On 6 September 2023, the Law Commission published its report on the recommended changes to the Arbitration Act 1996 (the Act). Back in March 2021 the Ministry of Justice requested the review to make sure that the Act continues to promote England and Wales as a leading destination for commercial arbitration.

The report recommends six major initiatives:

1. Codification of the statutory duty of disclosure.
2. Strengthening of arbitrator immunity around resignation and applications for removal.
3. Introduction of a power to make an arbitral award on a summary basis.
4. An improved framework for challenges to awards under section 67 on the basis that the tribunal lacked jurisdiction.
5. A new rule on the governing law of an arbitration agreement.
6. Clarification of court powers in support of arbitral proceedings, and in support of emergency arbitrators.

These reforms intend to bring about further clarity on the Act, and continue to promote fairness and efficiency in the arbitration process. The proposals have been generally welcomed by practitioners.

Codifying the arbitrator’s duty of disclosure

In 2020, the Supreme Court in Halliburton v Chubb [2020] UKSC 48 clarified that arbitrators are under a continuing duty to disclose any circumstances which might give rise to doubts about their impartiality. The Law Commission has proposed that this obligation is enshrined in the statute.

The proposal is that arbitrators will disclose any connections they have at the outset, which in itself is a demonstration of their impartiality. The Act will not prescribe exactly what needs to be disclosed and maintains the element of flexibility provided by the common law test.

Strengthening arbitrators’ immunity

The Law Commission’s recommendation is to strengthen the immunity afforded to arbitrators in section 29 of the Act. Arbitrators need immunity in order to give robust, impartial decisions without fear of legal proceedings against them from the disappointed party.

Currently, an arbitrator may incur liability if he / she resigns. Additionally, the parties have the power to apply to court to remove an arbitrator (under section 24), and the arbitrator may be liable for the costs of that application.

The Law Commission recommends protecting the arbitrator in both of those situations, so that no liability is incurred, unless the arbitrator has acted in bad faith.

Summary disposal

This recommendation mirrors the court’s powers for summary judgment, with some important distinguishing features.

Firstly the parties will be free to agree the threshold for summary disposal, although the Law Commission recommends the threshold applied in the courts of “no real prospect of success”. The parties also have the option to disapply the tribunal’s power to issue an award at all on a summary basis.

This allows parties to arbitration to save time and costs by disposing of weak issues expeditiously, while maintaining the principle of the parties’ autonomy to agree on the procedures adopted by the tribunal.

Jurisdictional challenges to awards

Section 67 of the Act entitles a party to challenge an arbitral award on the ground that it was made by an arbitral tribunal without jurisdiction. However, the Supreme Court decision in Dallah v Government of Pakistan [2010] UKSC 46, said that any challenge before the court pursuant to section 67 should be conducted by way of a full re-hearing.

To avoid repetition and reduce costs, the Law Commission recommends removing the need for a full re-hearing. Instead, the court will not entertain any new grounds of objection or new evidence. As a general rule, evidence will not be reheard (save for in the interests of justice).

This was one of the more contentious reforms with strong opposing views emerging from the consultations. A number of practitioners disagree with the suggestion to remove jurisdictional challenges in court by way of a full re-hearing.

But the Law Commission says that their proposal offers a compromise between the tension of jurisdictional challenges. The court has the final say, but the hearing before the tribunal should be afforded some weight, by requiring the objecting party to deploy its full evidence and arguments from the outset.

Deciding which law governs an arbitration agreement

Parties are free to agree the governing law of their arbitration clause, and the seat of arbitration. But on occasion, the applicable law of the contract differs from the seat of arbitration, and the parties have not previously agreed which law governs their arbitration clause.

This scenario can lead to confusion over the governing law, and opens the door for potential prejudice to one of the parties.

To rectify this potential anomaly, the Law Commission has recommended introducing a default rule in favour of the governing law being the seat of arbitration. In the spirit of arbitration, the parties may still agree otherwise. But having a default position in statute avoids possible time and delay spent arguing over the ambiguity.

What happens next?

The Law Commission’s report is accompanied by a draft bill which contains proposed amendments to the Act to give effect to their recommendations. It will progress through the usual parliamentary routes until the Government decides whether, and how to amend the legislation. Currently, there is no proposed timeline for when the recommendations may become law.