The Laws of Arbitration

In 2020, the UK Supreme Court in Enka Insaat Ve Sanayi AS v OOO Insurance Company Chubb (Rev1) [2020] UKSC 38 (09 October 2020) considered how the governing law of an arbitration agreement is to be determined when the law applicable to the contract and/or the seat of the arbitration may be different. That dispute went all the way to the Supreme Court because the dispute resolution clause in the relevant contract failed to identify either the applicable law or the seat of the arbitration, whilst it did refer disputes to ICC arbitration in London to be heard in English.

The majority decision in Enka became the primary authority providing guidance to contracting parties on what law will govern their arbitration agreements before the English legislature stepped in.

A new default rule in the Arbitration Act 2025 has subsequently simplified the applicable test laid down in Enka.

This article looks at the position before Enka, the rule laid down in Enka, its subsequent application and the new statutory default rule.

Separability of arbitration agreement

Under English law, an arbitration agreement is a separate contract to, and independent of, the underlying contract. If for instance the underlying contract is found to be invalid or ineffective, the arbitration agreement nonetheless survives and provides a framework for resolution of the parties’ dispute as to that invalidity.

The separability of the arbitration agreement means that, in principle, the arbitration agreement and the underlying contract can have different governing laws.

For a contract containing an arbitration clause, potentially three different systems of law may be at play.

• Law governing disputes under the contract.

• Law governing the arbitration agreement (ie its interpretation, scope and validity).

• Curial law relating to the seat of the arbitration (ie the law of a jurisdiction which determines arbitral procedures and whose courts have supervisory powers).

It is usual for the contract to expressly provide for a governing law. The seat of the arbitration is sometimes identified but it is rarer for parties to stipulate the governing law of the arbitration agreement itself.

Each of these nominations of law can fundamentally impact the ability of parties to resolve their disputes.

Pre-Enka

In Sulamerica CIA Nacional De Seguros SA & Ors v Enesa Engenharia SA & Ors [2012] EWCA Civ 638 (16 May 2012), Brazilian construction companies brought claims against their Brazilian insurers under insurance policies that were governed by Brazilian law and referred all disputes to the exclusive jurisdiction of the courts of Brazil. Unusually the policies also contained an arbitration clause where disputes over amounts payable under the policies would be referred to English arbitration with its seat in London. There was no indication of the law which governed the arbitration agreement.

When disputes arose under the policies, the insured commenced Brazilian court proceedings and the insurers applied to the English Court for an anti-suit injunction in favour of arbitration in London which they said they had commenced. The High Court granted the injunction and found that the choice of the seat in London meant English law governed the arbitration agreement in the policies notwithstanding the Brazilian law and jurisdiction clause. The insurers appealed.

The Court of Appeal applied a three-stage test to determine the governing law of the arbitration agreement in the absence of an express choice in the clause:

• Express choice of law governing the substantive contract.

• Implied choice of law governing the arbitration agreement.

• Law with the closest and most real connection with the arbitration agreement.

The express governing law of the substantive contract was strongly indicative of what the parties intended in terms of the arbitration agreement, but other factors could point in a different direction. In the Sulamerica case, the Court of Appeal thought that there were weighty factors in favour of an implied choice of Brazilian law to govern the arbitration agreement.

However, the Court decided these factors were outweighed by the choice of an English seat. The parties could be taken to have intended that English law should govern all aspects of the arbitration agreement.

In this case, had Brazilian law governed the arbitration agreement, it could not have been enforced without both parties’ consenting to the commencement of arbitration, according to submissions made to the Court of Appeal as to the effect of Brazilian law. In effect, Brazilian law would have entirely undermined the arbitration agreement. The Court of Appeal therefore decided it could not have been the parties’ intention that Brazilian law would be their implied choice of governing law for the arbitration agreement.

As to the law with the closest and most real connection, an agreement to arbitrate was most closely connected with the law of the place where the arbitration would be held and where supervisory jurisdiction over the arbitration would be exercised according to the Court of Appeal. In this case, that meant English law.

Clearly the confusion between the different dispute resolution clauses in the Brazilian policy is something that any contracting party would want to avoid.

Enka -v- Chubb

A Turkish sub-contractor undertook works at a Russian power plant. Following a fire at the plant, subrogated Russian insurers brought claims for defective work against that sub-contractor in Russian proceedings.

The sub-contractor applied to the English Court for an anti-suit injunction to restrain the Russian proceedings on the grounds that its contract with the head contractor contained an arbitration clause. Although the English High Court did not grant the injunction, on appeal the English Court of Appeal did.

