Arbitration Act 2024 Update: Parliamentary approval is underway

On 7 November 2023, King Charles III made his first King's Speech in which the upcoming legislative programme of Rishi Sunak's Government was set out. One significant announcement was the Government's intention to introduce an Arbitration Bill (the “Bill”) to fine-tune the UK’s Arbitration Act 1996 (the “1996 Act”) in this Parliamentary session (due to end on 19 December 2023). Two weeks later, on 21 November, this much anticipated Bill was introduced into the House of Lords (https://bills.parliament.uk/bills/3515). Commenting on the Bill, UK Justice Minister Lord Bellamy stated: “These much-needed changes will modernise the role of arbitrators and further cement our position as a world leader in the field. The UK is a globally-respected hub for legal services, with English and Welsh law the bedrock for the majority of international disputes, and the Arbitration Bill will ensure businesses from around the world continue to come here to resolve their disagreements”.

The Bill is being introduced under a special fast track procedure as it is based on the Law Commission’s recommendations and considered uncontroversial. Given this legislative pace, we anticipate that a new UK Arbitration Act 2024 (“New Act”) will receive Royal Assent in early or mid-2024 and come into effect shortly thereafter.

This Legal Update discusses the changes introduced by the New Act. This update will be of interest to those arbitrating in England, Wales, and Northern Ireland. It will also be of interest to those in the wider international arbitration community given that the 1996 Act and related English case law has been (and continues to be) influential in many other jurisdictions.

Background

The 1996 Act is a highly successful piece of legislation that codifies English law on arbitration and applies to arbitrations in England, Wales and (save for minor exceptions) Northern Ireland. Scotland has its own arbitration legislation (Arbitration (Scotland) Act 2010). The New Act will have the same geographical coverage as the 1996 Act. This legislation is relevant to any arbitration seated in London (or elsewhere in England, Wales, or Northern Ireland) since it provides the legal framework for those arbitrations and sets out the boundaries of the court’s supervisory jurisdiction.

In 2021, marking the 1996 Act’s 25^th anniversary, the Law Commission initiated a review of the 1996 Act at the UK Government's request, to see if any amendments were needed to ensure it remained “state of the art” and continued to support England and Wales as the global first choice for international commercial arbitration. The Law Commission ran two public consultations in December 2022 and March 2023 – both of which Mayer Brown actively participated in - and published its Final Report with recommendations for ‘light touch’ reform, with a Draft Arbitration Bill, on 6 September 2023.  Just two months later, the Briefing Notes supporting the King’s Speech recorded that the UK Government had accepted all of the Law Commission’s recommendations. The Bill currently being considered by the UK Parliament is in substantially the same form as the Law Commission’s Draft Arbitration Bill (save for one noteworthy change relating to temporal application of the new rule relating to the law governing arbitration agreements, explained below).

Importance of London as a seat of arbitration

According to the Bar Council, given London’s “well-deserved reputation as the foremost centre for international arbitration”, it was “important to legislate to make the modest changes to the arbitration regime which the Law Commission has recommended in order to maintain and enhance that reputation.” The King’s Speech Briefing Notes cite estimates that international arbitration grew by c.26 per cent between 2016 and 2020 and highlight London as the world’s most popular seat of arbitration (corroborated by Queen Mary University’s 2021 Survey).

The success of international arbitration in London was also the focus of the recent Law Society’s International Data Insights Report, which noted London’s position as the most attractive centre for both commercial litigation and international arbitration and included data highlighting that 423 arbitrators were appointed in LCIA arbitrations in 2022, compared to 340 in Singapore and 159 in Hong Kong. Mayer Brown partner, Luiz Aboim, commented to Global Legal Post that “[a]s multiple arbitration centres continue to develop worldwide, the Law Society’s report demonstrates how the LCIA continues to be the pre-eminent arbitral institution globally.” He also stressed the need for London to remain an “agile and adaptable jurisdiction,” a goal which the Arbitration Act 2024 looks set to facilitate.

Given the popularity of London as a seat of arbitration and appreciating that England and Wales is a highly influential jurisdiction when it comes to arbitration (some foreign arbitration laws borrow from the 1996 Act and foreign courts often rely on related English jurisprudence), these legislative reforms are of upmost importance.

