A&O’s view on the Law Commission’s consultation on reform of the Arbitration Act (Part 2 of 3)

Immunity of arbitrators (ss.24/25/29)

The Law Commission has: (i) asked whether an arbitrator should incur liability for resignations, as it may currently (for resignations that are “unreasonable”) under s.25; and (ii) suggested that immunity should extend to the costs of related court proceedings, including for the removal of an arbitrator (s.24) (contrary to the findings in a limited number of cases). 

In our view, limiting the liability of arbitrators is important and s.29 (immunity of arbitrators) should therefore have broad application.  However, the scope of s.29 should have certain boundaries:

• It is critical that, in appropriate circumstances, an arbitrator is able to resign without incurring liability. However, an arbitrator that resigns for an “unreasonable” reason should be subject to liability. A resignation can be very disruptive to arbitral proceedings, with far-reaching time and cost implications for the parties. There must therefore be a deterrence against inappropriate, or “unreasonable”, arbitrator resignations (as there currently is under s.25). Nevertheless, we believe that s.25 requires amendment as the onus of establishing that a resignation was unreasonable should be on the party alleging impropriety, rather than on the arbitrator.

• We disagree with the proposal to extend immunity to the costs of removal applications. Other than in a small number of exceptional cases (cited by the Law Commission), arbitrators that have been removed have not been ordered to pay party costs. Nevertheless, an unreasonable and contested refusal to resign should be regarded in the same way as an unreasonable resignation, at least to the extent that a costs award against an arbitrator should be possible. However, beyond removal applications, it is not clear how cost liability could attach to an arbitrator for other types of court application (as appears to be the Law Commission’s concern). 

Discrimination in arbitral appointments

The Law Commission has proposed that a provision be added to the Act to expressly prohibit discrimination in the appointment of arbitrators. The Law Commission nevertheless recognises that it may be appropriate, in certain circumstances, to require an arbitrator to have a particular characteristic.

We do not have experience of arbitration clauses that refer to the protected characteristics of arbitrators and that would therefore be impacted by this reform. Nonetheless, we agree that improper discriminatory practices in the appointment of arbitrators should not be tolerated and support the aims of the Law Commission with this proposal.

However, we believe that any anti-discrimination provisions must clarify that nationality requirements in the form commonly seen in commercial contracts are permissible. Nationality is not itself a protected characteristic, but could arguably be a proxy for one in certain instances. But nationality is often used as a proxy for neutrality in arbitration agreements. Perceived neutrality is important to commercial parties. In some cases, if such provisions are rendered unenforceable, it may give rise to the risk that the entire arbitration clause will be unenforceable. There may also be issues at the stage of the enforcement of the award.

Therefore, for the sake of certainty, we believe that:

• the appropriate test for whether the reference to a protected characteristic should be enforceable is whether it is broadly justified, not whether it is strictly necessary;

• anti-discrimination provisions should expressly permit the inclusion of nationality requirements;

• the Act should clarify that only the requirement that is a protected characteristic of the arbitrator will be rendered unenforceable (rather than the arbitration clause as a whole); and

• the Act should explain whether the requirements apply retrospectively to clauses drafted before any amendment to the Act.

Arbitrator independence and disclosure

The Law Commission does not believe that the Act needs to impose a duty of independence on arbitrators. This is sensible: what matters is that an arbitrator is impartial and is seen to be impartial, not whether the arbitrator has a connection with a party. As the Act already establishes a duty of impartiality (s.33(1)(a)), a parallel duty of independence is not required.

We further agree with the Law Commission that the duty of an arbitrator to disclose any circumstances that might reasonably give rise to justifiable doubts as to their impartiality should be codified in the Act. As was noted in Halliburton v Chubb, a duty of disclosure promotes transparency in arbitration and is consistent with best practices. However, we do think the Act could go even further in stipulating the potential consequences of a failure by an arbitrator to make the requisite disclosure.

The Law Commission asks whether the Act should specify the state of knowledge required of an arbitrator’s duty of disclosure. We believe the Act should provide clarity here, as it would provide certainty as to what is required of arbitrators and would allow the parties to more easily assess non-compliance. The appropriate standard, in our view, is for the duty of disclosure to be based on both (i) the arbitrator’s actual knowledge and (ii) what he/she ought to have known after making reasonable enquiries.

Appeals on points of law (s.69)

The Law Commission has concluded that s.69 of the Act, which allows an arbitral party to appeal a question of English law arising out of an award (subject to opt out), does not require reform. We are in favour of maintaining s.69 in its current form, as we believe it strikes the right balance between protecting parties against the potential for significant injustice and respecting parties’ preference for finality where they choose to opt out of this right.

In light of this, we do not believe that s.69 should be repealed (as some have suggested). The section is rarely invoked and, where it is invoked, permission is rarely given. There is real value in blatant errors of law being rectified where parties have not opted out of this process. We do not consider that this process creates significant delays in the resolution of disputes, nor does it undermine the finality of the arbitration process. Equally, we do not believe s.69 should be expanded to allow more appeals (as others have suggested) because limiting the scope of appeals is a key reason for choosing arbitration over litigation.

Up next

In our third blog post in this series, we will cover A&O’s response to three additional areas for potential reform: (i) the timing for a challenge to an award; (ii) agreement on cost allocation; and (iii) the governing law of the arbitration agreement.