How to determine the law of the arbitration agreement when none is stated

The arbitration clauses in the insurance policies related to a hydro-electric project in Sulamerica Cia Nacional de Seguros SA v Enesa Engenharia SA, [2012] EWCA Civ 638, provided for arbitration in London but also chose Brazilian law as the law of the contract and conferred exclusive jurisdiction on the courts of Brazil. Enesa claimed under the policies but coverage was denied by Sulamerica. The parties commenced arbitration proceedings, but Enesa also sought recourse in the Brazilian courts, which Sulamerica sought to enjoin. Enesa contended in anti-suit injunction proceedings that the law of the arbitration agreement was that of Brazil, given that the policies were governed by Brazilian law, the Brazilian courts had exclusive jurisdiction, and the dispute arose in Brazil; only the law of the seat of the arbitration was that of England.

Two levels of English court took a different view. While the preponderance of factors did point to the law of Brazil, the arbitration provision had the closest and most real connection with the law of England. One cannot assume that the proper law of the underlying contract will also be the law of the arbitration agreement, although this is a natural inference. There must be a three-step inquiry: (1) is there an express choice of law? (2) if not, is there an implied choice? (3) which law has the closest and most real connection with the arbitration agreement? Steps 2 and 3 will often merge. While the factors pointing to Brazil were significant, two other factors tipped the balance in favour of England: the choice of London as the seat of arbitration (which suggested acceptance of English law as governing the arbitration itself, as well as the procedural aspects) and the fact that Brazilian law would make the agreement to arbitrate enforceable only with the consent of Enesa (which, on the facts, could not have been the parties’ intention in choosing London as the seat). The parties had not made the implied choice of Brazilian law as the governing law of the arbitration agreement.

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