One should also bear in mind the split in the Court arose on the uncommon facts of Enka: there was no express choice of law in the main contract, leading to differences on two primary issues:

Implication of the main contract law; and The principle to be applied to the determination of the law with the closest connection at stage three of the "express law-implied law-closest connection" three-stage test. The Court did not differ on the answer had the main contract contained an express choice of law clause.

This post focuses on the Court's express recognition of a validation principle in the determination of the law of the arbitration agreement.

Bringing the validation principle into the light

Enka is the first decision in the English Courts to expressly recognise the application of a validation principle to the determination of the law of the arbitration agreement. All five judges agreed on this.

The Supreme Court framed the validation principle as a principle of English contractual interpretation dating back to the 17th century, expressed in the Latin maxim "verba ita sunt intelligenda ut res magis valeat quam pereat" (the "ut res magis principle") i.e. the contract should be interpreted so that it is valid rather than ineffective. (Enka, [95])2) The Court recognised the principle applied if a putative governing law, where none had been expressly chosen, would render all or part of the agreement ineffective.

The Court explained several earlier cases, including Hamlyn & Co v Taliker Distillery [1894] AC 202 and Sulamrica Cia Nacional de Seguros SA and others v Enesa Engelharia SA and others [2013] 1 WLR 102 ("Sulamrica"), can be understood by way of the validation principle, in that the Courts had applied the choice of law which validated and gave effect to the arbitration agreement.

The Court explained the validation principle was purposive:

The principle that contracting parties could not reasonably have intended a significant clause in their contract, such as an arbitration clause, to be invalid is a form of purposive interpretation, which seeks to interpret the language of the contract, so far as possible, in a way which will give effect to - rather than defeat an aim or purpose which the parties can be taken to have had in view. (Enka, [106]) This rationale is in line with the validation principle implied in the scheme of the New York Convention3) to uphold and give effect to arbitration agreements. While the Court explained the validation principle in English law terms, the majority recognised the New York Convention encapsulates a similar principle in the choice of law rule in Articles V(1)(a) and II(3). (Enka, [128] to [131])

Notably, the Supreme Court took a broad approach to the application of the validation principle. It not only applies when a putative choice of law would invalidate the arbitration agreement, it also applies where there is a serious risk, but not a certainty, a putative law would defeat or frustrate the purpose of the arbitration agreement. The majority of the Court said the principle extends to a failure to recognise that arbitration is chosen as a one stop method of dispute resolution - i.e. the validation principle favours an expansive interpretation of the arbitration agreement, in cases of doubt, to encompass disputed claims. (Enka, [107] to [108]) The majority and minority were divided on whether the validation principle applies to the scope of the arbitration agreement as opposed to its validity. This is discussed further below.

In defining the validation principle, the Court said it could not improve on the formulation of Moore-Bick LJ in Sulamrica that commercial parties are generally unlikely to have intended a choice of governing law for the contract to apply to an arbitration agreement if there is "at least a serious risk" that a choice of that law would "significantly undermine" that agreement. (Enka, [109])

Validation principle applies to scope and validity of the arbitration agreement

As noted above, the majority was of the view the validation principle applied to the scope of the arbitration agreement, in addition to its validity. Lords Burrows and Sales departed from the majority on this - they did not agree the same choice of law rules (and hence the validation principle) applies to both the validity of the arbitration agreement and to its scope.

The majority found the general approach in conflict of laws, adopted by both the common law and the EU Rome I Regulation, is to treat the validity and scope of a contract (as well as other issues, such as the consequences of breach and ways of extinguishing obligations) as governed by the same applicable law. This makes good sense, not least because the boundary between issues of validity and scope is not always clear. It is logical to apply the law identified by the conflict rules prescribed by article V(1)(a) of the New York Convention, enacted in England in section 103(2)(b) Arbitration Act 1996 ("Arbitration Act"), to questions about the scope or interpretation of the arbitration agreement as well as disputes about its validity.4)

The majority's view is supported by the scheme of the New York Convention. As the majority recognised, the New York Convention is to be interpreted to apply the same conflicts rule to Art II(3) of the Convention, on recognition of arbitration agreements, as in Article V(1)(a) New York Convention (Enka, [130])5) i.e. the same choice of law rule should apply pre and post-award. Article II(3) of the New York Convention (enacted as section 9(4) Arbitration Act) requires the court to recognise and enforce an arbitration agreement (and to stay litigation brought in breach of the arbitration agreement) unless the agreement is "null and void, inoperative or incapable of being performed". While not express, the scope of the arbitration agreement must form part of the court's enquiry, at least on a prima facie basis - if the arbitration agreement patently does not cover the dispute then the court is not required to stay the litigation before it in favour of arbitration. It is clear the scheme of the Convention requires the same governing law (and the same means of determining the governing law) to be applied both to scope and to validity.

using this, explain how article 7 option 1 is better than 2, giving references and quotations and make it in depth