Arbitration Bill: What you need to know

Prior to the forthcoming election, the Government introduced an Arbitration Bill (the “Bill“) to Parliament aiming to fine-tune the existing Arbitration Act 1996 (the “Act“).

This was welcome news, and the hope is that the incoming government will want to maintain its focus on these important reforms not least as there are said to be over 5,000 arbitrations a year in England and Wales, worth £2.5 billion to the economy in fees. 

If the UK is to continue to be seen as a centre of excellence for arbitration, the underlying legislative framework must be kept up-to-date and retain its competitive edge.

What is arbitration?

Arbitration is a form of dispute resolution. Contracting parties can agree to appoint an arbitral tribunal (usually consisting of a panel of one or three arbitrators) to resolve any ensuing dispute for them.  After the tribunal has heard the evidence (which happens in much the same way as court proceedings, although less formal) the tribunal will issue a binding arbitral award setting out the arbitrator’s decision (again, like a court judgment).

What are the reforms?

The most significant reforms in the Bill include:

• Governing law of the arbitration agreement – a new default rule which provides that, unless the parties have agreed otherwise, the governing law of the arbitration agreement will be the law of the seat of the arbitration (i.e., the location selected by the parties as the legal place of the arbitration – not to be confused with the venue where any hearings may take place!). This amendment ensures that, unless the parties agree otherwise, English law, with its supportive approach to arbitration, will apply in respect of English seated arbitrations. This is a significant change to the existing position, which is that, where the parties have chosen the law governing the main contract, that law will, by implication, also apply to the arbitration agreement itself.
• Tightening up the rules on disclosure of conflicts – in particular, the tribunal must make the parties aware of any circumstances which might reasonably give rise to justifiable doubts as to their impartiality. This includes what the tribunal actually knows as well as what it ought reasonably to know.
• Summary disposal – a new express right for a party to apply to the tribunal for an order dismissing a matter summarily (i.e., without the parties having to go through the full arbitration process) if a party has “no real prospect of success”. Although tribunals can already dispose of a matter summarily under their general powers, making summary disposal an express provision in the new Act may mean it is more widely used.
• Clarification of the court’s powers in support of arbitration proceedings – the Bill clarifies that court orders in support of arbitrations (such as orders preserving evidence or granting interim injunctions) can also be made against non-parties.
• Promotion of the enforcement of emergency arbitrator awards – the Bill grants emergency arbitrators the power to issue peremptory orders and/or to apply to the court to order the parties to comply with them.
• Challenges to awards for lack of substantive jurisdiction – the Bill sets out a revised framework for courts to deal with a party’s challenge to a tribunal’s authority on the grounds of a lack of substantive jurisdiction, where such a challenge has already been made and ruled on in the arbitration.

When will the changes come into effect?    

Due to the election, this is now uncertain. It was likely to be later this year, but we will provide an update post 4 July.

What you need to do

For now, keep an eye out here for further updates.

We also recommend that you review the boiler plate provisions in your contracts and ensure that the applicable dispute resolution clause/mechanism is fit for purpose. 

For example, we see many organisations routinely providing for disputes to be resolved through non-compulsory negotiation/mediation, with litigation as a default if that is not successful. However, it's worth considering whether arbitration (and the specific benefits it brings, such as relative ease of enforcement, confidentiality and the ability to appoint sector specialists to the tribunal) may be a more effective form of dispute resolution. This will almost certainly be the case for entities operating cross-border and for those in the energy and tech sectors.

Final thoughts

Whilst the UK is currently a very popular choice for international arbitration, the choice of where to arbitrate is subject to intense international competition, particularly from places like Singapore. Investing in an update of the existing legislation could be seen as sending the message that the UK is serious about international business.

If you have any questions about the Bill or arbitration generally, please contact our experts below.