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The Arbitration Bill: Key Reforms to the Arbitration Act 1996

Case study - The Arbitration Bill: Key Reforms to the Arbitration Act 1996

Abstract: This article examines the key reforms to the Arbitration Act 1996 proposed by the Arbitration Bill, which was introduced into Parliament on 21 November 2023.

Introduction

On 21 November 2023, the Arbitration Bill (the “Bill”) received its first reading in Parliament. If  passed without major amendments, the Bill will introduce important changes to arbitration law in England & Wales. Given London’s central role in international arbitration, the impact of these reforms may reverberate globally.

In this article, we outline the key reforms proposed by the Bill and analyse their practical implications to arbitrators and to arbitrating parties in England & Wales.

Background

Contributing at least £2.5 billion[1] to the British economy every year, arbitration is a widely-embraced method for dispute resolution. With London serving as its international and domestic hub, maintaining a cutting-edge legal framework is vital to the capital’s standing within the realm of arbitration.

The legal framework of English arbitration is contained in the Arbitration Act 1996[2] (the “Act”). Shortly after the Act’s twenty-fifth anniversary, the Law Commission published two Consultation Papers[3] and later a Final Report[4], prescribing a series of amendments. This led to the introduction of the Arbitration Bill to Parliament, which is presently undergoing deliberation.

While the Law Commission discouraged wholesale reform, endorsing only “a few major initiatives” and “a very small number of minor corrections,” the proposed changes altogether are poised to modernise the landscape of English arbitration.

Reform 1. Summary Disposal procedure

Current law: The existing law implicitly allows arbitral tribunals to summarily dismiss issues under section 33 of the Act. In contrast, other jurisdictions explicitly recognise summary disposal (e.g. SIAC Rules r. 29[5] (“early dismissal”); SCC Rules 2023 art. 39[6] (“summary procedure”).

The absence of an express provision has led English tribunals to be cautious in exercising this authority, fearing challenges to their awards under section 68 for serious irregularities or failures to comply with their duty under section 33.

Proposed reform: In a bid to address this reluctance and establish a clear rule, the Bill proposes an express provision empowering arbitrators to make awards on a summary basis. The proposed standard for dismissal would align with the test of summary judgement in English courts i.e. the issue must have “no real prospect of success” (CPR 24.3(a)). Notably, this standard is more lenient than what many arbitral institutional rules prescribe, such as the LCIA Arbitration Rules 2020 art. 22.1(viii)[7] and ICSID Arbitration Rules 2022 r. 41[8] (“manifestly without merit”).

However, parties may elect for these higher standards, as the new provision in Act will be ‘opt out’.

Reform 2. Applicable governing law

Current position: Enka v Chubb [2020] UKSC 38[9] established that an express or implied choice of law to governing the main contract extends as an implied choice of law for the arbitration agreement. Alternatively, parties may agree that the law of the arbitration agreement be the law of the seat, provided they document this agreement in the arbitration clause or the arbitral rules (e.g. LCIA Arbitration Rules 2020 art. 16.4).[10] In the absence of a chosen law for the main contract or arbitration agreement, the latter would typically be governed by the law most ‘closely connected’, often the law of the seat.

The decision in Enka v Chubb could lead to a scenario where numerous agreements are governed by foreign law, particularly as many international contracts incorporate a foreign choice of law clause in the overarching contract.

Proposed reform: The Bill proposes introducing a default rule that designates the law of the seat as the governing law for the arbitration agreement, thereby reversing the Supreme Court decision of Enka v Chubb. This default would apply unless the partes expressly agree otherwise in the arbitration agreement itself. This aims to enhance simplicity and provide certainty on an issue that has been a subject of significant debate in recent years.

Reform 3. Scope of arbitrator immunity

Current position: The concept of arbitrator immunity upholds the idea that an arbitrator should not bear costs liability for substandard performance of their role. Section 29 of the Act stipulates that an arbitrator is protected from liability for any actions or omissions in the discharge of their functions, unless such acts or omissions are proven to have been in bad faith.

Proposed reform: The Bill seeks to bolster these provisions by specifying that arbitrators shall not be held liable for costs incurred in removal applications, unless their actions are deemed to be in bad faith. Additionally, arbitrators would be immune from losses resulting from their resignation, except in cases where the resignation is deemed unreasonable.

These proposed changes aim to alleviate concerns among arbitrators regarding personal liability, especially in situations where their resignation is justified or when the parties employ removal applications as a tactic to exert pressure.

