Overview
Introduction
Under English law, an agreement to arbitrate carries with it a promise not to resolve disputes in another forum. The English courts will ordinarily help a party enforce this promise by granting an anti-suit injunction to restrain a party to an arbitration agreement from pursuing proceedings brought in breach of an arbitration agreement. While applications for anti-suit injunctions are made to English courts quite regularly, the subset of applications regarding non-English seated arbitrations likely make up a small proportion of such applications. A trilogy of recent anti-suit injunctions issued against RusChemAlliance attests to the English courts' willingness to grant anti-suit injunctions in support of foreign-seated arbitrations. This client alert discusses the proposed UK Arbitration Bill that would introduce new statutory rules for deciding which law governs arbitration agreements and the potential impact of those rules on the English courts’ future ability to issue anti-suit injunctions.
Main Takeaway
The proposed Arbitration Bill substantially departs from English case law on arbitration agreements in three ways. First, it eliminates the possibility for English courts to consider an implied choice of law for an arbitration agreement. Second, if the parties have not expressly chosen any law to govern the arbitration agreement, the law of the seat of arbitration will mandatorily apply to the arbitration agreement. Third, the Bill provides that a general choice of law provision applicable to the underlying contract will not be construed as governing the contract’s arbitration agreement.
Absent an express choice of English law that is specific to the arbitration agreement, the Arbitration Bill effectively precludes English courts from finding that arbitration agreements with a non-English seat can nevertheless be governed by English law. This consequence will be especially relevant to commercial parties who choose English law to govern their contracts and who include arbitration agreements in these same contracts, when the arbitration agreement is not stated to be controlled by English law. As explained below, this statutory rule will potentially curtail the future availability of English anti-suit injunctions in arbitration.
Background: the UK Arbitration Bill
Former Prime Minister Rishi Sunak's Conservative UK Government introduced the Arbitration Bill in November 2023 to implement amendments to the English Arbitration Act 1996, with a view to "[m]odernising the framework for arbitration in th[e] country." As explained in Steptoe's previous client alert on key considerations in UK disputes dated January 22, 2024, the Bill proposed a number of targeted amendments. These included for instance updated provisions for challenging awards based on jurisdiction, which applied only to awards rendered by arbitral tribunals seated in England and Wales or in Northern Ireland. Passage of the Bill was however paused by the snap call of a UK general election for July 4, 2024 and it was not rushed through the last Parliament as part of the pre-election "wash-up."
Accordingly, it fell on the next UK Government to resume the Arbitration Bill's legislative journey through the next Parliament. The Labour UK Government of Sir Keir Starmer seized this very opportunity offered by the King's Speech of July 17, 2024 and revived the Bill (see the background briefing notes to the King's Speech 2024, at pp. 35-36). Given Labour's parliamentary majority, it is probable the Bill will pass and become law.
This client alert analyzes: (i) clause 1(2) of the Arbitration Bill which proposes to insert Section 6A into the Arbitration Act 1996 ("Section 6A") providing for new statutory rules concerning the law applicable to arbitration agreements; and (ii) the potential impact of these rules on the grant of anti-suit injunctions by English courts.
The Law Applicable to an Arbitration Agreement Before and After the Arbitration Bill
English law, like that of many other jurisdictions, treats an arbitration agreement as a legally separable contract, distinct from the contract which contains the arbitration agreement (sometimes referred to as the "matrix contract"). As such, the arbitration agreement can be governed by a different law than the contract in which it is contained (see, e.g., Sulamérica Cia Nacional de Seguros SA v Enesa Engenharia SA [2012] EWCA Civ 638). Arbitration agreements, however, rarely stipulate their own applicable law, which can create difficulties if the matrix contract is not governed by the law of the jurisdiction in which the arbitration is seated. For example, the matrix contract could have a choice of law clause that calls for English law, but an arbitration clause that calls for arbitration to be seated in France.
In Enka Insaat Ve Sanayi AS v OOO "Insurance Company Chubb" [2020] USKC 38 ("Enka v Chubb"), the UK Supreme Court formulated a three-stage enquiry in order of preference for instances where the law applicable to the matrix contract was not that of the seat of arbitration (see Enka v Chubb, paras. 170, 193(iv), 227, 257(i)):
(i) Whether there is an express choice of law specific to an arbitration agreement;
(ii) If not, whether there is an implied choice of law for the arbitration agreement, with the choice of law applicable to the matrix contract generally being considered applicable to its arbitration agreement; and
(iii) Where there is no expressed or implied choice of law, the arbitration agreement should generally be governed by the system of law with which the arbitration agreement has the closest and most real connection. (This would generally be the law of the seat.)
