Introduction
Parties to a smooth-running international arbitration may perceive the process as entirely independent from the national laws of the seat.
In fact, arbitration works so well because it is supported by a framework of national laws. These laws ensure that parties abide by their arbitration agreement and provide the broad rules of process and conduct. When things go wrong, the appropriate national court can then step in to support the tribunal.
Arbitrations seated in London are subject to the Arbitration Act 1996 (the Act), which applies to arbitrations taking place within England and Wales (Scotland and Northern Ireland are separate jurisdictions).1
The Act was introduced to harmonise existing English arbitration legislation into a single source. It also sought to align English arbitration law, where appropriate, with the UNCITRAL Model Law on International Commercial Arbitration (Model Law), which forms the basis of the arbitration rules in 118 jurisdictions. However, the Act does differ from the Model Law in key respects. This, combined with London’s importance as an arbitral centre, renders the Act a unique and influential part of the international arbitration legal framework.
The English legal establishment is pro-active in reinforcing the preeminent status of English law in the commercial world, with London as a leading dispute resolution forum.
The Law Commission of England and Wales (the Commission) is an independent body which reviews and updates English law when required. Changes in the international arbitration market have called into question whether, despite its success over the past 25 years, certain aspects of the Act could benefit from reform.
Reflecting the pro-active stance of the English dispute resolution community, the Commission reviewed the Act and subsequently launched a consultation in September 2022. The consultation set out the Commission’s proposals as to whether the Act should be updated. The consultation process closed in December 2022, and the Commission’s final proposals, taking into account responses received from various stakeholders during the consultation, are expected in the middle of 2023.
We highlight the Commission’s key proposals below.2
Confidentiality
Confidentiality is a key attraction for those choosing international arbitration to resolve their disputes. The Act currently contains no express duty of confidentiality. Instead, the principle of party confidentiality in English-seated international arbitration is derived from case law. This finds the relevant obligation in a combination of express agreement, adoption of institutional rules, or implied contract terms. Many have questioned whether an express duty of confidentiality in the Act would assist users by providing clarity on the point.
The conclusion of the Commission is that a “one-size-fits-all” approach will not work. A key issue is developing and codifying exceptions to the rule within a statute. The courts have thus far found it difficult, within the relatively flexible forum of case law, to identify the appropriate exceptions to confidentiality. Statutory law is more rigid. As a result, the Commission proposes that the English courts continue to develop confidentiality principles through case law and apply them in the context of the specific facts of each case.
Independence and impartiality
The issue of arbitrator independence and impartiality has been prominent in English law (and the international arbitration market more generally) in recent years – particularly as the case of Halliburton v. Chubb progressed to the UK Supreme Court. There is a school of thought that adding an obligation of independence to the existing requirement of impartiality would improve transparency for users of arbitration.
The Commission proposes no statutory change to the core duty of impartiality. The various reasons given by the Commission include their concern that a separate duty of independence might make appointment difficult in sectors where specialist, expert arbitrators are involved in multiple industry disputes. Interestingly, in its consultation response, the Law Society of England and Wales disagrees and takes the position that a separate duty of independence is necessary.
Although the Commission does not propose a new duty of independence, it has recommended codification of a duty of disclosure. An amended Act would provide that arbitrators have a continuing duty to disclose any circumstances that might reasonably give rise to justifiable doubts as to their impartiality (reflecting the Supreme Court’s decision in Halliburton). The Commission also seeks views from stakeholders on the content of the duty of disclosure and, in particular, the tricky question of whether the Act should specify the state of knowledge required for the duty to disclose to be triggered.
Immunity
Court litigation involving arbitrators, such as Halliburton v. Chubb, highlights the substantively different position of party-appointed arbitrators with judges allocated by the state. Immunity for arbitrators is important. Arbitrators being exposed to potential liability claims by the parties to the arbitration would likely deter many (if not most) from accepting appointments.
The current regime in England and Wales protects arbitrators in relation to acts carried out in their role, unless they are found to be acting in bad faith. So far, so good. However, there are problematic exceptions.
The first issue is where an arbitrator resigns when it is unreasonable to do so. English case law does not provide clarity on the positive circumstances where resignation might be reasonable. Further, there has been some suggestion3 that it might not be reasonable for an arbitrator to resign if one of the parties impugns their impartiality, trapping the arbitrator into litigation. Accordingly, the Commission seeks views on whether arbitrators should be immune from liability for all resignations or whether an exception should remain for unreasonable resignations.