Reform 4. Orders against third parties

Current position: The Act outlines the court’s powers in support of arbitral proceedings under section 44, e.g. “the preservation of evidence”(44(2)(b) and “the granting of interim injunctions” (44(2)(e)). However, there is inconsistency in case law regarding whether orders under section 44 can be issued against third parties (non-parties to the arbitration agreement or arbitral proceedings):

  1. In a line of cases in 2013, it was held that such orders can be made (e.g. Public Joint Stock Co Bank v Maksimov [2013] EWHC 3203 (Comm).[11]
  1. In a line of cases from 2014-2017, it was argued that such orders cannot be made based on a linguistic analysis of section 44 (e.g. Cruz City v Unitech Ltd [2014] EWHC 3704 (Comm);[12] DTEK Trading v Morozov [2017] EWHC 94 (Comm)).[13]
  2. The Court of Appeal recently held that such orders can be made under a different linguistic analysis of section 44, at least in some instances (A v C [2020] EWCA Civ 409).[14]

Proposed reform: The Bill aims to amend section 44 to expressly state that orders can be made against non-parties to the arbitral proceeding, mirroring the availability of equivalent orders in support of litigation.

There is uncertainty regarding the potential impact on third-party funding (TPF) in arbitration. Currently, the Act is silent on the disclosure of TPF. The reform proposes to clarify that arbitral parties must disclose TPF and that funders may be held liable for adverse costs orders made by the tribunal.

This raises the question of whether costs awards could be imposed on professional or other funders in arbitration. In court proceedings, professional litigation funders[15] are generally liable for adverse costs under Arkin v Borchard Lines Ltd and others [2005] EWCA Civ 655.[16] However, whether this applies to a broader range of funders in arbitration is yet to be determined.

Reform 5. Statutory duty of disclosure

Disclosure in this context is the notion that arbitrators should reveal to the arbitrating parties any circumstances which might jeopardise their impartiality or independence.

Current position: The duty for arbitrators to disclose potential conflicts of interest is not explicitly addressed in the Arbitration Act. However, this obligation is recognised in common law, e.g. the guideline case of Halliburton v Chubb [2020] UKSC 48.[17]

Proposed reform: The Bill proposes the codification of the common law principles laid down in Halliburton v Chubb, instituting a statutory duty for arbitrators to disclose any circumstances that could compromise their impartiality or independence. This reform surpasses the decision in Halliburton v Chubb by requiring arbitrators to disclose circumstances which they “ought reasonably to be aware of”, beyond what they might actually be aware of.

The rationale behind this expansion is to enhance the accessibility of the rule and extend its application to pre-appointment discussions. This approach aims to uphold the flexibility inherent in case law while ensuring a comprehensive and transparent framework for arbitrator disclosure.

CONCLUSION

The proposed reforms embedded in the Arbitration Bill signify a substantial shift. These amendments aim to modernise and streamline arbitration practices in England & Wales, reinforcing London’s standing as a global arbitration hub. The impact extends beyond national borders, with potential ramifications for the international arbitration landscape. As the Bill progresses through Parliament, stakeholders are urged to closely monitor its evolution and anticipate the transformative impact it could bring to the arbitration landscape.

If you have any questions about these updates, please reach out to our Dispute Resolution team at  baruch.baigel@asserson.co.uk or yisrael.hiller@asserson.co.uk.

 

 

 

 

[1] https://www.gov.uk/government/news/modernised-laws-to-secure-uk-as-world-leader-in-dispute-resolution

[2] https://www.legislation.gov.uk/ukpga/1996/23/contents

[3] https://lawcom.gov.uk/project/review-of-the-arbitration-act-1996/

[4] https://lawcom.gov.uk/project/review-of-the-arbitration-act-1996/

[5] https://www.international-arbitration-attorney.com/wp-content/uploads/2016/09/2016-SIAC-Arbitration-Rules.pdf

[6] https://sccarbitrationinstitute.se/sites/default/files/2023-12/scc_arbitration_rules_english_2023.pdf

[7] https://www.lcia.org/Dispute_Resolution_Services/lcia-arbitration-rules-2020.aspx

[8] https://icsid.worldbank.org/rules-regulations/convention/arbitration-rules/%20chapter-vi-special-procedures

[9] https://uk.westlaw.com/Document/IA247E7100ABD11EB910586C6D040FB0A/View/FullText.html

[10] https://www.lcia.org/Dispute_Resolution_Services/lcia-arbitration-rules-2020.aspx

[11] https://uk.westlaw.com/Document/IF5BF1EA03DCD11E39BE58FED8232992D/View/FullText.html

[12] https://uk.westlaw.com/Document/IAAE5A57069C811E493C59D52795C046E/View/FullText.html

[13] https://uk.westlaw.com/Document/I805BF4C0E49C11E6ACD0D2EBE84B6F77/View/FullText.html

[14] https://uk.westlaw.com/Document/IEAFFF0806A9311EA8710F7F39AE43147/View/FullText.html

[15] The criteria for ‘professional’ were outlined in Hamilton v Mohamed Al Fayed [2001] EWHC QB 389

[16] https://uk.westlaw.com/Document/I6718D8B0E42711DA8FC2A0F0355337E9/View/FullText.html

[17] https://uk.westlaw.com/Document/I41DAEAB030B211EB9020BC209D3E0125/View/FullText.html

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