The Law Commission has published a second consultation paper as part of its ongoing review of the Arbitration Act 1996. An initial consultation paper containing proposals for reform was published in September 2022 (see our October 2022 On the Record blog post on this paper).
Persuaded by a significant number of respondents to the first consultation paper, the Law Commission has published this second consultation paper to consider the issue of the proper law governing arbitration agreements and make proposals in this regard. It also has taken the opportunity to revisit two issues covered in the first consultation paper: jurisdictional challenges against arbitral awards under section 67 and discrimination in arbitral appointments.
Proper law of the arbitration agreement
In Enka v. Chubb[1], the UK Supreme Court held that when there is no choice of law for the arbitration agreement, but there was an express or implied choice of substantive law for the main contract, the same law would apply to the arbitration agreement. Departing from the decision in Enka, the Law Commission has proposed a new rule that the law of the seat of the arbitration will apply to the arbitration agreement by default, unless the parties specify otherwise. According to the Law Commission, this new rule would simplify the issue and would likely result in more arbitration agreements being governed by English law due to London’s popularity as an arbitration seat.
Process for jurisdictional challenges under section 67
Under section 67 of the Arbitration Act, a party can challenge an award before English courts when the arbitral tribunal lacks substantive jurisdiction to issue its decision. Currently, this challenge would involve a full rehearing. In its first consultation paper, the Law Commission instead proposed that any challenge under section 67 should be by way of an appeal.
In its second consultation paper, the Law Commission acknowledges that there are strong views on both sides of this debate. On the one hand, an appeals process is more deferential to the arbitration proceedings, thus rendering London as a more attractive seat. By contrast, the proponents of a rehearing believe that the Law Commission’s proposal would unjustifiably constrain the court’s function and erode an essential safeguard intended to prevent a tribunal from ascribing jurisdiction to itself.
In light of such divided opinion, the Law Commission has reconsidered its initial position and suggested that the limitations be implemented through court rules, rather than by amendment of the Arbitration Act. Specifically, the Law Commission proposed that any challenge under section 67 should follow these new rules:
- The court should not entertain any new grounds of objection or any new evidence, unless even with reasonable diligence, the grounds or evidence could not have been advanced or submitted before the tribunal.
- Evidence should not be reheard, save exceptionally in the interests of justice.
Discrimination in appointment of arbitrators
The Law Commission’s first consultation paper suggested that an arbitration agreement containing provisions for the appointment of an arbitrator based on the arbitrator’s protected characteristics (as set out in the Equality Act 2010) would not be enforceable, unless it was a proportionate means of achieving a legitimate goal. One of the protected characteristics under the Equality Act is race, which includes nationality. However, as noted in several responses, it is common for parties to choose arbitrators of different nationalities to the parties to ensure impartiality.
The Law Commission has now revised its views on this matter, proposing that it should be deemed justified to require an arbitrator to have a nationality different from that of the parties.
Summary/next steps
Consultee responses to the second consultation paper, along with responses to the first consultation, will inform the Law Commission’s final report and recommendations, which we expect to be published this summer.
Responses can be submitted via this online form or by email. The deadline for all responses is 22 May 2023.
[1] Enka Insaat ve Sanayi AS v OOO Insurance Company Chubb [2020] UKSC 38.
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