Determining the Law of the Arbitration Agreement

A Comparative Analysis of United Kingdom’s UniCredit Bank v RusChemAlliance and Singapore’s Anupam Mittal v Westbridge Ventures II Investment Holdings

This article offers a comparative analysis of the determination of the governing law of arbitration agreements in the UK and Singapore, focusing on the landmark cases of UniCredit Bank GmbH v RusChemAlliance LLC in the UK and Anupam Mittal v Westbridge Ventures II Investment Holdings in Singapore. It highlights the nuanced approaches both jurisdictions take in interpreting parties’ intentions regarding the governing law of arbitration agreements, especially in scenarios where such agreements lack explicit governing law provisions. The analysis highlights the absence of international consensus on this issue, with both the UK and Singapore emphasising the significance of the law of the main contract as a default governing law for the arbitration agreement, unless clear indications suggest otherwise. The article also discusses the implications of the forthcoming Arbitration Bill in the UK, which proposes a significant shift by prioritising the law of the seat of arbitration as the default governing law for arbitration agreements, unless the parties have expressly agreed otherwise. This legislative change is poised to diverge from the current common ground shared by UK and Singaporean approaches, potentially impacting how future arbitration agreements are interpreted and enforced in the UK. The anticipated divergence underscores the importance of explicitly specifying the governing law in arbitration agreements to avoid legal uncertainties and ensure the efficacy of arbitration clauses.

Introduction

1. Lord Mustill, in his leading judgment in the 1993 case of Channel Tunnel Group Ltd v Balfour Beatty Construction Ltd, definitively stated that it is “by now firmly established that more than one national system of law may bear upon an international arbitration”.¹Channel Tunnel Group Ltd v Balfour Beatty Construction Ltd (1993) AC 334 at (67). Although Lord Mustill’s explanation is now more than three decades old, his words still ring true: the determination of the governing law of arbitration agreements remains a cornerstone issue, pivotal for ensuring the efficacy and enforceability of arbitration clauses. However, it is not without considerable debate, with difficulty lying in deciding which system of law should govern the arbitration agreement when the law of the main contract differs from that of the law of the seat. The resulting arbitrability of the dispute heavily depends on this determination, which can spell profound implications for contracting parties.
2. As of the date of writing, there remains an absence of international consensus regarding the determination of the law of the arbitration agreement. In France, so-called “substantive rules” – “règles matérielles” – specify that the law of the seat will govern an arbitration agreement, including its validity and effectiveness, unless otherwise expressed by the parties to submit the arbitration agreement to another choice of law. However, the position is inversed in the United Kingdom (the UK) and Singapore: the chosen seat will not determine the law applicable to the arbitration agreement.
3. This note delves into the approach taken to determine the governing law of arbitration agreements by the UK and Singapore, in particular by placing a spotlight on the critical judgments of UniCredit Bank GmbH v RusChemAlliance LLC (UniCredit)²UniCredit Bank GmbH v RusChemAlliance LLC (2024) UKSC 30. in the UK and Anupam Mittal v Westbridge Ventures II Investment Holdings (Anupam)³Anupam Mittal v Westbridge Ventures II Investment Holdings (2023) SGCA 1. in Singapore.
4. These cases underscore the nuanced approaches English and Singapore courts have taken in deciphering the parties’ intentions regarding the governing law of arbitration agreements, especially when such agreements lack explicit governing law provisions. Through a comparative analysis, this note aims to illuminate the similarities and differences in the judicial treatment of arbitration agreements across the two jurisdictions, and highlight the potential implications of the forthcoming Bill to amend the Arbitration Act 1996 (the Arbitration Bill) in the UK.

