Introduction
This essay examines the statement that the enquiry into the law governing arbitration agreements is a purely technical and redundant legal concept with limited practical relevance due to diverging global approaches. Arbitration agreements form the foundation of international commercial arbitration, determining the validity, scope, and enforceability of the process. Far from being a mere technicality, the choice of governing law can shape the outcome of disputes and influence the certainty of international trade. This analysis will explore the theoretical and practical significance of this issue through legal theory, case law, and key principles such as Kompetenz-Kompetenz. It will argue that while global divergence creates challenges, the governing law remains a crucial element of arbitration with substantial practical impact. The discussion will cover the role of governing law in validity and enforcement, the risks of satellite litigation, and the need for predictability in international arbitration.
The Theoretical Importance of Governing Law in Arbitration Agreements
The law governing an arbitration agreement is central to its formation, interpretation, and validity. This law decides whether the agreement is enforceable and defines the scope of disputes subject to arbitration. Under the English Arbitration Act 1996, for instance, Section 7 confirms that an arbitration agreement must be in writing to be valid, reflecting the importance of legal formalities (English Arbitration Act, 1996). If the governing law deems an agreement invalid, the entire arbitration process can collapse, regardless of the merits of the substantive dispute. This principle is not merely academic; it shapes the jurisdiction of arbitral tribunals.
Additionally, the doctrine of Kompetenz-Kompetenz, which allows tribunals to rule on their own jurisdiction, relies on the governing law to frame the tribunal’s authority. As Redfern and Hunter (2015) note, this principle ensures that disputes over the arbitration agreement’s validity do not derail proceedings at the outset. However, the application of this doctrine varies across jurisdictions, highlighting the complexity of determining the applicable law. In English law, courts retain supervisory powers over arbitration agreements, as seen in cases like Dallah Real Estate and Tourism Holding Company v The Ministry of Religious Affairs, Government of Pakistan [2010] UKSC 46, where the Supreme Court refused enforcement of an award due to issues with the agreement’s validity. Such cases demonstrate that the governing law is far from a redundant concern.
Practical Relevance in Enforcement of Arbitral Awards
The practical importance of the governing law becomes evident in the enforcement of arbitral awards under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958, commonly known as the New York Convention. Article V(1)(a) of the Convention allows courts to refuse enforcement if the arbitration agreement is invalid under the law chosen by the parties or, failing such choice, under the law of the arbitration’s seat (New York Convention, 1958). This provision ties the enforceability of awards directly to the governing law, making it a critical factor in international arbitration.
A striking example of practical challenges arises in the case of Kabab-Ji SAL (Lebanon) v Kout Food Group (Kuwait) [2021] UKSC 48. The English Supreme Court refused to enforce an award because the arbitration agreement was governed by English law, under which a ‘no oral modification’ clause rendered subsequent amendments invalid. In contrast, French courts upheld the same award, prioritising the law of the seat (France) over the law governing the contract. This divergence led to conflicting outcomes, with the award enforceable in France but not in the UK. Such cases reveal that the choice of governing law is not a technical triviality but a decisive factor in the global recognition of awards. Far from being redundant, it can determine the success or failure of arbitration outcomes.
Satellite Litigation and the Cost of Uncertainty
One significant practical issue arising from ambiguity in the governing law is the risk of satellite litigation. When parties fail to specify the law governing their arbitration agreement, courts must step in to determine the applicable law before addressing the substantive dispute. This process often delays proceedings and increases costs, undermining arbitration’s efficiency as a dispute resolution mechanism. For example, the UNCITRAL Model Law on International Commercial Arbitration (1985, with 2006 amendments) provides guidelines for determining the applicable law but leaves room for interpretation, leading to inconsistent judicial approaches (UNCITRAL, 1985).
In the English context, the case of Enka Insaat Ve Sanayi AS v OOO Insurance Company Chubb [2020] UKSC 38 clarified that, absent an express choice, the law of the arbitration agreement is generally the law of the seat. However, this presumption does not eliminate disputes, as parties may still contest the implied choice of law. These preliminary battles illustrate that the governing law is not a redundant concept but a source of real-world friction. Addressing this issue through clear drafting can prevent such disputes, yet global variations in legal systems ensure that challenges persist.
Predictability and Risk Management in International Transactions
Specifying the governing law of an arbitration agreement provides predictability and certainty, essential for managing risks in international commercial transactions. Parties to cross-border contracts operate in environments with differing legal traditions, and a clear choice of law minimises surprises during dispute resolution. As Blackaby et al. (2015) argue, predictability encourages confidence in arbitration as a reliable mechanism for resolving disputes. Without such clarity, parties may face unexpected legal standards that undermine their contractual intentions.
Moreover, the governing law influences strategic decisions in drafting arbitration clauses. For instance, selecting English law as the governing law ensures access to a well-established body of case law and statutory provisions under the Arbitration Act 1996. In contrast, other jurisdictions, such as those following the Arbitration Law of the People’s Republic of China (1994), may impose stricter requirements on the validity of agreements or limit the scope of arbitrable disputes. These differences reinforce the practical importance of the governing law, contradicting the notion that it lacks relevance.
Global Divergence: A Challenge but Not a Barrier
The statement under review points to the wealth of diverging approaches globally as evidence of the concept’s limited relevance. Indeed, variations between legal systems—such as the civil law emphasis on the seat of arbitration in France versus the common law focus on party autonomy in England—create uncertainty. However, this divergence does not diminish the importance of the governing law; rather, it underscores the need for careful consideration and explicit agreement by the parties. The New York Convention provides a framework for harmonisation, yet gaps remain due to national interpretations of its provisions (New York Convention, 1958). These inconsistencies are a challenge to be addressed, not a reason to dismiss the governing law as redundant.
Conclusion
In conclusion, the law governing arbitration agreements is neither a purely technical nor a redundant concept. It holds both theoretical and practical significance, influencing the validity of agreements, the enforceability of awards, and the efficiency of dispute resolution. Cases such as *Kabab-Ji* and *Enka* illustrate the real-world impact of governing law on arbitration outcomes, while the risks of satellite litigation highlight the consequences of ambiguity. Though global divergence in legal approaches poses challenges, it does not negate the importance of this issue. Instead, it calls for greater clarity in drafting agreements and a deeper understanding of international frameworks like the New York Convention. For practitioners and parties in international commercial arbitration, the governing law remains a vital consideration that shapes the landscape of dispute resolution and ensures predictability in an uncertain global market.
References
- Blackaby, N., Partasides, C., Redfern, A. and Hunter, M. (2015) Redfern and Hunter on International Arbitration. 6th edn. Oxford: Oxford University Press.
- English Arbitration Act (1996) London: HMSO.
- New York Convention (1958) Convention on the Recognition and Enforcement of Foreign Arbitral Awards. United Nations.
- Redfern, A. and Hunter, M. (2015) Law and Practice of International Commercial Arbitration. 5th edn. London: Sweet & Maxwell.
- UNCITRAL (1985) Model Law on International Commercial Arbitration (with amendments as adopted in 2006). United Nations Commission on International Trade Law.
