Reforms to English Arbitration Act postponed due to UK general election

As we reported at the start of the year, certain reforms to the Arbitration Act 1996 were expected to be enacted by the UK Parliament in the course of 2024. However, following the UK Prime Minister’s recent announcement of a general election on 4 July 2024, the reforms have been stopped in their tracks: they will no longer be enacted in the current Parliament and their future will be decided by a subsequent Parliament – and potentially a different Government – after the general election.

Following a two-year consultation process conducted by the Law Commission, the Arbitration Bill (the Bill) was introduced in the House of Lords in November 2023. As we previously summarised, the Bill contains a number of key reforms that would consolidate London’s position as a leading seat for international arbitration, including with respect to:

• the law governing an arbitration agreement;
• a tribunal’s powers to summarily dismiss meritless claims and defences;
• court powers in relation to interim relief in support of arbitration proceedings; and
• court applications challenging awards on jurisdictional grounds.

The Bill had recently undergone a review by a UK House of Lords Special Public Bill Committee chaired by Lord Thomas. The next stage was due to be the Report Stage, scheduled for 12 June, during which there would have been a further review of the Bill before its final reading in the House of Lords. The Bill would then have been referred back to the House of Commons before moving to the final stages and Royal Assent.

When a general election is called, Parliament is dissolved and all existing parliamentary business that is not completed during a “wash-up” period falls away. The “wash-up” period gives the Government an opportunity to push through any final legislation before Parliament is dissolved and is generally used to pass uncontroversial bills that are already in the final stages of their passage through Parliament.

Following the announcement of the general election on 4 July, the “wash-up” period lasted only two days, and the Bill was not included. This may be because the Bill had not progressed far enough through the Parliamentary stages by the time the election was called.  It may also have been relevant that two substantive issues had been raised during the House of Lords’ review of the Bill which had not yet been resolved and warranted further consideration.

The first issue relates to Clause 1 of the Bill, which concerns the governing law of an arbitration agreement. Clause 1 would amend the position under English law set out in the recent decision of the UK Supreme Court in Enka v Chubb.  Departing from Enka, Clause 1 states that an arbitration agreement is governed by the law of the seat of the arbitration, unless the parties expressly agree on a different law. The Special Public Bill Committee raised an issue regarding the applicability of Clause 1 to non-ICSID investment treaty arbitrations seated in London. In such circumstances, the arbitration agreement arises from an investor commencing arbitration under the investor-state dispute settlement provisions of an international treaty concluded between sovereign States, the interpretation of which may be subject to principles of public international law. The Government sought input on this point from experts in the arbitration community, including Freshfields, in the very final stages of its consideration of the Bill. 

The second issue arises from the recent decision of the English High Court in P&ID v Nigeria (which we discuss here). Following that decision, the UK Ministry of Justice instructed a Parliamentary committee to consider any further reforms that may be necessary to the Arbitration Act 1996. In P&ID v Nigeria, the Court set aside a multi-billion-dollar award due to corruption tainting both the underlying contract and the parties’ conduct during the arbitration proceedings. 

Whatever the reason why the Bill was left out of the “wash-up”, the arbitration community are currently left with a fallen Bill and the process will need to start again with the new Parliament, resulting in delay and uncertainty surrounding the future of the reforms. It is hoped that the Government in place after the election will pick up the Bill promptly and that it will enjoy smooth passage through Parliament, with careful consideration given to the two important issues above.