Proposed changes to the Arbitration Act 1996: anything contentious?
The Arbitration Act 1996 (1996 Act) is now 25 years old, is well-established and has proven to be successful; industry estimates suggest that London is the world’s most popular arbitral seat. Nonetheless, the government is keen to ensure that the 1996 Act remains fit for purpose and has asked the Law Commission (the Commission) to carry out a review as to whether reforms are needed. The Commission issued a consultation on 22 September 2022 putting forward a number of proposed revisions to the 1996 Act to ensure that it remains at the cutting edge of international arbitration legislation (see below “Areas not requiring reform”).
In light of feedback from a wide range of stakeholders that major reform is neither needed nor wanted, the Commission is not proposing a radical overhaul or, for example, a wholesale adoption of the UNCITRAL (United Nations Commission on International Trade Law) Model Law. For many practitioners, the most welcome proposal will be the powers of summary disposal of issues that lack merit. If incorporated in the 1996 Act, this would finally give English arbitration one of litigation’s most powerful tools and potentially save parties to arbitration a great deal of time and money. Responses to the consultation must be submitted by 15 December 2022.
Independence and disclosure
The 1996 Act imposes a duty on arbitrators to be impartial but does not impose a duty to be independent; that is, to have no material connection with the parties. The Commission considered whether a duty of independence should be added but concluded that this would not be helpful since it is rarely possible for an arbitrator to be truly independent of the parties or the subject matter of the dispute, as many are nominated by a party or are chosen because of their extensive experience in the relevant field.
While the 1996 Act does not require an arbitrator to disclose connections that might be relevant to the arbitrator’s impartiality, English case law does (Halliburton Company v Chubb Bermuda Insurance Ltd  UKSC 48; see News brief “Bias in arbitration: duty to disclose appointments”, www.practicallaw.com/w-029-3480). The Commission proposes codifying this by amending the 1996 Act to provide that arbitrators have a continuing duty to disclose any circumstances that might reasonably give rise to justifiable doubts as to their impartiality, which would be a basis for removing an arbitrator (section 24, 1996 Act).
This is a sensible requirement and is already found in Article 12(1) of the UNCITRAL Model Law and various arbitral rules, such as rule 13 of the Singapore International Arbitration Rules. It is not an onerous requirement on tribunals and will give the parties greater confidence in the arbitral process by ensuring that they are kept updated on any circumstances that could call into doubt an arbitrator’s impartiality.
The Commission notes that, although arbitrators fall outside of the protections against discrimination that exist under English employment law, there are moral and economic reasons why discrimination is unacceptable and why equality is necessary. For example, while the diversity of arbitral appointments has improved, women still make up less than one-third of appointments. The Commission proposes that, unless requiring an arbitrator to have a protected characteristic is a proportionate means of achieving a legitimate aim in the context of a specific arbitration:
- The appointment of an arbitrator should not be susceptible to challenge on the basis of the arbitrator’s protected characteristics.
- Any agreement between the parties in relation to the arbitrator’s protected characteristics should be unenforceable.
Protected characteristics are those found in section 4 of the Equality Act 2010; that is, age, disability, gender reassignment, marriage and civil partnership, pregnancy and maternity, race, religion or belief, sex, and sexual orientation.
Parties may still appoint whomever they wish; the proposed change would simply prevent challenges to the appointment based on any protected characteristic. In some contexts, it may be appropriate for an arbitrator to have a particular characteristic, such as to be of a different nationality to the parties, as is the case under Article 6.1 of the LCIA (London Court of International Arbitration) Rules and Article 13(5) of the ICC (International Chamber of Commerce) Rules.
There is an argument that an English award might fail to be enforced under Article 5(1)(d) of the New York Convention on the basis that “the composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties”. However, this is unlikely where the parties have agreed to use London as a seat and, by extension, for the arbitration to be covered by the 1996 Act, and so have agreed to the unenforceability of any agreement as to the protected characteristic of an arbitrator.
Immunity of arbitrators
The 1996 Act currently provides that an arbitrator is not liable for anything done in the purported discharge of their function unless it is done in bad faith (section 29). However, this does not extend to when an arbitrator resigns, which they may do for good reason, such as a newly discovered conflict. In addition, this immunity does not apply where a party makes an application to court to remove an arbitrator, meaning that the arbitrator may be liable for the costs of the application, which could be significant and not covered by professional indemnity insurance.