The other exception relates to costs. English court litigation works on a “loser pays” principle. Case law suggests that an arbitrator could also be liable for the (considerable) costs of a party application to remove them from appointment – which professional indemnity insurance may not cover. On this point, the Commission takes a firmer stance, recommending that arbitrator immunity be extended to the costs of court proceedings relating to their appointment.
Discrimination
Despite the progress that has been achieved in this regard, there is still a way to go to improve gender and ethnic diversity in international arbitration. The Commission regards an end to discrimination as a matter of public interest. It proposes a world-leading initiative to adopt the concept of protected characteristics from the Equalities Act 2010 as part of the framework of English arbitration law. This would prohibit the following under English arbitration law:
- A challenge to an arbitrator appointment which uses a protected characteristic of the arbitrator as the grounds (e.g., we do not accept this arbitrator because they are a woman)
- Enforcement of an agreement to make an appointment based upon a protected characteristic
Both of these prohibitions would be subject to the carveout that there may be limited circumstances in which the requirement of a protected characteristic is a proportionate means of achieving a legitimate aim.
Summary procedure in English seated arbitration
The Act, like most national arbitration frameworks, imposes duties of impartiality and fairness upon tribunals and requires that they provide each party with a reasonable opportunity to put their case. However, not all cases are worthy of a full evidential and merits process. Due process paranoia on the part of tribunals means that they might shy away from making a summary determination unless specifically authorised in national legislation or institutional rules. This unnecessarily lengthens the dispute resolution process.
The Commission proposes an amendment to the Act to allow English-seated tribunals to adopt a summary determination procedure. This default position would be subject to an opt-out by the parties by agreement. The Commission also seeks views on the appropriate procedure and standard for summary determination. The recommendation is to adopt the test used in English High Court litigation – namely, that a claim should not continue where it has no real prospect of succeeding, and when there is no other compelling reason for it to continue to a full hearing.
Scope for national court intervention
Section 44 of the Act sets out specific circumstances in which the English court, as the national court, can act to support arbitral proceedings. Over time, complexity has developed around the interpretation of this provision and the breadth of its application, in relation to third parties generally and, more specifically, to those based outside the jurisdiction.
The Commission’s analysis is that intervention under section 44 in relation to third parties should be available in support of an English-seated arbitration in exactly the same way as would be the case for an equivalent order in litigation before the English court.
The Commission considers this to be self-evident from the legislation already, but it seeks views from stakeholders on making the position more explicit within section 44 of the Act.4
Emergency arbitrations
The Act was drafted before emergency arbitration had become established as an offering by many of the leading arbitration institutions and as part of the international arbitration landscape. Accordingly, the Commission has considered whether the Act should include emergency arbitration provisions within its default framework.
Based on the default regime in the Act being unsuitable for emergency arbitration situations, the Commission’s conclusion is that it should not include emergency arbitration provisions. The use and management of emergency arbitration should therefore remain as something provided via institutional rules.
The Commission does seek to facilitate emergency arbitration in England and Wales by tidying up potential ambiguity in the Act that has generated confusion. It proposes removing section 44(5) from the Act altogether as has been suggested (on the basis of the decision in Gerald Metals v. Timis5) that this provision prevented the English national court from acting urgently in support of an arbitration if institutional rules also allow for the appointment of an emergency arbitrator.
The Commission also grapples with the tricky issue of the enforcement of emergency arbitrator orders in the national courts. The Commission makes no firm proposal but presents two options: (1) the emergency arbitrator might be empowered under the Act to issue a pre-emptory order, which the court can then enforce; or (2) enacting an amendment to section 44(4) to allow the emergency arbitrator to give permission for the court to act (currently this requires the permission of the fully constituted tribunal).
Challenges to arbitration awards
Another purpose of the framework of national laws is to police arbitration and allow parties to challenge awards. These powers are normally restricted (either under the Model Law or national legislation). Otherwise, arbitration would become an interim process, akin to adjudication.
In England and Wales, the casual peruser of the court register might think that challenges to arbitration are brought in the Commercial Court on a regular basis. But in fact, only a small percentage of awards are challenged. When it does happen, the court costs incurred can be considerable.
Under section 67 of the Act, a party can challenge an award after it has been made, on the basis that the tribunal lacked jurisdiction. This can happen even where the same party has already unsuccessfully challenged the tribunal’s jurisdiction in the arbitration process itself, i.e., the arbitral tribunal has already ruled on its own jurisdiction under the kompetenz-kompetenz principle.
A post-award challenge under section 67 is therefore often a second attempt by the challenger at the end of what might have been a lengthy and costly arbitral process. This seemingly unfair situation is exacerbated by English procedural case law, which currently states that any post-award challenge under section 67 should be dealt with de novo – with the entire case on jurisdiction re-examined.
The Commission proposes to address this by introducing a carveout so that a section 67 challenge to jurisdiction can be brought by way of appeal only – if the challenger had participated in the underlying arbitration and their previous objection had failed. Therefore, the role of the court in dealing with a (post-award) section 67 challenge would be limited to examining the tribunal’s prior decision on jurisdiction, based on the evidence and submissions that were available to the tribunal at the time. In contrast to the current position, the parties would not be allowed to introduce new factual evidence at this stage.6
Interestingly, the Commission does not propose to make a consequential amendment to section 103 of the Act, which provides that a party can use jurisdictional grounds to object to enforcement of a foreign arbitral award in England and Wales under the New York Convention.7 The rationale for the Commission’s thinking on this is largely because a party to a foreign arbitral award may not have had the same opportunity for an earlier challenge.8
Section 69 appeals
English arbitration law is relatively unusual in the international context in allowing scope for a party to appeal on a point of law (under section 69 of the Act).9 Given this, the Commission has reviewed whether or not the Act should be amended to either remove or expand rights of appeal. The most cogent argument in favour of removal is that it would improve the finality of awards. The expansionist wing argues that the popularity of arbitration may ultimately hinder the development of the commercial law (because limited precedents will be established involving key commercial law and specific industry terms), and so more appeals would serve a useful legal purpose by expanding the body of available precedent.
The Commission’s conclusion on this point is “if it ain’t broke, don’t fix it”. A key factor is that parties can already exclude rights of appeal by agreement, so parties wanting to ensure prompt and final resolution are free to limit the rights of appeal in their contracts. In contrast, the right to appeal can be retained in sectors that will benefit from established precedents. The Commission’s decision to maintain the status quo on this issue means that the High Court judges undertaking triage will continue to make the final decision on whether a section 69 challenge may proceed to full appeal. There is no right for the parties to appeal the decision on permission to the Court of Appeal. Similarly, the High Court judge who hears the full arbitration appeal also determines whether or not that decision can be appealed to the Court of Appeal. The possibility that the High Court can continue to “mark its own homework” under section 69 may not find favour in all quarters.
- For shorthand, all references in this article to the laws and legislation of England and Wales will be referred to as ‘English.’
- We do not cover the miscellaneous reforms characterised as ‘minor’ in the Commission’s report.
- See Halliburton Co. v. Chubb Bermuda Insurance Ltd. 2017 EWHC 137 (Comm).
- The Commission also actively proposes that third parties should be given the right to seek permission to appeal an order from the court to which they are appealing rather than the current position, which limits them to seeking permission from the first instance judge. A further clarification is to limit section 44(2)(a) so that it applies only to deposition evidence.
- Gerald Metals SA v. Timis [2016] EWHC 2327 (Ch).
- The Commission also sought views on whether the same principle should apply to challenges under section 32 of the Act, which enables parties to apply to the court to resolve jurisdiction disputes during the course of the arbitration.
- The Convention on the Recognition and Enforcement of Foreign Arbitral Awards, New York, 10 June 1958.
- Another change proposed by the Commission, albeit a technical one, is to tidy up the remedies for a jurisdictional challenge and allow the court to declare an award of “no effect,” effectively nullifying the arbitral proceedings. Another proposed change is to allow a tribunal to award costs even if it rules that it does not have jurisdiction.
- The grounds for appeal are not limitless, and the process envisages a triage by the court where it examines initially whether or not the grounds exist. The matter cannot proceed to a full hearing unless the appeal concerns an award decision which is obviously wrong or the question is of one of general public importance and the decision of the tribunal is open to serious doubt. Parties can still exclude this right of appeal altogether.
In-depth 2023-040
