Clifford Chance

Law Commission's final proposals for updates to Arbitration Act 1996

The Law Commission has released its final report on the Arbitration Act 1996 (the Act), setting out its proposals for limited reforms in a draft arbitration bill (the Draft Bill).

Background

The Law Commission has been reviewing the Act since January 2022, acknowledging from the outset the important role that the Act has played in maintaining London's position as a world-leading seat of arbitration. The Commission's proposals reflect the views of stakeholders that the Act required only relatively minor updates rather than a radical overhaul.

Key proposals

1. Governing law of arbitration agreement: Under the Draft Bill, for arbitration agreements entered into after an updated Act comes into force, the law governing the arbitration agreement will be (i) the law that the parties expressly agree applies to the arbitration agreement or, (ii) where no such express agreement is made, the law of the seat of the arbitration. An agreement as to the governing law of the matrix contract in which an arbitration agreement is located would not amount to an express choice of governing law of the arbitration agreement.

The proposal would reverse the default rule confirmed by the UK Supreme Court in Enka Insaat ve Sanayi AS v OOO "Insurance Company Chubb", which treats an express choice of the governing law of a matrix contract as an implied choice of governing law of an arbitration agreement contained therein (for more on the judgment, see our earlier briefing 'Supreme Court rules on law of arbitration agreement: implications of Enka v Chubb').

Initially the Commission had proposed that the default rule should remain unchanged. However, a significant number of consultees called for reform. They noted that the rule in Enka v Chubb would result in many arbitration agreements that provide for London-seated arbitration being governed by foreign law. English law, consultees argued, may be more favourable than other laws on matters of scope, arbitrability and separability. While the Law Commission's proposal has not been met with universal approval, it would at least provide certainty going forward. In any event, parties would remain free to make an express choice of the governing law of an arbitration agreement.

2. Section 67 (challenging the award: substantive jurisdiction): Currently, a challenge to an award brought under section 67 – on the grounds that a tribunal lacked substantive jurisdiction – entails a full rehearing of the matter which in turn can generate significant additional costs. A full rehearing is required regardless of whether the same issues were heard before the tribunal. Unsurprisingly, many consultees voiced dissatisfaction with the existing position.

The Commission proposes that a different approach be implemented through rules of court. Where an objection has been made to the tribunal that it lacks jurisdiction, and the tribunal has ruled on its jurisdiction, then in any subsequent section 67 challenge by a party who has taken part in the arbitral proceedings: (i) the court would not entertain any new grounds of objection, or any new evidence, unless it could not with reasonable diligence have been put before the tribunal; and (ii) evidence would not be reheard, save in the interests of justice.

3. Arbitrator disclosure of conflicts: The Draft Bill provides for the codification of arbitrators' continuing duty under common law to disclose circumstances which might reasonably give rise to justifiable doubts as to their impartiality (for more on the duty, see our earlier briefing 'Supreme Court clarifies test of arbitrator impartiality and arbitrators' duty of disclosure'). The duty of disclosure would be based on what the arbitrator 'ought reasonably to know'.

4. Summary disposal: A new provision would mean that, subject to the agreement of the parties, an arbitral tribunal may, on the application of a party, issue an award on a summary basis. A tribunal could dispose of an issue on a summary basis only where it deems that a party has 'no real prospect of success' on the issue. The rules of numerous leading arbitral institutions already include summary disposal procedures and the Commission's proposal in this regard is to be welcomed.

5. Section 44 (court powers exercisable in support of arbitral proceedings): Section 44 would be amended so that orders made under that section can be made against third parties (for example, an order in respect of the preservation of evidence). Third parties would have a right to appeal without requiring the court's consent which, by contrast, a party to arbitration must obtain.

While the Commission has proposed minor reforms in respect of other sections of the Act, it decided against proposing changes to section 69 (appeal on point of law) and including an express prohibition on discrimination in arbitration and a default rule on confidentiality.

Reflections and next steps

The Ministry of Justice will consider which of the Commission's proposals shall be placed before Parliament. Given the non-political nature of the matter, it is hoped that an Arbitration Bill will come before Parliament during 2024, before a UK general election is called. The Commission's proposals are a carefully considered attempt to enhance the Act, keeping in place the fundamentals that have contributed to London's success as a seat of arbitration, while refining certain aspects with a focus on efficiency and user experience. If implemented, the updates should help to secure London's position as a world-leading seat of arbitration.

The Law Commission's Final Report and other associated documents can be found here.