"Reforming the Arbitration Act 1996: Let’s Fix It Before It Calls for a Lawyer!"

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A Bill to reform the Arbitration Act 1996 is about to be passed this year, making England even more attractive for arbitration. In this newsletter we give you an overview of the most noteworthy proposed reforms of the Arbitration Act 1996.

In a nutshell: The UK Government is expected to pass a new Arbitration Bill this year. The new Bill is set to strengthen the arbitration process in England, formalising and clarifying powers and duties of arbitrators, simplifying procedures and introducing express powers to dispose of issues summarily.

 

The proposed reform of the Arbitration Act 1996

England is one, if not the most, popular seat for shipping arbitrations worldwide.

According to industry estimates, there are around 5,000 arbitrations each year in England with numbers having grown by about 26 per cent between 2016 and 2020.

The Arbitration Act 1996 is now over 25 years old, and it is bound to benefit from an update to make England even more attractive as the chosen seat of arbitration.

Following a public consultation, the Law Commission drafted a new Arbitration Bill, which started its legislative journey through the Houses of Parliament in November 2023. Due to the public consultation process, which involved many legal practitioners, substantive scrutiny of the Bill is expected to be relatively straightforward. The Bill is already, optimistically, called the “Arbitration Act 2024", and so it is expected to become law sometime this year.


What are the most important proposed reforms?

Some of these reforms formalise or clarify important powers or duties arbitrators already have, such as the power to decide issues summarily, or the duty to declare a conflict of interest. Others extend the powers of arbitrators such as in relation to emergency arbitrators or enhance their protection for example upon resignation.

The most important reforms, discussed further in this newsletter, are:

-    Conferring on arbitrators the power to dispose of issues summarily
-    Introducing a statutory duty on arbitrators to disclose any circumstances which might impact their impartiality
-    Extending arbitrator immunity against liability for resignations and removal
-    Failing express agreement, the law governing an arbitration agreement will be the law of the seat of the arbitration
-    Simplifying the procedure for challenging arbitral awards on substantive jurisdiction under section 67 of the Arbitration Act 1996
-    Providing emergency arbitrators with the power to issue peremptory orders and grant permission to apply to the court
-    Conferring on the courts the power to make orders against third parties in support of arbitral proceedings


• Conferring a power on arbitrators to dispose of issues summarily

The Arbitration Bill intends to add an express power to dispose of a claim, issue or defence summarily. This will make arbitrations more efficient and aligns with summary judgments available in court proceedings.

The threshold for summary disposal is proposed to be the same in arbitration as is currently applied to court proceedings under the Civil Procedure Rules Part 24. In order to be dismissed, the issue must have ‘no real prospect of success’.

What is meant by that was laid down in the case of Easyair v Opal Telecom Ltd [2009] EWHC 339 (Ch):

1.    A "real prospect of success" must be a realistic, rather than a merely ‘fanciful’ prospect of success,
2.    While the court (or tribunal) does not have to take everything at face value, it must also not conduct a ‘mini-trial’.
3.    The court (or tribunal) must take into account not only the evidence before it but also the evidence that can reasonably be expected to be available at trial.

In practice, summary judgment applications are usually used to deal with points of law or contractual interpretation.

When it comes to disputes concerning facts, the courts have always been more cautious because further information may surface in the course of the litigation and in particular during disclosure. It is however possible to obtain summary judgement on factual issues. In Verdi Law Group PC v BNP Paribas SA and others [2023] EWHC 1860 (KB), the judge for example was satisfied that the documents the claimant sought to rely on were forged and dismissed the claim.

The proposal is very welcome as a means of providing arbitrators with the ability to deal quickly and efficiently with unmeritorious issues.

