Determining the law of an arbitration agreement: the Sulamérica test in practice

A recent decision of the English Commercial Court has clarified the legal test for determining the governing law of an arbitration agreement.

It is well established that an arbitration agreement is severable from the substantive contract in which it is recorded and that the two agreements may be governed by different laws. Despite this, contracts often include an express choice of law governing the substantive contract, while remaining silent as to the law governing the arbitration agreement. Parties commonly (but wrongly) assume that the law of the arbitration agreement is always the same as that governing the substantive contract.

In the 2012 Sulamérica decision, the English Court of Appeal formulated a three-stage test to determine the law of an arbitration agreement: (i) is there an express choice of law governing the arbitration agreement; (ii) if not, can a choice be implied; and (iii) in the absence of a choice, with which law does the arbitration agreement have the “closest and most real connection”…

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