REUTERS | Alexandre Meneghini

Refinement rather than reform: The Law Commission’s consultation paper on the English Arbitration Act

Last week, the Law Commission published its first consultation paper as part of its review of the Arbitration Act 1996 (the “Act”). The stated aim of the review has been to ensure that the Act remains “best in class”: an approach based upon fine-tuning, rather than root and branch reform. This is borne out by the consultation paper, which proposes relatively few changes. Nonetheless, the paper contains some notable and very welcome proposals for change and clarification, which we outline and comment on below.

Confidentiality

The Law Commission has provisionally proposed that the Act should not codify English law on confidentiality in arbitration, concluding that is an area best left to be addressed by the courts. The default rule that arbitrations are private and confidential is clear as a matter of English law, and the Law Commission has noted that it is difficult to articulate the exceptions to this rule. Any such codification would not necessarily be comprehensive or future-proof as the law of confidentiality is complex, fact-sensitive and a matter of ongoing debate.

This proposal is pragmatic. Although some stakeholders might be disappointed, the paper recognises the complexity of codification and balances that against the need to retain flexibility. This proposal also allows parties who prefer a more comprehensive regime of confidentiality to either include one in their arbitration clauses, choose institutional rules that already contain a confidentiality scheme, or ask a tribunal to address the matter at the commencement of the arbitration.

Arbitrator duty of disclosure

The consultation paper provisionally proposes that an express duty of independence should not be imposed upon arbitrators. It notes that arbitrators already have a continuing duty to disclose any circumstances which might reasonably give rise to justifiable doubts as to their impartiality under both the existing wording of section 24(1)(a) of the Act and case law (specifically Halliburton Co v Chubb Bermuda Insurance Ltd [2020] UKSC 48). The consultation paper distinguishes between the concepts of independence and impartiality, following the distinction drawn in the original Departmental Advisory Committee report on the Act: the rationale being that if an arbitrator is impartial, it should not matter whether they have a connection with the parties.

The decision not to include a duty of independence may surprise some, particularly non-English lawyers. Many may expect independence and impartiality to be inextricably linked, and consider that independence should be a requirement in order to sit as an arbitrator – regardless of whether it would have any impact on that arbitrator’s ability to be impartial.

The paper then asks stakeholders about codifying arbitrators’ duty of disclosure and specifically whether the Act should specify the state of knowledge required of an arbitrator to discharge their duty of disclosure. If yes, it asks whether that duty should be based upon an arbitrator’s actual knowledge, or also upon what they ought to know after making reasonable inquiries. The existing case law, as confirmed in the Halliburton case, already requires disclosure but is silent as to the state of knowledge behind that disclosure. It follows that if the Commission concludes that arbitrators are required to make reasonable inquiries, arbitrators, counsel, and parties will need to ensure that they have the systems in place to ensure that arbitrators can make those reasonable inquiries necessary to make their disclosure.

We also note that these proposals are currently silent as to what happens if an arbitrator fails to make the requisite disclosure. Pursuant to the existing case law, it is to be assumed that a failure to disclose could itself give rise to doubts as to the impartiality of the arbitrator and lead to a challenge, but that non-disclosure in itself may not necessarily be sufficient to found a successful challenge. This may be a somewhat unsatisfactory position.

Summary disposal

The consultation paper proposes that a new non-mandatory provision be added to the Act to allow an arbitral tribunal to adopt a summary procedure. It suggests that the threshold for adopting such a procedure should be that a claim, defence or issue has no real prospect of success, and there is no other compelling reason for it to continue to a full hearing. Given the recent adoption of summary procedures by a number of arbitral institutions, including the LCIA, this is a very welcome development. As the Law Commission explains, the intention is to remove any doubt as to the availability of this procedure under English law and reassure foreign enforcing courts that a proper process has been followed.

