The Law Commission has published its final recommendations on reform of the English Arbitration Act 1996 (the Act).  Its final report follows an extensive consultation process on the need for and extent of reform.  The report, like the consultation papers that preceded it, recognises that root and branch reform of the Act is not necessary.  Instead, the Law Commission has taken the view that the Act is able to be improved and future-proofed by several focussed refinements.  In various areas, the Law Commission has recommended no reform.

Arbitration in England & Wales will remain largely unchanged if and when the reforms are implemented.  Certain of the changes clarify the common law or existing arbitrator powers, and provide a statutory footing.  Other reforms, however, do mark a significant change of approach that have not been without controversy.  In our view, the Law Commission has performed a commendable job of conducting keyhole surgery on the Act while balancing the interests of stakeholders.  It has proposed a limited set of reforms that are sensible and will improve the conduct of arbitration under the Act.

This article contains a broad summary of the proposed reforms.  We examine, first, the main topics where reform is to be made, before commenting on the main topics where reform has not been proposed.

1. Governing law of arbitration agreements

The governing law of an arbitration agreement that sits within a contract may be expressed.  Where an express choice is not made within the contract, the question arises whether it should be the law governing the contract, the law of the seat of arbitration or some other law.  This choice may be important where the potentially applicable laws take a different approach to the scope of an arbitration agreement, the arbitrability of a dispute and/or the separability of the agreement from the rest of the contract.

The Law Commission did not initially propose reform in this area: it was content to allow the multi-tiered test applied by the Supreme Court in Enka v Chubb to continue to apply.  However, following substantial stakeholder support for reform, the Law Commission revisited its approach in its second consultation paper.  It has now recommended that the Act provide that the arbitration agreement is governed by the law of the seat unless the parties expressly agree otherwise.

This is a welcome change.  It will ensure that parties that choose to arbitrate in England & Wales will receive the protection of the pro-arbitration laws of England & Wales when the validity of their arbitration agreement is under attack.  The amendment will create a simple rule that is easy to understand by parties and offers certainty.  The rule is now clear: an arbitration agreement will be governed by the law of the seat and nothing less than an express choice is required to avoid that position.

2. Summary disposal

It is a common complaint that arbitrations can be long and costly, and that arbitrators lack some of the case management powers of the courts.  However, arguably, the power to summarily dispose of a claim, issue or defence already exists within arbitrator's case management powers and this was recognised in the consultation.  It was also recognised that the exercise of this power must be balanced with a party's right to a fair opportunity to present its case.

The Law Commission has recommended the introduction of an express, statutory power for arbitrators to make an award on an issue on a summary basis.  The test to be applied will be whether a party has no real prospect of succeeding on that issue, which is consistent with the threshold applied by the English courts.  The regime will not be mandatory, so parties can agree to opt out.

By way of comparison, the 2020 update to the LCIA Rules introduced an express right for arbitral tribunals to make an "early determination" where a party has put forward a case lacking in merit.  According to the LCIA 2021 Annual Casework Report, only 15 such applications were made in 2020 and a further 15 applications the following year.  Parties have clearly welcomed the introduction of a summary procedure in the LCIA rules, although anecdotally, the process is still slower and more costly than the court equivalent. 

It is welcome, therefore, that there will be an express statutory power to make summary determination.  This should encourage the process to be used more widely.  It will hopefully give arbitral tribunals confidence that they are in fact able to make such awards without the risk of a challenge for lack of fairness or enforcement issues. 

3. Challenges on substantive jurisdiction

Section 67 of the Act entitles a party to arbitration to apply to the English court to challenge an arbitral award on the basis of the tribunal's substantive jurisdiction.  Case law has established that, consistent with many other jurisdictions, such a challenge will be by way of a full rehearing.  This may entail a rehearing of the evidence that has already been heard by the tribunal, the introduction of new evidence and a lack of regard for the tribunal's award.

The Law Commission has recommended reform of the existing position.  In its view, the current approach unfairly allows a party to run an improved case on jurisdiction before the courts and leads to wasted time and costs.  It is also concerned that the approach does not afford the tribunal sufficient deference.  Accordingly, it proposes a rule that upon a s.67 challenge by a party that has participated in the arbitration, (i) evidence will not be reheard (save in the interests of justice) and (ii) new grounds of objection or evidence will not be permitted (unless it could not have been put before the tribunal with reasonable diligence).  

