Remaining 'State of the Art' - Law Commission proposes limited reform to the Arbitration Act 1996

This article was co-authored by Martin McKenna, Trainee Solicitor, London.

The Law Commission (the Commission) has published its long-awaited recommendations to reform the Arbitration Act 1996 (the Act). For almost thirty years, the Act has provided a framework for arbitrations with London serving as a leading global venue for international arbitration.

Following two consultations (discussed in our previous article), the Commission’s final report provides targeted, albeit limited, recommendations to modernise the Act on areas that large swathes of consultees agreed with.

We consider below some of the notable recommendations from the final report for parties to commercial insurance arbitrations.

Governing law of arbitration agreements

In its most substantive recommendation, the Commission has acknowledged consultees find the current law, as set out by the UK Supreme Court in Enka Insaat ve Sanayi AS v OOO Insurance Company Chubb [2020], as “complex and unpredictable”. It recommends a new provision is added to the Act which would provide that the law which governs an arbitration agreement is: (1) the law that the parties expressly agree applies to the arbitration agreement; or (2) where no such agreement is made, the law of the seat of the arbitration in question. The Commission’s recommendation recognises that there is no conclusive argument in favour of its proposal but considers any concerns are outweighed by the potential gains from the proposal and the problems identified from the current approach.

This approach of clarity is welcomed along with further guidance that the recommendation only applies to arbitration agreements entered into after any amended Act comes into force.

Section 67 jurisdiction challenges

The Act provides under Section 67 that a party can challenge an arbitral award where they consider it made by an arbitral tribunal without jurisdiction. The Commission has recommended that where a Section 67 challenge is brought following a tribunal ruling on jurisdictional objections, the Court will not entertain any new grounds of objection or any new evidence, unless it could not have been put with reasonable diligence before the tribunal. The Commission’s recommendation goes further in that evidence should not be reheard save in the interests of justice.

Arbitrator immunity

The Act currently reflects the principle that an arbitrator should not incur liability if their performance is alleged to be below standard. In relation to resignation of arbitrators, the Commission recommends a new provision that an arbitrator incurs no liability for resignation unless the resignation is shown to be unreasonable. In this scenario, the burden of showing unreasonableness shall be on the complainant. With regard to the removal of an arbitrator, the Commission has recommended that an arbitrator should not incur a cost liability in respect of an application for their removal under Section 24 of the Act unless the arbitrator has acted in bad faith.

Independence of arbitrators

The Commission has not recommended any reform to independence acknowledging that “perfect independence is not possible”, which we consider is a broadly sensible conclusion.

The Commission recommend that the common law on disclosure is codified. The intention is to reflect Halliburton v Chubb [2020] where the Court found that arbitrators have a continuing duty to disclose any circumstances which might reasonably give rise to justifiable doubts as to their impartiality.

The Commission has not sought to exhaustively prescribe what needs to be disclosed; the recommendation instead relates to the general principle. The Commission does recommend that an arbitrator’s duty is expanded to include a duty of disclosure of any circumstances of which they are aware or ought reasonably to be aware .

Summary disposal

Section 33(1)(b) of the Act gives tribunals broad powers to manage proceedings, but does not include in explicit terms power for summary disposal in arbitration.

The Commission recommended, subject to the agreement of the parties to an arbitration, that an arbitral tribunal may, on the application of a party, issue an award on a summary basis. The Commission proposes that the parties are free to agree a threshold for summary disposal or to disapply the tribunal’s power to issue an award at all on a summary basis. If a threshold is agreed upon, the Commission would prefer that it be on the basis that there is “no real prospect of success”.

Other areas of review

The Commission has not made recommendations on issues such as confidentiality, discrimination and Section 69 concerning appeals on a point of law. It considers the Act in its current form is robust enough to deal with these areas following input from consultees.

As we have previously commented, with regard to confidentiality, we consider this is a missed opportunity to provide statutory certainty as to circumstances when a confidentiality obligation arises – which insurers would welcome.

Looking ahead

Whilst Lord Bellamy KC, Parliamentary Under Secretary of State in the Ministry of Justice, stated that the recommendations will be aimed to be responded to “shortly” by the government, it seems unlikely that reform will pass through Parliament for some time. A UK General Election is scheduled for no later than January 2025. Whether reforming the Act is a top priority for any government remains to be seen, although we may know more should it feature in the King’s Speech scheduled for 7 November 2023.

Related item: Law Commission proposes refinements to UK’s “best in class” Arbitration Act – implications for Bermuda Form insurers

Read other items in Commercial Brief - November 2023