THE AUTHOR: Emile Yusupoff , Junior Commercial Barrister at 36 Stone
Much has changed since the English Arbitration Act 1996 (the “Act”) came into force. Case law on its interpretation and application has built up. Technology has progressed. Debates around confidentiality and transparency have developed. Nonetheless, the Act has proven broadly successful. Despite recent political and economic upheavals, London remains the world’s most popular seat. There is no clamour for revolutionary change.
This raises the question of whether the Law Commission’s recent consultation paper was needed at all. Indeed, the paper proposes leaving much of the Act untouched. However, it puts forward several notable changes, some of questionable merit. This article summarises the main proposals.
Retention of Status Quo
Confidentiality:
Case law (as summarised in Halliburton v. Chubb Bermuda [2020] UKSC 48) provides:
- That most English seated arbitrations are private and confidential by default and the duty of confidentiality can arise by an express or implied term of an arbitration agreement or in equity; and
- The (non-exhaustive) list of exceptions to confidentiality: consent, order or leave of court, protection of a party’s legitimate interests, the interests of justice, and – perhaps – public interest.
The Commission considered – but shied away from – codification. Confidentiality issues are complex, fact-sensitive, and still debated. Equally, the basic principles are well-established in case law, meaning statutory clarification would have limited value. Accordingly, the courts are best positioned to continue to develop the law case-by-case.
Appeals on Questions of Law:
The Commission considered suggestions that s.69 (which allows appeals of awards to court on questions of law) be repealed altogether or, conversely, liberalised. However, they propose that it remain unchanged, as the current regime correctly balances finality and allowing the correction of errors of law.
Tweaks
Arbitrator’s Independence and Disclosure:
The Commission propose no overhaul of arbitrator independence and impartiality. The former (a lack of connection with the parties) is not required by the Act. The latter (an absence of real or apparent bias) is (s.1(a) and s.33(1)(a)). However, they propose codification of the duty to disclose any circumstances which might go to the question of impartiality or independence. Currently, the duty is implicit in the duty of fairness and impartiality and the parties’ contract) Although this is intended to maintain the current position (see Halliburton v. Chubb) and leave further developments to the courts, there is a risk that a codified duty will create confusion and be overly rigid.
Technology:
The Commission conclude that the Act is compatible with modern technology and no major reform is necessary. However, they sought consultation on whether, for clarity, the Act should expressly permit remote hearings and electronic documentation. There is a case for spelling out (in broad, non-prescriptive terms) that both are permitted, if only to clarify that English law is compatible with institutional rules that allow for (e.g., ICC Arbitration Rules 2021) and even encourage (e.g., ICSID Institution Rules 2022) such practices.
Significant Changes
Diversity:
The Act is silent on diversity and employment law rules against discrimination do not apply to arbitral appointments.
Accordingly, the Commission consider that the Act should prohibit challenging arbitral appointments based on an arbitrator’s protected characteristic(s) (as identified in the Equality Act 2010), rendering any agreement in relation to arbitrators’ protected characteristics unenforceable, save where requiring an arbitrator to have a protected characteristic is a proportionate means of achieving a legitimate aim in the context of an arbitration (a possible example is a requirement that an arbitrator be of a certain religion in a dispute over practices within that religion).
The proposed change attempts to respect party autonomy by not prescribing whom to appoint, not providing additional bases for challenges, and merely restricting discriminatory challenges. However, whilst it follows the established approach of UK anti-discrimination law, it is a major departure for arbitration and would go against the international norm.
There is also a potentially significant issue: an award made by a tribunal whose appointment did not comply with a discriminatory provision could be unenforceable under art.V.1(d) of the New York Convention (1958) (the “Convention”), as the appointment would arguably not be in accordance with the parties’ agreement.
The Commission suggest that “reasonable” enforcing courts would recognise the mandatory nature of the provision, respect the principle of anti-discrimination law, and seek to uphold an “otherwise unimpeachable” English arbitration award.
This is too bullish. The Convention applies in many jurisdictions, some of whose courts may have an “unreasonable” perspective on British social policy. There are also likely to be many marginal cases where what is “reasonable” is arguable. Likewise, the Commission’s view that the public interest in combatting discrimination trumps concerns about enforceability is debatable. There is also public interest in enforcement.
Arbitrator Immunity:
Arbitrators are not liable for anything done in the (good faith) purported discharge of their arbitral functions (s.29). However, the Commission maintain that this immunity does not cover two situations:
- Where arbitrators resign, even with good reason; and
- Arbitrators can be liable for the costs of an application to remove them, even if the application is unsuccessful.
To prevent satellite litigation and support impartiality, the Commission propose extending immunity to cover both situations.
As to resignation, the Commission sought consultation on whether there should be:
- No liability at all for resignation; or
- Liability only if resignation is proved unreasonable.
