Express Choice of Law to Govern Arbitration Clause

“This clause [number] shall be governed by [insert law governing main contract]”

As an arbitration clause is generally regarded as legally distinct (or separable) from the main agreement in which it is located, consider adding this wording to the end of your arbitration clause where your seat of arbitration is different from the governing law of the main contract.

In particular, where you have selected England as a seat of arbitration but your contract is governed by the law of a different country we suggest that the wording would be helpful. Although, under English conflict of law rules, in the absence of any specific provision regarding the law applicable to the arbitration clause, the UKSC has taken the approach that the parties' choice of law to govern the main contract (rather than the law of the seat) will generally be applied to it as well (see here and here), this is done by way of a general interpretative rule and so additional certainty can be achieved by way of the above express wording i.e. continue on with the drafting trend which largely began following the Court of Appeal's earlier decision in Sulamerica  (another reason not to depend on the “default” rules of interpretation in Enka - as opposed to drafting in express wording - is that, in future, those rules may change as a result of proposed amendments to the English Arbitration Act. Even if implemented, these amendments won’t affect the efficacy of a specific provision such as the above).

In addition to the above, using a specific designation as to applicable law of the arbitration agreement may also help increase certainty in the determination of issues to which it is relevant (such as the recognition and enforcement of awards, or other applications) in courts other than the seat.

The clause above expresses a choice in favour of the governing law of the main contract. The general expectation of commercial parties may be that the law which governs the contractual aspects of their relationship generally should apply to the arbitration clause, and lawyers advising on the contract may well have drafted the arbitration clause in that context (such considerations being echoed by the UKSC at paragraph [53] of Enka). So, unless there is some overriding reason not to, it makes sense to keep matters consistent. 

In like circumstances (i.e. your contract specifies the law of state X and your seat is in state Y) where your seat is not in England, consider with local lawyers advising on the consequences of the choice of seat as to whether, for similar reasons as to those listed above, the inclusion of a specific designation could be similarly beneficial.

It will, of course, be necessary to ensure the clause is properly drafted and works under the law to be applied.  

In addition to the above, note that where the LCIA Rules have been chosen:

• Since 2014, the LCIA Rules have contained a provision (Article 16.4) which states that the law applicable to the arbitration agreement shall be the law applicable at the seat of arbitration. This appears to confirm that, uncontroversially, the parties consent to the applicable law of the arbitration clause being that which would be applied at the seat of arbitration once the seat’s rules as to the applicable law of an arbitration clause have been applied. A competing interpretation may, however, be that this article is an express choice in favour of the law of the seat of the arbitration. Although this may not be the better view (the article does not refer to the law of the seat, rather the law applicable at the seat) there remains a potential ambiguity as to whether such a choice has been expressed. Where the LCIA Rules have been selected, resolution of this ambiguity therefore provides another reason why, in cases where the governing law of the contract and the seat do not match (i.e. where there is room for debate as to the governing law of the arbitration clause), parties may see fit to make express provision as to the governing law of their arbitration clause in the clause itself.

• Separately, in the version of the LCIA Rules which apply to LCIA arbitrations commenced on or after 1 October 2020 a new Article 16.5 prescribes that the LCIA Rules are to be interpreted in accordance with English law. Whilst this is clearly intended to promote conformity and certainty in their application it would appear to effect a choice of English law as the law applicable to interpretation of part of the arbitration agreement (as the rules are incorporated therein) in every case. 
  
  Depending on the circumstances, such an approach might give rise to knotty issues of applicable law in particular whether, under the rules of the seat as to applicable law of an arbitration clause: (i) the application of English law and (ii) the application of a law to part of an arbitration agreement is permissible. And, in addition, whether point (ii) is acceptable under the law which would be applied to govern the arbitration clause generally (as, for example, a matter of formation).
  
  These issues should not arise in situations where English law is the governing law of the contract and the chosen seat of arbitration is also in England (or where the seat of arbitration is in England and the circumstances are such that, applying English rules on applicable law, English law would otherwise govern the arbitration clause, or, finally, in cases where the seat is elsewhere and the circumstances are such that, applying the seat’s rules on applicable law, English law would otherwise be applied to govern the arbitration clause ). In such situations the law applicable to the arbitration clause will, in any event, point to English law. Outside of those situations, however, the simplest solution for parties to avoid the difficult analytical issues arising from this provision may be, if the LCIA Rules are to be chosen, to insert a provision into their arbitration agreement disapplying the effect of Article 16.5 (for example "any provision of the arbitration rules of the LCIA which specifies that those rules shall be interpreted in accordance with the laws of England, shall, to that extent, not apply")

Aside from the provisions of the LCIA Rules discussed above, the main institutional rules discussed on this site - i.e. those of the ICC, UNCITRAL, HKIAC, SIAC, CIETAC, and SCC - do not contain any Articles covering this area. If using some other set of rules, do check whether any relevant provisions on this issue exist and, if so, consider what approach will be appropriate. (For example the 2022 Rules of PRIME Finance contain a provision, albeit in the form of a conflict of laws rule - as distinct from a positive choice - in Article 40.1 which states that the rules of law applicable to the arbitration agreement shall be that chosen by the parties, failing which the tribunal is to apply the rules of law it considers appropriate. Although this rule (in common with provisions of the 2022 PRIME Rules generally – see Article 1.2) is stated to give way to any mandatory provisions of law applicable to the arbitration. Another example of another set of institutional rules that did make such provision were the 2021 DIFC-LCIA Rules - which contained provisions identical to Articles 16.4 and 16.5 of the LCIA Rules; although the DIFC-LCIA rules are no longer a viable option for new contracts following the dissolution of the DIFC-LCIA Arbitration Centre's administering body in September 2021).