Arbitration Act 1996: working well, says Law Commission

The Law Commission recently published its anticipated final report on proposed amendments to the Arbitration Act 1996. Having received and considered extensive feedback, the commission found that “the Act works well” and that “root and branch reform” is unnecessary. This article briefly outlines the final proposals.

Codifying arbitrators’ duty to disclose

Arbitrators are under a common law duty to disclose any circumstances which might reasonably give rise to justifiable doubts as to their impartiality (Halliburton v Chubb).

The commission proposes to codify this duty, given its importance and international best practice. The amendment would also confirm that the requirement for such disclosure will be triggered by what an arbitrator knows or “ought reasonably to know”. Consequently, the arbitrator may be required to make reasonable enquiries.

Summary disposal

The commission proposes to expressly empower arbitrators to dispose of claims or issues summarily, provided that the parties did not agree otherwise.

The commission recommends that the threshold in this regard shall be the well-rehearsed “no real prospect of success”, which forms part of the test for summary disposal  that is applied in English court proceedings.

Governing law of an arbitration agreement

Arguments regarding the governing law of the arbitration agreement are a reliable source of “disputes about disputes”: should the governing law of the arbitration agreement be the law of the matrix contract or the law of the seat?

The current test is set out in the Supreme Court decision in Enka v Chubb, and asks which “system of law the arbitration agreement is most closely connected with”. This provides a “complex and unpredictable” approach. It may also render arbitration agreements to be governed by foreign law (even when seated in England & Wales).

In the interests of simplicity and certainty, the commission recommends that, absent express agreement between the parties, the governing law of an arbitration agreement shall be the law of the seat.

Orders against third parties

English courts can exercise powers in support of the arbitration. The extent to which such powers can be exercised against third parties is currently unclear. For example, in A v C, the Court of Appeal has held that orders for the taking of witness evidence can be granted against third parties, but did not expressly address the position as to the other powers that are available.

To address this uncertainty, the commission proposes to amend the relevant section of the Arbitration Act to provide that the court’s powers in support can be exercised in relation to the parties to the arbitration or any other person. As a corollary of that clarification, the commission recommends removing the current restrictions on a third party’s right to appeal against such decisions.

Challenging the jurisdiction of the tribunal

As it stands, if a party unsuccessfully challenges the jurisdiction of the tribunal before the tribunal, it may be able to bring that challenge again by way of a full rehearing in the English Court (under Section 67 of the Arbitration Act 1996). With no restrictions on new evidence or arguments, the concern is that the tribunal’s award (on jurisdiction, even if it also addresses the merits) is of no or little weight.

This raises important competing considerations including the tribunal’s competence to rule on its competence, the requirement for party consent to arbitration, and time and costs.

The Law Commission recommends that where an objection has been made to the tribunal’s jurisdiction (and the tribunal has ruled on its jurisdiction), then in any subsequent challenge under Section 67 the court will not entertain any new grounds of objection, or any new evidence, unless it could not with “reasonable diligence” have been put before the tribunal.  Evidence will not be reheard, save in the interests of justice. Unlike its other proposals, the commission proposes to implement this change through new rules of court.

Other changes

Other proposals include: (i) expanding the scope of arbitrator immunity; and (ii) strengthening the enforcement options in respect of orders issued by emergency arbitrators.

Comment

The proposed reforms aim to fine-tune the Arbitration Act to reflect case law and international practice that has evolved since 1996. The fact that extensive reform is not recommended demonstrates that the Arbitration Act has withstood the test of time. The proposed changes should therefore help ensure that England remains a popular home for international arbitration.

Mikhail Vishnyakov, partner, Julia Ogievetsky, senior associate, and Hazel He, associate, at Cooke, Young and Keidan.

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