The latter seems more balanced; nonetheless, the entire exercise stems from a mistaken understanding of the legal position, which is, in fact, that whilst arbitrators face prima facie liability for resignations, the Court has a dispensing power where resignation is reasonable. Even the seemingly more balanced proposal is, therefore, an unnecessary and undesirable reversal of the burden of proof from the status quo.
As to removal, the Commission propose reversing contrary case law and confirming in the Act that immunity extends to court proceedings costs. This seems controversial, given that it would prevent arbitrators from facing cost consequences even where an application is appropriate.
Summary Disposal:
It is ambiguous whether summary disposal is permitted under s.33 (which requires the avoidance of unnecessary delay and expense) or whether it would breach an arbitrator’s duties of fairness and not allow parties a reasonable opportunity to put their cases. Accordingly, the Commission propose adopting an explicit summary disposal provision in the Act.
This seems sensible. Dealing early and summarily with issues with poor prospects can save time and costs. The Commission is alive to ensure that any reform would protect procedural due process and would not have adverse implications for enforcement under the Convention. Accordingly, any new provision would need to ensure parties have a reasonable opportunity to argue against an issue being disposed of summarily.
Although uncommon in international arbitration (and absent from the Model Law), summary procedures exist under some institutional rules and are typical in common law litigation. The Commission propose mirroring two elements from these:
- Limiting summary procedure to being at the request of a party; and
- Having a high threshold for establishing that the procedure should be employed. The Commission propose adopting the “no real prospect of success” threshold from English court proceedings, although it may be that the wording “manifestly without merit” is adopted following consultation, given its established usage in international arbitration.
Interim Measures:
The court may make orders in support of arbitral proceedings under s.44. Two major ambiguities exist:
- Whether the Court can make orders against third parties; and.
- The extent to which s.44 is available where an emergency arbitrator is provided for.
The Commission consider that s.44 already allows orders against third parties, where appropriate, depending on the nature of the order, and the body of rules for equivalent orders in English court proceedings. However, this issue is subject to conflicting authorities. Accordingly, the Commission propose having s.44 state explicitly that it applies to third parties.
Emergency arbitrators are not addressed in the Act. However, the Commission conclude that the provisions of the Act should not generally apply to emergency arbitrators, as too many would be inappropriate (e.g., the s.16 appointment procedure would take too long).
The Commission consider that s.44 already allows the court to make interim orders where emergency arbitrators have been appointed, and that any uncertainty is created by s.44(5), which provides the court will only act where a tribunal has no power or is unable to act effectively. The Commission consider s.44(5) redundant and propose scrapping it.
The Commission sought consultation on two alternative amendments to the Act to clarify the consequences of non-conformity with an emergency arbitrator’s order:
- A provision empowering the court to order compliance with a peremptory order of an emergency arbitrator.
- A provision allowing the making of an application to court for an interim order under section 44(4) with the permission of an emergency arbitrator.
Jurisdiction:
Parties can apply to the tribunal (s.30) or the court (s.32) to determine whether the tribunal has jurisdiction. Further, where a tribunal makes an award (on jurisdiction or the merits), parties can apply to court to challenge that award on the basis that the tribunal lacked jurisdiction (s.67).
At present, s.67 challenges are considered at de novo rehearings. The court makes an independent assessment, including potentially of the facts, with the tribunal’s decision carrying no weight. The Commission propose reform so that, where a party has engaged in arbitral proceedings and agreed to the tribunal determining jurisdiction under s.30, s.67 challenges (and s.32 applications) would instead be heard as appeals. This is to prevent a “heads I win, tails it does not count” approach to the tribunal’s decision.
The Commission maintain that the court would remain the final arbiter of jurisdiction through its appellate function, and the arbiter of fact where the s.32 route is pursued in the first instance, or a s.67 challenge is made by a party who took no part in the arbitral proceedings. However, there are significant objections. There has been no notable demand for reform since s.67 is invoked in very few cases and even fewer require full rehearings. It would, therefore, be internationally aberrant, and would result in the loss of a significant protective “release valve”.
The Commission also propose amendments to confirm that:
- The court can declare an award is of no effect where a s.67 challenge succeeds; and
- A tribunal can issue a costs order even when ruling that it has no jurisdiction.
Looking Ahead
The deadline for responding to the Paper was on 15 December 2022. It remains to be seen if, and how, the Commission will accordingly change its proposals.
Emile Yusupoff is a junior commercial barrister at 36 Stone (part of the 36 Group), specialising in international commercial arbitration, international trade, and shipping. He is regularly instructed in arbitrations and English litigation as sole and junior counsel. He contributed to Combar’s response to the Law Commission’s Consultation Paper on the Arbitration Act 1996, has spoken at international conferences, and has had work on maritime law published in leading journals
