The UK Law Commission is currently undertaking a review of the Arbitration Act 1996, the principal legislation governing arbitrations in England, Wales, and Northern Ireland, to ensure it is as “clear, modern, and efficient as possible.” It set out its key proposals for this goal in a recent consultation paper.
In the 25 years since its enactment, the Arbitration Act 1996 (the Act) has helped make London one of the leading destinations for commercial arbitrations and reinforced the preeminence of English law as a choice of law for commercial parties, both domestic and international.
As noted in our previous LawFlash, the goal of the UK Law Commission’s review is to ensure that the Act is as “clear, modern and efficient as possible.” This goal is vital, given that the Act provides the framework for the approximately 5,000 domestic and international arbitrations taking place in England & Wales every year, which are estimated to contribute at least £2.5 billion to the UK economy.
On 22 September 2022, the UK Law Commission published a consultation paper setting out its provisional proposals for reform of the Act. As might be expected for such an important piece of legislation, no root-and-branch reform of the Act is proposed. Instead, the Law Commission focuses on updating and refining key provisions of the Act to ensure that it remains relevant in the 21st Century and accounts for recent forms made by competing jurisdictions.
Section 33(1)(b) of the Act requires tribunals to adopt procedures that avoid unnecessary delay and expense, and gives tribunals the power to decide all procedural and evidential matters. It is arguable that contained within this provision is a power for tribunals to summarily disposal of unmeritorious claims.
However, Section 33(1)(a) of the Act requires tribunals to act fairly and to give each party to an arbitration a reasonable opportunity to put forward their case. Because of this, and the risk of serious irregularity challenges being brought by parties pursuant to Section 68 of the Act, the Law Commission notes that some arbitrators have expressed reluctance to summarily dispose of claims (despite indications from the English High Court in Travis Coal Restructured Holdings LLC v Essar Global Fund Ltd [2014] EWHC 2510 (Comm) that summarily disposing of a case may in certain instances be compatible with an arbitrator’s duty of fairness).
To address this, the Law Commission proposes a new non-mandatory provision that will allow tribunals to adopt a summary procedure whereby tribunals will be empowered to summarily dismiss claims that lack legal merit without holding a trial or “merits hearing.” The purpose of this provision would enhance the efficiency of arbitration, allowing tribunals to deal expeditiously with unmeritorious claims (or even unmeritorious defences to obviously meritorious claims) with less concern for successful Section 68 challenges.
The Law Commission proposes that the use of this summary procedure would require an application to be made by one of the parties, and that the specific procedure for any hearing of such an application would vary according to the circumstances of the case and determined by tribunals in consultation with the parties.
The Law Commission identifies two options for the threshold test that will be used to determine whether claims should be summarily dismissed:
The Law Commission asks consultees which option they prefer. It should be noted that the “real prospect of success” threshold is currently used for applications for summary judgment in English litigation, as per CPR 24.2. Accordingly, the adoption of this option may provide tribunals with the benefit of extensive judicial commentary from existing case law, providing greater clarity for parties assessing the prospects of applications for summary dismissal in commercial arbitrations.
As explained in our previous LawFlash, the Law Commission’s proposal follows the decision of several leading arbitral bodies—including the London Court of International Arbitration (LCIA) and International Centre for Settlement of Investment Disputes (ICSID)—to incorporate a summary dismissal power. Its incorporation into the Act would be a world-leading development, considering that summary disposal is not currently a common feature of foreign arbitration legislation.
Commercial parties are, in broad terms, likely to consider this to be a welcome proposal, on the basis that it will (i) increase the options for parties facing unmeritorious claims or defences; and (ii) reassure courts tasked with determining whether an arbitral award should be enforced that a proper process has been followed. It may also provide tribunals with confidence to grasp the nettle with respect to particularly unmeritorious claims or defences, with which all arbitration practitioners are likely familiar.
The Law Commission proposes to strengthen the immunity of arbitrators. Currently, arbitrators may incur liability (and associated costs, which can be significant) when they resign from the tribunal, or if an arbitral party makes an application to the English courts that impugns an arbitrator. The Law Commission notes that these costs are often not covered by professional indemnity insurance.
Both potential liabilities may unduly influence the impartiality of arbitrators. Accordingly, the Law Commission proposes reversing existing case law (which it describes as “problematic”) that holds arbitrators potentially liable for the costs of court applications made by arbitral parties that seek to challenge an arbitrator’s decision. The Law Commission also asks consultees whether arbitrators should incur liability for resignation at all, or alternatively only in circumstances where the resignation can be shown to be unreasonable.
These are practical proposals that are intended to and should support the impartiality of arbitrators. These proposals may also support the finality of arbitral decisions by reducing the incentive for parties that are disappointed by an arbitrator’s decision to pursue satellite litigation.
