Green: Greater clarity in the law
The Law Commission has “reluctantly concluded” that banning discrimination in the appointment of arbitrators “could cause more problems than it solves”, particularly in triggering “unwarranted satellite litigation”.
In its final recommendations for updating the Arbitration Act 1996, the commission went ahead with other plans to give arbitrators the power to summarily dismiss claims that lack legal merit and strengthen their immunity.
During the consultation process, the Law Commission observed that women were three times less likely to be appointed as arbitrators than men and antiquated agreements still required arbitrators to be “commercial men”.
To address this, it first proposed [1] amending the Act so that “any agreement between the parties in relation to the arbitrator’s protected characteristics should be unenforceable”. In its second consultation earlier this year, it suggested widening this [2] to the conduct of the arbitration more broadly.
However, in its final report today, the commission said most of its consultees were against the move – not in principle, but for the negative practical consequences which might result by misuse.
“The key concern was to avoid giving disingenuous parties the opportunity cynically to leverage a law prohibiting discrimination to avoid their obligations under a sound arbitral award,” it explained.
The law already to some extent covered discrimination in arbitration proceedings, it said, while the Equality Act may apply to arbitral institutions.
The commission said it recognised that there was “still a gap” in the law over arbitrator appointments, but it had “reluctantly concluded that it could cause more problems than it solves” by going ahead with a ban.
“We think that it does no good to introduce a well-meaning law to improve arbitration, by prohibiting discrimination in the appointment of arbitrators by private parties, which has the effect of worsening arbitration, by encouraging satellite litigation or challenges.
“It diminishes the moral force of anti-discrimination campaigning if discrimination can be used as a cover for disingenuous complaint by arbitral parties seeking to avoid arbitration or an adverse award.
“Worse still would be any reform to the Arbitration Act that risks creating a regime which conflicts with the Equality Act, without even achieving a guarantee of more diverse appointments.”
On summary disposals, the commission recommended that, subject to the agreement of the parties, the Act should permit an arbitral tribunal to issue an award on a summary basis.
The procedure chosen should be a matter for the tribunal, having consulted the parties, and should only be used “where it considers that a party has no real prospect of succeeding on that issue”.
The commission recommended that arbitrators’ immunity from liability should be extended so that they incur no liability for resignation unless the resignation is shown to be unreasonable.
It also recommended that an arbitrator should not face a costs liability for an application for their removal under section 24 of the Act unless they have acted in bad faith.
Because of “conflicting views in the case law”, the commission recommended giving courts the power to make orders against third parties in support of an arbitration. However, section 44 of the Act should be amended to give such third parties rights of appeal.
On governing law, the commission recommended adding a new rule providing that the law which governs an arbitration agreement is either the law the parties expressly agree applies or, in the absence of such an agreement, “the law of the seat of the arbitration in question”.
The commission said this “would have the virtues of simplicity and certainty” and “see more arbitration agreements governed by the law of England and Wales” when arbitrations were seated here.
Professor Sarah Green, Law Commissioner for commercial and common law, commented: “Our recommendations for reform aim to maintain the core principles of the Arbitration Act 1996 while introducing improvements to create further clarity, ensuring the fair and efficient resolution of disputes.”
Justice minister Lord Bellamy added that the government would “respond to the Law Commission’s report shortly so we can maintain the UK’s reputation as a world leader in resolving legal disputes”.
Backing the recommendations, Nick Vineall KC, chair of the Bar Council, said: “It is extremely important that the government finds parliamentary time for the short bill which the Law Commission proposes.”
The “modest” changes proposed would “maintain and enhance” London’s reputation as the “foremost centre for international arbitration”, he said.