The Approach in UniCredit Bank v RusChemAlliance (United Kingdom)

5. English law, similar to the laws of many other jurisdictions, considers an arbitration agreement as a legally separable contract, entirely distinct from the main contract (referred to as the “matrix contract”) that contains the arbitration clause. Consequently, the law governing the arbitration agreement can differ from the law applicable to the contract in which it is embedded, as was the case in Sulamérica Cia Nacional de Seguros SA v Enesa Engenharia SA [2012] EWCA Civ 638 (Sulamérica).⁴Sulamérica Cia Nacional de Seguros SA v Enesa Engenharia SA (2012) EWCA Civ 638.
6. Arbitration agreements often do not specify their governing law, which can lead to complications when the matrix contract is governed by a different jurisdiction’s law than where the arbitration occurs. Although the English Court of Appeal’s decision in Sulamérica provided some guidance, later rulings have complicated the process of identifying the governing law of an arbitration agreement.
7. Thankfully, the UK Supreme Court decisions of: (i) Enka Insaat Ve Sanayi A.S. v OOO Insurance Company Chubb⁵Enka Insaat Ve Sanayi A.S. v OOO Insurance Company Chubb (2020) UKSC 38. (Enka); and more recently, (ii) UniCredit now offer a measure of clarity on the vexed issue of how to determine the proper law of an arbitration agreement.

UniCredit Bank GmbH v RusChemAlliance LLC

8. In UniCredit, RusChemAlliance LLC (RusChem), a Russian company, entered into contracts with German firms for the construction of liquefied natural gas facilities. UniCredit issued the performance bond for these contracts. Following the European Union’s imposition of sanctions against Russia, the German contractors halted their work, leading RusChem to terminate the contracts. Subsequently, RusChem sought the repayment of advance payments and demanded the execution of the bond payments from UniCredit.
9. The bonds were governed by English law (the law of the main contract) and included an International Chamber of Commerce arbitration clause stipulating that arbitration proceedings would take place in Paris (the law of the seat).
10. However, RusChem commenced proceedings in Russia and UniCredit turned to the English courts to seek an anti-suit injunction on the basis that RusChem had breached the arbitration agreement. UniCredit, in order to establish the English court’s authority over RusChem, had to demonstrate that its claim pertained to a contract under English law. This requirement aligns with one of the “gateways” for serving proceedings outside the jurisdiction, as outlined in Civil Procedure Rules PD6B.3.1. UniCredit contended that the arbitration agreement was governed by English law, asserting that the selection of English law for the bond contract extended to the arbitration clause and all other contract clauses. Conversely, RusChem maintained that the arbitration agreement should be governed by French law, as it is the law of the arbitration’s seat, which was chosen by the parties.
11. UniCredit reaffirmed the approach in Enka, namely that the law governing the arbitration agreement will be either: (i) the law (expressly or impliedly) chosen by the parties to govern it; or (ii) the system of law with which the arbitration agreement is most closely connected. The key principles arising out of Enka, as they pertain to UniCredit, are as follows:

1. where the applicable law is not specified, the law chosen to govern the contract usually extends to the arbitration agreement, which is a component of the contract;
2. choosing a different country as the seat of arbitration does not, by itself, negate the presumption that the law selected to govern the contract is also intended to govern the arbitration agreement; and
3. in paragraph 170(iv) of Enka, the UK Supreme Court explained that there are circumstances that might suggest the parties intended for the law of the arbitration’s seat to govern the arbitration agreement. The relevant factor for the purpose of this case was that set out in paragraph 170(iv)(a): “any provision of the law of the seat which indicates that, where an arbitration is subject to that law, the arbitration agreement will also be treated as governed by that country’s law”.⁶Enka at (170).

12. Conspicuously, the UK Supreme Court stated that merely specifying a choice of seat for the arbitration does not support an inference that the parties intended the law of the seat to govern the arbitration agreement.⁷UniCredit at (50).
13. Applying the Enka test, the UK Supreme Court in UniCredit held that the arbitration clauses were governed by English law. The choice of Paris as the arbitration seat did not warrant a departure from the general rule, thereby granting the English court jurisdiction to repudiate the claim.

