Springtime for English arbitration: Arbitration Act 2025 hits the statute book

The 2025 Act does not constitute a complete overhaul of existing English arbitration law. Instead, it introduces (by way of amendments and additions to the existing Arbitration Act 1996) a small number of significant reforms that commercial parties need to be aware of. Three key changes of particular practical importance – including at the contract drafting stage – are briefly summarized below (this article does not purport to be an exhaustive summary of all changes introduced by the 2025 Act).

Governing law of arbitration agreements

Commercial contracts containing an arbitration agreement often include a "general" governing law clause which does not specifically address the governing law of the arbitration agreement itself – for example: "This Contract shall be governed by and take effect in accordance with [English] law".

The 2025 Act introduces a new rule under which (in summary):

• the governing law of an arbitration agreement is the law that the parties "expressly agree applies to the arbitration agreement"; 
• general (non-specific) governing law wording of the kind set out in the example above does not constitute such an express agreement; and 
• in the absence of such an express agreement, the arbitration agreement will be governed by the law of the seat of the arbitration – which law, depending on the choice of seat, may or may not be the same as the governing law of the contract in which the arbitration agreement is contained. 

Why is this new rule significant? Firstly, because the law governing the arbitration agreement determines such fundamental issues as whether the arbitration agreement is valid and what its scope is. Secondly, because the new rule reverses the position under existing English case law. The overall aim of the new rule is to reduce the scope for "satellite" disputes regarding the validity and interpretation of arbitration agreements. 

Significantly, the rule applies even if the parties' chosen seat of arbitration is outside England and Wales or Northern Ireland. It also applies where no seat has been designated or determined.

What practical steps should parties take in light of this new rule in order to avoid the potential for unexpected outcomes? Before signing a contract, they should carefully review the draft governing law and arbitration provisions to ensure that there is a clear express choice of the law that will apply specifically to the arbitration agreement itself. One of several possible ways of achieving this is by including wording of the following kind in the arbitration agreement itself: "The governing law of this arbitration agreement shall be [English] law."

Challenging an arbitral tribunal's decision on jurisdiction

Respondents in arbitration proceedings commonly raise jurisdictional objections, alleging (for example) that the arbitration agreement relied on by the claimant is not valid, or that it does not cover the particular dispute referred to arbitration, or that the respondent is not a party to the arbitration agreement.

Such objections are fundamental: arbitration is an agreement-based dispute resolution mechanism and it would be unjust for a party who has not agreed to arbitrate with the claimant (either at all or in respect of the specific claim that the claimant has referred to arbitration) to be subjected to an arbitration process and a possible arbitral award against it (for example, ordering it to pay damages to the claimant).

When such jurisdictional objections are raised in an arbitration, the internationally recognised "Kompetenz-Kompetenz" principle requires that the arbitral tribunal itself should have the first, but not the final, say on whether the objections are or are not well-founded; the courts at the seat of arbitration will have the final say. This principle applies not only in cases where the arbitral tribunal rules that it does, but also in cases where it rules that it does not, have jurisdiction.

What test will the English court apply when an arbitral tribunal's jurisdictional ruling is challenged? Is its role limited to deciding whether the arbitral tribunal was entitled to reach the decision that it did (in effect an appeal of the arbitral tribunal's ruling on jurisdiction)? Or will it instead conduct its own "full rehearing" or "de novo" independent investigation and determination of the underlying jurisdictional question?

Until now, the English courts have adopted the latter approach. However, the 2025 Act confers an explicit power for the English Civil Procedure Rules to be amended so that, if an arbitral tribunal has made a ruling on an objection as to its substantive jurisdiction, in any subsequent English court challenge to that ruling by a party who has taken part in the arbitration the following general rules will apply (subject to the court deciding otherwise in a specific case in the interests of justice):

1. the applicant cannot raise before the court a ground for the jurisdictional objection that it did not raise before the arbitral tribunal unless the applicant shows that, at the time it took part in the arbitration, it did not know and could not with reasonable diligence have discovered the ground; 
2. the applicant cannot rely on evidence that was not heard by the arbitral tribunal unless the applicant shows that, at the time it took part in the arbitral proceedings, it could not with reasonable diligence have put the evidence before the arbitral tribunal; and 
3. the court cannot re-hear evidence that was heard by the arbitral tribunal. 

Summary disposal

The 2025 Act includes an express power for arbitral tribunals to make an arbitral award on a "summary basis" in relation to a claim, or a particular issue arising in a claim, where an arbitrating party has "no real prospect" of succeeding on that claim or issue or succeeding in the defence of that claim or issue. Provisions of this kind are already included in the arbitration rules of some leading arbitral institutions, including for example the LCIA, and thus will already be familiar to many users of international arbitration. 

"Summary basis" means that the arbitral tribunal adopts an expedited procedure in relation to the relevant claim or issue. The precise nature of the expedited procedure is not specified in the 2025 Act and will be for the arbitral tribunal to decide in consultation with the parties – thereby preserving maximum flexibility. 

However, this is not a mandatory provision of the 2025 Act: parties to an arbitration agreement are free to agree that the "summary basis" provision shall not apply. This is therefore a further issue that parties should consider at the contract drafting stage. 

Conclusion

The reforms introduced by the 2025 Act bring welcome clarity on issues that have exercised the English courts and users of London-seated international arbitration in recent years and will help to ensure that London maintains its status as a leading seat of international arbitration. Parties drafting contracts providing for arbitration seated in London should take note of the reforms summarized in this note and consider carefully whether any changes are needed to their standard or template clauses.

Authored by Nathan Searle, Jerome Finnis