Changes in Arbitration Act on Its 25th Year Anniversary

Published on:
January 3, 2024

Couple of weeks ago the Court of Appeal confirmed the court’s power to mandate alternative dispute resolution (‘ADR’) in Churchill v Merthyr Tydfil County Borough Council, the Arbitration Bill was put before the UK Parliament.

When two or more parties find themselves unable to settle a dispute independently, they can opt for arbitration instead of pursuing legal action. In this process, a neutral third party, known as an arbitrator, is selected to issue an award that resolves the matter.

In this jurisdiction, the Arbitration Act 1996 (‘the Act’) has been providing a framework for arbitration for more than 25 years. In its quarter-anniversary government tasked the Law Commission with evaluating the Act and identifying any necessary changes to ensure its relevance and to uphold the UK’s reputation as a leading destination for commercial arbitration.

In early November 2023, it was announced that the Law Commission’s recommendations would be on the legislative agenda for the new year, and likely to come into effect next year.

This article explores the recommendations and assesses how they will amend the current Act.

Statutorising an Arbitrator’s Duty of Disclosure

Under the current version of the Act, arbitrators are required to be impartial. In Halliburton Company v Chubb Bermuda Insurance Ltd [2018] EWCA Civ 817, the Supreme Court (‘SC’) established a common law duty of disclosure for arbitrators to disclose any connections they have with the arbitrating parties or to the matter especially if such connections could raise concerns about the arbitrator’s impartiality.

The Law Commission went a step ahead by recommending codification of this duty to disclose. However, it left the extend of this duty to the courts’ discretion given that in Halliburton the SC held that impartiality may vary between different sectors.

Therefore, it has been suggested that arbitrators have a continuing duty to disclose any circumstances which might reasonably give rise to justifiable doubts as to their impartiality.

The Governing Law of an Arbitration Agreement

Although the Law Commission did not originally raise any recommendations on the governing law, the current approach carries concerns about its complexity and unpredictability.  This is because the governing law in the arbitration agreement is the law of the country the arbitration agreement is most closely connected with.

This uncertainty is particularly relevant for cross-border transactions. Usually, arbitration agreements are contained within the contract. However, they can also be self-contained agreements. While the governing law is not disputed in domestic transactions, in cross-border transactions the law governing the contract can be different from the law governing the arbitration agreement.

In an attempt to limit the unpredictability, the Law Commission in its final recommendations suggested the introduction of a rule that would require the arbitration agreement to be governed by the law of the seat unless the parties expressly agree otherwise.

Court Powers in Support of Arbitral Proceedings and in support of emergency arbitrators

S.44 of the Act sets out the powers that a court can exercise to assist arbitral proceedings. Accordingly, the courts have the power to make orders against the parties to the dispute. Whether this power also extends to third parties has been a point of uncertainty. To eradicate this uncertainty, the Law Commission has recommended that s.44 should be amended to cover orders made against third parties.

Power of Summary Disposal for Arbitrators

Even under the current law arbitrators have an apparent authority to order summary disposal and, decide a matter without an evidentiary hearing if they believe that a party has no real prospect of succeeding on that matter, they often hesitate to make such an order.

Therefore, the Law Commission was consulted on whether to include an express authority on arbitrators to order summary disposals. The recommendation given is affirmative, suggesting that upon the application of a party, the arbitration tribunal may issue an award on a summary basis.

Arbitrator’s Immunity

Currently, arbitrators are not held liable for their actions or omissions during the arbitration, except in cases of bad faith. However, arbitrators could still incur liability for costs if they resign or are removed.

The Law Commission suggested the removal of this cost liability especially where the arbitrator has acted in good faith. Such change could remove concerns about potential lawsuits from dissatisfied parties.

Challenges Under Section 67 of the Act

The present framework allows parties to apply to the tribunal to decide whether the former has jurisdiction.  At the same time, parties can also apply to the court to challenge an award on the grounds that the tribunal lacked jurisdiction. In relation to this framework two concerns arise.

First, it is not clear whether an application for the determination of the tribunal’s jurisdiction could be made after the tribunal has ruled on this.

Second, after the tribunal made an award confirming its jurisdiction, the current framework allows a party to challenge the award on the basis of lack of jurisdiction. This ground in effect provides a second opportunity for the objecting party in the courts and eventually leads to greater costs and time. To resolve this unfairness, the Law Commission recommended award challenges to be made by way of an appeal rather than a full hearing.

Furthermore, it was suggested that where an objection is made, the court will permit any new grounds or evidence only if these could not have been advanced with reasonable diligence. The evidence will not be reheard except it is exceptionally in the interest of justice. And finally, only where the decision given on jurisdiction was wrong, then the court will allow the challenge.

Only a couple of weeks ago, it was announced in the King’s Speech to the UK Parliament that these recommendations will be on the next year’s legislative agenda.  The second reading of the Bill was scheduled for 19 December 2023, and it is worth following to see when and how the Bill will be adopted in the coming legislative agenda.


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