Steven Carey explains the amendments to the Arbitration Act 1996 that are set to come into effect later this year, and their likely effects

Arbitration is a form of proceedings where parties agree to have their disputes resolved by an arbitral tribunal (rather than going to court). It is confidential and allows the parties an element of input into the identity of the arbitral tribunal. It is particularly popular in the construction industry for international projects or where confidentially is key.

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The Arbitration Act 1996 governs arbitrations in England, Wales and Northern Ireland. One of the drivers behind this piece of legislation was a concern that London was losing out on the lucrative arbitration market to other locations. The Law Commission has been reviewing potential changes to it since January 2022. Consultation papers were published in September 2022 and March 2023, before the Law Commission’s final report in September 2023.

This has led to a draft bill amending the Arbitration Act 1996 that is now progressing through parliament; it is likely to become law later this year.

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While the bill does not make any sweeping reforms, it does contain some important developments. The Law Commission made 19 recommendations for reform, which are reflected in the bill.

Provisions that seek to avoid costly arguments about the law governing the arbitration and in relation to emergency arbitrators will streamline the process

The key changes are:

  • The legal system governing an arbitration Where the parties have not expressly set out the law applying to their arbitration agreement, the law of the “seat” of the arbitration (that is, the place where the arbitration is deemed to occur as a matter of law) will be the applicable law.
  • Impartiality Arbitrators will have a continuing duty to disclose any circumstances that might reasonably give rise to justifiable doubts as to their impartiality.
  • Emergency arbitrators Currently, there is no provision addressing the scenario where emergency arbitrators are appointed on an interim basis, where the arbitral tribunal has not yet been formed but there is an urgent matter that needs to be heard. The bill empowers a court to enforce peremptory orders issued by emergency arbitrators, and for emergency arbitrators to have the same power as normal arbitrators to give parties the permission to apply for court orders.
  • Challenging the arbitral tribunal’s award The Arbitration Act currently allows a party to apply to the court to challenge an arbitral tribunal’s award on the basis that the tribunal lacked substantive jurisdiction (for example, if there was not a valid arbitration agreement, or if the arbitral tribunal was not properly constituted). The bill provides for a procedure to be followed in these cases – for example, regarding the evidence that a court would consider. The bill also clarifies the date from which the 28-day time limit begins to run for challenging an arbitral award on the basis of a lack of substantive jurisdiction, serious irregularity, or on a question of law.
  • Immunity and the removal of arbitrators Parties to arbitral proceedings may apply to the court to remove the arbitrator in certain circumstances – for example, if there are justifiable doubts as to the arbitrator’s impartiality. The bill states that an arbitrator will not have to pay costs of court proceedings relating to the arbitrator’s removal unless the arbitrator has acted in bad faith. This reasserts arbitrator immunity (arbitrators are not liable for anything done or omitted in the discharge of their functions unless the act or omission was in bad faith; this is so that arbitrators can make robust and impartial decisions).
  • Summary disposal Arbitral tribunals will be able to make an award on a summary basis in relation to a claim or issue, if the tribunal considers that a party has no real prospect of succeeding on that claim or issue.
  • Preliminary points of jurisdiction or law Under the Arbitration Act, parties to arbitral proceedings can apply to court for determination of questions of law or questions about the substantive jurisdiction of the tribunal. Such applications are currently only considered if all the parties agree, the tribunal gives permission, and if certain procedural requirements are satisfied (for example, that the court is satisfied that the determination of the question is likely to produce substantial cost savings). The bill simplifies this procedure, so that applications to court require only the parties’ agreement or the tribunal’s permission, and not these further procedural requirements.

The bill has recently had its second reading in the House of Lords and is currently with the special public bill committee, taking written and oral evidence on the bill and considering making amendments.

Ultimately the reforms in the bill, though not drastic, are likely to have a positive impact on the UK’s arbitration landscape. Provisions that seek to avoid costly arguments about the law governing the arbitration and in relation to emergency arbitrators will streamline the process. With the Law Commission estimating that there are around 5,000 domestic and international arbitrations in England and Wales every year, potentially worth at least £2.5bn to the economy, it is hoped that the reforms to the law governing arbitration will bolster the UK’s already strong arbitration market.

Steven Carey is head of the construction, engineering and projects group at Charles Russell Speechlys.