Level 3 With which legal order does the arbitration agreement have its closest and most real connection? A dispute has broken out in Sulamérica over insurance contracts for a hydroelectric power plant in Brazil. The English court had to determine whether Brazilian or English law was considered to be the applicable law of the arbitration agreement. In the absence of an explicit agreement, the Tribunal first considered whether an applicable law could be implied. A long-awaited decision of the UK Supreme Court on 9 October 2020, as part of a London-based arbitration procedure, clarifies how English courts will determine the law of an arbitration agreement. The decision is a clear reminder of the importance of an arbitration agreement with care and precision. The law that was measured in the case of the dispute in that case was Russian law; the procedural law was that of England, with the parties having chosen London as their seat and the arbitration in English having to be conducted in accordance with the rules of the ICC Arbitration Rules. Neither in the underlying contract nor in the arbitration agreement was there an explicit choice of law clause. The Court of Appeal ruled that English law applied to the arbitration agreement. This can give rise to costly litigation that would not have been necessary if the parties had established applicable law in the arbitration clause. Not only does this delay the resolution of contentious substantive issues, but it can also lead courts to impose an involuntary (and possibly undesirable) choice of law on the parties. It also brings a great element of uncertainty in the dispute settlement procedures negotiated and agreed by the parties at the beginning of the transaction. It follows that a cancellation clause in the main contract does not necessarily cover the arbitration clause. Indeed, arbitration clauses often contain their own legal provisions in force.
The FDA`s arbitration clause (Section 14) did not specify the applicable legislation. The judges said the concept of severability, which is provided for in the UK Statute and aims to ensure that the terms of an arbitration agreement are read differently from those of the main agreement, does not change its mind. The fact that Paris was declared as an arbitrator in the agreement was also not specified. Disputes broke out and Kabab-Ji commenced arbitration proceedings under the FDA against Kut, but not against the AHFC. The court ruled in favor of kabab-Jis. It found that the applicable law of the arbitration agreement was French law and that English law raised the question of whether AHFC`s rights and obligations had been transferred to Kut under the FDA. Under English law, Kut is bound by the arbitration agreement, it was said. “However, the distinction is not clear: the language may be more or less explicit and the extent to which a contractual notion is formulated in such words or requires a process of conclusion to identify it is a matter of degree. In any event, whether the parties have agreed on a choice of law to govern their contract is a matter of interpretation. . . .