An analysis of the Law Commission's Review of the Arbitration Act 1996

After 25 years of the Arbitration Act 1996 (‘the Act’), the UK Government has asked the Law Commission to revisit it to determine if any amendments might be required in various areas, in light of the many years experience since the Act came into force.  An update of the Act ensures that it continues to be a solid foundation for domestic arbitration and positions the UK as a premier location for international arbitrations.

The Law Commission, having conducted its own research and spoken with stakeholders, on 22 September 2022 published a Consultation Paper outlining preliminary law reform proposals to modify the Act. Responses to the Paper can be submitted using an online form until 15 December 2022.

Although the Law Commission and the parties involved in the consultations agreed that the Act works well and that major reform is not necessary, a number of areas for potential development have been considered.

Confidentiality

Confidentiality applies in the context of arbitration, for example, to things said during an arbitral hearing or to documents submitted to substantiate a claim. Confidentiality would then limit who could repeat those things, to whom, and why.

As pointed out by the Law Commission, the Act does not explicitly include any provisions on confidentiality in arbitration. However, it could be said that arbitration in London is typically subject to an implied obligation of confidentiality. This implicit obligation will depend on the circumstances of the case. Whether the Act should codify the law of confidentiality in arbitration is a debated issue.

Although there were suggestions that the Act should provide a default rule that arbitrations are confidential, with a list of exceptions, the Law Commission’s view is that the Act should not seek to codify the law of confidentiality as the law of confidentiality can be better developed by the courts on a case by case basis. The Law Commission suggests that codifying the law would be of little use in practice and would not improve the already effective confidentiality regime.

Arbitrator Independence

In broad terms, independence is the idea that arbitrators should have no connection to the arbitrating parties or the dispute.

Although the Act contains, in section 33, a duty of impartiality on arbitrators, it does not impose a duty of independence on arbitrators. However, in other jurisdictions, laws and arbitral rules impose an additional duty of independence on arbitrators. The Consultation Paper considers whether also the Act should impose an explicit duty on arbitrators to be independent. The Law Commission’s provisional conclusion is that a duty of independence is ‘not practicable’ in many areas of arbitration and it is more important for arbitrators to be impartial.

Arbitrators are required by English law (i.e. in Halliburton Co v Chubb Bermuda Insurance Ltd [2020] UKSC 48), to disclose any circumstances that could reasonably give rise to justifiable doubts as to their impartiality. The Law Commission’s proposal is to codify this key case law instead and impose an explicit continuing duty on arbitrators to disclose to the parties any information that may reasonably give rise to justifiable doubts as to their impartiality. This is a demonstration of good faith that enables the parties to decide for themselves if the arbitrator seems to be impartial.

Immunity of Arbitrators

In the Consultation Paper, the Law Commission highlights the significance of strengthening the immunity of arbitrators (section 29 of the Act). This supports the finality of the dispute resolution process and the impartiality of arbitrators. If arbitrators are worried about legal action from parties who are not satisfied with their decisions, their impartiality may be compromised. Also, the Consultation Paper refers to case law that held that arbitrators can be liable for the costs of applications to remove them, even if the party making the applications is unsuccessful. In light of this unfavourable case law, the Law Commission’s provisional proposal is that case law holding arbitrators potentially liable for the costs of court applications should be reversed. The Law Commission also seeks responses from consultees on whether arbitrators should be held liable for resignations at all or only when it can be proven that the resignation was unreasonable.

Summary Disposal   

A clear distinction between arbitration and litigation in the England and Wales courts is the lack of a clear path in arbitration to the summary disposal of bad claims and defences. According to section 33(1)(b) of the Act, the arbitral tribunal must adopt procedures that prevent unnecessary delay and expense. However, there is no explicit provision that states that proceedings should be dismissed early when they are without merit. Additionally, some arbitrators are unwilling to adopt a summary procedure, for fear that their decision may be contested in court. In fact, arbitrators are also under a duty under section 33(1)(a) of the Act to act fairly and give each party a fair chance to present their case. Otherwise, an arbitrator’s rulings can be challenged for serious irregularity.

The Law Commission proposes to amend the Act to expressly allow arbitrators to summarily dispose of a claim or defence in order to save on time and expenses of the arbitration and therefore improve efficiency. Such an express provision could reassure arbitrators that, under the appropriate circumstances, a summary procedure can be fair. The Law Commission thinks it should be open to an arbitrator who receives a request for summary disposal to consider the more appropriate procedure to follow, whether an expedited or a full procedure. Moreover, the provision would be non-mandatory, allowing parties to exclude it from their arbitration agreements.

