[11]

No Full Rehearing for Challenges on Jurisdictional Grounds

One of the limited grounds on which an arbitral award can be challenged under Section 67 of the Arbitration Act is that the tribunal lacked jurisdiction. Following the much debated Supreme Court decision in Dallah v. Pakistan, the position has been that a challenge under Section 67 will entail a full rehearing (with evidence) before the court, even if the issue of jurisdiction has been considered by the arbitral tribunal.^[12] The Bill amends this position by providing that if a tribunal has already ruled on jurisdiction, a full rehearing or new evidence will not be permitted unless necessary in the interests of justice.^[13]

Comment

When the first review of the Arbitration Act was initiated by the UK government in 2022 — 25 years after it came into force — the Law Commission was tasked with advising the government on how the legislative framework in England and Wales should be modernised to ensure that it remained fit for purpose and supportive of the UK’s position as among the world’s foremost arbitration-friendly jurisdictions. The suite of amendments introduced by the Arbitration Bill, though modest in many respects, nevertheless achieve this aim by clarifying important areas of law and ensuring that the UK will retain its competitive edge as a global leader in international arbitration well into the future.

This post was prepared with the assistance of John (Ching Jack) Choi in the London office of Latham & Watkins.

Endnotes

[1] Enka Insaat Ve Sanayi AS v. OOO Insurance Company Chubb [2020] UKSC 38.

[2] Arbitration Bill, clause 17(7).

[3] Haliburton Company v. Chubb Bermuda Insurance Ltd [2020] UKSC 48.

[4] Arbitration Bill, clause 2(3).

[5] Arbitration Bill, clause 2(2) (proposed new section 23A(3)(b)).

[6] Arbitration Bill, clause 7.

[7] See, for example, Travis Coal Restructured Holdings LLC v. Essar Global Fund Limited [2014] EWHC 2510 (Comm), a matter in which Latham & Watkins represented the successful claimant.

[8] Arbitration Bill, clause 3(2).

[9] Arbitration Bill, clause 4(3).

[10] Arbitration Bill, clause 9(2).

[11] Arbitration Act 1996, section 44(7).

[12] Dallah Real Estate and Tourism Holding Company v. The Ministry of Religious Affairs, Government of Pakistan [2010] UKSC 46.

[13] Arbitration Bill, clause 11 (proposed new section 67(3C)(c)).