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Key changes introduced by the Arbitration Act 2025: (3) new rule to determine governing law of arbitration agreement

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Home Perspectives Key changes introduced by the Arbitration Act 2025: (3) new rule to determine governing law of arbitration agreement

Key takeaways

  • The Arbitration Act 2025 (the Act) changes how the governing law of an arbitration agreement is determined, replacing the complex common law rule established by the UK Supreme Court in Enka v. Chubb (2020).
  • The change introduced by the Act means that an arbitration agreement will now be governed by the law of the seat of arbitration, unless the parties expressly agree otherwise.
  • This change has major implications for parties entering into arbitration agreements specifying a seat in England & Wales or Northern Ireland.
  • Although the Act makes it much simpler to determine the law governing the arbitration agreement, it still remains best practice to specify the governing law expressly when drafting the arbitration agreement.

A new method to determine the law governing the arbitration agreement

The Act provides that an arbitration agreement will be governed by the law of the seat of arbitration, unless the parties expressly agree otherwise.

The previous common law position, established by the UK Supreme Court in Enka v. Chubb,1 involved a complex multi-stage test which provided that, in the absence of an express choice, the governing law of the arbitration agreement would be the same as the governing law of the main contract, subject to certain key exceptions and provisos. Those provisos included that, in the absence of a choice of law governing the main contract, the law with the closest connection would apply, and that this would usually (but not always) be the law of the seat of arbitration. The previous Enka v. Chubb approach was criticised by some for being too complex and uncertain.

The law governing the arbitration agreement is important because it determines important issues such as: (i) whether the arbitration agreement is separable from the main contract, such that it survives the termination of the main contract; (ii) what issues can be arbitrated under the arbitration agreement; (iii) whether the arbitration agreement can be modified or terminated by the parties, and if so, how; and (iv) whether the arbitration agreement is unenforceable because it runs counter to public policy, such as local consumer protection laws.