England & Wales Law Commission Proposes Changes to the Arbitration Act

At a Glance

• The Law Commission recommended some initiatives and several “minor corrections” for the regime governing arbitration in England and Wales.
• The Ministry of Justice must get the bill through Parliament before the next general election (which must happen before January 2025) or these proposals may get lost in a flurry of new priorities by any future government.

The Law Commission of England and Wales has completed its long-awaited review of the Arbitration Act 1996. On 6 September it published its final report that set out its recommendations on how the regime governing arbitration in England and Wales should function (the “Report”).

As foreshadowed in our previous updates on the First and Second consultation papers released by the Law Commission, the consensus in the Report and from these consultations was “the Act works well, and […] root and branch reform is not needed or wanted.”

There are, however, a few initiatives and several “minor corrections” that were recommended by the Law Commission. All these possibilities were written about in the consultation papers, and we have discussed them previously. However, in the end the recommendations of the Law Commission are as follows:

• Arbitrator Independence and Disclosure: The Report suggests that the rule in Halliburton v Chubb [2020] UKSC 48 should be codified into law. This rule requires arbitrators who know (or ought reasonably to know) of circumstances that would or might give rise to doubts about their impartiality to disclose this fact. No recommendation was made on any statutory duty of independence of the arbitrators.
• Summary Procedure: The Report recommends a new summary procedure to decide issues that have no real prospect of success and no other compelling reason to continue to a full hearing.
• Governing Law of the Arbitration Agreement: The Report suggests a new default rule, where the parties can expressly choose the law of the arbitration agreement, but absent that choice, the law governing that agreement will be the law of the seat of arbitration (therefore simplifying the current common law rules as set out in Enka v Chubb [2020] UKSC 38).
• Arbitrator Immunity: The Report suggests that arbitrator immunity should be extended, so an arbitrator will have no liability if they resign (unless the resignation was unreasonable). They will also have no liability for costs if they are removed by way of an application.
• Jurisdiction: Section 67 of the Arbitration Act currently allows parties to challenge jurisdiction of the arbitral panel. These applications are seen as somewhat controversial, and the consultation papers spent a great deal of time discussing the proposed amendments. Where the Law Commission landed was that where an objection has been made that the tribunal lacks jurisdiction, and the tribunal has so ruled, then any further appeal would not get a full rehearing. The proposals say that the tribunal cannot consider any new grounds or evidence unless the grounds conceivably could not have been advanced at the first hearing, and that evidence should not be reheard unless it is in the interests of justice to do so.
• Other: There were various changes to section 44 of the Arbitration Act (giving third parties full rights of appeal in respect of any section 44 order), and new powers were given to emergency arbitrators.

There are some areas that the Law Commission consulted on but decided not to change. Perhaps most important of these is confidentiality. They decided that there should not be a default rule in favour of confidentiality, as the parties can already agree to make their arbitration confidential and there is no “one size fits all” solution to confidentiality. They also noted a trend towards transparency in arbitration.

Section 69 of the Arbitration Act allows for a party to appeal an arbitral award on a point of law. The Law Commission thought that this was a “defensible compromise” between promoting finality of awards and correcting blatant errors of law.

Finally, on discrimination in the selection of arbitrators, the Law Commission stated that although the intentions would be in the right place to introduce a prohibition on discrimination for choosing arbitrators, it could overshadow other antidiscrimination laws (such as the Equality Act 2010), and also offer further routes for challenging awards or other litigation, thus leading to greater uncertainty and effectiveness.

What’s Next?

The Report now sits with the Ministry of Justice, and it is up to them to try and bring any new legislation through Parliament. They must get the bill through Parliament before the next general election (which must happen before January 2025) or these proposals may get lost in a flurry of new priorities by any future government.