Drafting Effective Arbitration Clauses: Lessons from Recent English Law Developments

1 Jun

Introduction

Recent amendments to the arbitration statute in England underscore the need for clear and precise dispute resolution clauses in commercial contracts. Relying on national laws to resolve ambiguities should be avoided, as unclear arbitration clauses can lead to unintended consequences. This article examines those risks for arbitrations seated in England.

The laws applying to arbitration agreements  

Typically, commercial contracts will contain provisions relating to:

  1. the law which is to govern the interpretation and any disputes regarding the contract (“governing law clause”); and
  2. the forum for the adjudication of disputes arising under the contract (“dispute resolution clause”).[1]

In cross-border commercial contracts, it’s common for the dispute resolution clause to provide for arbitration to take place in a third neutral country (known as the “seat” of the arbitration). In these circumstances, the contracting parties are also likely to agree on the composition of the arbitral tribunal and the rules of an institutional arbitration body to govern the conduct of the arbitration.

For the purposes of this article, we will deal with a situation in which a commercial contract provides for the seat of the arbitration to be in England.[2]

The doctrine of separability in English law

Under English law, an arbitration clause is regarded as a separate contract between the parties.[3] For this reason it is often referred to as an “arbitration agreement”, even though it is part of a wider contract (which we will refer to as the “main contract”). This principle is known as the doctrine of separability.

The principle carries with it an important consequence under section 7 of the Arbitration Act 1996. Under that section, an arbitration agreement is still valid even if the main contract is invalid, never came into existence, or is no longer on foot – unless otherwise agreed by the parties.

This can have the effect of preserving the parties’ obligations to resolve any disputes related to the main contract by arbitration in England, even where one or both of the parties has otherwise repudiated or terminated it.

The Impact of the Arbitration Act 2025

Section 6A of the Arbitration Act 2025[4] arguably takes the doctrine of separability even further by clarifying that a general governing law clause within the main contract will not apply to the arbitration clause unless this is expressly stated to be the intention of the parties.

Under this new statutory provision, if the governing law clause is simply drafted to apply to the main contract as a whole,[5] the law governing the arbitration agreement will be the law of the seat of the arbitration (for example, English law).

This can create a situation in which, perhaps unbeknownst to the parties, multiple legal systems will apply to the commercial contract between them.

Take, for example, a situation where a contract provides for:

  1. the governing law to be the laws of Australia; and
  2. disputes relating to the contract to be resolved by arbitration in England;

the parties may assume that Australian law will govern the interpretation of the contract and any disputes under it, with English law to govern only the arbitration procedure.

However, the effect of section 6A of the Arbitration Act 2025 is likely to be that from an English law perspective the interpretation of the arbitration clause and any disputes relating to it will be governed by English law. Such disputes could include whether the arbitration agreement is enforceable, the scope of the arbitration agreement and whether an anti-suit injunction can be ordered to prevent a party from pursuing a claim under the contract outside of arbitration in England.

Contract drafting tips

Parties to commercial agreements should not only specify the governing law for the main contract but also clearly state which law governs the arbitration clause. This can be achieved by:

This will help to avoid uncertainty regarding the arbitration agreement in the event of a dispute and give the parties greater control over the arbitration process.

[1] This is also known as a ‘choice of forum’ clause.

[2] By stating for example, “Any dispute arising out of or in connection with this agreement shall be referred to arbitration in London…”

[3] Deutsche Bank AG v Asia Pacific Broadband Wireless Communications Inc [2008] 2 Lloyd’s Rep 619 at [24]. 

[4] As at 22 May 2025, this section of the Arbitration Act 2025 has not come into force.

[5] By stating for example, “This Agreement shall be governed by and construed in accordance with…”