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Sulamerica: The Importance of Clear Arbitration Clauses

Michael Davison

Michael Davison,

London

Jerome Finnis

Jerome Finnis,

London

Simon Nesbitt

17 May 2012
The importance of expressly stipulating the governing law of an arbitration agreement was illustrated by the Court of Appeal decision in Sulamerica. A conflict between the governing law clause in an agreement (which provided for Brazilian law), and an arbitration clause (which provided for a London seat), led to uncertainty about which law should govern the arbitration agreement. The Court of Appeal confirmed that it is unsafe to assume that the governing law of the substantive contract will be construed as extending to the law governing an arbitration agreement. In the absence of an express or implied choice of the law governing the arbitration agreement, the court will find the governing law of the arbitration agreement to be that with which the arbitration agreement has the "closest and most real connection". This law is most likely to be the law of the seat of arbitration, rather than the governing law of the substantive contract.

Jurisdictional challenges to the arbitration agreement can often be lengthy (and consequently expensive). What Sulamerica illustrates is that by far the best way to avoid any problems is to have a clearly drafted arbitration agreement which expressly states its governing law. Without such clarity a party exposes itself to the risk of a respondent creating delay and expense before the merits stage is even contemplated.

Michael Davison

Michael Davison,

London

Jerome Finnis

Jerome Finnis,

London

Simon Nesbitt

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