How often these powers will be used in practice, remains to be seen. Theoretically, arbitrators already have an implicit power of summary dismissal. Section 33 of the Arbitration Act 1996 obliges them to adopt any procedures suitable to the circumstances of the particular case, avoiding unnecessary delay or expense. However, arbitrators are generally nervous of being accused of falling foul of the requirements of due process and summarily dismissing an issue may feel uncomfortably close to not giving the issue a fair hearing. Parties themselves may be hesitant to embark on an application for summary judgment which may prolong the procedure if it does not succeed. They may also fear that a summary judgment may be more difficult to enforce, particularly in jurisdictions which do not themselves have a summary judgment procedure. However, any of these concerns will at least be diminished by turning these implicit powers into express powers.


• Introducing a statutory duty on arbitrators to disclose any circumstances which might impact their impartiality.

Under s.33 of the Arbitration Act 1996, arbitrators have a duty of impartiality.

It was held in Halliburton v. Chubb [2020] UKSC 48, that arbitrators were under a continuing duty to disclose any circumstances which might reasonably give rise to justifiable doubts as to their impartiality.

The maritime world is a small one, as we know, and so it cannot be expected that arbitrators are entirely independent. The reforms recognise this and are instead seeking to codify the common law duty of "impartiality" as set out in Haliburton.

Mirroring the common law, the reforms envisage the duty of disclosure to be mandatory and continuous and to extend to pre-appointment discussions. Arbitrators are under a duty to disclose, as soon as possible, not only circumstances they are actually aware of but also those they ought reasonably to be aware of.

Following such a disclosure the party who feels at risk may ask the arbitrator to resign, or if they refuse, ask the court to remove the arbitrator under s.24 of the Arbitration Act 1996.

Failure to disclose may make any subsequent arbitration award liable to be set aside under s.68 of the Arbitration Act 1996 for serious irregularity.


• Extending arbitrator immunity against liability for resignations and removal

The Arbitration Act 1996 s.29 grants arbitrators a wide immunity in the exercise of their duties. An arbitrator is not liable for anything done or omitted to be done in the exercise of their duties unless the act or omission is shown to have been in bad faith.

This ensures that arbitrators' decisions are not influenced by a fear of legal action being taken against them by a disappointed party. It also supports the finality of the arbitration process by preventing a party who is disappointed with losing the arbitration from bringing further proceedings against the arbitrator.

The Bill will clarify and strengthen such immunity when it comes to resignations and removal.

At present, if an arbitrator resigns, they open themselves up to a claim for breach of contract. After all they have contracted with the parties to act as arbitrator. In order to avoid any liability, an arbitrator has to apply to the court which will relieve him of his duties where the resignation is deemed reasonable.

The Bill proposes that an arbitrator who resigns will not be liable unless the resignation is shown to be unreasonable. The burden of showing unreasonableness will be on the complainant.

Where there is an application to remove an arbitrator, arbitrators can at present potentially find themselves liable for the costs of such an application. The Bill proposes to strengthen arbitrator's immunity in this respect by providing that there will be no such liability unless the arbitrator is shown to have acted in bad faith. This is in line with the overarching immunity of arbitrators under the Arbitration Act 1996.

While the reforms strengthen the important immunities enjoyed by arbitrators, they will not take away the parties' ability to deal with recalcitrant arbitrators should the need arise. The parties can, for example, revoke an arbitrator’s authority under s. 23 of the Arbitration Act 1996 or apply to court to remove an arbitrator under s. 24. In both cases, the arbitrator may lose their entitlement to fees and expenses.


• Unless the parties agree otherwise, the law governing an arbitration agreement will be the law of the seat of the arbitration

A contract usually contains an express choice of law to govern the main contract, and an express choice of seat for an arbitration. It often does not contain a choice of law to govern the agreement to arbitrate.

The question which law will govern the arbitration agreement where there is no express agreement has been laid down by the decision in Enka v Chubb [2020] EWCA Civ 574. Enka v Chubb held that, absent an express agreement, the law chosen to govern the main contract shall also apply to the arbitration agreement.

The Bill proposes a new default rule that aligns the seat of the arbitration with the law governing the arbitration agreement. For example, where an arbitration is seated in England and Wales, then by default the agreement to arbitrate will now be governed by the law of England and Wales. This is so unless the parties expressly agree a different law to govern the arbitration agreement.

