Following on from our previous commentaries on the Law Commission’s Consultation Paper (“CP”) summarising its review of the Arbitration Act 1996 (“the Act”), we now turn to the fourth issue the Commission considered: arbitrator immunity.
For arbitrators to properly perform their impartial function, and to ensure finality of the dispute resolution process, arbitrators cannot be held liable for anything done or omitted in the discharge of their duties, unless that act or omission is shown to have been in bad faith. So states s.29(1) of the Arbitration Act (“the Act”).
However, it is not an absolute immunity. There are two ways in which an arbitrator may incur a liability for costs in the arbitration, and that is resignation or through their removal.
Section 29(3) of the Act states that the overarching immunity rule in s.29(1) “does not affect any liability incurred by an arbitrator by reason of [their] resigning”, cross-referring to s. 25, which allows the parties to agree with an arbitrator as to the consequences of his/her resignation and regarding “any liability thereby incurred”.
There may be a number for reasons why an arbitrator might resign – reasonable or unreasonable - which risk of the arbitrator having to bear the liability (and therefore cost) for doing so. Whilst an arbitrator may apply to the court for immunity from liability, such applications mean incurring upfront costs, and London courts may not be accessible for some (particularly overseas) arbitrators.
The CP does not make a proposal either way on whether the immunity “carve-out” for an arbitrator’s resignation should remain in the Act or not, and asks consultees to provide their responses on this question.
In contrast, the Act is silent as to whether an arbitrator who is removed from position should bear any liability for his removal. On its face it appears that immunity under s.29(1) extends to such situations.
However, there have been a series of cases which suggest that an arbitrator who has had their authority revoked, may be liable for the costs of an application to the court seeking their removal and potentially to the costs of any application to the court challenging the arbitrator’s conduct, jurisdiction and appeals under sections 67-69 of the Act.
Given (i) the conflict between the wording of the Act and recent decisions on this issue, (ii) the fact that it introduces a liability for which there is no professional indemnity insurance to cover costs orders made against the arbitrator, (iii) the risk that exposure to liability may have the result of undermining the arbitrator’s neutrality (as the arbitrator feels he/she cannot risk an adverse cost finding were they to challenge an application for removal or resignation and simply consent to the applicant’s demands), the CP comments that the current situation is unsatisfactory.
The CP’s provisional proposal is that the wording of the Act relating to arbitrator immunity is made more explicit to extend to the costs of court proceedings arising out of the arbitration.
It remains to be seen whether changes are made to the Act. It seems clear that there needs to be greater clarity on arbitrator immunity. For many the risk that an arbitrator may submit to one party’s application for removal/resignation through fear of incurring the cost of challenging it, potentially damaging the integrity of the arbitrator’s neutral role, is a significant justification for making those changes.