Although the Law Commission has proposed that this provision be non-mandatory in nature (that is, “opt in”), there are strong arguments that there is scope for it to be “opt out”. In other words, that it should apply automatically to all English-seated arbitrations unless parties expressly opt out of it. This would ensure that the provision is actively utilised, achieving the streamlining benefits to the arbitral procedure that parties, counsel, institutions and the Law Commission identify in summary procedure. Making it an “opt out” provision will facilitate the adoption of summary procedures since it will not always occur to parties to opt in to the procedure under the Act at the contract-drafting stage unless there is a provision in their chosen institutional rules. Arbitral institutions whose rules already provide for summary or early determination procedures will also need to consider whether they wish to amend their own rules in order to mirror the threshold specified in the Act, and whether, if the provision remains non-mandatory under the Act, their own provisions will then constitute an agreement that overrides the Act.

Section 44: Third parties

There has been a protracted debate about whether section 44 of the Act, which provides that the court has power to make interim orders in support of arbitral proceedings, applies to third parties. This has been exacerbated by case law which has led to ostensibly inconsistent conclusions on this question. In the paper, the Law Commission cites an initial line of cases which suggested that section 44 applied to third parties, but then confirms that the latest position, as per the most recent Court of Appeal decision in A v C [2020] EWCA Civ 409, is that “an order under section 44 can be made against third parties, at least sometimes“.

The consultation paper discusses the case law but recognises that as section 44 imports law from domestic legal proceedings, whether an order against a third party is available will depend on the particular order and applicable rules. The Law Commission, therefore, concludes that whether an order under section 44 can be made against a third party will flow from the wording of the Act and will vary according to the applicable domestic rules. Despite this steer, the Law Commission does not make an express proposal. Instead, it asks consultees whether it would be preferable to amend section 44 to confirm that orders can be made against third parties, requesting the consultees give an explanation as to their view.

Emergency arbitrators and the problem of Gerald Metals

The concept of emergency arbitration did not exist at the time that the Act was first drafted. It is no surprise, therefore, that the consultation paper looks at whether any updates are required to accommodate this innovation into the arbitration regime. The paper provisionally concludes that the general provisions of the Act should not apply to emergency arbitrators because it would not be appropriate for most of the Act to apply to them. Although only a couple of examples are given, this conclusion appears to be based on the fact that timescales for emergency arbitration are much shorter than for regular arbitration, and that it would not be appropriate to provide for court involvement in emergency arbitration given that it is supposed to be an independent alternative to court. This approach constitutes a departure from that of other jurisdictions such as Singapore, which has applied its entire legislative framework to emergency arbitrators.

The paper, however, recognises a need to support the emergency arbitration process. It assumes that an emergency arbitrator would issue an order rather than an award, and then suggests ways in which parties could enforce any order (either by the emergency arbitrator issuing a peremptory order which could be escalated to the courts (under a new provision) or by using the court’s supportive powers under section 44(4), which would need to be amended for this purpose). These are interesting suggestions, although they may not take into account the time pressure in the emergency arbitration process or how quickly the main tribunal can be constituted. The paper also does not address what happens if a party wishes to enforce the outcome of an emergency arbitration abroad, particularly where that emergency arbitrator issues an “award”. This is something which is a grey area under the New York Convention given it is unlikely that any award issued by an emergency arbitrator will be “final”. Under the proposed regime, the successful party would receive an order from the emergency arbitrator which could be converted into an English court order which would be enforceable in England but not necessarily elsewhere. Where any counterparty is abroad, this may pose enforcement challenges.

