The Law Commission has suggested widening its proposed ban on discrimination in arbitration from the appointment of arbitrators to the conduct of the arbitration generally.
The commission also proposed introducing a new “default rule” into the Arbitration Act 1996 to make it clearer which jurisdiction’s law applied to an agreement.
In a second consultation paper on reforms to the Act, the commission said it was retaining the proposal in its first consultation, launched in September last year, that terms in agreements requiring the arbitrator to be a “commercial man” or have another protected characteristic should be unenforceable.
The measure was backed by 46 respondents to the consultation, and opposed by 21, with a further 15 “non-committal” comments.
In its response, the Chartered Institute of Arbitrators described the arbitration industry as “insulated from the positive societal moves towards diversity and inclusion at all levels”.
It said arbitrators still tended to be overwhelmingly male and, “in the international context, Caucasian males from the northern hemisphere, whether as a result of conscious or unconscious bias”.
This created “ethical and legal questions” as to whether the existing Arbitration Act, by permitting or at least not actively opposing discrimination, could “be perceived as fully legitimate”.
The institute said there was “no doubt” that creating a legal obligation against active discrimination on the basis of protected characteristics was “the moral thing to do”.
A further response from Clare Ambrose KC, a full-time commercial arbitrator based at Twenty Essex, argued that participants were “equally likely to discriminate within the arbitral process” as in the appointment of arbitrators.
“To send an important signal about diversity and equality, any reform should not be limited to the criteria for appointment but should apply more generally to the conduct of arbitration.”
The Law Commission said it would retain its original proposal on discrimination, while adding a provision that it should “always be deemed justified to require the appointment of an arbitrator who has a different nationality from the arbitral parties”.
It then asked whether the ban on discrimination in appointing arbitrators should go further, so that “discrimination should be generally prohibited in the context of arbitration”.
In a further move, the commission proposed adding a new rule to the Act, stating that the law of the arbitration agreement was “the law of the seat”, unless the parties expressly agreed otherwise in the arbitration agreement itself.
Parties can nominate a “seat” for the arbitration different from the governing law of the contract containing the arbitration clause.
The leading case on the proper law of an arbitration agreement is the Supreme Court ruling in Enka v Chubb in 2020, which the Law Commission said would result in many more arbitration agreements being governed by foreign law.
“This is simply because many international contracts, despite providing for an arbitration to be seated in England and Wales, have a foreign choice of law clause in the matrix contract.
“In turn, this may lead to an increased need for parties to present expert evidence on how that foreign law governs the arbitration agreement, which might increase delay and costs. Also, the applicability of foreign law would also oust the law of England and Wales on a number of important topics, including: separability, arbitrability, scope and confidentiality.”
Although arguments against reform from respondents to the consultation were “well made”, the commission said a default rule in favour of the law of the seat would “remove uncertainty over which law governs an arbitration agreement”.
“A default rule in favour of the law of the seat would see more arbitration agreements governed by the law of England and Wales, when those arbitrations are also seated here.”
On the further issue of challenging arbitration awards on the basis that the tribunal lacked jurisdiction, under section 67 of the Arbitration Act 1996, the commission proposed that rules of court, rather than legislation, should make it clear that certain restrictions applied.
The court should not entertain any new grounds of objection, or any new evidence, unless “even with reasonable diligence” they could have been advanced before the tribunal.
Evidence should not be reheard, “save exceptionally in the interests of justice” and the court should allow the challenge “only where the decision of the tribunal on its jurisdiction was wrong”.