Jurisdictional Challenges to Arbitral Awards 

When a party contests the jurisdiction of an arbitral tribunal under section 30 of the Act, unless otherwise agreed by the parties, the tribunal is competent to rule on its own jurisdiction. However, under section 67, if a party is not satisfied with the award on jurisdiction issued by the tribunal, it can be challenged before the Court. Currently, case law (e.g. Dallah v Pakistan [2010] UKSC 46) provides that the applications to the Court to challenge arbitral awards on jurisdiction entail a full rehearing. The Court, therefore, re-hears the arguments and evidence on the jurisdiction but does not take into consideration the tribunal’s decision.

In the Consultation Paper, the Law Commission considers whether the jurisdictional challenge to arbitral awards under section 67 should be by way of a rehearing instead of an appeal. The Law Commission favours appeal as it considers the potential unfairness of a full rehearing. In fact, a party can first challenge the jurisdiction before a tribunal, receiving comments on the deficiencies of the arguments and evidence produced, and then decide to challenge the tribunal’s award before the Court. During the full rehearing before the Court, the party can develop new and improved arguments (considering the tribunal's previous observations) and introduce new evidence.

Moreover, as also observed by the Law Commission, a full rehearing might mean reduplication, which results in delays and increased costs. Conversely, if a tribunal's decision on jurisdiction is challenged in the court as an appeal rather than a rehearing, the court will not be able to hear oral arguments or fresh evidence and will instead be limited to reviewing the tribunal's decision and allow the appeal only where the tribunal’s ruling was wrong. In the Law Commission’s view, this seems to be the most sensible approach to adopt to avoid the hearing before the arbitral tribunal becoming ‘nothing more than a dress rehearsal’.

Appeals on Points of Law

Under section 69 of the Act, parties, in limited circumstances, can appeal to the court if they believe the tribunal in making a decision erred on a question of law. Although there have been some suggestions to repeal section 69 as it would aid the finality of arbitral awards, the Law Commission’s view is that section 69 does not need to be changed. It considers that section 69 as it stands provides a fair compromise between preventing unreasonable challenges and allowing for an error of law to be corrected so the law is applied consistently. The Law Commission in the Consultation Paper points out that as a percentage of total arbitrations, section 69 is rarely invoked (in less than 1% of cases seated in England). However, the number of section 69 applications being heard by the Court is sufficient, in the Law Commission’s view, to provide sufficient opportunity for useful judicial pronouncements on points of law. Moreover, section 69 is non-mandatory, thus the parties can opt-out of this provision in their arbitration agreements.

In summary, although the Act has stood the test of time, there is a need to update it to ensure it remains “state of the art”. The proposals of the Law Commission are not major but focus on aspects such as summary disposal of issues or arbitrator impartiality that may need development. Arbitration is an important form of dispute resolution and its use has increased since the implementation of the Act. The Law Commission’s proposals may help to further refine the Act to help reinforce the significant role that arbitration plays in the current legal system.  The Law Commission’s proposals remain provisional until the end of the consultation period (15 December 2022) and its final report is likely to be published in mid-2023.

Khizar Arif, a partner, having initially been called to the Bar of England in 2001, Khizar was then admitted to the Roll of Solicitors, attaining Higher Rights of Audience shortly thereafter. He holds a Master of Laws degree (LL.M.) focused on international business and maritime law from the University of Hamburg, Germany.

He has a distinguished reputation for complex cross-border commercial work, commodities trade and shipping disputes, property, construction, contract, intellectual property, technology, media and employment law.  

Khizar has a defamation practice that includes online publication claims, along with privacy, harassment, human rights and data protection cases. He acts for claimants and defendants, and he has represented a range of clients including high-ranking public and ‘politically exposed’ individuals, 

Khizar, who regularly appears in the County Courts and the High Court, advises on all aspects of dispute resolution and litigation, from pre-action stage to settlement or trial through to enforcement. He helps clients in informal negotiations and, if appropriate, on alternative dispute resolution methods such as mediation and arbitration.

He has extensive expertise in the marine and shipping sector. Khizar is a member of the Solicitors’ Association of Higher Court Advocates, the London Shipping Law Centre and the Deutscher Verein für Internationales Seerecht.

If you would like to know more about how arbitration can assist in a cross-border dispute please contact Khizar's clerk Sam Groom on SG@giambronelaw.com  or please click here