Update on the Arbitration Bill

The King’s Speech last month re-introduced the Arbitration Bill into the UK’s legislative agenda. The bill had been launched in November 2023, but its passage through Parliament ended when Parliament was dissolved prior to the recent general election. The bill is currently at the committee stage in the House of Lords.

The November 2023 bill followed two public consultations by the Law Commission and the Law Commission’s report on the Arbitration Act 1996. The background briefing notes to the King’s Speech provide that the bill is intended to “enable efficient dispute resolution, attract international legal business and promote the UK’s economic growth.”

It expects to do this through amendments to the Arbitration Act 1996, such as clarifying the law applicable to arbitration agreements, strengthening arbitrator immunity around applications for removal, introducing a power for arbitrators to dispose summarily of issues without a real prospect of success, and revising the framework for challenging decisions based on the arbitral tribunal lacking jurisdiction.

The key changes to the Arbitration Act 1996 to be made by the bill include:

• The legal system governing an arbitration: Where the parties have not expressly set out the law applying to their arbitration agreement, the law of the “seat” of the arbitration (that is, the place where the arbitration is deemed to occur as a matter of law) will be the applicable law to the arbitration agreement, save for arbitration agreements derived from standing offers to arbitrate contained in treaties or non-UK legislation.
• Impartiality: Arbitrators will have a continuing duty to disclose any circumstances that might reasonably give rise to justifiable doubts as to their impartiality.
• Emergency arbitrators: Currently, there is no provision addressing the scenario where emergency arbitrators are appointed on an interim basis, where the arbitral tribunal has not yet been formed but there is an urgent matter that needs to be heard. The bill empowers a court to enforce peremptory orders issued by emergency arbitrators, and for emergency arbitrators to have the same power as normal arbitrators to give parties the permission to apply for court orders.
• Challenging the arbitral tribunal’s award: The Arbitration Act 1996 currently allows a party to apply to the court to challenge an arbitral tribunal’s award on the basis that the tribunal lacked substantive jurisdiction (for example, if there was not a valid arbitration agreement, or if the arbitral tribunal was not properly constituted). The bill provides for a procedure to be followed in these cases – for example, regarding the evidence that a court would consider. The bill also clarifies the date from which the 28-day time limit begins to run for challenging an arbitral award on the basis of a lack of substantive jurisdiction, serious irregularity, or on a question of law.
• Immunity and the removal of arbitrators: Parties to arbitral proceedings may apply to the court to remove the arbitrator in certain circumstances – for example, if there are justifiable doubts as to the arbitrator’s impartiality. The bill states that an arbitrator will not have to pay costs of court proceedings relating to the arbitrator’s removal unless the arbitrator has acted in bad faith. This reasserts arbitrator immunity (arbitrators are not liable for anything done or omitted in the discharge of their functions unless the act or omission was in bad faith; this is so that arbitrators can make robust and impartial decisions).
• Summary disposal: Arbitral tribunals will be able to make an award on a summary basis in relation to a claim or issue, if the tribunal considers that a party has no real prospect of succeeding on that claim or issue.
• Preliminary points of jurisdiction or law: Under the Arbitration Act 1996, parties to arbitral proceedings can apply to court for determination of questions of law or questions about the substantive jurisdiction of the tribunal. Such applications are currently only considered if all the parties agree, the tribunal gives permission, and if certain procedural requirements are satisfied (for example, that the court is satisfied that the determination of the question is likely to produce substantial cost savings). The bill simplifies this procedure, so that applications to court require only the parties’ agreement or the tribunal’s permission, and not these further procedural requirements.

The reforms are expected to have a positive impact on the UK’s arbitration landscape by strengthening the UK’s arbitration market, which is worth £2.5 billion to the British economy per year. According to Parliament, “the aim is to fulfil the policy objective of ensuring the Act is fit for purpose and that it continues to promote the UK as a leading destination for arbitrations”. 

The re-introduced bill replicates the provisions of the previous bill and takes forward all the reforms recommended by the Law Commission, save in respect of the provisions clarifying the law applicable to arbitration agreements. The previous bill had provided that where parties have not expressly agreed otherwise, the law governing an arbitration agreement will be the law of the seat of the arbitration. The new bill clarifies that this new default rule does not apply to arbitration agreements derived from standing offers to arbitrate contained in treaties or non-UK legislation. The reasoning for this revision was based on sector feedback that such arbitration agreements “are, and should continue to be, governed by international law and/or foreign domestic law.”

The bill’s re-introduction into Parliament is a positive development, and its enactment will follow recent updates to the arbitration frameworks in jurisdictions such as Singapore, Hong Kong, Sweden, and Dubai.