In the context of section 44, the paper also addresses the thorny issue of whether the existence of emergency arbitrator provisions in institutional rules precludes an application to court under section 44(5). This has been the perceived consequence of the Gerald Metals v Timis [2016] EWHC 2327 (Ch) case in certain circumstances, though the Law Commission’s paper considers that the reach of this ruling has been exaggerated. In considering the potential ramifications of Gerald Metals, the Law Commission has looked at the provisions in section 44 in their entirety, concluding that section 44(5) is potentially redundant. Section 44(5) states that the court shall only act if or to the extent that the arbitral tribunal “has no power or is unable for the time being to act effectively”. However, section 44 also provides other grounds on which the court shall act, based on sections 44(3) and (4), which apply to non-urgent and urgent applications respectively. The Law Commission, therefore, proposes repealing section 44(5) on the basis of redundancy, putting an end to the confusion caused by Gerald Metals and the practice of excluding emergency arbitrator provisions in arbitration clauses – and confirms the rights of parties to seek interim relief from the courts under section 44 without the additional requirements of section 44(5). This innovative proposal is likely to be broadly welcomed by the community.

Section 67: appeal rather than re-hearing

The paper proposes that a challenge under section 67 of the Act should be by way of appeal and not a rehearing where a party has participated in arbitral proceedings, has objected to the jurisdiction of the tribunal, and the tribunal has then subsequently ruled on jurisdiction in an award. This would represent a departure from the current regime which requires a full rehearing on jurisdiction regardless of the circumstances of that challenge. The paper makes this proposal in order to reduce the delay and cost associated with the process. The Law Commission also notes that the current scheme is potentially unfair, as the losing party can raise new arguments before the courts that were not raised before the tribunal. As a result, the proposal would avoid the so-called “double hearing problem” in which a party gets two full hearings on jurisdiction, one from the tribunal and one from the court, but allow the court to retain the final say on the tribunal’s jurisdiction. The Law Commission has confirmed that the new regime would not apply to a section 67 challenge brought by an applicant who has not taken part in the arbitral proceedings. They would retain the right to a full hearing on the question. This is a sensible solution that is likely to be welcomed by the arbitral community.

The paper also proposes clarifying that an arbitral tribunal that has ruled that it has no substantive jurisdiction can still make an award of costs. Although perhaps counter-intuitive, this solution would avoid the unenviable position that a party who successfully objects to jurisdiction might find themselves in – where they have to start new court proceedings in order to recover their costs of winning on jurisdiction.

Section 69: no change needed

Under section 69, a party to arbitral proceedings may appeal to the court on a question of law arising out of an arbitral award. This is a non-mandatory provision from which parties can “opt out”. Furthermore, the court will only give permission to appeal an arbitral award under section 69 if certain threshold requirements are met. This provision is not widespread internationally. In particular, there is no similar provision in the UNCITRAL Model Law. The Law Commission has noted that it received diametrically opposing views from stakeholders regarding this provision – some wanted to repeal the provision entirely (in favour of finality of awards), whereas others thought it should be liberalised (to ensure that the law is applied consistently). The Law Commission concludes that on balance, section 69 is already a fair compromise between these two positions, and that there is no evidence to suggest that it is problematic in practice. This is an unsurprising conclusion given the competing views that have been expressed.

Other proposed amendments

One other interesting proposal relates to prohibiting discrimination in the appointment of arbitrators. The consultation paper provisionally proposes to adopt the language of the Equality Act 2010 so that arbitral appointments cannot be challenged for reasons which are discriminatory. One question that this raises is whether it could lead to challenge or set aside proceedings issued on the basis of non-compliance with the arbitrator appointment mechanism in the arbitration clause, and how this could play out in an international context, such as at the place of enforcement.

Other proposed amendments include strengthening the immunity of arbitrators from legal liability, amending the provisions on provisional awards, making section 7 (separability of arbitration agreements) a mandatory provision, and updating the Act to be compatible with modern technology.

Comment

The consultation paper is to be welcomed. The Law Commission has listened to the arbitral community and the paper represents a valuable refinement of the Act borne of experience. While addressing obvious imperfections, the approach proposed should ensure that the legislation remains resilient in the face of modern arbitration practice.

This blog post is an extended version of an earlier blogpost published on HSF arbitration notes.

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