RusChem’s Argument

14. While the decision favoured the law of the main contract, RusChem’s argument in the dispute warrants acknowledgment. RusChem argued that Enka, specifically at paragraph 170(iv)(a), introduced an exception to the general rule that the main contract’s governing law should also apply to the arbitration agreement. This exception would be relevant if the law of the chosen seat automatically governs the arbitration agreement in the absence of an explicit stipulation – under this premise, RusChem contended that selecting such a seat implied the parties’ intention for the arbitration agreement to be governed by the law of that seat. In this scenario, RusChem posited that a French court would likely find the arbitration agreement to be governed by French law.
15. In response, Lord Leggatt, who delivered the leading judgment, rejected this argument. He clarified that the wording in paragraph 170(iv)(a) of Enka was “permissive rather than prescriptive” and that the parties should focus on the Court’s “underlying reasoning”.⁸Ibid. at (39). The core outcome of Enka was the determination that the selection of an English seat does not imply the choice of English law to govern the arbitration agreement. Lord Leggatt argued that a principle which assumes the arbitration agreement is governed by the law deemed applicable by the seat’s court would be “neither clear nor simple to apply”.⁹Enka at (55). The approach would necessitate examining the laws of the chosen foreign seat for arbitration to ascertain which law applies to the arbitration agreement. Moreover, the Court’s task is to deduce the parties’ intentions in selecting a foreign seat for arbitration – the principle proposed by RusChem was unlikely to reflect the intention of typical commercial parties.
16. UniCredit has shown that the UK maintains a consistent stance, in line with Enka, on determining the law governing the arbitration agreement – by presuming it aligns with the law of the main contract. It is against this backdrop that we explore Singapore’s approach.

The Approach in Anupam Mittal v Westbridge Ventures II Investment Holdings (Singapore)

17. Singapore’s approach to determining the law of arbitration agreement draws strong parallels with that of the UK. The decision of the Singapore Court of Appeal in Anupam affirmed the three-stage test laid out in BCY v BCZ (BCY).¹⁰BCY v BCZ (2016) SGHC 249.
18. The dispute in Anupam concerned an investment in People Interactive (India) Private Limited, an Indian company which ran the online matchmaking website “shaadi.com”. A dispute arose between the founder (Anupam Mittal) and the private equity fund (Westbridge Ventures II Investment Holdings) with respect to Westbridge’s attempt to exit the business. The claimant and respondent had previously signed a shareholders’ agreement which governed their relationship; and this shareholders’ agreement envisaged an exit by way of IPO five years on from the initial investment by Westbridge. When Westbridge saw that an impending IPO was unlikely within the specified timeframe, they engaged in discussions with a competitor, with which it shared sensitive information. As such, the shareholders’ relationship deteriorated.
19. Clause 20.1 of the shareholders’ agreement stated that the “[shareholders’ agreement] and its performance shall be governed by and construed in all respects in accordance with the laws of the Republic of India”. Further, clause 20.2 (the Arbitration Agreement) provided that all “such disputes that have not been satisfactorily resolved under Clause 20.1 above shall be referred to arbitration … and the place of arbitration shall be Singapore.” Notably, there was no express provision stipulating the law of the Arbitration Agreement.
20. The claimant (Mittal) commenced proceedings in the National Company Law Tribunal (NCLT) in Mumbai, India against Westbridge alleging minority shareholder oppression. Consequently, in March 2021, the respondent (Westbridge) proceeded with an action before Singapore’s High Court to seek an interim anti-suit injunction restraining the proceedings before the NCLT, which the respondent argued was in breach of the arbitration clause. The Singapore High Court granted the interim injunction ex parte on the basis that the arbitration agreement was breached when the claimant commenced the proceedings in Mumbai. The claimant then commenced proceedings before the Mumbai High Court, arguing that the NCLT was the “only competent forum to hear and decide the disputes”¹¹Anupam at (18). and seeking a permanent injunction to restrain the respondent from pursuing arbitration in Singapore.
21. Anupam was concerned with the appeal raised by the claimant, and the Singapore Court of Appeal had to determine whether the Arbitration Agreement was governed by Singapore or Indian law.
22. To analyse this issue, the Singapore Court of Appeal applied the three-stage test laid down in BCY (based on Sulamérica) as follows.¹²Ibid. at (40).