Unless otherwise agreed by the parties, the English courts have the same power to make orders in support of arbitral proceedings in relation to the following matters (listed in Section 44(2) of the Act) as they do in relation to domestic litigation:
The Law Commission proposes clarifying the circumstances in which these orders can be made. In particular, the Law Commission proposes clarifying when court orders in support of arbitration proceedings can be made (i) against third parties, and (ii) when arbitral parties have also agreed to a regime that provides for the appointment of an emergency arbitrator.
Court Orders Against Third Parties
The English courts are able to make orders against third parties in relation to the matters listed in Section 44(2) to the extent that they can do so in the course of domestic litigation. In litigation, the rules governing the making of orders against third parties differ depending on the purpose of the orders (i.e., to which of the Section 44(2) matters the request relates). The Law Commission is provisionally looking to confirm the ability of the English courts to make orders against third parties, and to make clear that the different rules and case law that currently govern the making of those orders in domestic litigation should be deemed imported in the respect of an arbitration.
Accordingly, court orders against third parties should be governed in domestic proceedings and arbitral proceedings in the same way. The Law Commission notes:
The law relating to domestic legal proceedings, in respect of those matters listed in section 44(2), is necessarily nuanced, and it is evolving. It may or may not be more complex than we would like. Nevertheless, section 44 does not evaluate or moderate that law; it merely imports it. This keeps the law in arbitral proceedings up-to-date and aligned with the law in domestic legal proceedings.
Emergency Arbitrators and Court Orders
The concept of appointing an emergency arbitrator did not exist at the time the Act was first drafted. For this reason, it is appropriate and welcome that the consultation paper now addresses how this innovation should be incorporated.
Emergency arbitrators are used in situations where the parties have agreed to arbitration, and where an urgent matter (such as the preservation of evidence) arises prior to the arbitral tribunal being fully constituted. In these circumstances, some arbitral rules permit parties to apply to the relevant arbitral institution to appoint an emergency arbitrator, who will be tasked with addressing those urgent matters.
Unlike the approach taken in other jurisdictions (such as Singapore), the Law Commission provisionally concludes that it would be inappropriate for the entirety of the Act to apply to emergency arbitrators (for example, the Law Commission considers that the rules on the appointment of arbitrators are unsuited to emergency situations).
However, the Law Commission proposes that parties should be able to seek the assistance of the English courts despite having agreed on the availability of an emergency arbitrator regime if one of the following requirements of Section 44 of the Act is met:
Currently, there is a further requirement that must be met: Section 44(5) provides that, notwithstanding whether Section 44(3) or Section 44(4) is satisfied, the English courts may only act if or to the extent that the tribunal—or other relevant person—has no power or is unable to act effectively for the time being. The Law Commission proposes repealing Section 44(5) of the Act on the basis of redundancy, given that a clear and narrow set of circumstances in which the English courts can act is already articulated elsewhere in Section 44.
In making this proposal, the Law Commission seeks to end the arguable lack of clarity about whether parties could apply to the English courts for assistance under Section 44(5), attributable to the English High Court decision in Gerald Metals v Timis [2016] EWHC 2327 (Ch) that is sometimes perceived as having precluded such applications where an emergency arbitrator has been appointed. Its proposal would demarcate more clearly when parties are able to seek interim relief from the English courts in circumstances where an emergency arbitrator has been appointed.
Section 69 of the Act currently permits a party to appeal to the English courts on a point of law, but only in limited circumstances. The Law Commission does not propose any reform of the Section 69 regime, despite competing suggestions made by certain commenters that Section 69 of the Act should be (i) repealed to support the finality of arbitral decisions or, alternatively, (ii) expanded to ensure arbitral decisions can be more readily tested at court.
The Law Commission’s decision not to propose a reform to Section 69 is largely unsurprising, given the competing views among commenters and the need to strike what the Law Commission describes as a “defensible compromise” between those views. Further, it is worth noting that Section 69 is generally not widely invoked and that it is a non-mandatory provision of the Act that can be excluded by prior agreement of the parties. However, the Law Commission accepts that this point may need to be revisited if appeals on a point of law increase and appear to cause regular delays.
The Law Commission proposes the most significant reforms to the Arbitration Act 1996 since it came into force some 25 years ago. As explained by Professor Sarah Green, the Law Commissioner for Commercial and Common Law, the Law Commission’s proposals are “designed to ensure that arbitration law is efficient, effective and responsive to modern developments [and look to] help the UK to consolidate its status as a global centre for international dispute resolution.”
Notwithstanding the proposals for changes to the Act identified in this LawFlash, the Law Commission has in many instances proposed to make no changes. For example, it has resisted suggestions to codify matters relating to confidentiality and to introduce a new duty of independence (as opposed to impartiality) on arbitrators.
The Law Commission’s desire to avoid making wholesale changes to the Act is unsurprising, given the Act is widely considered to be functioning effectively and—in the words of Parliamentary Under Secretary of State for Justice Lord Bellamy KC—is “internationally regarded as the gold standard of arbitration legislation.”
The proposals made in the consultation paper are provisional and subject to a formal consultation exercise. The Law Commission invites responses to the consultation paper from interested parties from 22 September 2022 to 15 December 2022.
If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following: