Introduction

The 2023 chapter of this guide detailed the proposals by the Law Commission of England and Wales (the “Law Commission”) for potential reforms to the Arbitration Act 1996 (the “Arbitration Act”). On the arbitration front, much has happened since, but much has also stayed the same.

As of 22 May 2024, significant progress towards a new amended Arbitration Act had been achieved. The UK Parliament had taken up the Arbitration Bill introduced in November 2023 and it had reached the committee stage in the House of Lords. Also relevant to arbitration, the UK government had introduced the Litigation Funding Agreements (Enforceability) Bill 2024 (the “LFA Bill”) to confirm the availability of litigation finance in England and Wales following the UK Supreme Court’s decision in R (PACCAR Inc) v Competition Appeal Tribunal (2023) UKSC 28 (“PACCAR”). But that legislative excitement died a quiet death on 22 May 2024 when Prime Minister Rishi Sunak called a general election on 4 July 2024. Perhaps unsurprisingly, neither the Arbitration Bill nor the LFA Bill made it to the “wash-up” period of the Parliament, in which pending bills that had the potential to become law were considered. Any forward progress on either legislation thus fell to Keir Starmer’s new Labour government.

All (arbitration) eyes were therefore on the Starmer government’s first King’s Speech on 17 July 2024. The plans for economic stability and growth outlined by the King included the Arbitration Bill but made no mention of the LFA Bill. At the time of writing (August 2024), there is still no enacted amendment to the Arbitration Act or a new litigation funding act. This update briefly summarises the developments that led to this point on both fronts and considers the possible path forward.

Amendment to the Arbitration Act

As mentioned in the 2023 chapter update, in March 2021, the Ministry of Justice asked the Law Commission to conduct a comprehensive review of the Arbitration Act. The purpose of the review was to determine if any amendments were necessary to ensure the Arbitration Act remains effective and attractive internationally. In 2022 and 2023, the Law Commission conducted two public consultations on the Arbitration Act and received feedback from 118 and 60 participants respectively. The responses were overwhelmingly positive, with respondents expressing support for the proposed reforms. On 5 September 2023, the Law Commission presented its report and a draft bill to Parliament. This draft bill incorporated all the recommended reforms put forth by the Law Commission.

Rishi Sunak’s government introduced the Arbitration Bill in Parliament in November 2023. The Arbitration Bill made steady progress and by May 2024 had reached the committee stage in the House of Lords. Once the election was called on 22 May 2024, no further progress was made on the Arbitration Bill.

Re-introduction

Keir Starmer’s Labour government swept to power on 4 July 2024 and wasted no time in announcing the Arbitration Bill in its first King’s Speech on 17 July 2024. The Arbitration Bill was then promptly (re-)introduced in Parliament the very next day on 18 July 2024. And the day after that, on 19 July 2024, a detailed “Arbitration Bill: Factsheet” (“the Factsheet”) followed.

Even though there are significant policy differences between the former Conservative government and the present Labour government, when it comes to arbitration reform, they have spoken with one voice. By way of example, the following justification for the Arbitration Bill from Lord Ponsonby, the Justice Minister, in the House of Lords is remarkably similar in tone and content to the stated impetus for the Arbitration Bill when introduced under the Conservative government: “This government is committed to securing the UK as a world leader in dispute resolution. Modernising the quarter-century-old laws around arbitration will make it quicker, cheaper and more efficient for people and businesses looking to settle legal disputes. And helping our world-leading legal services sector to flourish will cement the UK’s position in this high-value sector – worth at least GBP2.5 billion to the British economy every year.” The UK government’s unstinting support for a cutting-edge arbitration ecosystem in England and Wales is a welcome source of stability amid otherwise changing attitudes to arbitration across the world.

The Arbitration Bill introduces several updates and improvements to the Arbitration Act consistent with the Law Commission’s recommendations. These updates include:

• providing clarity on the applicable law for arbitration agreements to enhance certainty, minimise unnecessary litigation, and ensure appropriate support from arbitration laws;
• establishing a duty of disclosure for arbitrators to uphold impartiality and foster trust in the arbitration process;
• strengthening arbitrator immunity to protect against liability for resignations and applications for removal, thus enabling arbitrators to make fair and unbiased decisions;
• granting arbitrators the authority to issue summary awards on issues lacking genuine prospects of success – in doing so, improving efficiency and aligning with similar summary judgments in court proceedings;
• empowering emergency arbitrators to issue peremptory orders and to make relevant applications for court orders, thereby enhancing arbitrators’ effectiveness and providing them with access to court enforcement in a similar manner as non-emergency arbitrators; and
• amending the framework for challenges to an arbitral tribunal’s jurisdiction under Section 67 of the Arbitration Act, allowing new court rules to stipulate that such applications should not contain new evidence or arguments, thereby preventing jurisdiction challenges from becoming full rehearings and avoiding unnecessary delays and costs.

