Pinsent Masons involved in ‘softening’ of proposed Arbitration Act reforms

The body, which advises the UK government on legislative reform, is currently in the process of reviewing the 1996 Arbitration Act. It believes major changes to the Act are not necessary but that “several discrete topics” might merit reform. It opened an initial consultation on proposed reforms last autumn and has now issued a second consultation paper with amended proposals (70-page / 769KB PDF) that account for the feedback it received.

As part of its initial proposals, the Law Commission proposed changes to section 67 of the Act, which allows a party to arbitral proceedings to challenge an award of a tribunal seated in England and Wales as to its ‘substantive jurisdiction’, or seek a declaration that an award on the merits of a dispute has no effect on the grounds that the tribunal lacked substantive jurisdiction.

At present, a section 67 challenge involves a full re-hearing by the court of the jurisdictional objections, which can include a re-examination of the facts regardless of the tribunal’s findings, and irrespective of the arguments which were advanced by the parties in the arbitration.

In its initial consultation, the Law Commission had said that the role of the courts should be restricted to hearing an appeal on the tribunal’s decision on jurisdiction. This would mean courts would not be able to open up the tribunal’s findings of fact, re-hear the evidence put before the tribunal, or accept new evidence or argument that was not advanced in the arbitration. The Law Commission cited the potential delays and increased costs of a full re-hearing, and the fact the losing party may gain an advantage from “a dress rehearsal” of arguments in arbitration, as the reasons for its proposals.

However, the Law Commission has now said its position on the issue has “evolved” in response to feedback it had received during its first consultation – including from international law firm Pinsent Masons, which recommended against placing restrictions on court re-hearings. In setting out the range of views on this issue which informed the development of its position, the Law Commission cited an extract from Pinsent Masons’ submission in its latest consultation paper. It read: “Jurisdiction is therefore a binary question: a tribunal either has it or it does not, and the consequence if the latter is found to be true is that the basis of the entire process and any award rendered by the tribunal will be illusory… It is therefore appropriate that, for such a fundamental issue, the court should have the ability to rehear the evidence unrestricted by the evidence that was placed before the tribunal, the tribunal’s controls on the evidence that was presented, or its findings of fact.”

The Law Commission said it now favours “a ‘softer’ mode of reform”, stating in its latest consultation paper: “Rather than use the language of appeal or rehearing, instead we particularise what we propose should be the limits of that challenge: (1) the court should allow the challenge where the decision of the tribunal on its jurisdiction was wrong; (2) the court should not entertain any new grounds of objection, or any new evidence, unless even with reasonable diligence the grounds could not have been advanced or the evidence submitted before the tribunal; (3) evidence should not be reheard, save exceptionally in the interests of justice.”

“In our view, this is compatible with the current language of section 67. We also think that it is consistent with the case law, despite some views to the contrary. We propose that these limitations are best addressed through rules of court, rather than being enshrined in the Act,” it said.

Michael Cottrell of Pinsent Masons, who coordinated the firm’s response to the Law Commission’s consultation, said: “The Law Commission’s willingness to reconsider its approach to section 67 is to be welcomed, given how important the question of a tribunal’s jurisdiction is to the integrity of the arbitral process. However, its proposal to address the issue through rules of court risks introducing an unwelcome element of uncertainty into the availability of this vital supervisory power of the courts, particularly where subjective issues such as ascertaining whether a party has exercised reasonable diligence before allowing it to advance new arguments and evidence and the interests of justice must be determined.”

The Law Commission’s latest consultation also revisits the issue of discrimination in the appointment of arbitrators, which it covered in its first consultation, and addresses the question of the proper law of the arbitration agreement, which had been identified by respondents to the initial consultation as an area requiring reform. The latest consultation is open to feedback until Monday 22 May 2023.