In an important decision from Lord Justice Popplewell, the English Court of Appeal Enka Insaat ve Sanayi AS v OOO Insurance Co Chubb  EWCA Civ 574 dealt with an issue that has vexed courts for some time – the proper law of an arbitration agreement.
The Court of Appeal framed the main question as follows (§69):
“The dispute in this case raises the question of the relative weight to be given to the curial law of the arbitration agreement and the main contract law, where they differ, in determining the AA law [proper law of an arbitration agreement]. It is a question on which it would be idle to pretend that the English authorities speak with one voice.”
After a comprehensive review of the authorities, the CA lamented the present state of the law (§89):
“In my view the time has come to seek to impose some order and clarity on this area of the law, in particular as to the relative significance to be attached to the main contract law on the one hand, and the curial law of the arbitration agreement on the other, in seeking to determine the AA law [proper law of an arbitration agreement]. The current state of the authorities does no credit to English commercial law which seeks to serve the business community by providing certainty.”
The CA stated (§90 – 91):
“Where the AA law question can be answered at the first stage, namely whether there is an express choice of the AA law, no conceptual difficulty arises. An express choice of AA law may exceptionally be found in the arbitration agreement itself. If not, it may be found in the terms of an express choice of main contract law, or a combination of such express choice with the terms of the arbitration agreement.”
“In all other cases, the general rule should be that the AA law is the curial law, as a matter of implied choice, subject only to any particular features of the case demonstrating powerful reasons to the contrary.”
In respect of the proposition that, absent express choice, the general rule should be that the proper law of the arbitration agreement is the seat of arbitration, the Court of Appeal noted that:
- there was no principled basis for treating the main contract law as a significant source of guidance for the proper law of the arbitration agreement in cases where there was an arbitration clause with a different curial law, since the law of the main contract is a system of law applicable to the terms of the main contract and the validity, interpretation and performance of those terms, other than the terms of the separate arbitration agreement and the validity, interpretation and performance of those separate arbitration terms (a conclusion that follows from the doctrine of separability of the arbitration agreement recognised in s.7 of the Arbitration Act 1996 and re-emphasised by the House of Lords in Fiona Trust v Privalov.
- the overlap between the scope of the curial law and that of the proper law of the arbitration agreement strongly suggests that they should usually be the same.
The Court of Appeal summarised the principles applicable to determining the proper law of an arbitration agreement when found in an agreement governed by a different system of law as follows:
(1) The AA law is to be determined by applying the three stage test required by English common law conflict of laws rules, namely (i) is there an express choice of law? (ii) if not, is there an implied choice of law? (iii) if not, with what system of law does the arbitration agreement have its closest and most real connection?
(2) Where there is an express choice of law in the main contract it may amount to an express choice of the AA law. Whether it does so will be a matter of construction of the whole contract, including the arbitration agreement, applying the principles of construction of the main contract law if different from English law.
(3) In all other cases there is a strong presumption that the parties have impliedly chosen the curial law as the AA law. This is the general rule, but may yield to another system of law governing the arbitration agreement where there are powerful countervailing factors in the relationship between the parties or the circumstances of the case.
The issue can be graphically represented (taken from article from Herbert Smith – see below):
See also the following articles in respect of this case from: