Default Choice of the Law Governing the Arbitration Agreement: Reflecting on the Proposed Reform to the English Arbitration Act

The Law Commission of England and Wales recently announced a number of crucial reforms to the Arbitration Act 1996 (‘Arbitration Act’). While the reforms proposed do not recommend any wholesale or radical changes to the English Arbitration regime, they signal an attempt to tidy up a few loose ends and strengthen London’s status as a centre of commercial arbitration for parties across the world.

A proposed reform that has caught the eye of arbitration practitioners across the globe is the amendment on determining the governing law of the arbitration agreement under English law. The proposed amendment recommends the adoption of a default rule—that the law of the seat shall be the governing law of the arbitration agreement unless there is an express choice of law by the parties. The amendment is a welcome step in simplifying the determination of the proper law to govern the arbitration agreement, and will potentially lead to a reduction in satellite litigation on the choice and application of proper law in arbitration proceedings—which had increased significantly in the aftermath of the UK Supreme Court’s 2020 decision in Enka Insaat AS v OOO Insurance Company Chubb [2020] UKSC 38 (‘Enka’).

In this post, I will first briefly set out the prevailing test to determine the governing law of the arbitration agreement, as laid down by the UK Supreme Court in Enka. I will then summarise the practical hurdles that arose in light of the complex test laid down in Enka, leading to calls for reform—which have been preliminarily answered by the Law Commission’s Final Report. I will then conclude by commenting on whether other jurisdictions should take a leaf from the English arbitration playbook in adopting similar measures to simplify the test for determining the proper law of the arbitration agreement.

Need for Reform to the UK Supreme Court’s Choice of Law Rule in Enka: Putting an End to the Prevailing Confusion and Satellite Litigation

The provisions of the Arbitration Act do not provide any guidance as to how a court should determine the law governing the arbitration agreement. It therefore became the prerogative of the courts to develop a judicial test, which would focus on the intention of the parties, to determine the law applicable to the arbitration agreement. In 2020, the UK Supreme Court laid down a two-pronged test in its landmark decision of Enka. The Supreme Court, in Enka, held that where the contract between the parties contains an express choice of governing law for the main contract, the said choice would extend to the arbitration agreement as well. However, where the parties had not expressly or impliedly chosen a law to govern the substantive contract, the arbitration agreement would be governed by the law of the seat,—in line with the closest connection principle.

The test in Enka was received with mixed reactions among practitioners, who opined that the complex nature of the test would only lead to more uncertainty—and satellite litigation—on issues pertaining to the proper law of the arbitration agreement. These issues came to light in the UK Supreme Court’s decision in Kabab-ji v Kout Food Group [2021] UKSC  48 (‘Kabab-ji’). In Kabab-ji, while the substantive contract between the parties was governed by English law, the arbitration agreement provided for ICC-administered arbitration seated in Paris. During the enforcement of the award passed by the arbitral tribunal, the Court of Appeal applied the Enka test to hold that English law would govern the arbitration agreement as well. However, in parallel enforcement proceedings before the Cour de Cassation in France, the Court held that in the absence of an express choice of proper law, the law of the seat would govern the arbitration law (which was French law in the present case).

The decision in Kabab-ji illustrated the divergence between the test laid down in Enka with the approach adopted in other leading arbitration jurisdictions such as France and Singapore , which created an unsettling uncertainty that needed to be addressed. Moreover, through the proposed arbitration reforms to the Arbitration Act, the Law Commission seems to have taken the right first step in that regard.

The Law of the Seat as the Default Choice of Law: A Welcome Approach

The Law Commission’s proposed amendment states that the applicable law to govern the arbitration agreement, in the absence of an express choice by the parties, shall be the law of the seat. In recommending the proposed change, the Law Commission has essentially departed from the position taken by the Supreme Court in Enka. However, the default choice of the law of the seat signals a move towards clarity and simplicity—which will aid the cause of reducing satellite litigation and uncertainty surrounding the determination of the proper law governing the arbitration agreement.

The application of the default rule would be prospective in nature, and thus only apply to arbitration agreements entered into after the coming into effect of the amendment.

Should Other Jurisdictions Take a Leaf Out of England’s Arbitration Law Reforms?

While the Law Commission’s proposed reform promises to be a step in the right direction, it will be interesting to see whether other prominent arbitration destinations—such as France, Singapore, and Hong Kong—also carve out a default rule through similar legislative measures.

The Singapore Court of Appeal recently took the test in Enka one step further in its decision in Anupam Mittal v Westbridge Ventures [2023] SGCA 1 (‘Anupam Mittal’). In Anupam Mittal, the Court held that the parties’ implied choice of using the governing law of the main contract to cover the arbitration agreement was a rebuttable one,—especially in cases where the very arbitration agreement would stand nullified through the application of the governing law of the substantive contract.

As the Kabab-ji decision demonstrated, issues surrounding the applicability of the proper law of the arbitration agreement can dangle like a sword over an arbitral tribunal’s award even at the time of enforcement. The Law Commission’s reform to provide for a default rule is an attempt to move towards uniformity in the application of the law of the seat—while encouraging parties to make an express choice of governing law in the arbitration agreement itself (ideally). In this endeavour for certainty and uniformity, other leading arbitration jurisdictions might be well advised to follow England’s lead—and bring such changes through a direct amendment to their arbitration law. 

Sumit Chatterjee is an advocate at Arista Chambers, Bangalore.

The author would like to thank Anjali Singhvi for her helpful research assistance with the post. All views and opinions expressed are of the author alone.