Subsequent UK Supreme Court decisions followed Enka v Chubb (e.g., Kabab-ji SAL v Kout Food Group [2021] UKSC 48). Nevertheless, the UK Law Commission in its September 2023 Final Report on the review of the Arbitration Act 1996 ("Final Report", at paras. 12.20 and 12.74) called the Enka v Chubb approach "legally complex and unpredictable." The Law Commission proposed to solve this perceived problem through Section 6A, which reads as follows:
"6A Law applicable to arbitration agreement
(1) The law applicable to an arbitration agreement is—
(a) the law that the parties expressly agree applies to the arbitration agreement,
or
(b) 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."
It can be seen that Section 6A(1) departs from the Enka v Chubb approach. It eliminates implying a choice of law. Indeed, Section 6A(2) disallows a choice of law provision applicable to the matrix contract from being construed as a choice that the same law governs its arbitration agreement. Moreover, it provides for an automatic default to the law of the seat of arbitration where the parties do not expressly choose any law to govern the arbitration agreement.
Hence, English courts are potentially precluded from finding that an arbitration agreement is governed by English law if the arbitration is seated outside of England and the arbitration clause does not have an English choice of law clause.
The Prospect of English Anti-Suit Injunctions Becoming Unavailable for Foreign-Seated Arbitrations as a Result of the Arbitration Bill
More importantly, Section 6A's quest for simplicity in choice of law questions (see the Law Commission's Final Report at para. 12.74) potentially curtails the English courts' power to issue anti-suit injunctions in support of foreign-seated arbitrations. This is because the English courts have held their jurisdiction to grant an anti-suit injunction in support of arbitration should be founded on either: (i) the existence of an English law-governed arbitration agreement; or (ii) the selection of an English seat for the arbitration (AES Ust-Kamenogorsk Hydropower Plant LLP v Ust-Kamenogorsk Hydropower Plant JSC [2013] UKSC 35).
In UniCredit Bank GmbH v RusChemAlliance LLC [2024] EWCA Civ 64, one of a recent trio of disputes over a related set of English law-governed performance bonds providing for Paris-seated arbitration, the English Court of Appeal held that, in principle, an English court could grant an anti-suit injunction in support of a foreign-seated arbitration where English law governed the matrix contract (and, by virtue of Enka v Chubb, the arbitration agreement) (see paras. 52-70 and 83). In April 2024, the UK Supreme Court upheld this anti-suit injunction and dismissed the appeal against it. The Supreme Court has yet to publish its judgment.
If Section 6A becomes law, where there is a non-English seat of arbitration but no express choice of law for an arbitration agreement, English courts will potentially no longer be able to hold that the arbitration agreement may nevertheless be governed by English law and will not, therefore, be able to issue an anti-suit injunction. Instead, the English courts would effectively be directed by Section 6A to find that the arbitration agreement must be governed by the law of the foreign seat.
In other words, Section 6A's new rules on governing law may, as a corollary effect, significantly curtail the ability of English courts to issue anti-suit injunctions in support of foreign-seated arbitrations where there is no express choice of English law for an arbitration agreement. As a result, anti-suit injunctions might henceforth be sought only in the rare case where parties have expressly and specifically stipulated upfront for an arbitration agreement to be governed by English law, or where an arbitration agreement otherwise provides for an English seat.
Recommended Course of Action in Response to Section 6A
These consequences flowing from the Arbitration Bill present a potentially dramatic shift to the landscape of English anti-suit injunctions. Commercial parties should be particularly alert to situations where the arbitration agreement in their contracts stipulates a non-English seat, or where they may be otherwise persuaded to seat an arbitration elsewhere. As currently worded, the likely effect of Section 6A's new statutory rules will be to curtail the availability of English anti-suit injunctions as a remedy against a counterparty's breach of an arbitration agreement, especially if no governing law is specified for the latter.
In light of this, commercial parties may wish to review and update the arbitration agreements in their contracts with a view to guard against any unforeseen changes to the future (un)availability of English anti-suit injunctions. For instance, to minimize the potential impact of Section 6A (and to preserve the option of English anti-suit injunctions), they could consider negotiating an express choice of English law specific to an arbitration agreement, especially if a counterparty would insist on a foreign arbitral seat. Advice on any such amendments should of course be bespoke to each party and their contracts, taking into account their unique circumstances.