The Factsheet also crystallises the motivations behind the Arbitration Bill – namely, to ensure both:

• support for a sector that contributes substantially to the British economy; and
• competitiveness with other burgeoning arbitration hubs.

As regards the first rationale, per the Law Commission, at least 5,000 domestic and international arbitrations take place in England and Wales annually and contribute (as Lord Ponsonby noted) GBP2.5 billion in fees alone to the economy. The UK government wants to ensure – as it should – that the arbitration sector continues to thrive. For that to happen, England and Wales as a jurisdiction needs to measure up to its competition, which brings us to the second rationale.

While the Arbitration Act established a renowned legislative framework and confirmed London as a preferred venue for commercial arbitration worldwide, other jurisdictions have not sat still in the ensuing 28 years. To take just a few recent examples, Singapore amended its arbitration legislation in 2023, Hong Kong in 2022, Sweden and Dubai in 2018, and India in 2015 and then again in 2019. Additionally, in 2021, Singapore shared the top rank with London as the globally preferred choice for international arbitration. The former government rightly surmised the need to maintain, if not extend, the competitive edge enjoyed by London – and England and Wales. And the new government looks almost certain to succeed in enacting the vehicle considered most likely cement that edge (ie, the Arbitration Bill).

Put another way, given the strength of the Labour majority – and the opposition’s agreement with the Arbitration Bill they themselves had introduced – the authors anticipate reporting on the enacted amendments to the Arbitration Act in 2025’s update. Although it is not anticipated that the act as finally enacted will differ materially from the Law Commission’s recommendations, it is worth detailing certain concerns that have been raised during the consideration of the first Arbitration Bill, which may attract further amendments before passage.

During the Special Public Bill Committee (SPBC)’s debate of the Arbitration Bill in the House of Lords, as documented in Hansard, Lord Thomas introduced a new point regarding the potential impact of the new rule concerning the applicable law of arbitration agreements – specifically, in relation to investment treaty arbitration. Although the record does not delve into further specifics, it mentions that the UK government is actively considering this matter. Nevertheless, the House of Lords introduced an amendment providing for a carve-out provision in the new rule on the applicable law of arbitration agreements. The carve-out applies expressly to cases involving arbitration agreements in investment treaty cases (excluding ICSID arbitrations) and similar cases arising under foreign investment legislation. This amendment addresses earlier concerns raised about the need to maintain the application of public international law or relevant foreign law in such cases. ICSID arbitrations remain unaffected by the reform, as they are governed by a separate regime – namely, the ICSID Convention and the ICSID rules and regulations.

The House of Lords also considered the need to introduce enhanced powers for arbitrators to ensure the integrity of the proceedings. This discussion followed on from the blockbuster decision in Nigeria v PIDL (2023) EWHC 2368, in which the English High Court threw out a USD11 billion-plus award (including interest) as tainted by corruption. Hansard records that the UK government stated it was examining this area in consultation with major institutions. The current Arbitration Bill does not make any specific provision for such concerns, but arbitrator powers in respect of the integrity of proceedings appear to be a likely subject on which the present bill may see amendments.

Litigation Funding Bill

To tell the story of the LFA Bill, it is necessary to briefly canvas:

• the legal position in relation to litigation funding agreements in England and Wales before PACCAR;
• the changes wrought by PACCAR; and
• the ensuing need for clarity and the UK government’s response, as well as the potential path forward.

Before the PACCAR decision in 2023, litigation funding agreements (LFAs) in England and Wales were not generally considered to fall under the purview of the Courts and Legal Services Act 1990 (“CLSA 1990”) or the Damages-Based Agreement Regulations 2013 (the “DBA Regulations”). LFAs involve a third-party funder, usually an independent financial institution, who finances some or all of the legal costs in exchange for a portion of any damages awarded. LFAs typically did not comply with the DBA Regulations, which (among other things):

• require agreements to specify the reason for setting the payment amount at the agreed level;
• do not require payment of costs or disbursements already paid or payable by another party to the proceedings; and
• do not provide for a payment exceeding 50% of the sums ultimately recovered.

In this way, LFAs were widely used and considered attractive thanks to their flexibility. Many significant cases have benefited from LFA funding – the most recent notable example being the Post Office Horizon case.

PACCAR decision

PACCAR was a competition law case involving multiple truck manufacturers. The facts that led to this claim relate to a group of customers who had purchased trucks between 1997 and 2011. The EC determined that the sellers of these trucks had engaged in anti-competitive collusion behaviour. The affected customers wanted to bring collective anti-competition proceedings before the Competition Appeal Tribunal (CAT) in order to seek compensation for the losses caused by the agreement between multiple truck manufacturers.

