International arbitration agreements often involve a potentially complex interaction of at least three different laws: the law of the contract, the law of the seat, and the law of the arbitration agreement itself. The law of the arbitration agreement is important as it governs the formation, validity, scope and interpretation of the arbitration agreement, and any issues relating to the enforcement of an arbitral award (e.g., New York Convention, art 5(1)).
On 24 February 2025, the Arbitration Act 2025 (UK) received Royal Assent. Upon commencement, the Act will introduce a new default rule for determining the law governing an arbitration agreement in the absence of parties' express agreement on the subject.
Against the backdrop of recent litigation concerning the law of the arbitration agreement in leading arbitral jurisdictions, the UK amendments are a timely reminder of the difficulties which can arise when parties fail to expressly designate the law applicable to an arbitration agreement in their commercial contracts.
Background
Parties to a commercial contract often expressly designate both the law governing their contract (e.g., in a general “choice of law” clause) and the “seat” or “place” of arbitration. Yet it is uncommon for parties to separately express a choice of the law governing the arbitration agreement in their contract.
Particularly where the seat of the arbitration differs from the law of the contract can give rise to disputes where the law of the contract and the law of the seat conflict, especially where arbitration is available under one law but not the other. In recent times, litigation on this issue has reached the apex courts of the United Kingdom, France, and Singapore.
Practically, these conflicts can arise where:
- the subject matter of the dispute is not arbitrable under one putative proper law, but is under a second putative proper law (see Anupam Mittal v Westbridge Ventures II Investment Holdings [2023] SGCA 1 where the subject matter of the dispute was not arbitrable under the law of the contract (Indian law), but was arbitrable under the law of the seat (Singaporean law))
- one party to the dispute is not party to the arbitration agreement under one putative proper law, but is under a second putative proper law (see Kabab-Ji SAL v Kout Food Group [2021] UKSC 48 where KFG was a party to the arbitration agreement under the law of the seat (French law), but was not a party to the arbitration agreement under the law of the contract (English law))
- the arbitration agreement is invalid under one putative proper law, but is valid under a second putative proper law (see, eg, BNA v BNB [2019] SGCA 84 where the arbitration agreement was invalid under one potential law of the seat (PRC law) but was valid under a second potential law of the seat (Singaporean law))
The approach in leading “pro-arbitration” jurisdictions
In most common law jurisdictions, the test for identifying the law of the arbitration agreement involves three enquiries: (i) whether the parties have expressly chosen the law of the arbitration agreement; (ii) whether the parties have impliedly chosen the law of the arbitration agreement; (iii) or, failing an express or implied choice, identifying the system of law with which the arbitration agreement is most closely connected. Since it is uncommon for parties to expressly choose the law that governs their arbitration agreement, courts are frequently required to apply the second and third steps of the test and infer the parties’ implied choice or determine the law that is most closely connected with the arbitration agreement. Both steps are difficult to apply in practice, particularly in the context of cross-border transactions where the relevant factors often point in opposite directions.
Before Enka v Chubb [2020] UKSC 38, an express choice of law for the contract was a “strong indication” of the parties’ implied choice of the law of the arbitration agreement, but other factors could point to a different law (Sulamerica CIA Nacional De Seguros SA v Enesa Engenharia SA [2012] EWCA Civ 638). For instance, in Sulamerica, it was held that, since the governing law of the contract would – if applied to the arbitration agreement – potentially invalidate the parties’ arbitration agreement, the parties had impliedly chosen the law of the seat to govern their arbitration agreement.
In Enka, a majority of the UK Supreme Court (comprising Lords Hamblen, Leggatt and Kerr, Lord Burrows JSC and Lord Sales JSC dissenting) held that where the parties have not expressly chosen the law of the arbitration agreement, and the law of the seat differs from the law of the contract, by implication the law applicable to the arbitration agreement is generally the law of the contract. In Kabab-Ji, the UK Supreme Court affirmed the approach taken in Enka. Notably, the French Cour de Cassation reached the opposition conclusion, in parallel litigation involving the same parties, and held that, absent an express choice of law, the law of the seat would govern the law of the arbitration agreement: Cass., 1èreci., 28 September 2022, n° 20-20.260.
