The Arbitration Act 1996 (“the Act”), which provides a framework for arbitration in England, Wales and Northern Ireland, is currently under review.
The Law Commission of England and Wales published a first consultation paper last September. On 27 March 2023, in light of the responses received, the Law Commission published a second consultation paper. Stakeholders have until 22 May 2023 to submit their responses to the second consultation.
Given London’s leading role in the international arbitration arena, the new proposals are welcomed and are highly relevant both for users of arbitration and practitioners.
There are three main topics under review:
1. The Proper Law of the Arbitration Agreement
It can be important in some situations to know which law is applicable to the arbitration agreement (for example, to help determine whether an arbitrator has jurisdiction or not). However, it can be difficult in some situations to identify the applicable law. An arbitration agreement is typically a clause in a main contract – the so-called “matrix contract” – and since an arbitration clause is regarded as a separate and self-standing contract within the matrix contract (the principle of separability), the law of the arbitration clause and that of the matrix contract may not necessarily align. This means that, even if there is an express governing law clause in the matrix contract, there may be complexities identifying the proper law of the arbitration agreement if it is not expressly stated in that clause.
The proper law to apply to arbitration agreements has sparked a great deal of debate among practitioners, fuelled by the decision of the UK Supreme Court in Enka v Chubb.
The ruling in Enka says that the parties’ choice of substantive law in the matrix contract, whether expressed or implied, is treated as an implied choice of law for the arbitration agreement (in the absence of an express choice), meaning that the law of the arbitration agreement follows the law of the matrix contract. However, there may be a reason for implying a different choice of law, for example if there is a risk of the arbitration clause being found invalid if the substantive law of the matrix contract is applied (because parties are assumed to have intended their arbitration clause to be valid). Also, a different approach is required if there is no choice of substantive law in the matrix contract. So there remains considerable scope for uncertainty even after Enka.
The Law Commission has also identified that there is further possible uncertainty because of the different approaches of different laws to such matters as separability, confidentiality, arbitrability (i.e. whether the subject-matter can be referred to arbitration or whether there is some public policy reason why it must go to the courts) and the scope of the arbitration agreement. An arbitration seated in England with an arbitration agreement governed by English law might look very different from an arbitration in England under an arbitration agreement governed by another law.
The Law Commission has recognised that the solution may lie in implementing a statutory rule that the law of the arbitration agreement will follow the law of the seat, except where the parties have expressly chosen a different law for the arbitration agreement.
For a detailed analysis see the article written by Peter Ashford, Consultant and Co-Head of the Fox Williams International Arbitration group.
2. Lack of Jurisdiction – Challenges to an award under Section 67 of the Act
Where an arbitral tribunal has ruled on its jurisdiction, section 67 of the Act allows parties to apply to court to challenge the tribunal’s decision. If the court accepts the application, parties are afforded a full rehearing rather than just a review of the tribunal’s ruling.
In its first consultation paper, the Law Commission proposed that any challenge under section 67 should be by way of an appeal rather than a rehearing, i.e. there would be more limited scope to a challenge than currently. However, respondents to the consultation noted that an appeal can cover a lot of issues and in some circumstances might not differ much from a rehearing. The Law Commission has now provided a revised proposal which involves introducing specific provisions into the rules that the courts apply to challenges under section 67, rather than amending the Act itself.
The new court rules would limit applications under section 67 in the following way:
- No new evidence or new arguments will be permitted unless, with reasonable due diligence, the parties could have not advanced these before the tribunal.
- No oral evidence will be reheard, save exceptionally in the interests of justice.
- The court will give deference to the decision of the tribunal and will not decide the issue afresh. This means that the main question that the court will be asking will be whether the decision of the tribunal on its jurisdiction was wrong.
In restricting the nature of a challenge under section 67, the hope is that this will avoid unnecessary duplication, which has often led to delays and a costly re-run of jurisdictional arguments before the courts.
In its first consultation paper, the Law Commission proposed that the appointment of an arbitrator should not be open to challenge on the basis of the arbitrator’s protected characteristics as set out in section 4 of the Equality Act 2010, including, among others, age, disability, gender reassignment, race, religion, and sexual orientation. Also, unless the parties can justify a requirement relating to the arbitrator’s protected characteristics as a means of achieving a legitimate aim, their agreement will be unenforceable.
The real problem for the most part, however, is not discriminatory terms of the agreement, as much as a possibly discriminatory approach to appointing arbitrators. Across international arbitration, there is a lack of diversity in arbitral appointments in various ways, including fewer women appointed as arbitrators than men, and some regions of the world underrepresented in appointments (for example, a low percentage of arbitrators originating from Africa notwithstanding a large number of arbitrations from that region).
The Law Commission’s second consultation paper is now inviting responses on whether discrimination should be generally prohibited in the context of arbitration, and if so, what remedies should be applied.
The principle that there should be no discrimination is unobjectionable. The real question is what remedies should be available, and who should be held accountable. For example, it is unclear at this point what will happen to an arbitration agreement if a provision in it is found to be unenforceable, and what will happen to an arbitration if there has been discrimination as part of the appointment of the tribunal; and whether the new requirements, if implemented, will apply retrospectively.
Also, if there is discriminatory behaviour by an arbitrator, holding them accountable could be problematic when they are often afforded a broad immunity except where wilful misconduct is established (see for example article 21 (a) of the International Centre for Settlement of Investment Disputes Convention). In addition, the 2011 Supreme Court decision in Hashwani v Jivraj established that arbitrators are not appointed under a contract of employment, meaning that it is unlikely that nominating institutions will be vicariously responsible for arbitrators’ conduct. On the other hand, it may not be appropriate to set aside an award, and require the parties to redo their arbitration, if the parties are not responsible for the arbitrators’ behaviour.
Some membership organisations such as the Charted Institute of Arbitrators have a separate Professional Conduct Committee to investigate complaints of misconduct among arbitrators and, if necessary, discipline members with suspension or expulsion. However, not all arbitrators are members of those organisations.
Whatever reforms are implemented, it is hoped that these will increase diversity across arbitration.