The CAT only allows such claims to continue where it is satisfied that the class representative has sufficient resources to pursue the claim and satisfy any adverse costs order made against the representative. In this particular case, UK Trucks Claim Ltd (UKTC) and the Road Haulage Association (RHA) applied to the CAT for a collective proceedings order (CPO) against Paccar Inc, DAF Trucks NV, and DAF Trucks Deutschland GmbH (DAF) under Section 49B of the Competition Act 1998. They secured an order from the CAT that confirmed their ability to cover costs and adverse cost orders through funding arrangements with litigation funders and after-the-event insurance. However, the issue in question arose when DAF contended that the funding agreements qualified as damages-based agreements (DBAs) under Section 58AA(3)(a) of CLSA 1990, rendering them unenforceable owing to non-compliance with specified requirements of the DBA Regulations.

The CAT and the Divisional Court rejected the argument that the LFAs were DBAs, on the basis that they did not involve the provision of “claims management services”. The matter was referred to the Supreme Court.

In its judgment of 26 July 2023, the Supreme Court determined that LFAs in which the funder is entitled to a percentage of any damages fall within the statutory definition of DBAs. The court further ruled that such LFAs must comply with the DBA Regulations. Among other things, the majority concluded that litigation funding falls within the definition of “claims management services” as outlined in the relevant legislation, which encompasses the provision of financial services.

PACCAR aftermath

The PACCAR decision ignited widespread concern among litigants and funders. The court’s decision had the potential to make many LFAs unenforceable as drafted in the pre-PACCAR world. The regulations governing damages-based agreements are highly specific and strict, and the LFAs as drafted largely do not meet those requirements. This outcome raises concerns about the potential denial of access to justice for claimants.

The UK government tried to respond promptly. On 31 August 2023, the Department of Business and Trade publicly stated that it was “aware of the Supreme Court decision in Paccar and is looking at all available options to bring clarity to all interested parties”. 

Shortly after, in November 2023, the UK government made amendments to the Digital Markets, Competition and Consumers Bill (the “DMCC Bill”) in order to address certain effects of the PACCAR ruling. However, the government later removed the amendments because it introduced a standalone LFA Bill in March 2024.

On 4 March 2024, Alex Chalk (who was Lord Chancellor and Secretary of State for Justice at the time) announced that the UK government would introduce legislation to reinstate the position before the PACCAR ruling – specifically, that LFAs were not subject to the DBA Regulations. This legislation aimed to ensure continuity of funding through LFAs. The UK government noted that the Supreme Court judgment had made many LFAs unenforceable owing to non-compliance with the DBA Regulations and CLSA 1990. The government expressed concerns that the uncertainty surrounding LFAs resulting from the PACCAR ruling could hinder access to justice and diminish the attractiveness of England and Wales as a hub for commercial litigation and arbitration. The proposed legislation would seek to restore the position and maintain litigation funding as a viable method of financing.

The cover note accompanying the LFA Bill synthesised the concerns widely shared in the aftermath of PACCAR and posited the LFA Bill as necessary to “allow the government to deliver a return to a litigation funding regime which promotes access to justice, as well as enhancing the competitiveness of the jurisdiction”.

In operative part, the LFA Bill amended Section 58AA of CLSA 1990 to provide that LFAs as defined by the amendment are not DBAs, thereby effectively reversing the Supreme Court’s decision in PACCAR. Clause 1 also provided that the amendments made to Section 58AA of CLSA 1990 therein would be treated as always having had effect, thus removing any apprehension as to LFAs pre- or post-dating PACCAR.

Like the Arbitration Bill, the wording of the LFA Bill seemed to enjoy cross-party support, and there is generally widespread support for taking action to address issues related to litigation funding. The LFA Bill had advanced relatively smoothly through the House of Lords and had successfully passed its second reading on 15 April 2024. If and when the LFA Bill returns, it is likely that the drafted intention to give it retroactive effect may attract dissension. During the readings in the House of Lords, this aspect – which could potentially give rise to future disputes between funders and litigants – continued to be subject to debate.

Despite the widespread support and the generally recognised need for reform, uncertainty lingers over the LFA Bill and LFAs in general. While certain specifics still need to be resolved, such as the potential introduction of more explicit regulations for funders and funding agreements, clarifying the status of LFAs should be an important consideration for the new government. Demonstrating a commitment to ensuring access to justice through a new LFA Bill will complement the UK government’s efforts in relation to the Arbitration Bill and further cement the appeal of England and Wales as a favourable destination for dispute resolution.