Today, the Law Commission published its first consultation paper as part of its review of the Arbitration Act 1996 (the “Act“). The stated aim of the review has been to ensure that the Act remains “best in class”: an approach based upon fine-tuning, rather than root and branch reform. Nonetheless, the consultation paper proposes some notable and very welcome changes and clarifications, which we outline and briefly comment on below.
Confidentiality
The Law Commission has provisionally proposed that the Act should not codify English law on confidentiality in arbitration, concluding that is an area best left to be addressed by the courts. The default rule that arbitrations are private and confidential is clear as a matter of English law, and the Law Commission has noted that it is difficult to articulate the exceptions to this rule. Any such codification would not necessarily be comprehensive or future-proof as the law of confidentiality is complex, fact-sensitive and a matter of ongoing debate.
This proposal is pragmatic. Although some stakeholders might be disappointed, the report recognises the complexity of codification and balances that against the need to retain flexibility. This proposal also allows parties who prefer a more comprehensive regime of confidentiality to either include one in their arbitration clauses, choose institutional rules that already contain a confidentiality scheme, or ask a tribunal to address the matter at the commencement of the arbitration.
Arbitrator duty of disclosure
The consultation paper provisionally proposes that an express duty of independence should not be imposed upon arbitrators. It notes that arbitrators already have a continuing duty to disclose any circumstances which might reasonably give rise to justifiable doubts as to their impartiality under both the existing wording of S24(1)(a) of the Act and the case law (Halliburton Co v Chubb Bermuda Insurance Ltd). The consultation paper distinguishes between the concepts of independence and impartiality, following the distinction drawn in the original DAC report on the Act: the rationale being that if an arbitrator is impartial, it should not matter whether they have a connection with the parties.
The decision not to include a duty of independence may surprise some, particularly non-English lawyers, who might expect independence and impartiality to be inextricably linked and that independence should be a requirement in order to sit as an arbitrator – regardless of whether it would have any impact on that arbitrator’s ability to be impartial.
The paper then asks stakeholders whether the Act should specify the state of knowledge required of an arbitrator for their duty of disclosure. If yes, it asks whether that duty should be based upon an arbitrator’s actual knowledge, or also upon what they ought to know after making reasonable inquiries. The existing case law already requires disclosure, but is silent as to the state of knowledge behind that disclosure. It follows that if the Commission concludes that arbitrators are required to make reasonable inquiries, this may not have any practical impact on the systems that are already in place to ensure that arbitrators can make a disclosure.
Summary disposal
The consultation paper proposes that a new non-mandatory provision be added to the Act to allow the tribunal to adopt a summary procedure. It suggests that the threshold should be that a claim, defence or issue has no real prospect of success, and there is no other compelling reason for it to continue to a full hearing. This is a very welcome development which, as the Law Commission explains, should remove any doubt as to the availability of this procedure under English law and would reassure foreign enforcing courts that a proper process has been followed. As summary procedures already form part of some institutional rules, institutions will need to consider the interaction between their rules and this new provision, and whether any changes are required.
S44 – third parties
There has been a protracted debate and some confusing case law about whether S44, which provides that the court has power to make interim orders in support of arbitral proceedings, applies to third parties. The consultation paper discusses this but does not reach a firm conclusion: instead it asks consultees whether S44 should be amended to state explicitly that orders can be made against third parties, recognising that as S44 imports law from domestic legal proceedings, whether an order against a third party is available will depend on the particular order and applicable rules.
Emergency arbitrators and the problem of Gerald Metals
Given that the concept of emergency arbitration did not exist at the time that the Act was first drafted, the consultation paper looks at whether any updates are required to accommodate this innovation into the arbitration regime. The paper provisionally concludes that the general provisions of the Act should not apply to emergency arbitrators because it would not be appropriate for most of the Act to apply to them. This constitutes a departure from the approach in other jurisdictions such as Singapore, which has applied the entire legislative framework to emergency arbitrators. The paper, however, recognises a need to support the emergency arbitration process and suggests ways in which parties could enforce emergency arbitrator orders (either by issuing peremptory orders which could be escalated to the courts or using S44(4), which would need to be amended for this purpose). This is an interesting question, which may need to take into account any time pressure and how quickly the main tribunal can be constituted.
