A&O’s view on the Law Commission’s consultation on reform of the Arbitration Act (Part 3 of 3)

We identify in our response three areas for potential reform that go beyond the proposals in the consultation paper.

The governing law of the arbitration agreement

The Law Commission has indicated that it is “not yet persuaded” that the Act should contain a default rule that the law governing the arbitration agreement is the law of the seat of the arbitration. The current position would therefore continue to apply (as outlined in Enka v Chubb): where there is no express choice of law to govern the agreement to arbitrate but there is an express choice of law to govern the contract, the latter is likely to be found to be an implied choice of the law of the arbitration agreement.

We believe that it would be worth considering (and consulting further on) enacting a rule that, in the absence of an express choice of the law of the arbitration agreement, the law of the seat (rather than the law of the contract) should govern the arbitration agreement (contrary to Enka v Chubb). 

This is principally because: 

• this will increase the likelihood that sensible rules of construction and interpretation will apply, as  commercial parties generally agree on a seat of arbitration that is arbitration-friendly, including having sensible substantive rules on interpretation;

• it is more likely to be a neutral choice as between the parties to the transaction, because parties commonly choose a neutral forum as a seat of arbitration; and

• there are practical benefits, for example in making it easier to seek urgent relief from the English courts in support of a London seated arbitration because the court would not need to hear foreign law evidence.

Applicable deadline for the challenge to an award (s.70(3))

The Law Commission has proposed that the timing issues relating to the deadline for challenging an arbitral award under s.70(3) be fixed (to reflect case law). This change would assist a party that is pursuing an application under s.57 of the Act (to correct/clarify an award or for an additional award) that is materially relevant to an intended challenge to the award. The 28 day time limit for challenging the award would run from the date the party was notified of the s.57 decision, rather than the date of the award.

This is sensible. When a tribunal issues an award, the parties will ordinarily consider whether to seek to correct/clarify the award, while at the same time considering whether to challenge the award. Those processes are often overlapping, both in their timing and substance. If there has been an application under s.57 that is materially relevant to the ground(s) of challenge under s.67/68/69, it is inefficient for a party to be required to challenge the award before the conclusion of the s.57 process (as the language in the Act suggests).

However, in our view, the same concern also arises if a party is making an application that is under ‘an agreed process to the same effect’ as s.57. Parties often agree to depart from the process under s.57 by the incorporation of institutional rules. If a party makes an application under a rule that is similar to s.57 and that has a material bearing on a proposed challenge, it should benefit from the time extension that is to be afforded to applications under s.57. Thus, s.70(3), and s.70(2), require and additional amendment to reflect recourse to a process to the same effect as s.57.

Agreement on cost allocation prior to a dispute arising (s.60)

S.60 of the Act provides that an agreement on the costs of an arbitration is only valid if it is made after a dispute has arisen. The Law Commission do not propose any change to s.60 and address it only briefly in the consultation paper. In our view, there are policy reasons to revisit this default rule.

Parties should be able to agree, prior to a dispute arising (i.e. at the time of contracting), on the apportionment of costs in an arbitration. This would strike a better balance between protecting consumers where there is a disparity in bargaining power and upholding freedom of contract between parties of equal bargaining power.

We would therefore propose that while s.60 should be considered the default rule, the Act should be revised to provide the tribunal with the discretion to uphold an existing agreement as to costs between the parties.

Next steps

We look forward to continuing to engage with the Law Commission’s review process. The Law Commission is due to publish its final recommendations in mid-2023 and we will review, report on and engage with stakeholders on those recommendations at that time.