Between 2016 and 2020, international arbitration grew by 26%. Following the 2021 International Arbitration Survey conducted by Queen Mary University of London and White & Case, London is currently the preferred seat for arbitration, jointly with Singapore. It is no small wonder, then, that the Law Commission is seeking to reform the Arbitration Act, passed 25 years ago in entirely different circumstances.
How radical are the proposed reforms contained in the Law Commission’s 2022 Consultation Paper? The answer: not very. The long-awaited consultation has been characterised by the head of Herbert Smith Freehills' London international arbitration group as 'fine-tuning rather than root and branch reform'. However, with international arbitration now contributing £2.5 billion to the UK economy, this area is more competitive than ever. Many believe that, after 25 years, more than just hedge-trimming is needed to maintain London as the most attractive destination for arbitration.
This article covers the background to the Arbitration Act 1996, a summary of the reforms being considered, and a spotlight on two potential areas for further reform to fully update the Act.
Background to the International Arbitration Act 1996
Before the Arbitration Act came into force in January 1997, an amalgamation of case law and statute was used for arbitral proceedings. When arbitral proceedings ramped up in popularity in the 1990s, this was no longer tenable. The introduction of the Arbitration Act 1996 was welcomed by arbitration lawyers globally. Lord Mustill described it as a ‘complete spring clean of English arbitration law’. For Lord Saville, it ‘broke parliamentary tradition by making narrative sense’.
In Halliburton v Chubb, Lord Hodge described the Arbitration Act as a framework that ‘allows judges to develop the common law in areas which the Act does not address’. However, the Act has since come under fire for providing too much interventionist power to the courts to develop arbitration law as they wish. One of the goals of the Law Commission’s consultation was to limit the role of courts and provide greater protection to arbitrators' decisions. Commercial certainty from arbitral tribunals rather than the discretionary jurisdiction of the courts aligns well with the expectations of global commercial parties.
Summary of reforms being considered
The topics outlined in the Law Commission’s Consultation Paper from 2022 as up for potential reform include confidentiality, independence of arbitrators and a duty of disclosure, discrimination, immunity of arbitrators, summary disposal of issues which lack merit, interim measures in support of arbitral proceedings, jurisdictional challenges against arbitral awards, and appeals on a point of law.
The main changes proposed include a statutory duty of disclosure for arbitrators, a bar to challenges of arbitral appointments based on protected characteristics, reversal of case law that would hold arbitrators liable for the costs of court proceedings, and a streamlined process to challenge an arbitral award on the basis of lack of jurisdiction under s.67. These proposed changes highlight the need to increase confidence in arbitrators and arbitral tribunals, removing the need for judicial intervention.
This is certainly the right track for arbitration law to increase security and trust in proceedings. However, there are two areas to flag where reform could go even further: confidentiality reform and appeals on points of law.
1) Confidentiality reform
Under the current Arbitration Act, there is no statutory definition of confidentiality. In its 2022 Consultation Paper, the Law Commission supports this position, indicating that any reform to confidentiality should be effected by case law rather than statute (see para 2.47). For example, the exercise of codifying exceptions and qualifications to confidentiality was thought to be too controversial and abstract for a statutory provision.
All this may have been true in 1996, but since then a raft of case law has developed providing much clearer guidance on the scope of confidentiality from real-life examples. For example, a list of exceptions to the default rule of confidentiality was identified by the Court of Appeal in Emmott v Michael Wilson & Partners Ltd [2008] EWCA Civ 184. Developing these principles in the form of statutory guidelines could be a desirable reform that brings the blurred edges of common law confidentiality into tighter focus. Delineating the bounds of confidentiality could also encourage more transparency, which would follow the lead of UNCITRAL, which has introduced new transparency standards by increasing public access to its arbitral proceedings. Another benefit could be increased trust and confidence in arbitration as a mechanism by parties. Arbitration by nature is a consensual process which parties turn to because of the discretion it affords, and so making it easier for parties to predict confidential proceedings should be appealing.
2) Appeal on a a point of law
Section 69 of the Arbitration Act, which the Law Commission advises retaining, gives parties the right to appeal on a point of law. Lord Thomas, the former Lord Chief Justice of England and Wales, is extrajudicially a fervent supporter of s.69. For him, ‘the UK went too far in favouring the perceived advantages for arbitration as a means of dispute resolution in London over the development of the common law’, and it is time to look again at the balance. Lord Thomas, among others, has even advocated a more flexible test for permission to appeal which would see the provision exercised much more frequently, to ‘leave arbitration as an important means of dispute resolution’.
However, is this the right approach to take? The better approach would be to remove s. 69 entirely. It is worth noting that the inclusion of s.69 stands in contrast to the law in many other jurisdictions, as well as the UNCITRAL Model Law which provides no similar provision. Additionally, no express right is given under the US Federal Arbitration Act to appeal an arbitral award on a point of law. US courts have previously found that awards could be set aside by a ‘manifest disregard of the law’, but even this position has been challenged by recent cases. As such, the UK’s choice to maintain the provision creates a perception of not being arbitration-friendly. In the future, commercial parties could be led away from London towards arbitral seats like those in the US where the security of an arbitral decision is not subject to the relative unpredictability of judicial intervention. By contrast, understanding the importance of finality to commercial parties would enhance London's attractiveness.
What's more, any safeguard offered by s.69 can be overturned relatively easily by parties. It is a non-mandatory provision, in contrast to rights to challenge awards under s.67 (lack of jurisdiction) and 68 (serious irregularity). This means that parties have the ability to opt out of it when they use clear language, such as in Shell Egypt West Manzala GmbH v Dana Gas Egypt Ltd [2009] EWHC 2097 (Comm). Even in the absence of clear language, an appeal on a point of law will still be barred when parties apply institutional rules like those of the ICC or LCIA which waive any right to a form of recourse regarding the award. Evidently, the loss of s. 69 would have no significant impact.
Conclusion
The limited scope for improvements to the Arbitration Act 1996 confirms the Law Commission’s claim that the Arbitration Act ‘functions very well’ and has certainly contributed to London’s reputation as a hot commercial destination for arbitration. Even so, an update to the Act after 25 years of change to the landscape of international arbitration is an invaluable opportunity for further reform. Aligning English arbitration law even more closely with industry standards, as in the two areas discussed above, could be just what London needs to maintain its attractiveness for commercial entities against rising stars Singapore, Paris, and Hong Kong.