Proposed Reforms To The Arbitration Act 1996

The Law Commission has published its Final Report (the Report) on proposed reforms to the Arbitration Act 1996 (the Act). The Government had asked the Commission to review the Act, which is the main statute and framework currently governing arbitration in England and Wales.

The review began in January 2022 and the published Report aims to provide clarity and certainty to the law surrounding arbitration.

The key proposed reforms include:

Arbitrator’s duty of disclosure

At present, an arbitrator has an express duty of impartiality under section 33(1) of the Act. An arbitrator’s duty of disclosure, however, has only been recognised at common law (Halliburton Company v Chubb Bermuda Insurance Ltd).

The Report proposed to codify this duty of disclosure by implementing an express provision in the Act. The provision would place a continuing duty to disclose circumstances which might reasonably give rise to justifiable doubts to an arbitrator’s impartiality and should extend to matters within an arbitrator’s actual knowledge and matters that an arbitrator ought reasonably to be aware of.

Arbitrator’s liability on resignation or removal

Under section 29 of the Act, an arbitrator has immunity from liability arising from anything done in the discharge of their functions as an arbitrator. The Commission has proposed to extend this immunity to cover an arbitrator’s resignation or removal, in certain circumstances.

The immunity would cover liability arising from an arbitrator’s resignation, unless this resignation was considered unreasonable. Cost liabilities in respect of applications for an arbitrator’s removal would also be covered, unless an arbitrator has acted in bad faith.

Summary disposals of legal claims that lack merit

When a party’s claim or issue has no real prospect of success and there is no other compelling reason for it to continue to a full hearing, courts have the power to decide the claim or issue without a trial, this is known as a ‘summary judgment’. There is no provision under the Act enabling arbitrators to adopt a summary procedure for claims that lack merit.

The Report addresses this by recommending an express provision to the Act that empowers a tribunal to adopt a summary procedure. The provision will be subject to the agreement of the parties, who may choose to opt out. The procedure to be used will be a matter for the arbitral tribunal, in consultation with the parties and subject to the circumstances of the case.

Clarifying the power of the courts

Amending section 44 of the Act

Currently, courts have the power to make orders in support of arbitral proceedings within section 44 of the Act. The Commission has proposed to amend the wording of this section to expressly state that the courts, in certain circumstances, have the power to make orders against third parties.

The Report further recommends to amend section 44(7), which contains a restricted right of appeal for decisions made under section 44. The amendment would specify that this requirement only applies to parties to the arbitration and not to third parties, who should have the usual rights of appeal.

Emergency Arbitrators (EA’s)

EA’s allow parties to obtain relief prior to the establishment of a tribunal and without having to go to court. As EA’s post-date the Act, there is surrounding uncertainty as to whether the provisions of the Act are applicable. The opinion of the Commission is that these provisions should not apply generally to EA’s.

However, the Commission has proposed that where an order is made by an EA but is ignored by the parties, EA’s should have the power to issue a ‘peremptory order’. This order will provide a deadline for compliance, if the party fails to comply with this order the court can then enforce compliance. This procedure is currently available to arbitrators under sections 41 and 42 of the Act. The Commission also amended section 44(4), to enable EA’s to give permission for applications under this section.

Challenging arbitrators decisions

Arbitrators’ decisions can be challenged by parties on the basis that the tribunal lacks substantive jurisdiction, under section 67 of the Act. The court will then conduct a full rehearing, also referred to as a ‘de novo’ hearing (Dallah Real Estate and Tourism Holding Co v Ministry of Religious Affairs of the Government of Pakistan).

The Commission highlighted the time and cost implications of re-hearings and the potential issue of fairness, as losing parties can seek to obtain new evidence and new arguments prior to the rehearing.

The Commission proposed an amendment to section 67 to address these issues. The amendment would prevent parties wishing to challenge an award from relying on new evidence or new objections. It would also prevent the rehearing of oral evidence. The amendments will be subject to whether a party could not, with reasonable diligence, have raised it before and whether it is necessary in the interests of justice.

New rules on which laws govern an arbitration agreement

At common law (Enka Insaat ve Sanayi AS v OOO Insurance Company Chubb), if an arbitration agreement fails to specify the governing law the law governing the main contract will be implied, unless this will render the agreement invalid. If there is no choice of law in the main contract, the arbitration agreement will be governed by the law with which it is most closely connected.

The Commission suggested adding a new section in the Act which expressly provides that the arbitration agreement is governed by the law of the seat (the country in which the arbitration is located). Parties will be able to expressly agree otherwise and this amendment would not apply to agreements concluded before the amendment is enacted.

What will happen next?

The Government will now consider the Report and accompanying draft legislation to determine which proposals will be taken forward and whether a draft Bill should be introduced to Parliament.