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21 July 2023
Disputes Quick Read – 24 of 99 Insights
The Law Commission's Consultation Process on the Arbitration Act 1996 – taking stock
The Law Commission's reform project on the Arbitration Act 1996 (the Act) has progressed through a meaningful consultation stage involving not one, but two consultation papers. This continued engagement is welcomed by all with an interest in arbitration as England continues to maintain its position as the leading centre for international arbitration.
As we discussed here, the first consultation paper was published on 22 September 2022 and was a lengthy document consisting of 10 chapters addressing key topics which the Commission shortlisted because they reflected "a large measure of agreement among stakeholders that these are the topics which would benefit most from review". The first paper also included a chapter setting out the principal topics which did not make the shortlist, briefly explaining for each why this was the case. The Commission then requested responses and comments from all stakeholders, allowing a three-month period for such submissions which closed on 15 December 2022.
After reviewing the responses received, the Commission decided to publish a second consultation paper on 27 March 2023. Contrary to its predecessor, the second paper is much shorter and only covers three topics, two of which were already considered in the first paper but needed revisiting and one of which was elevated from the list of discarded topics. In doing so, the Commission clearly gave careful consideration to the responses received and even engaged in further discussions and correspondence with a number of consultees – all of which constituted a useful dialogue with the arbitration community whereby the Commission listened to their concerns and opinions.
Topics covered in the second consultation paper
The three topics featured in the second consultation paper are as follows:
- Law of the arbitration agreement: While this was mentioned in passing in the first paper but was not shortlisted for reform, 31 responses asked the Commission to reconsider. Accordingly, the second paper provisionally proposes that a new rule be introduced into the Act to the effect that the law of the arbitration agreement is the law of the seat, unless the parties expressly agree otherwise. The discussion reveals that this was motivated by the fact that the Enka v Chubb decision would likely result in more arbitration agreements being governed by foreign law, and would thus oust the law of England & Wales on a number of important points (separability, arbitrability, scope and confidentiality). The Commission also observed that the Enka v Chubb ruling is complex and concluded that a simple default rule would remove opportunities for argument and satellite litigation.
- Discrimination: This was considered in the first consultation paper which provisionally proposed that a term be unenforceable which requires an arbitrator to be appointed by reference to a protected characteristic (unless it is justified as a proportionate means of achieving legitimate aim). However, the Commission received several responses focusing on the desirability of an arbitrator being of a neutral nationality, prompting it to revisit the issue. Accordingly, the Commission provisionally proposed in its second paper that it should be deemed justified to require an arbitrator to have a nationality different from that of the parties. The Commission has also asked consultants to consider whether discrimination should be generally prohibited in the context of arbitration and what the remedies should be where discrimination occurs.
- Challenging jurisdiction under section 67: This was considered in the first consultation paper which provisionally proposed that a challenge regarding the jurisdiction of a tribunal under section 67 should take the form of an appeal instead of a full rehearing. After receiving "strong views on both sides of the debate", the Commission modified its provisional proposal such that the particularised limits of a challenge under section 67 be adopted in the rules of court, instead of legislation. These include the procedural specifications that (i) the court should not entertain any new grounds of objection or new evidence (unless, even with reasonable diligence, they could not have been advanced or submitted to the tribunal), (ii) evidence should not be reheard (save exceptionally in the interests of justice), and (iii) the court should allow the challenge only where the tribunal's decision on its jurisdiction was wrong.
What is there still to address?
The contents of the second consultation paper are in line with the desire that England & Wales maintain its position as a strong arbitration-friendly hub and London as the world's most popular seat. However, recalling that the first consultation paper included a chapter explaining why several areas were not shortlisted, it is worth pausing to consider some of those which remain beyond the scope of the Commission's suggested reforms:
- Third party funding – whether the Act should require a party to disclose whether they have third party funding and whether clarification is needed about the tribunal's control over costs in relation to third party funding;
- AI – whether the Act should address arbitration conducted by artificial intelligence, i.e. should it explicitly provide that an arbitrator must be human?;
- Delay – whether the Act should provide arbitrators with more powers to control against party-caused delay because, for example, the requirement of inordinate and inexcusable delay in section 41(3) is too high a threshold;
- Seat – whether "seat" in section 3 is too vague and should be replaced with "place", and whether other terms like "venue" should be defined;
- Consolidation – whether the Act should provide arbitrators with greater powers to consolidate proceedings (which section 35 currently only allows where the parties agree); and
- Costs – various issues under sections 61 to 65, i.e. whether the Act should provide tribunals with greater powers to control party costs, whether it should address WP offers, whether the Act should update the language in sections 61 (the default rule of "costs follow the event") and 63 (defining "recoverable" costs) in light of changed language in new civil procedure rules.
What now?
The consultation period for the second paper closed on 22 May 2023. The stakeholder responses may well justify the publication of a third paper. Either way, the expectation in light of the consultation to date is that some reform is on the way. Generally, two-thirds of the Law Commission's recommendations are implemented. For arbitration practitioners this is welcome and reinforces the commitment the UK has to promoting private dispute resolution.
We will continue to monitor the progress of the Commission's final recommendations.
To discuss the issues raised in this article in more detail, please reach out to a member of our team.
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