1. Stage 1: Whether parties expressly chose the proper law of the arbitration agreement.
2. Stage 2: In the absence of an express choice, whether parties made an implied choice of the proper law to govern the arbitration agreement, with the starting point for determining the implied choice of law being the law of the main contract.
3. Stage 3: If neither an express choice nor an implied choice can be discerned, which is the system of law with which the arbitration agreement has its closest and most real connection.[emphasis added]

23. Applying the BCY test in Anupam, it found that for the first stage the Arbitration Agreement did not constitute an express choice of law, and language providing that the underlying shareholders’ agreement was to be governed by Indian law was “insufficient to constitute an express choice of the proper law of the arbitration agreement”.¹³Ibid. at (65). The Singapore Court of Appeal ruled that an express choice of law for an arbitration agreement required “explicit language stating so in no uncertain terms”.¹⁴Ibid. at (66).
24. Proceeding to the second stage, the prevailing principle is that in the absence of explicit indications to the contrary, the law chosen for the main contract (Indian law) is presumed to apply to the arbitration agreement. Consequently, by virtue of the shareholders’ agreement between the parties being governed by Indian law, it is implied that Indian law was selected as the proper law of the Arbitration Agreement. In Sulamérica, the English Court observed that the governing law of the main contract “should only be displaced if the consequences of choosing it as the governing law of the arbitration agreement would negate the arbitration agreement even though the parties had themselves evinced a clear intention to be bound to arbitrate their disputes”.¹⁵Sulamérica at (65) and (74). While oppression claims are considered non-arbitrable under Indian law, the arbitration agreement explicitly covers disputes “relating to the management of the Company”.¹⁶Anupam at (70). Applying the Sulamérica criteria, the Singapore Court of Appeal concluded that applying Indian law would contradict the parties’ evident intention to resolve all disputes through arbitration. This constituted a sufficient indication to counter the presumption that Indian law was intended to govern the Arbitration Agreement.
25. At the third stage, the Singapore Court of Appeal determined that Singapore law, as the law of the seat, possessed the “most real and substantial connection” to the Arbitration Agreement. Therefore, Singapore law was deemed to govern the Arbitration Agreement.¹⁷Ibid. at (75).

Similarities Between the UK and Singapore’s Approaches

26. In determining the law governing arbitration agreements, the approach taken by the Singapore courts, as evidenced in the Anupam case, closely mirrors that of the English courts, as seen in the UniCredit and Enka cases. Specifically, the methodology applied in Anupam, which follows the BCY test, is consistent with the approach employed by the UK Supreme Court in the Enka case.
27. The Singapore law position posits that the law governing the main contract is a significant indicator of the law that should govern the arbitration agreement, unless there are clear indications to suggest a different intention. The mere choice of a different seat of arbitration from the law governing the main contract does not suffice to displace this initial presumption. This presumption may only be revisited if adhering to the main contract’s governing law for the arbitration agreement would lead to its invalidation, contrary to the parties’ evident intention to settle disputes through arbitration.

Arbitration Bill

28. Although the UK judiciary favours the presumption that the law governing the main contract also governs the arbitration agreement, this stance is poised for change. This shift is anticipated due to the Arbitration Bill, which is presently progressing through the UK Parliament.
29. Clause 1 of the proposed Arbitration Bill introduces a new section 6A to the Arbitration Act 1996 as follows:

“6A Law applicable to arbitration agreement

1. The law applicable to an arbitration agreement is —

1. 1. The law that the parties expressly agree applies to the arbitration agreement, or
   2. Where no such agreement is made, the law of the seat of the arbitration in question

2. For the purposes of subsection (1), agreement between the parties that a particular law applies to an agreement of which the arbitration agreement forms a part does not constitute express agreement that that law also applies to the arbitration agreement.”

