INTERNATIONAL ARBITRATION 1/3LY
ARBI TRAT ION AGREEMENT S – GE T T ING I T RIGHT FROM THE K I CK- OFF
When drafting dispute resolution clauses, parties typically focus on the law governing the contract and, where such clauses provide for arbitration, the curial law (or procedural law of the seat). It is, however, common for parties to fail to specify the law that will determine the validity of the arbitration clause itself. If a party challenges the validity of the arbitration clause, a national court or tribunal must generally apply a conflict of laws analysis and determine whether the applicable law to that arbitration clause is (i) the law governing the contract; or (ii) the procedural law of the seat. The outcome of this decision will affect whether or not the arbitration proceeds. As illustrated by a number of recent cases from different jurisdictions, national courts have been inconsistent in their approach to this issue which has led to confusion as to how the applicable law of the arbitration clause will be determined if the parties have not specified their choice in the arbitration clause itself (or reached a subsequent agreement). AN UNE VEN PL AYING FIELD In the case of Sulamérica v E nesa E ngenharia [2012] EWCA Civ 638 (Sulamérica) , the English Court of Appeal was asked to determine the governing law of an arbitration clause contained in a Contractor’s All Risks insurance policy. The Court of Appeal held that the governing law is to be determined by adopting a three-stage test: (i) is there an express choice of law? (ii) if not, can a choice be implied?; (iii) in the absence of a choice, withwhich lawdoes the arbitration clause have the ‘closest andmost real connection’? In this case the parties had not made an express choice of law. As to whether a choice of law could be implied, the Court acknowledged that the law of the parent contract inwhich the arbitration clause was contained (in this case, Brazilian law) was a “strong pointer” of an intention that the same lawwould apply to the arbitration clause, unless other factors led to a different conclusion. Here, however, the parties’ choice of Brazilian law to govern the parent contract could not evidence an implied choice because there was a real risk that under Brazilian law the arbitration clause would be invalid, whichwould undermine the purpose of the arbitration clause. On assessing which lawhad the ‘closest and most real connection’, the Court concluded that the choice of London as the seat of the arbitration inevitably imported an acceptance that English law, not Brazilian law, would apply to the conduct and supervision of the arbitral proceedings which, in turn, provided further evidence of a shared intention that English lawwould govern the arbitration clause. It, therefore, concluded that English law should apply to the arbitration clause.
BY JOHN LEWIS, S APNA JHANGIANI AND PETER HIRST A SSOCIATE, LEGAL DIRECTOR AND PARTNER AT CLYDE & CO
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