The construction contract did not contain an express governing law clause. The arbitration clause referred to ICC arbitration to be conducted in the English language with the place of arbitration being London. There was no express nomination of a law which governed the arbitration agreement.

The Supreme Court stated that, in the absence of an express law governing an arbitration agreement, the general rule was that the law applicable to disputes under the contract would govern the arbitration agreement. This general rule encouraged legal certainty, consistency and coherence. The Supreme Court favoured a three limb test:

1. Was there an express choice of law for the arbitration agreement?

2. If not, is there an implied choice of law (where the applicable law to the underlying contract would apply)?

3. If there is no express law clause for the arbitration agreement or for the contract, with what law was the arbitration agreement most closely connected?

In situation (3), the Supreme Court considered that a choice of arbitration seat did not by itself justify an inference that the contract or the arbitration agreement was intended to be governed by the law of the seat.

However, when deciding the law with which the arbitration agreement was most closely connected, generally speaking, the arbitration agreement would be most closely connected with the law of the seat of arbitration.

This default rule was justified by the fact that the seat was where the arbitration was to be performed and also because the parties would likely expect when specifying a place for the arbitration that the law of that place would govern their arbitration agreement. Again, this approach provided legal certainty.

In Enka, where there was no express choice of law in the substantive contract and the arbitration seat was London, the majority of the Supreme Court judges decided that English law governed the arbitration agreement.

The dissenting minority thought that the default rule should be that the law with which the substantive contract was most closely connected should govern the arbitration agreement. In this case, that would have been Russian law.

Application

Kabab-Ji – potential conflict

In Kabab-Ji SAL (Lebanon) v Kout Food Group (Kuwait) [2021] UKSC 48 (26 October 2021), one of the original parties to an agreement that was governed by English law became a subsidiary of a group of companies (Group) following a corporate reorganisation. The counterparty, Kabab-Ji SAL (Kabab-Ji), referred a dispute under the relevant contract to ICC arbitration in Paris and named the Group as the respondent. The Group argued that they were not a party to the contract or to the arbitration agreement it contained.

The majority ICC arbitrators found that, whether French or English law was applied, the Group was a party to the contract. Kabab-Ji sought to have the ICC award recognised and enforced in England and Wales.

The UK Supreme Court found that the arbitration agreement was governed by English law and that, under English law, the Group was not party to the arbitration agreement. It, therefore, upheld the Court of Appeal’s decision to refuse recognition and enforcement of the award.

Applying Enka, where the arbitration agreement did not expressly provide for a governing law, then the English governing law clause in the underlying contract extended to the arbitration agreement.

Significantly, in 2022, the French Cour de Cassation held that the governing law of the arbitration agreement was not necessarily the governing law of the relevant contract. Instead, the law of the arbitration agreement was to be determined independently by applying the rules of the arbitral seat. In this case, those were the French rules. As a result, the award was enforceable under French law, but not under English law.

Unicredit -v- Ruschem

In UniCredit Bank GmbH v RusChemAlliance LLC [2024] UKSC B1 (23 April 2024), the Supreme Court considered the governing law of arbitration agreements in performance bonds that were governed by English law but provided for ICC arbitration in Paris.

The Supreme Court decided that the arbitration agreements were governed by English law and rejected arguments that a French Court would apply French law principles to any international arbitration agreement that provided for a French seat. The Supreme Court decided this approach promoted certainty and simplicity: see Governing Law of Arbitration Agreements | Hill Dickinson.

Arbitration Act 2025

The 2025 amendments to the Arbitration Act 1996 included a new default rule dealing with the governing law of an arbitration agreement.

The 2025 Act inserts a new clause 6A into the 1996 Act providing that an arbitration agreement will be governed by the law of the seat unless the parties expressly agree otherwise. This rule applies to all arbitrations commenced after 1 August 2025.

The default rule was introduced because it was considered that the Enka -v- Chubb three-stage test was too complicated.

It remains to be seen whether, if the default rule were applied to a situation similar to that in Unicredit, involving a substantive contract governed by English law and a foreign arbitral seat, the English Court would still grant an anti-suit injunction.

Comment

In light of the time and costs incurred in litigating disputes arising from the uncertain drafting of arbitration agreements, parties should have in mind the three elements of applicable law for any contract which will be subject to arbitration, identifying (1) the law applicable to disputes, (2) the law applicable to the arbitration agreement and (3) the seat of the arbitration.

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