30. The proposed Arbitration Bill marks a significant departure from the precedent established in UniCredit in three key aspects. First, it removes the opportunity for English courts to deduce an implied choice of law for the arbitration agreement. Second, should the parties not explicitly select a governing law for the arbitration agreement, the law of the arbitration’s seat will automatically be applied. Third, the Bill introduces a definitive rule that prioritises the law of the seat, moving away from the close connection test.
31. The introduction of the proposed Arbitration Bill is set to (largely) nullify the rule established in Enka, significantly limiting its temporal relevance. Had this Bill been in force at the time the UniCredit case was heard before the UK Supreme Court, the outcome would have differed markedly: French law would have been applicable to the arbitration agreements, and consequently, UniCredit’s argument regarding the English law being the governing law would not have prevailed.
32. Although the introduction of the new section 6A therefore signifies a new beginning, the UK Supreme Court decision in UniCredit does appear to unnecessarily complicate matters. As mentioned, the proposed new section 6A will helpfully eliminate the concept of implied choice in determining the law for the arbitration agreement. The default rule will be that the law of the seat of arbitration applies unless the parties have expressly agreed otherwise: that is clear.
33. In the UniCredit judgment, the UK Supreme Court makes reference to the newly introduced section 6A, noting that the extent to which section 6A will modify the Enka ruling hinges on the interpretation of “what the word “expressly” is taken to add to the word “agree”” at section 6A(1)(a).¹⁸UniCredit at (28). With respect, the authors find it difficult to interpret section 6A in any way other than what it says on its face: “agreement between the parties that a particular law applies to an agreement of which the arbitration agreement forms a part does not constitute express agreement that the law also applies to the arbitration agreement”.¹⁹Proposed section 6A(2) Arbitration Bill 2024. Once the new section 6A is in force, unless parties have expressly stated what the law governing the arbitration agreement is, nothing else will suffice: the law of the seat shall apply. Courts will no longer have to contend with the potential presumption that an express or implied choice was made by the parties for the law governing the main contract to also apply to the arbitration agreement.

Conclusion

34. Identifying the governing law of the arbitration agreement is crucial for protecting the interests of contracting parties. Currently, both the UK and Singapore adopt a similar stance: in instances where parties have not specified a governing law for the arbitration agreement, the chosen law for the main contract is presumed to govern the arbitration agreement as well.
35. The anticipated overhaul of the approach established in Enka by the Arbitration Bill, which passed its third reading in the House of Lords on 6 November 2024, is set to change how English courts ascertain the governing law. With the potential enactment of section 6A in the Arbitration Bill, parties requesting anti-suit injunctions from English courts to back an arbitration agreement with a seat outside England will be required to demonstrate either an explicit agreement that English law governs the arbitration agreement or establish the jurisdiction of English courts via an alternative mechanism. This represents a notable shift from the precedent in UniCredit, consequently diverging from the methodology employed by Singapore in Anupam as well.
36. Although it seems likely, if not certain, that the methods for determining the law of the arbitration agreement in the UK and Singapore will diverge in the near future, one clear aspect remains: both jurisdictions, long recognised as strong supporters of arbitration, are committed to enforcing parties’ agreements to arbitrate.
37. While governing law and arbitration clauses are frequently termed “midnight clauses” due to their tendency to be hurriedly drafted and inserted at the final stages of negotiations, the cases of UniCredit and Anupam serve as welcome reminders that to avoid being entangled in legal complications long after midnight, contracting parties would do well to explicitly specify the law governing the arbitration agreement.

The authors would like to acknowledge the valuable contribution of Choon Wee Yeo, currently studying for a BA in Law at Homerton College, Cambridge.

The post Determining the Law of the Arbitration Agreement appeared first on The Singapore Law Gazette.