Determining the governing law is important, as different governing laws may give different answers to important questions like who is party to the agreement (for example, whether the agreement extends to a subsidiary company), and whether this type of dispute is even capable of resolution by arbitration (as a matter of public policy, some types of dispute must be resolved by the courts rather than through arbitration).

This will bring much needed clarification and avoid complex and unpredictable disputes. The reform will also ensure that the arbitration agreement is effective and enforceable under the law of the seat.

Until the reforms become law, the parties should ensure that the law governing an arbitration agreement is expressly stipulated. A number of arbitration institutions have already introduced such provisions into their model clauses. The LMAA for example, provide in their latest model clause that English law should be the default applicable law unless the parties agree otherwise.


• Simplifying the procedure for challenging arbitral awards on substantive jurisdiction under section 67 of the Arbitration Act 1996

Under the Arbitration Act 1996 tribunals have the competence to rule on their own jurisdiction. Where a party believes that the tribunal lacks substantive jurisdiction, it can challenge it under s. 32 of the Act. Where either both parties agree, or the tribunal so permits, a party can apply to the court for an order on whether the tribunal has substantive jurisdiction or not.

A party can also challenge the tribunal's jurisdiction under s. 67 of the Arbitration Act 1996 where the tribunal has issued an award, either on the merits or on the question of jurisdiction.  Where an application is made to the court under s.67 to challenge the tribunal's decision, the Bill proposes that the court should merely review the decision of the tribunal and not conduct a full rehearing of the matter as is currently the case following the decision in Dallah v Pakistan [2010] UKSC 46. This will reduce the costs and time of an appeal. It also means the losing party is no longer given a second bite of the cherry.


• Providing emergency arbitrators with the power to issue peremptory orders and grant permission to apply to the court

At present the Arbitration Act 1996 does not contain provisions to deal with the relatively recent trend towards emergency arbitration.

Many arbitral institutions, such as the ICC (but not the LMAA so far) have introduced a mechanism for allowing parties to appoint emergency arbitrators in situations demanding urgent relief.

An emergency arbitrator is appointed on an interim basis, pending the constitution of the full arbitral tribunal, to make orders on urgent matters, for example for the preservation of evidence. Once constituted, the full tribunal can usually review the orders of the emergency arbitrator.

At present the court can issue interim measures under s.44 of the Arbitration Act 1996 upon the application of one party either in urgent cases where no arbitral tribunal has been constituted yet, or in non-urgent cases where the parties agree, or the tribunal so permits. The court can only intervene where the tribunal is unable to do so effectively.

The proposed reforms would allow peremptory orders made by emergency arbitrators to be enforced by the court in the same way as orders made by normal arbitrators. It would further confer on emergency arbitrators the ability to grant a party permission to apply to the court for orders.


• Providing that the court can make orders in support of arbitral proceedings against third parties.

The involvement of third parties can arise when, for example, a party to the arbitration seeks preservation of documents or witness evidence from a third party.

Section 44 of the Arbitration Act 1996 allows parties to the arbitration to seek assistance from the court in limited circumstances, for example to order the preservation of evidence, delivery of documents or to give evidence. Case law on the question whether an order under s.44 can be granted against third parties, is unclear. The reforms seek to clarify this point and to align arbitrations with court proceedings in this regard. The proposal is to allow courts to make orders against third parties in the context of arbitrations.

It is of course conceptually problematic for an arbitration proceeding, which is based on an agreement between two parties, to form the basis for a court order compelling a third party who is not party to this agreement to do or refrain from doing anything. However, it is undeniably an important tool to make arbitrations more effective.

In return for their exposure, the reforms do propose wider rights of appeal for third parties. Third parties will not need leave of the court to appeal any decision against them.


Overall, the reforms clearly take account of the wishes and concerns of practitioners and will be welcome to make England an even more attractive forum for arbitration.