The Arbitration Act is enjoying the prolonged 10th anniversary celebration to which many in the international business community will feel it is entitled. The completion of the Act's first decade presents an opportunity for users and practitioners of arbitration to reflect on a statute that was intended to "restate and improve the law relating to arbitration pursuant to an arbitration agreement". Few would deny it has achieved that stated aim.

The Act, which came into effect on 31 January, 1997, provides a framework for the resolution by private tribunals in the UK (excluding Scotland) not only of disputes between UK companies (domestic arbitration), but also of disputes between foreign companies which, apart from their arbitration agreement, may have no connections with the UK (international arbitration).

Guiding principles

Newcomers to arbitration will find a helpful description of this widelyadopted and binding method of dispute resolution, and a clear indication of the statute's underpinning philosophies, on the first page of the 1996 Act. Section 1 sets out the following general principles:

. the object of arbitration is to obtain the fair resolution of disputes by an impartial tribunal without unnecessary delay or expense;

. the parties should be free to agree how their disputes are resolved, subject only to such safeguards as are necessary in the public interest; and

. the court should not intervene, except as provided by the Act.

It is highly unusual for a UK statute to proclaim its guiding principles in this way. The Departmental Advisory Committee on Arbitration Law (DAC), which was closely involved in the drafting of the 1996 Act, wanted to send a clear signal to the international arbitration community that the UK would continue to provide, as it had provided for centuries before, a supportive framework for the resolution by private tribunals of international commercial disputes, but now with significant enhancements.

Origins of the 1996 Act

To understand the significance of the 1996 Act, we need to step back and consider the background to its enactment.

The 1996 Act was many years in the making. One major impetus was the creation in 1985 by a United Nations Commission (UNCITRAL) of a 'model law on international commercial arbitration'. The UNCITRAL model law is a ready-made arbitration law that can be enacted (wholesale or with modifications) as a national arbitration law. It has proved to be enormously popular; since 1985, legislation based on the UNCITRAL model law has been enacted in more than 55 countries, states and territories, including (since 2004) Austria, Denmark, Norway and Poland.

The creation of this uniform law gave the UK arbitration community pause for thought: should the model law be implemented in the UK? Or should the UK go its own way?

The DAC was tasked with consulting and reporting on this issue. Under the chairmanship of Lord Mustill, the DAC prepared a report entitled 'A New Arbitration Act for the United Kingdom? The Response of the DAC to the UNCITRAL Model Law' in June 1989.

The DAC consulted widely among users and practitioners and concluded that the majority did not support the implementation of the model law in the UK. The DAC also concluded that the model law was not superior to the existing UK arbitration regime (which is not uniform across the three law districts which make up the UK) and, indeed, that certain model law provisions would be detrimental.

However, the DAC also concluded that the existing state of English statute law in the field of arbitration was unsatisfactory. In particular, the DAC considered that, in light of the fragmentary and widely-dispersed nature of the various relevant statutes, newcomers (including non-specialist advisers) would have difficulty in understanding how arbitration in England worked in practice.

In short, there was a need for new legislation. Among other features identified as desirable, the DAC stated that the new Act should:

. set out the key principles of English arbitration law, both statutory and (to the extent practicable) common law;

. be set out in logical order and expressed in clear, user-friendly language;

. apply, in general, to domestic and international arbitrations alike; and

. not be limited to the subject matter of the model law.

The 1996 Act manages to achieve all of the above objectives. It is not the UNCITRAL model law, but owes much to it.

Key provisions of the Act

The 1996 Act governs the position not only during an arbitration, but also before (for example, urgent pre-arbitral applications to the English court for protective measures; and stays of litigation commenced in the English courts where the subject matter of the litigation is covered by an arbitration agreement) and after an arbitration (most notably, enforcement of an award).

The 1996 Act confirms the primacy of the parties' arbitration agreement. Parties are, for example, "free to agree" on:

. the number of arbitrators;

. the powers of the arbitral tribunal;

. consolidation of arbitrations; and

. the condition that their dispute will be decided on the basis of equity and fairness, rather than in accordance with the laws of a particular country.

If the parties have included only the bare essentials in their arbitration agreement and have not incorporated the arbitration rules of an arbitral institution, for example, those of the International Chamber of Commerce (ICC) or the London Court of International Arbitration (LCIA), the 1996 Act will fill in the necessary gaps, including in relation to the procedure of the arbitration and the powers of the arbitral tribunal.

The 1996 Act also includes mandatory provisions, which will apply even if the parties have agreed otherwise. These include:

. the arbitral tribunal's duty to act fairly and impartially and adopt suitable procedures, avoiding unnecessary delay and expense;

. the parties' duty to ensure the proper and expeditious conduct of the arbitration;

. the parties' ability to challenge an award in the English court on the ground that the arbitral tribunal lacked substantive jurisdiction.

A further mandatory provision is the parties' ability to challenge an award on the ground that there was a serious irregularity in the arbitration. The hurdle is, however, set very high for such challenges, as confirmed by the recent decision of the House of Lords in Lesotho Highlands v Impregilo [2005], which provided a very strong affirmation of the principle that the courts should not intervene in the arbitral process. That principle is reflected in the 1996 Act's careful redrawing of the respective powers of the arbitral tribunal and the English court in relation to arbitration, an important example of which is the removal of the court's power to order security for costs in arbitrations (which, pre-1996, had been a source of concern).

Good for business

The 1996 Act has, just as the DAC intended, promoted England as a world centre for arbitration. Statistical information confirms the increasing popularity of international arbitration generally and of England as a venue. Casework referrals to the LCIA (one of the best-known arbitral institutions) were reported as having increased by 35% from 2004 to 2005 and, according to other recent reports, a London seat is expressly provided for in about 90% of LCIA cases, about 80% of which involve no UK parties.

In a recent survey, (International Arbitration: A Study into Corporate Attitudes and Practices 2006: PricewaterhouseCoopers/ Queen Mary, University of London) legal considerations were chosen by the majority of respondents as the single most important factor in a company's choice of venue for international arbitration. Legal considerations in the UK include the 1996 Act and associated case law, together with the UK's commitment (as a signatory to the New York Convention, the cornerstone of international arbitration) to the recognition and enforcement of foreign arbitral awards.

The quality of London-based international arbitration specialists is another factor. The same survey found that, from a choice of England, Switzerland, France and the US, England was the first-choice venue for the majority of respondents. From any perspective, the 1996 Act is good for business.

Phillip Capper is a partner and Jerome Finnis a solicitor at Lovells.