Key changes

The six most significant changes for arbitral users are summarised below, along with their rationale:

1. New default statutory rule to determine the law governing the arbitration agreement in the absence of party choice – this is a welcome change as recent case law on this topic is complex and has created some uncertainty. This change reverses the position adopted in some decisions that the law of the matrix contract governs the arbitration agreement (in the absence of party choice).

   In our prior Legal Update, we discussed the repercussions of this change. However, one key difference between the Draft Bill and the current Arbitration Bill relates to its temporal application of this new rule. It seems the new default rule will apply to all arbitration agreements whatever their date but will not apply to arbitrations or court proceedings commenced before the new default rule comes into effect. This remains subject to any transitional or saving provision that may be made in relation to this new rule. The provisions of the Draft Arbitration Bill would have applied the default rule only to arbitration agreements made after the new rule takes effect (i.e., early or mid 2024) and so would have taken a while to have an effect. Arguments about the law of the arbitration agreement in current proceedings may not be directly impacted.

   Businesses and States with contracts containing arbitration agreements need to be aware of this change. If they enter into a dispute after the date the new default rule is effective then the statutory rule will apply (regardless of the date of their arbitration agreement), unless they have expressly agreed the law governing their arbitration agreement.
   
   

2. New power of summary disposal enabling awards to be dismissed on a summary basis if a party has “no real prospect of succeeding” on a claim, defence, or issue (a test with a well-established meaning in English jurisprudence). This may, for example, be useful for financial institution parties involved in arbitration if they allege there is no real defence to non-payment of a debt.
   
   
3. The court’s powers in support of arbitration proceedings in respect of third parties have been clarified, as the position has been uncertain to date, and there are provisions promoting the enforcement of emergency arbitrator orders. Emergency arbitration enables parties to potentially obtain urgent protective measures before the constitution of the tribunal. As emergency arbitration is a recent phenomenon - hence not canvassed during the drafting of the 1996 Act - it has now been given due consideration by the Law Commission which decided to focus on addressing non-compliance of emergency arbitrators' interim orders (since respondents to the consultations raised concerns about the enforceability of such orders).
   
   
4. Codification of an arbitrator’s common law duty to disclose any circumstances which might reasonably give rise to justifiable doubts as to their impartiality (to make it more accessible than the current case law and to accord with international best practice). Case law has not yet addressed whether this duty should be based on an arbitrator’s actual knowledge, or an objective standard. The New Act will directly address this, confirming that arbitrator must disclose what they actually know and what they ought reasonably to know.
   
   
5. Revised framework for challenges to the tribunal’s jurisdiction under section 67 of the 1996 Act where a party has objected to the tribunal’s jurisdiction during the arbitration and the tribunal has ruled on jurisdiction. Such challenges will be more similar to an appeal rather than a full rehearing (as they currently are), since (i) no new grounds of objection or new evidence will be admitted and (ii) evidence will not be reheard (save in the interests of justice). Cost efficiency and seeking to prevent objecting parties having ‘two bites of the cherry’ are two key drivers behind this change.
   
   
6. Extension of arbitrators' immunity,to correct the challenges posed by the current law by ensuring arbitrators are not liable (i) for their resignation (unless the resignation is proved to be unreasonable) or (ii) for the costs of any application for their removal (unless they are proven to have acted in bad faith). This reform aims to strike the right balance in terms of fairness for both arbitrators and parties.

For more in-depth insight into these proposed changes, please read our prior Legal Update.   

The Law Commission’s consultation process was thorough and the resulting legislation has been introduced into Parliament in a timely way. The Law Commission and legislators have listened to the needs and criticisms of arbitration users, whose broad view was that the 1996 Act has stood the test of time and only needed fine-tuning rather than a major overhaul.

In our view, the New Act should promote London as a world-leading destination for arbitration in this competitive global market as well as maintaining London’s attractiveness as a place to enforce arbitral awards efficiently and effectively. In particular, having a clear, easily navigable default rule in relation to the law governing an arbitration agreement, which applies regardless of the chosen seat, should make enforcement proceedings smoother (given there has been ample satellite litigation on this topic at the enforcement stage). This may help avoid contradictory outcomes, such as those which occurred between the French and English courts in the case of Kabab-Ji, discussed in our prior Legal Update.