1996 Arbitration Act Review: Law Commission Publishes Final Report

Cooley LLP

Cooley LLP

[co-author: Pia Pyrtek]

The Law Commission has published its final report on its review of the Arbitration Act 1996. The review – which has been admirably thorough – began in March 2021 and has involved two consultations (which we reported on in this October 2022 blog post and this May 2023 blog post).

The commission has set out its recommendations for reform, as well as reasons for abandoning certain proposals that were discussed in previous consultations. The report is accompanied by draft legislation, which is expected to be placed before Parliament before the next UK general election in 2025.

Recommendations for reform

1. Summary disposal of issues lacking merit

The commission has recommended granting arbitrators the power, subject to the agreement of the parties, to dismiss issues summarily upon the application of either party. Such an award may only be made where the tribunal considers that a party has ‘no real prospect of succeeding’ on that issue. The procedure to be adopted to determine any application for summary disposal should be a matter for the tribunal, having consulted with the parties. This gives tribunals the power to deal with cases efficiently, whilst ensuring the parties are given a fair chance to present their case.

Whilst arbitrators may have already had implicit powers of summary disposal, making such powers explicit will give tribunals the confidence to exercise them as appropriate for the fair and efficient resolution of disputes.

2. Orders against third parties

S. 44 of the legislation sets out the matters in respect of which the court has power to make orders in support of arbitral proceedings – i.e., taking of witness evidence, preservation of the evidence, inspection of property, sale of goods, and the granting of an interim injunction or the appointment of a receiver. Due to conflicting case law, it is not currently clear if or when these orders can be made against third parties (i.e., non-parties to the arbitration). Further, to the extent that orders can be made against third parties, it appears that their right of appeal is limited.

The commission has recommended that S. 44 be amended to explicitly state that, unless otherwise agreed by the parties, all orders may be made against third parties, and that those third parties have the usual full rights of appeal.

3. Challenging an award

S. 67 of the legislation allows parties to apply to the courts to challenge an arbitration award where the tribunal lacks substantive jurisdiction to issue its decision. Since the UK Supreme Court’s decision in Dallah v. Pakistan,[1] courts must deal with this challenge by way of a full rehearing. The commission has recommended placing limits on these challenges, so that a court will only entertain new grounds of objection or new evidence if the party could have, with reasonable diligence, advanced the same points before a tribunal. Further, evidence will not be reheard unless it is in the interest of justice.

4. Governing law

Currently, in accordance with the UK Supreme Court’s judgment in Enka v. Chubb,[2] if the arbitration agreement contains no express choice of law, but the main contract does, the law of the contract should apply to the arbitration agreement. The commission considered this to be too ‘complex’ and ‘unpredictable’. It has therefore recommended a new rule, whereby the law of the seat of arbitration shall apply when parties have not agreed upon the governing law of the arbitration.

5. Codification of disclosure duties

The commission has recommended codifying the UK Supreme Court’s decision in Halliburton v. Chubb,[3] thus imposing on arbitrators a duty to disclose any information which may result in ‘justifiable doubts’ as to the arbitrator’s impartiality in order to uphold the integrity of the arbitration system. Further, the commission has added an objective standard, so that arbitrators must disclose both information of which they are aware and information of which they ought reasonably to be aware. This clarifies case law, aligns with international best practice and ensures the proposed legislation is in line with the standard imposed on other legal professionals.

6. Immunity of arbitrators

Whilst the Arbitration Act already provides that an arbitrator faces no liability for acts or omissions in the discharge of their duties, the Law Commission has recommended that arbitrators should not incur any liability in the following two additional scenarios:

  • Where an arbitrator resigns (unless the resignation was unreasonable).
  • Where a party makes an application for the arbitrator’s removal (unless the arbitrator acted in bad faith).

Key takeaways and next steps

The recommendations, particularly those in relation to summary disposal and orders against third parties, provide tribunals and the courts with important express powers to ensure the efficient and effective management of arbitral claims. But the report is actually most notable for the fact that so few amendments are required – and those that are required are either changes to clarify the existing position or to tweak it. As such, it is a powerful statement that the Arbitration Act, 27 years on, remains fit for purpose.

The report will now be considered by the Ministry of Justice, and proposals will be put before Parliament. It is anticipated that the amendments will be proposed prior to the next UK general election in 2025.

[1] [2010] UKSC 46.

[2] [2020] UKSC 38.

[3] [2020] UKSC 48.

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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