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The Arbitration Act 1996 (“The Act”)

An overview of the key provisions in the new Act by Nicholas Lakeland.

The Arbitration Act came into force on 31 January 1997 and is applicable to all arbitrations commenced after this date. The Act has been introduced to bring the UK’s legislation in this area up-to-date and to try to maintain and promote England as a venue for international arbitration. The Act aims to do this by consolidating previous legislation, and updating and clarifying a number of the provisions applicable to English Arbitrations. The Act is unusual in that it sets out objectives in Section 1 as follows:-

  1. ‘the object of arbitration is to obtain the fairest solution of disputes by an impartial tribunal without unnecessary delay or expense;
  2. the parties should be free to agree how their disputes are resolved, subject only to such safeguards as are necessary in the public interest;
  3. in matters governed by this Part the court should not intervene except as provided by this Part.

There are a number of provisions introduced by the Act which are divided into mandatory and non-mandatory provisions (see Section 4 and Schedule 1 of the Act). The most significant provisions of the Act are set out below:-

Agreement

Sections 5 to 7 of the Act require an agreement to arbitrate to be in writing. Beyond this requirement Section 5 provides a wide interpretation as to how parties may agree to arbitrate. They are not restricted to having to incorporate an agreement to arbitrate in a contract but may agree to arbitrate by way of exchange of written communication which need not even be signed by them.

Stay of Legal Proceedings

Section 9 of the Act has extended the power of the courts previously set out in Section 4 of the 1950 Arbitration Act to stay legal proceedings brought in contravention of a pre-existing agreement to arbitrate. The Act has extended the court’s powers to ensure that they can be applied where both a counterclaim as well as a main claim are being brought.

The Act expressly provides for a stay to be granted even though the parties are required by agreement to use methods of alternative dispute resolution before being able to commence an arbitration. This provision is in line with the current policy of the courts, which is to encourage litigants to explore alternative avenues of resolving disputes outside the legal system.

Time Limits

A new provision of the Act brought in by Section 13 permits the courts in certain specified circumstances to grant extensions of time for commencing an arbitration.

Removing an Arbitrator

The criteria for removing an arbitrator as set out in Section 24 of the Act have been clarified and apply if substantial injustice has been or will be caused to the parties and are as follows:

  1. If there are justifiable doubts about the arbitrator’s impartiality;
  2. If the arbitrator does not possess the qualifications required by the arbitration agreement;
  3. If the arbitrator is physically or mentally unable to conduct the arbitration or there are justifiable doubts that he is able to do so;
  4. If the arbitrator has refused or failed either:-
    1. to conduct the proceedings properly; or
    2. to use ‘all reasonable despatch’ in conducting the proceedings or making an award’.

This last provision emphasises the need for arbitration to be conducted speedily. This should encourage arbitrators to speed up arbitration proceedings which have in the past been prone to parties dragging them out in an attempt to persuade their opponents to lose interest in the arbitration.

General Duties in an Arbitration

Section 33 of the Act requires arbitrators to ‘act fairly and impartially between the parties‘ and to ‘adopt procedures suitable to the circumstances of the particular case’, and to avoid unnecessary delay or expense, so as to provide a fair means for the reduction of the matters falling to be determined.

Again the Act places an emphasis on speed and cost.

Arbitrators’ Powers

To assist the arbitrators in their quest for speedier and more cost effective arbitrations a number of powers are available to them under the Act.

Section 34 permits the arbitrator to decide on all procedural and evidential matters, thus enabling the arbitrator to set the timetable and decide on the scope of discovery of documents and what rules of evidence are to be applied.

Section 38 permits an arbitrator to award security for costs and order the preservation of physical evidence pertinent to the dispute.

Section 39 permits the arbitrator to make provisional awards.

Section 40 again emphasises the need for parties not to obstruct the arbitration by placing on them a duty to, ‘do all things necessary for the proper and expeditious conduct of the arbitral proceedings.’

Section 41 empowers arbitrators to make peremptory orders where a party fails to comply with the timetable set by them. This includes applying the ultimate sanction of dismissing the claim where serious prejudice is likely to be caused to a party.

The provisions of Section 41 are reinforced by Section 42 which provide for the courts to exercise powers to enforce peremptory orders which have not been complied with.

Awards on Different Issues

Section 47 permits arbitrators to make awards on different aspects of the claim. By segmenting the claim in this way the arbitrator is able to dispense with one issue at a time which may assist in speeding up the arbitration process as a whole.

Costs

Section 61 empowers the arbitrator to award costs.

Section 63 empowers the arbitrator, for the first time under English law, to determine what costs may be ‘recoverable’ by the winning party. This will avoid the necessity of the successful party having his costs taxed in the High Court and may result in a higher proportion of costs being recovered by a winning party.

Section 65 is also of particular interest since the arbitration may limit the recoverable costs in advance of the arbitration. The provision may prove useful where the arbitrator is attempting to encourage the parties to concentrate on the main issues in an arbitration.

Conclusion

The provisions set out above are necessarily limited to those considered by the writer to be of greatest interest. Practitioners and users of arbitrations await with interest to see whether the Act results in speedier and more cost effective arbitrations.

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