Arbitration agreements and the significance of seat of arbitration

This analysis focused on two central themes: the determination of the law applicable to arbitration agreements and the importance of the seat of arbitration in conferring curial (supervisory) jurisdiction over the process. These topics are essential for understanding the interaction between arbitration law, substantive contract law, and the procedural control exerted by national courts.

The seat serves as the cornerstone of the arbitration process, influencing both the procedural and legal framework within which arbitration operates. These decisions shape the evolution of arbitration law, focusing on maintaining party autonomy while ensuring robust supervisory mechanisms at the seat to safeguard the integrity of arbitration.

1. Law Applicable to Arbitration Agreements:

The central issue here is whether the law governing an arbitration agreement is dictated by the substantive contract law or by the law of the seat of arbitration. This dilemma has practical implications for determining whether an arbitration agreement is valid and enforceable. In Enka Insaat ve Sanayi AS v OOO “Insurance Company Chubb” [2020] UKSC 38, the Supreme Court addressed this by emphasizing that, absent an express choice of law governing the arbitration agreement, the law of the seat often governs the agreement due to its close connection to the arbitration process.

However, the decision split the court, with dissenters (Lords Burrows and Sales) arguing that in the absence of an express choice of law for the arbitration clause, the law of the substantive contract should apply. The dissent’s reasoning reflects a broader debate: arbitration clauses, while procedural, are often tied deeply to the substance of the contractual obligations, suggesting a natural connection to the law chosen for the substantive contract.

The judgment builds on previous case law, including Sul América Cia Nacional de Seguros SA v Enesa Engenharia SA, which used a similar approach but also emphasized that the seat law often provides clarity in the absence of an express choice. The Enka decision’s majority favored the seat law, reaffirming the significance of the “closest and most real connection” approach to determining the governing law of arbitration clauses. The majority also emphasized the need to ensure certainty and consistency across international arbitration cases.

2. The Role and Determination of the Seat of Arbitration:

The seat of arbitration plays a critical role in international arbitration as it determines the jurisdiction that will supervise the arbitration process (curial jurisdiction) and enforce awards. The Process & Industrial Developments Ltd v Federal Republic of Nigeria [2019] case reaffirms the importance of distinguishing between the juridical seat and the physical location of hearings. The decision emphasized that parties might hold arbitration hearings in one location while selecting a different jurisdiction as the seat for legal and supervisory purposes. This reinforces the autonomy and flexibility inherent in arbitration.

The significance of the seat is further underscored in C v D [2007], where the choice of seat was pivotal in deciding which courts had the authority to intervene in arbitral proceedings. The decision reiterated that the seat confers jurisdiction to the courts of that location to issue anti-suit injunctions and oversee procedural issues. In this case, the English court restrained a party from pursuing a challenge in a foreign court, highlighting the powerful role of anti-suit injunctions in protecting the integrity of arbitration agreements seated in England.

The Shashoua v Sharma [2009] decision further explores the role of the seat, specifically when parties use ambiguous terms like "venue" in their arbitration agreements. The court clarified that a choice of seat grants exclusive supervisory powers to the courts of that seat, even when other jurisdictions are referenced as venues for hearings or other parts of the process.

3. Anti-suit Injunctions and Interim Relief:

Anti-suit injunctions are an essential tool for upholding the authority of the seat of arbitration and preventing parties from undermining the arbitration agreement by seeking relief in other jurisdictions. The Enercon GmbH v Enercon (India) Ltd [2012] case underscores the power of the English courts to appoint arbitrators when the arbitration agreement fails, assuming the seat is in England.

The broader principle is that the seat confers exclusive jurisdiction to the courts of that location, which can prevent interference from foreign courts. U&M Mining Zambia Ltd v Konkola Copper Mines plc similarly examined the interplay between different jurisdictions in seeking interim relief. The question arose whether a party could seek relief in a foreign court, which is generally disfavored under English arbitration law when the seat is in England.

4. Interplay Between Substantive Law, Seat Law, and Arbitration Agreement:

Cases such as Atlas Power Ltd v National Transmission and Despatch Co Ltd [2018] illustrate the complexity of arbitration agreements in practice, where parties sometimes attempt to argue for concurrent jurisdictions or dual supervision by different courts. The court firmly rejected such arguments, reinforcing the primacy of the seat in determining curial jurisdiction.

In Braes of Doune Wind Farm (Scotland) Ltd v Alfred McAlpine Business Services Ltd, the interaction between the substantive law of a contract and the procedural law of arbitration was tested, particularly when conflicting laws were chosen for different elements of the arbitration process. Here, the English court’s solution aimed to uphold the seat’s significance without creating jurisdictional confusion between different courts.

Conclusion:

Across the case law, there is a clear tension between substantive contract law and the law of the seat when determining the governing law for arbitration agreements. The Enka case represents a watershed moment in emphasizing the seat’s importance but also leaves room for further debate about the relationship between substantive contract law and arbitration. Additionally, the cases underscore the vital role of the seat in conferring jurisdiction, ensuring procedural coherence, and protecting arbitration agreements from external challenges through anti-suit injunctions.