Supreme Court Ruling On Arbitration Agreements

The law applicable to an arbitration agreement may seem a somewhat esoteric issue, but since the law that determines its interpretation and scope can have significant practical consequences. For example, different laws may lead to claims being within or outside the scope of the arbitration agreement or leading to the validation or cancellation of the arbitration agreement. In these circumstances, the practical advice remains the same. The parties should therefore ensure that, if the law of the main contract differs from the choice of seats, the applicable right of the arbitration agreement is explicitly defined. Often, the seat is chosen as a safe and predictable place for the settlement of international disputes, while existing legislation may be a less predictable local law. In these circumstances, it would be useful to specify the right of the seat to govern the arbitration agreement. However, the Court indicated what the approach should be if there was no explicit or tacit choice of law for the arbitration agreement, i.e. if there was no clause of law in the main contract. The majority (Lords Hamblen, Leggatt and Kerr) considered that the law with the closest connection to the arbitration agreement was the seat law. The minority felt that there was a tacit choice for the arbitration agreement, which was consistent with the law applicable to the main contract that follows the English applicable law (Lord Burrows) or that the law was the law of the main contract (Lord Sales) with the closest connection with the arbitration agreement. However, the differences of opinion within the Supreme Court and the diverging decisions of the English courts in this litigation show the complex issues and uncertainty that can arise if the parties do not include in their contract an explicit choice of the law in force. We strongly encourage the parties to ensure that they have an explicit choice in their arbitration agreements, as well as a well-developed legal clause in the main contract, in order to avoid costly satellite controversies on these issues in all disputes that arise.