The Commission seeks to enhance the immunity of arbitrators in order to prevent satellite litigation against the arbitrator by a disgruntled party. Accordingly, it proposes that the 1996 Act be amended to prevent arbitrators being liable for the costs of court applications or where they have resigned, unless perhaps where it is shown that their resignation is unreasonable. This change would not only protect arbitrators from disgruntled parties but would also stop parties threatening arbitrators with litigation in order to put them under undue pressure when making decisions.
Striking out weak claims and defences is a well-established procedure in the courts, and can save a great deal of time and costs. The 1996 Act arguably allows for this because section 33(1)(b) requires a tribunal to adopt procedures that avoid unnecessary delay and expense, and to decide all procedural and evidential matters subject to any agreement by the parties. However, because section 33(1)(a) of the 1996 Act creates a duty on arbitrators to act fairly and give each party a reasonable opportunity to put their case, they are usually reluctant to suggest or agree to a summary process.
The Commission proposes that the 1996 Act explicitly state that the tribunal may adopt a summary procedure to dispose of a claim or defence, although the parties can opt out of this. The threshold for a summary disposal should either be where a case is “manifestly without merit”, which is the wording used in the LCIA Rules, or to follow the English court formula of “no real prospect of success”.
While institutional rules, such as the LCIA Rules, have begun incorporating summary disposal processes, having this enshrined in the 1996 Act as a default provision could embolden arbitrators to use this mechanism and enable them to save parties significant time and costs. In terms of the test, using the English court formula of “no real prospect of success” may be the better option given the body of case law that exists to give guidance to arbitrators when applying that test.
Section 44 of the 1996 Act already gives the court power to make orders in support of arbitral proceedings, but two issues have arisen: whether the court can make orders against third parties, and whether these powers can be used if the parties have agreed a process for using an emergency arbitrator.
As for third parties, the Commission considers that, under the current law, the court can already make orders against third parties in the same way that it does in support of litigation cases. However, the Commission suggests that it may nonetheless be helpful for this to be made explicit in the 1996 Act.
Regarding emergency arbitrators, the Commission considers that the law already allows parties to seek court assistance even when the arbitral tribunal is constituted. However, the Commission suggests that the 1996 Act should be amended to empower the court to order compliance with an interim order by an emergency arbitrator, which would make the emergency arbitrator process more robust.
Under the 1996 Act, there are various ways that a party can challenge the substantive jurisdiction of the tribunal before the court. Under section 67 of the 1996 Act, a party can challenge a tribunal’s award regarding its substantive jurisdiction or an award on the merits of the case. The court will consider this without giving weight to the tribunal’s decision and it is essentially a full rehearing on the issue.
The Commission proposes that this process be changed so that, instead of a rehearing, any reference to the court is by way of an appeal.
This would mean that there would be no hearing of oral evidence or new evidence, only a review of whether the tribunal’s ruling was wrong. This change would prevent the issue of jurisdiction being argued over twice, first by the tribunal and then the court, and should therefore make the arbitral process more efficient.
There has also been a debate as to whether a tribunal can award costs if it determines that it does not have jurisdiction. The Commission proposes that the 1996 Act be amended to make it explicit that the tribunal can award costs in these circumstances.
Areas not requiring reform
The Law Commission (the Commission) considered a range of other topics but, on balance, concluded that any further reforms were unwarranted. For example, the Commission concluded not to review:
- Third-party funding, as many arbitral rules already require funding to be disclosed and parties can adopt them if they wish. In addition, issues of impartiality and disclosure are already being reviewed in the consultation.
- Artificial intelligence, as this is an emerging approach to arbitration and to legislate for it would be premature.
- Investor-state arbitrations, as these are mainly governed by the International Centre for Settlement of Investment Disputes (ICSID) Convention and the Arbitration Act 1996 (1996 Act) is disapplied.
- Data protection, as this better addressed through specific data protection legislation rather than having arbitration-specific data protection provisions.
- The control of delays, as the current regime under the 1996 Act seems appropriate.
The Commission also concluded that:
- The 1996 Act should not have any provisions addressing confidentiality, as not all types of arbitration should be confidential by default and the 1996 Act would have to provide exceptions that would be so generic that legislating would provide little guidance. The better approach is for the court to develop the law of confidentiality.
- The current position on appeals on points of law in section 69 of the 1996 Act provides a satisfactory balance between securing the finality of arbitration awards and enabling errors of law to be correct, therefore no reform of this area is needed.
This article was first published on PLC Magazine November 2022 edition.