Comparative Analysis: Law Applicable to Arbitration Agreements in England and Serbia

In Serbia, arbitrations are governed by the Serbian Law on Arbitration (“<span class="news-text_medium">SAL</span>”).

Article 50 of SAL codifies the law applicable to the arbitration:

• The arbitral tribunal in an international arbitration shall make the award by application of the law or legal rules determined by the parties’ agreement.
• Any designation of the law of a given State shall be construed, unless otherwise expressly agreed by the parties, as directly referring to the substantive law of that State and not to its conflict of laws rules.
• If the parties did not designate the applicable law or legal rules, the arbitral tribunal in an international arbitration shall determine that law or rules on the basis of conflict of laws rules it finds appropriate.
• The arbitral tribunal shall always take into account the terms of the contract and usages.

On this basis, the starting point under SAL is to look at what the parties have agreed. Further, where the parties have made a choice of law, the presumption is this will be the applicable law, rather than the conflict of law rules to be applied to determine the applicable law.

Where the parties have not agreed on the applicable law, the Tribunal will make a determination in accordance with the conflict of law rules “it finds appropriate”. In determining the appropriate conflict of law rules, the Tribunal must have regard to the terms of the contract, which can include considerations of choice of law clauses, the place and subject matter of the contract as well as the jurisdiction of the parties.

In England, the statute governing English-seated arbitrations is the <span class="news-text_italic-underline">Arbitration Act 1996</span> (the “<span class="news-text_medium">AA 1996</span>”). Presently, the AA 1996 is silent on the law applicable to the arbitration agreement where the parties do not agree. Following the Supreme Court’s judgment in <span class="news-text_italic-underline">Enka v Chubb [2020] UKSC 38</span>, an implied choice can be determined according to principles of English contract law. If an implied choice of law cannot be inferred, the law with “the closest and most real connection” will be applied. The law of the substantive contract is presumed to be the law applicable to the arbitration.

However, the English Arbitration Bill proposes the following amendment to the AA 1996:

<p class="news-text_emphasize">“6A Law applicable to arbitration agreement</p>

<p class="news-text_emphasize">(1) The law applicable to an arbitration agreement is—</p>

<p class="news-text_emphasize">(a) the law that the parties expressly agree applies to the arbitration agreement, or</p>

<p class="news-text_emphasize">(b) where no such agreement is made, the law of the seat of the arbitration in question.</p>

<p class="news-text_emphasize">(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.”</p>

Thus, the Bill intends to reform Enka and amend the mechanism by which English law determines the law applicable to the arbitration agreement in terms which are more certain and predictable. On this basis, both English and Serbian law currently provide the Tribunal with breadth to apply contractual principles to determine the law applicable to the arbitration. However, English law appears to be moving to a more prescriptive approach which allows the parties to easier predict their rights and obligations in the absence of agreeing the applicable law.