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This article was co-authored by Martin McKenna, Trainee Solicitor, London.
Arbitration, as a form of dispute resolution, remains a key part of the UK legal services market. According to the Law Commission for England and Wales (the Law Commission), there are an estimated 5,000 domestic and international arbitrations in England and Wales every year contributing at least £2.5 billion to the economy.
The Law Commission’s Final Report, published on 6 September 2023, set out its recommendations to reform the Arbitration Act 1996 (the Act). Its recommendations, which are expected to be enacted into law soon, aim to ensure that the arbitration regime in England and Wales remains best in class against increasing competition from other jurisdictions.
We consider below the current state of arbitration as a method of dispute resolution, current drawbacks and recent developments ahead of upcoming change.
Current status
Arbitration confers many advantages including confidentiality, finality (there being limited scope to appeal or overturn an arbitral award), control over procedure and neutrality, especially where the alternative to arbitration is to litigate in a dispute in a jurisdiction susceptible to corruption. It is particularly effective within a supportive jurisdiction. Parties to arbitral proceedings brought in England and Wales, and which are governed by the Act, have access to a legal toolkit of remedies before the courts which serve to promote the efficient and effective conduct of the proceedings.
England and Wales, and especially London, serves as a leading global centre for resolving disputes. However, it faces increasing competition from other jurisdictions that have recently reformed their own arbitral regimes, including Hong Kong, Singapore, Sweden and the UAE. The Law Commission is mindful of the danger of complacency and has proposed targeted reforms to the Act to ensure that the English arbitration regime remains best in class.
Targeted reform underway
The Law Commission has provided limited but targeted recommendations to reform the Act, a summary of which can be found in our previous article. Its main recommendations involve (i) providing clarity on the governing law of arbitration agreements; (ii) the circumstances in which new grounds of objection or new evidence can be adduced following a s.67 challenge to a tribunal’s jurisdiction; and (iii) new provisions concerning arbitrator immunity.
The Bar Council recently welcomed the Law Commission’s proposals stating that “London has a well-deserved reputation as the foremost centre for international Arbitration. It is important to legislate to make the modest changes to the arbitration regime which the Law Commission has recommended in order to maintain and enhance that reputation”.
The UK Government has quickly acted on this by including the Arbitration Bill as part of the King’s Speech on 7 November 2023. The Bill seeks to implement reform and modernise the framework to support arbitration in England, Wales and, subject to the agreement of the Northern Ireland Department of Justice, Northern Ireland.
Issues remain
Whilst these reforms will undoubtedly bolster the arbitration process, the recent case of Federal Republic of Nigeria v Process & Industrial Developments [23.10.23] has highlighted areas where the integrity of the arbitration can be vulnerable. In an extraordinary case in which the court observed that “the Tribunal did not have the assistance that it was entitled to expect, and which makes the arbitration process work”, an arbitral award of US$11 billion was overturned on the basis of a rare successful challenge under s.68 of the Act. The court held that the claimant had, via various acts of dishonesty, ensured that no effective defence was mounted to the claim. This constituted a serious irregularity in the conduct of the proceedings and therefore rendered the award invalid.
In his judgment, the Hon. Mr Justice Knowles CBE included commentary on arbitration as a process generally, particularly in relation to disputes of extremely high value or those involving sovereign states. He stated that “the risk is that arbitration as a process becomes less reliable, less able to find difficult but important new legal ground, and more vulnerable to fraud. The present case shows that having … a tribunal of the greatest experience and expertise is not enough”.
The court questioned whether the Tribunal could have “been more direct and interventionist” or “taken the initiative to encourage exploration of new bounds of contract law and the law of damages that today may be required where major long term contracts are involved”.
As this judgment was handed down following the Law Commission’s recommendations for reform, it serves as a timely reminder that the proposed reforms, whilst helpful, cannot be considered perfect to address all issues that remain for the work of an arbitral tribunal and the process of arbitration generally.
Looking ahead
Following the recent King’s Speech confirming the UK Government’s mandate to press ahead with reform, the Arbitration Bill was swiftly presented to Parliament on 21 November 2023. With a UK General Election scheduled for no later than January 2025, and other draft Bills competing for the Government’s attention, whether the Bill remains a top priority as we enter 2024 remains to be seen. We shall continue to track the Bill’s passage through Parliament.
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