This reform has been a hotly debated topic.  There is certainly scope for disagreeing with the reform, for being contrary to the fundamental principle that the court should conduct an unfettered review of the jurisdiction of a tribunal.  Nevertheless, our view is that the position adopted is a reasonable compromise, which has been softened as the consultation period has progressed (for example by removing a narrower proviso to the effect that evidence will only be reheard in 'exceptional' cases).  In some cases, it will result in a fairer and less costly process for challenging jurisdiction.  In other cases, it will provide the flexibility for a party to argue that, in the circumstances, new or existing evidence should be heard/reheard.

4. Arbitrator independence and disclosure

Originally, the Law Commission had consulted on whether changes were required to the rules on independence and disclosure.  However, at the consultation stage it was concluded that complete independence is impossible, such that the focus shifted to the subject of arbitrator disclosure.

Disclosures by arbitrators have been high on the agenda since the case of Halliburton v Chubb and the much-anticipated Supreme Court decision which was published in 2020.  The Law Commission has now recommended that there should be a statutory continuing duty to disclose circumstances which might reasonably give rise to justifiable doubts as to an arbitrator's impartiality. The Law Commission considers that the public interest in upholding the integrity of arbitration requires a duty to disclose, and that such duty should be codified in statute.  The duty will be based on what an arbitrator knows, as well as what they reasonably ought to know, but will not include a positive obligation for an arbitrator always to make inquiries. 

It is beyond doubt that disclosures are an essential part of ensuring that arbitrators are impartial and are perceived to be impartial.  Moreover, this requirement is not new, and arbitrators and parties alike are well versed in navigating disclosures and potential conflicts in international arbitration.  Nonetheless, there are at least two areas of concern surrounding this amendment.  First, specialist arbitral bodies are concerned that due to the limited pool of specialist arbitrators in their area and the number of parallel disputes that they often deal with, the statutory regime will be too restrictive.  Second, the legislation could lead to some arbitrators being inclined to over-disclose out of an abundance of caution, which in turn could lead to more objections and satellite litigation around the appointment of arbitrators.  Time will tell whether the number of disclosures and challenges to arbitrators increase as a result of the new statutory duty.

5. Arbitrator immunity

The Act currently provides that an arbitrator is not liable for actions or omissions while they are performing their role unless they have acted in bad faith (s.29).  This is an important provision that preserves the integrity of the arbitral process.  The Law Commission wished to explore whether immunity should be extended further, to liability arising from an arbitrator leaving their post – either by resignation or removal.  The Law Commission has put forward two reforms, the effect of which is to strengthen arbitrator immunity where an arbitrator resigns or is removed.  

In the case of arbitrator resignations, the burden will no longer be on the arbitrator to establish that he or she has acted reasonably, but on the party seeking to recover against the arbitrator to establish that the arbitrator acted unreasonably.  This is a sensible change that leaves the court to determine what constitutes a 'reasonable' resignation.  In the case of removal of arbitrators by the court, the recommendation is that an arbitrator will only incur liability in respect of the costs of applications to remove them if they act with bad faith.  This reform gives parties and arbitrators certainty, through alignment with the general rule on immunity in s.29.

Importantly, the Law Commission decided not to reform the law by providing blanket immunity to arbitrators that resign or are removed.  While such a reform would have allowed arbitrators to act more freely without concern of personal liability, it may have encouraged an increase in disruptive behaviour by arbitrators.

6. Powers of the court in support of arbitral proceedings

S.44 of the Act provides that the court has the power to make orders in support of arbitral proceedings.  While it is clear that such orders can be made against arbitral parties, clarity was required – and has now been provided – that orders can also be made against third parties.

The Law Commission decided, however, not to amend s.44 to make it clear that an application to the court in support of arbitration proceedings can be made notwithstanding the availability of an emergency arbitrator procedure.  This misconception of some users of arbitration, it said, was not a basis for amending the Act, which is arguably already clear. 

