English Arbitration Act 1996 Law Commission Final Report: the missing pieces of the puzzle ?

What you need to know

• On 6 September 2023, the Law Commission published its Final Report (the Report) on the English Arbitration Act 1996 (the Act) together with a draft Bill.

• The recommendations comprise "a few major initiatives" and a "very small number of minor corrections", the combination of which serves to ensure that the Act remains state of the art and London continues to be the global hub for arbitration.

• While the recommendations are now with the Government for consideration it is important to reflect on what is missing from the proposed reform and what this means in practice. Two key issues which the Law Commission gave extensive consideration to but made no recommendations in respect of are Confidentiality and Discrimination, both of which are considered further below.

Key recommendations

Key recommendations in the Report include: 

• Governing law of the arbitration agreement: a new default rule providing that absent an express agreement of the parties to the contrary, the law which governs the arbitration agreement is the law of the seat of the arbitration;
• Section 67 challenges to substantive jurisdiction: a move away from the established procedure of a full re-hearing in section 67 challenges to an arbitral award on the basis of the tribunal's lack of substantive jurisdiction;
• Arbitrator duty of disclosure: the codification of the existing common law duty of arbitrators to disclose any circumstances which might reasonably give rise to justifiable doubts as to their impartiality. (It is proposed that the duty of disclosure should be extended to what the arbitrator ought reasonably to know; importantly it is noted that this does not necessarily translate into a positive duty to make inquiries, which will depend on the circumstances.);
• Summary disposal: conferring on arbitrators the express power to make an award on a summary basis to dispose of an issue where a party has no real prospect of success. (Notably, it is suggested that parties shall be able to disapply the provision and arbitrators can exercise their powers of summary disposal only upon application by one of the parties, thus protecting party autonomy while having the potential to improve the efficiency of proceedings.);
• Court powers: clarification that the section 44 court powers exercisable in support of arbitral proceedings are available against third parties;
• Emergency arbitrators: conferring on emergency arbitrators the power to (i) issue peremptory orders to be enforced by the court; and (ii) grant permission for applications to the courts under section 44(4); and
• Arbitrator immunity: strengthening the immunities enjoyed by arbitrators, including reform to provide that an arbitrator incurs no liability for resignation unless it is shown to be unreasonable and an arbitrator incurs no cost liability in respect of an application for their removal under section 24 unless they have acted in bad faith.

The missing pieces to the puzzle?

While the recommendations are now with the Government for consideration it is important to reflect on what is missing from the proposed reform and what this means in practice. Two key issues which the Law Commission gave extensive consideration to but made no recommendations on are considered below. (The Law Commission also decided against reform of section 69 of the Act, an 'opt-out' provision which provides for appeal on a point of law).

Confidentiality 

The Law Commission makes no recommendation of reform in respect of confidentiality on the basis that the "current approach" works well. The 'current approach' is in essence a mix of principles set out in the case law of England and Wales together with the wide-ranging approaches to confidentiality in the arbitral rules. Both the common law and arbitral rules continue to develop, in particular against the backdrop of the growing debate of 'transparency vs confidentiality' in arbitration. 

It therefore remains important for parties to engage actively in the selection of the applicable law and arbitral rules at the drafting stage. An understanding of the level of confidentiality afforded by any applicable law and/or set of arbitral rules, and how they may be evolving, is key. What remains abundantly clear is that no 'one size fits all' and parties keen to keep their information confidential must be alive to not only the options but also the exceptions in play. 

Discrimination 

The Law Commission "reluctantly" makes no recommendation for any further legislation with the Act to prohibit discrimination, "in particular the appointment of arbitrators by private parties". By not addressing what it accepts may be a "significant gap" in the way in which the law addresses discrimination by the parties in whom they appoint, the Law Commission is placing its faith in the arbitration community - including the parties - to play ball. There is no doubt that the arbitral institutions are keen to be seen as leading the charge when it comes to diversity of appointments; indeed the 'improved' statistics on diversity, in particular in terms of gender, feature heavily across the board in the latest institution annual reports. However, a closer look at the statistics reveals that there is a long way to go especially when it comes to appointments by private parties (i.e. the LCIA Annual Report 2022 revealed that parties selected a low percentage (19%) of women in 2022, only 3% higher than in 2021).  

It is important therefore for parties to participate consciously in the arbitrator appointment process and keep in mind their own 'duty' to address the diversity issue just as much as it is for practitioners to step away from the safety net of repeat appointees when providing their list of recommended arbitrators for consideration by the client. It will also be interesting to see whether the arbitral institutions respond to the Law Commission's suggestion that they could be encouraged to prohibit discrimination explicitly in their codes of conduct (to the extent that they do not already do so), and whether those prohibitions would extend beyond the actions of arbitrators to parties and their representatives. 

Moreover, there is perhaps a wider need for a reconsideration of the 'neutral nationality' approach; while it is general practice for parties to require an arbitrator to have a neutral nationality different from the parties (and the Law Commission agreed that this should be permitted) we find that it often isn’t clear cut that a potential arbitrator with a different nationality to the parties is in a traditional sense 'neutral' (i.e. because they have a close connection to the country of nationality of a party in ways other than 'nationality', such as work, family ties or political views). 

The resulting status quo in respect of Confidentiality and Discrimination has reiterated the importance of the parties playing a proactive and conscious role in two fundamental – but often (wrongly) overlooked - procedural decisions, namely the selection of the applicable law and/or arbitral rules at the drafting stage and the appointment of an arbitrator. 

Looking forward 

We will be writing more on our views in relation to topics arising out of the Law Commission's recommendations over the next few months, including confidentiality; section 67 challenges to substantive jurisdiction; and arbitrator duties of disclosure.

Authors: Amy Cable, Senior Expertise Lawyer; Matthew Saunders, Partner