Key Contents of Proposed Amendment to English Arbitration Act and Implications in International Arbitration

A bill aimed at amending the English Arbitration Act 1996, the primary legislation governing arbitrations in England, Wales and Northern Ireland (the “Bill”), was introduced into the House of Lords on July 18, 2024.

The Bill was initially submitted to the House of Lords in November 2023, but was discarded due to the UK general election in July 2024. Following revisions, it has been reintroduced and will undergo review by the House of Lords Committee in September 2024 before it is presented to the House of Commons for further consideration and potential enactment into law.

In a survey conducted in 2021 by Queen Mary University of London and White & Case, London was chosen as the most preferred arbitration seat among practitioners worldwide. In practice, London is frequently designated as an arbitration seat for cases administered by institutions such as the International Chamber of Commerce (the “ICC”). Therefore, understanding the key components and implications of the Bill is essential.

The key provisions of the Bill to amend the Arbitration Act 1996 are as follows:

Clarification of Law Applicable to Arbitration Agreements

In arbitration, (i) the substantive governing law of a contract, and (ii) the governing law of an arbitration agreement contained within the contract are conceptually distinct. As the latter can determine the formation and validity of the arbitration agreement, it holds significant importance in arbitration proceedings, especially when the parties have not explicitly specified the law applicable to the arbitration agreement.

Under the current English Supreme Court’s precedent, if parties do not expressly specify the governing law of the arbitration agreement but do identify the substantive law of the contract, the latter is deemed to govern the arbitration agreement.

However, the Bill proposes a departure from this established practice of arbitration law. It provides that, if the parties do not expressly designate the governing law of the arbitration agreement, the law of the seat of arbitration, which is English law, will be the governing law of the arbitration agreement. Additionally, the Bill clarifies that merely specifying the substantive governing law of the contract does not constitute an explicit designation of the governing law of the arbitration agreement.

Streamlining Process for Challenging Arbitral Awards

Section 67 of the Arbitration Act 1996 allows parties to contest an arbitration arguing a lack of jurisdiction or disputing the merits. Traditionally, English courts have conducted a full rehearing in cases of jurisdictional challenges, as seen in the Dallah case.^[1]

The Bill introduces provisions that limit the court’s ability to rehear these challenges. Specifically, courts may be prohibited from accepting new evidence or arguments during jurisdictional disputes regarding arbitral awards. Furthermore, they may also be prohibited from reevaluating evidence that has already been reviewed by the arbitral tribunal.

Nonetheless, the Bill includes exceptions to these restrictions. These exceptions may apply (i) if a party could not have presented the evidence during arbitration even with reasonable diligence, or (ii) if it is otherwise required in the interests of justice. The specific criteria and the extent of these exceptions will need to be further clarified in the future.

Other Key Proposed Amendments

Additionally, the Bill proposes several measures to improve the speed and efficiency of arbitration proceedings including: (i) a provision granting the arbitral tribunal the authority to make an award on a summary basis without a fact-finding procedure if it determines that the issue, claim or defense “has no real prospect of success;” and (ii) a provision stating that an emergency arbitrator, appointed to address urgent matters prior to the full tribunal being constituted, will have power similar to that of the regular arbitral tribunal. Furthermore, provisions have been added and supplemented to enhance the independence of arbitrators, including: (iii) a provision imposing a duty to disclose any circumstances that might give rise to doubts as to the impartiality of an arbitrator or arbitrator candidate; and (iv) a provision strengthening the immunity of arbitrators regarding their resignations to foster impartiality.

For arbitrations conducted in England, Wales and Northern Ireland under the Arbitration Act, parties may appeal on legal grounds in certain circumstances – a unique feature not typically found in the arbitration laws of other countries that follow the UNCITRAL Model Law on International Commercial Arbitration (the “UNCITRAL Model Law”). Additionally, the Bill introduces provisions that diverge from the UNCITRAL Model Law, making it crucial to thoroughly examine the implications and significance of designating England, Wales and Northern Ireland as the seat of arbitration.

Specifically, once the Bill passes through Parliament and is enacted, the formation and validity of arbitration agreements for arbitrations seated in England, Wales and Northern Ireland will likely be governed by English law, unless the parties have explicitly chosen a different applicable law for the arbitration agreement. This approach seemingly conflicts also with the stance of the Supreme Court of Korea, which has traditionally aligned with precedents set by the English Supreme Court (e.g., Supreme Court Decision 2017Da225084, July 26, 2018). Given that English law is known for its broader recognition of the formation and validity of arbitration agreements, it is anticipated that parties will need to review the governing law, dispute resolution and jurisdiction clauses more diligently when entering into contracts with international elements.

Furthermore, according to the Bill, if the issue, claim or defense in an arbitration case lacks a substantial chance of success, the arbitral tribunal may issue a summary award, thereby expediting the arbitration process. Additionally, if parties seek to challenge arbitral awards in English courts (via a set-aside action), they may be restricted from submitting new evidence or claims beyond what was already submitted during the arbitration proceedings. Consequently, regardless of the contract’s governing law, it becomes essential for parties involved in arbitrations seated in England, Wales and Northern Ireland to thoroughly review all relevant facts and documentation from the outset and to adopt a strategic approach to the arbitration proceedings.

^[1] Dallah Real Estate & Tourism Holding Co v. Ministry of Religious Affairs of the Government of Pakistan [2010] UKSC 46.

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