Insights

Time for a change

The English Arbitration Act 1996 was, at the time of its inception, widely considered to be best in class. By September 2023, when the Law Commission published its final report on its review of the Act, the English arbitration regime was felt by some to have become stale by comparison with the equivalent legislation in other well-known arbitration centres, such as Singapore.

This article looks at the changes and innovations introduced by the new Arbitration Act 2025 and what they mean for arbitration participants, in particular for funders and funded parties.

Evolution, not revolution

The Arbitration Act 2025 revises rather than replaces the 1996 Act. It received Royal Assent on 24 February 2025, having benefitted from cross party support in its passage through the parliamentary process.

The UK government’s own website describes the Arbitration Act 2025 as a “new law to turbocharge the UK’s position as the world-leader in arbitration” which will “deliver millions more to grow the economy”. Judged by that yardstick alone, the revisions to the legislation are, at first blush at least, relatively conservative.

Once in force, the new Act will, for example:

•  empower arbitrators to expedite decisions when a claim or defence has no real prospect of success;
• impose on arbitrators a new duty to disclose any circumstances which might cast doubt on their impartiality;
• empower the English Court to make a number of orders in support of arbitral proceedings; and
• limit the ability of parties to rely on new evidence and arguments in support of an application to set-aside an award on the grounds that the tribunal lacked substantive jurisdiction.

The new Act is also notable for what it does not say, and in particular on the vexed question of confidentiality in arbitration. The authors of the 2025 Act have copied their predecessors in leaving the question of arbitral confidentiality outside the scope of the legislation, thereby leaving that important issue to be decided in the usual patchwork quilt of common law decisions.

The Law Commission also decided not to introduce any amendments to the Act in relation to third party funding of arbitration. The Act could conceivably have been amended to impose on funded parties a duty to disclose the existence of a third party funding agreement and/or confer on arbitrators the power to order disclosure of third party funding arrangements but the Act is silent on these points.

By contrast, several sets of institutional arbitral rules impose a duty of disclosure in respect of third party funding. For example, the ICC Arbitration Rules state that parties shall inform the arbitrators and the other parties of the identity of a third party funder. The ICSID Arbitration Rules go further, conferring on a tribunal a broad power to order disclosure in respect of third party funding, which may extend to the funding agreement.

Experience dictates that most sets of institutional arbitral rules eventually fall into line with each other; in the fullness of time, the likelihood is that even if the procedural law does not demand disclosure of third party funding arrangements, the applicable institutional rules will require some disclosure to that effect.

This approach allows rules to evolve in line with emerging practice in funding and funding disclosure, without the straightjacket of a statutory mandate.

Looking ahead

From the perspective of funders and funded parties, there are two significant take-aways from the changes in the new Act.

Firstly, anything that improves speed and efficiency in international arbitration is good news. Funders and funded parties seek to have disputes resolved as quickly as possible and at a reasonable cost. The new power giving arbitrators the ability to make an early determination, which is broadly similar to the power to order summary judgment in commercial litigation, ought to mean that fewer disputes are bogged down by transparently weak defences.

Similarly, unsuccessful parties who previously sought to challenge an award on the basis that the tribunal lacked substantive jurisdiction used to be entitled to a full re-hearing of the jurisdiction issue. That full re-hearing will now be very unusual. The net effect of this change is that it will be more difficult for recalcitrant parties to delay enforcement with spurious points on jurisdiction.

Secondly, anyone connected to the London legal market will be encouraged to see the new government using legislative change to promote England as a premier hub for legal services. The UK Government has correctly identified that there is no room for complacency in that regard.

Most of the parliamentary work on the 2025 Act was done prior to the UK General Election on 4 July 2024, but the outgoing Conservative administration ran out of time to ensure that what was the Arbitration Bill became law. The new Labour government has revived a pre-election bill that might otherwise have fallen by the wayside.

Another pre-election bill – the Litigation Funding Agreements (Enforceability) Bill – which also had broad cross-party support prior to 4 July 2024, has apparently fallen off the government’s “to do” list. That bill would have reversed the Supreme Court’s decision in PACCAR in which the Court ruled (in effect) that third party funders are not entitled to a return on their investment calculated as a percentage of recovered damages.

In the arbitration context, PACCAR is likely to apply (at least) where the seat of the arbitration is in London or elsewhere in England or Wales. The reversal of the decision in PACCAR would bring certainty to an area that has become confused and would restore an element of London’s competitive advantage over its rivals in the arbitration arena.

If the new government is serious about promoting its best in class legal sector, it should look again at the Litigation Funding Agreements (Enforceability) Bill and ensure that it follows the Arbitration Act 2025 on to the statute book.