Further, while the Law Commission decided not to include a scheme for emergency arbitrators in the Act or to make parts of the Act applicable to emergency arbitrators, the Law Commission has made a recommendation on the enforcement of emergency arbitrator orders.  It suggests that the Act is amended to allow the courts to more easily assist with the enforcement of the order of an emergency arbitrator.  This provides greater clarity around the often discussed topic of the enforcement of emergency arbitrator orders. 

1. Discrimination

At a time when parties are increasingly conscious of ESG obligations and have clear diversity, equity and inclusion agendas, the question has arisen as to whether the Act should address discrimination in arbitration.  It is often contended that there is a lack of diversity in the arbitration community, which gives rise to questions around the risk of unconscious bias and unfairness.  Absent stronger legislative measures, it is unclear whether the mechanisms are in place for those concerns to be properly addressed.

A number of different proposals were explored by the Law Commission, in its first and second consultation papers. However, it ultimately reached the view, 'reluctantly', that further legislation to address discrimination will not improve diversity of arbitral appointments and could have the effect of encouraging disruptive satellite litigation and challenges to awards.  It suggests that the issue is already addressed, in large part, under professional conduct rules (applicable to legal professionals), s.33 of the Act (the requirement of arbitrators to act fairly and impartially) and the Equality Act 2010 (which may apply to arbitral institutions and to arbitration agreements in certain contexts).  It has also recognised that seeking to legislate to prohibit discrimination in the appointment of arbitrators by parties would be complex.

There are several voluntary schemes directed at increasing diversity in the English legal system and in international arbitration, such as the Women in Law Pledge, the Equal Representation in Arbitration Pledge and the Africa Promise.  They are perhaps better suited at driving change as they are aimed at pro-active steps towards improvement that can evolve with the times.  But this may be a missed opportunity to send a clear message to the users of arbitration in this jurisdiction that discrimination will not be tolerated and to identify more clearly the consequences of discriminatory behaviour.

2. Confidentiality

The Act does not currently provide for the confidentiality of arbitral proceedings.  Instead, the applicability of confidentiality in arbitration in England & Wales is determined by the common law and the applicable arbitral rules.  The Law Commission has consulted on whether to introduce a duty of confidentiality into the Act.

It has concluded that there should not be a default position of confidentiality in all cases of arbitration, as one size does not fit all.  Given the varying approaches to confidentiality and the lack of certainty over the exceptions to it, the Law Commission believes that a statutory rule on confidentiality would not be able to be sufficiently comprehensive, nuanced or future-proof.

It is clear that confidentiality is an important feature of arbitration in England & Wales.  It is therefore disappointing that it has not been possible to provide for a duty of confidentiality in the Act.  The Law Commission has introduced a statutory duty for another important duty – the duty of arbitrator disclosure – and parties would have welcomed clarity in this area too.  Nevertheless, given the evolving nature of the law on confidentiality, the difficulty of a one-size-fits-all approach and the challenges of identifying a comprehensive list of exceptions and remedies, it cannot be a surprise that the Law Commission – like the committee that originally drafted the Act – has resisted a codification of confidentiality.

3. Appeals on a point of law

The consultation considered whether the current regime for an appeal on a point of law under s.69 of the Act should be reformed to make it more or less available.  The current regime requires parties to opt out if they do not wish to have the right to appeal on a point of law.  A number of the major arbitral institutions, including the ICC and LCIA, include an opt out in their rules on the basis that finality is important to commercial parties and the right to appeal on a point of law is inconsistent with the need for finality. 

Unsurprisingly, the view reached by the Law Commission was that the current regime is satisfactory and there is no need for reform.  This is welcome; while it is helpful to retain a mechanism to correct obvious errors of law, it should be possible for parties to limit recourse to the courts by agreement.  

The Arbitration Act 1996 has been around for a quarter of a century, and in that time has provided a sound and well-respected framework for arbitration in this jurisdiction.  Arguably, after 25 years, any legislation would be ripe for reconsideration, but whilst this consultation was therefore both timely and necessary, it is perhaps no surprise that the proposed changes are modest and limited to discrete areas only.  Now that the Law Commission has reached the end of its process, the next step will be to see whether there is the political will for the draft Bill to be put to Parliament before the next general election.