Law Commission issues final report on Reforms to Arbitration Act 1996

On 6 September, the Law Commission of England and Wales released its final report on the Arbitration Act 1996 (the “Act”). The report is the culmination of over two years of review, including two separate consultation papers. Ultimately, the Law Commission has recommended only six “major initiatives” for reform. Given the statute’s success and its ability to stand the test of time, most of the reforms are unsurprisingly relatively modest and the proposed bill accompanying the report is relatively short.

Key reforms include changing the default rule on the governing law of the arbitration agreement and limiting the scope of section 67 challenges for lack of jurisdiction. One of the most controversial decisions in the report, unchanged from its first consultation paper, is the Law Commission’s decision not to propose a default statutory rule that arbitrations are confidential. Perhaps the most surprising aspect of the report is the Law Commission’s decision not to propose statutory prohibitions on discrimination in arbitration, which represents a stark departure from its position in the second consultation paper. 

Law of the Arbitration Agreement

Questions about the law governing an arbitration agreement arise if an underlying contract stipulates a governing law, but it is unclear if the parties intended that law to also apply to the (separable) arbitration agreement. In these circumstances, English courts currently apply a series of principles set out by the Supreme Court in Enka v Chubb [2020] UKSC 38.

In the Law Commission’s view, the Enka principles are complex and can lead to unpredictable outcomes, which in turn creates unnecessary cost and delay. Further, the Law Commission expressed concern that the Enka principles may lead to many arbitration agreements being governed by a less arbitration-friendly foreign law, even when the parties opt for an English seat. 

Hence, the Law Commission has proposed a statutory default rule that the law governing the arbitration agreement will be the law of the seat of arbitration, unless the arbitration agreement expressly states otherwise. This amendment will increase certainty for parties, while still honouring their ability to expressly designate the governing law of their arbitration agreement. It also means that English courts overseeing English-seated arbitrations will more often be applying English law when interpreting and enforcing arbitration agreements.

Section 67 Challenge for Lack of Jurisdiction

Section 67 allows a party to challenge a tribunal’s jurisdictional ruling in the courts. Under current case law, the challenge takes the form of a full rehearing, even if the party objecting to jurisdiction already presented its supporting arguments and evidence to the tribunal during the arbitral proceedings.

The Law Commission felt that a full rehearing in these circumstances adds unnecessary delay and expense. Further, it was concerned that the party who opposed jurisdiction in the arbitral proceedings currently has the ability to raise entirely different jurisdictional objections and evidence in the court proceedings, essentially getting a second bite at the cherry or using the arbitral proceedings as a “dress rehearsal” for the court proceedings. 

Thus, as a matter of both procedural efficiency and fairness, the Law Commission has proposed that power be given for new rules of court to be produced that would limit new jurisdictional objections under Section 67 challenges to those objections that could not have been brought before the tribunal. Further the proposal for court rules would limit the court’s rehearing of evidence to when it is necessary in the interests of justice.

Confidentiality

The Act is silent on the confidentiality of arbitration proceedings. Instead, whether a proceeding is confidential will depend upon a mix of contractual agreement, case law, institutional rules, and tribunal rulings. The Law Commission’s final report unequivocally rejected suggestions that the Act include a statutory rule that arbitration is confidential unless the parties agree otherwise. The Law Commission is of the view that confidentiality is not a “one size fits all” aspect of arbitration. For example, transparency is increasingly popular in certain arbitrations involving States and State-owned entities, and those dealing with issues in the public interest. Also, English case law on confidentiality continues to evolve, and the Law Commission feels it is not yet ripe for statutory codification.

Discrimination in Arbitration

In both of its consultation papers, the Law Commission proposed amendments intended to address the issue of discrimination in arbitration. In the first consultation paper, it proposed that the Act be changed so that any portion of an arbitration agreement requiring an arbitrator to have a protected characteristic be rendered unenforceable, unless that protected characteristic was a proportionate means of achieving a legitimate aim. In the second consultation paper, the Law Commission amended its proposal to say it will always be acceptable to require that an arbitrator have a “neutral nationality” from the parties to the dispute, even though nationality is a protected characteristic. The Law Commission also asked for additional comments on other potential amendments to address discrimination in arbitration more broadly, and potential remedies for discriminatory conduct.

In the final report, the Law Commission dropped all its recommendations relating to discrimination in arbitration. It changed position after consultees pointed out the potential negative consequences of a statutory ban on discrimination. For example, less than genuine parties could latch on to a prohibition on discrimination as a means to challenge a sound arbitration award, or an impartial tribunal member. Further, existing English law, such as the Equality Act, already invalidates discriminatory contractual terms. Professional conduct rules, such as those for barristers and solicitors, also already prohibit most forms of discrimination that could occur in an arbitration.

Other Reforms Considered and Rejected

Other reforms in the final report include an amendment that would impose a continuing duty on arbitrators to “disclose any circumstances which might reasonably give rise to justifiable doubts as to their impartiality.” This duty will apply not only to circumstances within the arbitrator’s actual knowledge, but to circumstances the arbitrator reasonably should know. For example, an arbitrator who practices in a firm might reasonably be expected to know of potential conflicts stemming from work undertaken by other attorneys at the firm.

The Law Commission also recommended amending the Act to clarify that, subject to party agreement, tribunals can issue an award on a summary basis.

The Law Commission rejected any reform to parties’ entitlement to appeal to the courts on a point of law, set forth in Section 69 of the Act. This, relatively unique, aspect of English arbitration procedure will remain available to parties, who still have the ability to opt out of Section 69 appeals either expressly in their arbitration agreement or implicitly based upon their choice of arbitral rules.

Next Steps

The Law Commission will present its recommendations and a draft bill to the government. The government will then decide whether to implement the recommendations and to introduce the bill into Parliament.