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Arbitration Act review 2: The proper law of an arbitration agreement

While the first consultation on the Arbitration Act published last year was a comprehensive review of the legislation, there is an area that many arbitration practitioners considered to be an omission – the proper law of an arbitration agreement and the impact of the 2020 Enka v Chubb Supreme Court decision. It is not surprising, therefore, that this topic is one of the three areas which the Law Commission discusses in its second consultation paper about the Act (CP) and invites views about.

A high number of responses was received by the Commission about this but, as the CP acknowledges, views were not aligned with replies advocating both for and against reforming the law. Ultimately the Law Commission has concluded “the arguments in favour of reform carry the day”, proposing that the Arbitration Act be amended to provide the law of the arbitration agreement is the law of the seat unless the parties have expressly agreed otherwise.

Many will now be familiar with the Enka v Chubb decision and that the dispute in question arose from a contract which contained an arbitration clause with a seat in London but no express choice of law clause for the main contract or the arbitration clause.

Faced with the question of which law governed the arbitration agreement, the Supreme Court handed down a detailed judgment setting out how to determine the issue. There is no doubt the Supreme Court’s decision was reasoned by reference to conflict of law principles but left some unsatisfied with the position. With London continuing to be a popular choice as a venue for international arbitration, it is not unusual to see a commercial contract containing an arbitration clause with a seat in England and Wales and a foreign choice of law. Applying the Enka v Chubb principles, arbitration practitioners may well see an increase in English-seated arbitrations governed by foreign law and, while not unworkable in practice, this can create some practical difficulties (along with the inevitable time and cost consequences of resolving them). The CP cites a key concern in this situation – that foreign law would oust the law of England and Wales on a number of important points such as separability, arbitrability and confidentiality. Where the governance of such key arbitral issues is potentially affected, the arguments in favour of reform seem understandable.

The arguments against reform, such as that parties may have a legitimate expectation that the law of an underlying contract will govern all clauses including the arbitration agreement, make for a lively debate on this issue. The outcome of the CP is awaited but the conclusion of the Law Commission on this thorny subject seems to be a sensible approach, attempting to offer "simplicity and certainty" while preserving party autonomy.

We think that the ruling in Enka v Chubb is complex; a simple default rule removes much of the opportunity for argument and satellite litigation


dispute resolution