A similar approach to the English courts is taken in Hong Kong (see, eg, China Railway (Hong Kong) Holdings Limited v Chung Kin Holdings Company Limited [2023] HKCFI 132) and Singapore (see, eg, BCY v BVZ [2017] 3 SLR 357; Anupam Mittal v Westbridge Ventures II Investment Holdings [2023] SGCA 1, [67]).
However, as noted, the opposite approach is taken by the French courts.
Recent UK amendments to the Arbitration Act
In March 2021, the Law Commission of England and Wales was tasked with determining whether any amendments to the Arbitration Act 1996 (UK) were necessary to ensure that England and Wales remains a leading destination for commercial arbitration.
In September 2022 and March 2023, the Law Commission published two consultation papers regarding reviews to the Arbitration Act 1996 (UK). These consultation papers included a number of proposals designed to make the act as “effective and responsive as possible”. One suggestion proposed was that there should be a default rule that the law governing the arbitration agreement is the law of the seat, such as to override the approach in Enka v Chubb.
In September 2023, the Law Commission published a Final Report and draft Bill for amendments to the Arbitration Act 1996 (UK). The draft Bill included an amendment to the Arbitration Act to insert a default rule that, absent express agreement otherwise, the arbitration agreement is governed by the law of the seat. The Bill was introduced to Parliament in November 2023.
The Arbitration Act 2025 (2025 Act) received Royal Assent on 24 February 2025. Section 1 of the 2025 Act inserts a new section 6A into the Arbitration Act 1996 (UK). Section 6A(1) provides that, if the parties do not expressly agree the law applicable to the arbitration agreement, the applicable law is the law of the seat of the arbitration in question. Section 1 of the 2025 Act will commence on a day set by the Secretary of State by regulation.
Relevant legislation and issues in Australia
In Australia, neither the federal International Arbitration Act 1974 (Cth) nor the State Commercial Arbitration Acts stipulate which law governs an arbitration agreement. Any conflict of laws that arises in relation to arbitration agreements before Australian courts is therefore resolved by applying Australian common law rules.
While Enka has not received complete consideration in Australia, the decision has been cited with approval. Edelman J cited Enka with approval in Mineralogy Pty Ltd v Western Australia (2021) 274 CLR 219 at [163], but noted that this point was not disputed by the parties. Justice Jackman, in an unreported first instance decision, has also accepted the position in Enka: CC/Devas (Mauritius) Ltd v Republic of India (No 2) [2023] FCA 527 at [30].
The same issues that have recently seen extensive litigation in UK, Singaporean, and French courts may therefore come before Australian courts.
Implications for other jurisdictions and parties
As a leading jurisdiction for commercial arbitration, other jurisdictions may follow the UK in amending their arbitration legislation, including by changing the position in Enka. Even if that does not come to pass, it is clear that seemingly well-drafted arbitration clauses in contracts with express choice of law clauses can still give rise to complex litigation involving multiple proceedings and appeals, as recent litigation in the UK, Singapore, Hong Kong, and France shows.
But commercial parties can avoid genuine disputes of this nature by expressly stating the law that governs the arbitration agreement (in addition to the “seat” of arbitration and the governing law for the contract).
In addition to addressing these matters expressly in their contracts, parties should also turn their minds to the substantive effect of the choice of seat and governing law jurisdictions. Sometimes, even express choices can have unintended consequences, such as where the governing law expressly chosen by the parties invalidates their arbitration agreement (see, e.g., Anupam Mittal v Westbridge Ventures II Investment Holdings [2023] SGCA 1 at [73]–[74]).
These issues serve as a general reminder to commercial parties to carefully consider all aspects of their arbitration clauses when drafting commercial contracts, but particularly the law that should apply to each facet of the arbitration agreement and process. Careful consideration of these matters at the drafting stage can avoid costly and unnecessary litigation, as well as the unexpected result of an unenforceable arbitration agreement.