In the context of S44, the paper also addresses the thorny issue of whether the existence of emergency arbitrator provisions precludes an application to court under section 44(5) (which is the perceived consequence of the Gerald Metals v Timis case, though the Law Commission states that the reach of this ruling has been exaggerated). The effect of S44(5) is that the court shall only act if or to the extent that the arbitral tribunal “has no power or is unable for the time being to act effectively”. In considering this issue, the Law Commission proposes repealing section 44(5) on the basis of redundancy, given that the requirements for the court to act are already set out elsewhere in section 44. This would put an end to the confusion caused by Gerald Metals and the practice of excluding emergency arbitrator provisions in arbitration clauses – and confirm the rights of parties to seek interim relief from the courts under S44.
S67 – appeal rather than re-hearing
The paper proposes that where a party has participated in arbitral proceedings and has objected to the jurisdiction of the tribunal, and the tribunal has subsequently ruled on jurisdiction in an award, then any subsequent challenge under section 67 of the Act should be by way of appeal and not a rehearing. This would represent a departure from the current regime which requires a full re-hearing on jurisdiction. The paper makes this proposal in order to reduce the delay and cost associated with the process. The Law Commission also notes that the current scheme is potentially unfair, as the losing party can raise new arguments before the courts that were not raised before the tribunal. The proposal would avoid the so-called “double hearing problem”, but allow the court to retain the final say on the tribunal’s jurisdiction. This is a sensible solution that is likely to be welcomed by the arbitral community, especially as it will not apply to an applicant who has not taken part in the arbitral proceedings.
The paper also proposes clarifying that an arbitral tribunal that has ruled that it has no substantive jurisdiction can still make an award of costs. Although perhaps counter-intuitive, this solution would avoid the unenviable position that a party who successfully objects to jurisdiction might find themselves in – where they have to start new court proceedings in order to recover their costs of winning on jurisdiction.
S69 – no change needed
Under section 69, a party to arbitral proceedings may appeal to the court on a question of law arising out of an arbitral award. This is a non-mandatory provision that requires the agreement of the parties, and the court will only give permission if certain threshold requirements are met. This provision is not widespread internationally. In particular, there is no similar provision in the UNCITRAL Model Law. The Law Commission has noted that it received diametrically opposing views from stakeholders regarding this provision – some wanted to repeal the provision entirely (in favour of finality of awards), whereas others though it should be liberalised (to ensure that the law is applied consistently). The Law Commission concludes that on balance, S69 is already a fair compromise between these two positions, and that there is no evidence to suggest that it is problematic in practice. This is an unsurprising conclusion given the competing views that have been expressed.
Other proposed amendments
Other amendments proposed by the Law Commission include prohibiting discrimination in the appointment of arbitrators, strengthening the immunity of arbitrators from legal liability, amending the provisions on provisional awards, making S7 (separability of arbitration agreements) a mandatory provision, and updating the Act to be compatible with modern technology.
Comment
The consultation paper is to be welcomed by the arbitral community. It represents a comprehensive fine-tuning of the Act – the proposals aim to fix the “flat notes” in the legislation, whilst ensuring that the rest are still “in pitch” for modern arbitral practice. The proposed changes that are likely to particularly resonate are the introduction of summary procedure, the proposal to move to an appeal rather than a rehearing under s67, and the repeal of S44(5).
HSF will respond to the consultation paper and we shall continue our active engagement in this significant initiative.
For further information, please contact:
Paula Hodges KC, Partner, Herbert Smith Freehills
paula.hodges%20kc@hsf.com
