Background
In its recent decision in Disortho SAS v. Meril Life Sciences1, the Supreme Court of India addressed the complex interplay between conflicting clauses in international commercial agreements in determining the governing law of arbitration agreement. The dispute arose under an International Exclusive Distributor Agreement between Disortho SAS (Colombia) and Meril Life Sciences Private Limited (India) for the distribution of medical products in Colombia.
When Disortho sought the intervention of Indian courts to appoint an arbitrator in accordance with the Arbitration and Conciliation Act, 1996 (Act), Meril contested such request and argued that Indian courts did not have jurisdiction. Meril relied upon Clause 18 of the Agreement which stipulated that arbitration would be conducted according to the arbitration procedures governed by Colombian law. The Supreme Court was thus faced with a situation of having to untangle conflicting clauses and assess the supervisory jurisdiction of court and governing law of the arbitration agreement by examining three critical legal doctrines - lex contractus, which pertains to the law governing the substantive contractual issues; lex arbitri, which is the law governing the arbitration agreement and its performance; and lex fori i.e. law governing the procedural aspects of arbitration.
The Conflicting Clauses
The Agreement featured two principal provisions. Clause 16.5 (Miscellaneous) specified that Indian law would govern the Agreement, and any matter pertaining to this Agreement or arising as a consequence of this Agreement will be subject to the jurisdiction of courts located in Gujarat, India. Additionally, Clause 18 (Direct Settlement of Disputes) outlined that if any dispute could not be resolved through conciliation, either party could initiate arbitration in accordance with the rules of the Arbitration and Conciliation Centre of the Chamber of Commerce of Bogota DC, with arbitration to take place in Bogota and the award to conform to Colombian law.
Division of Lex Arbitri: Proper Law of the Arbitration Agreement and the Law Governing the Arbitration as a whole
Drawing from Martin Hunter and Alan Redfern on International Commercial Arbitration2 and the English High Court's decision in Melford Capital Partner (Holdings) LLP & Ors. v. Frederick John Wingfield Digby3 (Melford Capital case), the Court examined the distinction between: (a) the proper law of the arbitration agreement (i.e., the law governing the arbitration agreement), and (b) the law governing the arbitration as a whole.
The Court observed that the law governing the arbitration agreement is primarily concerned with the validity, scope, and interpretation of the agreement, while the law governing the arbitration as a whole determines which court has supervisory jurisdiction to monitor the procedural conduct of the arbitration, and interim measures. However, unless the parties clearly intend to treat these as separate legal regimes, such a strict distinction should not be assumed. In practice, both of these elements are inherently intertwined as a part and parcel of lex arbitri.
To illustrate the above point, the Court gave the example of situations involving removal of an arbitrator due to misconduct or filling of vacancies. In such cases, both the law governing the arbitration agreement and the law governing the arbitration overlap as both are essential to the functioning and integrity of the arbitral process.
Distinction between Lex Arbitri and Lex Fori
The Court next discussed the distinction that exists between lex arbitri, i.e., the law governing the arbitration and lex fori, i.e., law governing the procedural aspects of arbitration. With the help of Melford Capital and Paul Smith Ltd v. H&S International Holdings Inc4, it was clarified that lex arbitri or the curial law comprises the rules governing the interim measures, empowering courts for supportive measure to assist in arbitration and rules providing for the supervisory jurisdiction.
Applying this distinction, the court referred to the conflict in Melford Capital case5 between Clause 13 which provided for resolution of disputes through ICC arbitration, and Clause 14 which designated the courts of England as having exclusive jurisdiction. In this regard, it was held that these are not competing clauses. Clause 13 is a self-contained clause providing for the resolution of the disputes by arbitration, which is the procedural conduct of the arbitration, constituting the lex fori. Clause 14 specified the lex arbitri i.e., the curial law. Therefore, to determine the governing law of the arbitration agreement, reliance would be given to lex arbitri over lex fori.
Lex Contractus and the Law Governing the Arbitration Agreement
Both Indian and English jurisprudence have addressed the complex relationship between lex contractus (the law governing the contract) and the law governing the arbitration agreement, also known as the proper law of the arbitration agreement. Courts have recognized that these two legal frameworks, though often aligned, may diverge and this divergence requires a structured approach to determine the law governing the arbitration agreement.
Understanding the law governing the arbitration agreement is crucial because it determines the validity, scope and the enforcement of the arbitration agreement. Once the applicable law is ascertained, it also assists in identifying the courts that will exercise the supervisory jurisdiction, i.e., lex arbitri, if not stated explicitly. For instance, under Indian Law, as held in Arif Azim v M/s Micromax6 and pursuant to section 2(2), courts also have the supervisory jurisdiction (lex arbitri) under Part 1 of the Act, if the law governing the arbitration agreement is Indian law.
Core Conflict: No Express mention of governing law
A significant issue arises if the proper law of the arbitration agreement is not expressly mentioned in the arbitration clause. In such scenarios, it is determined either by applying the law governing the main contract (lex contractus) or the law of the seat. Therefore, the doctrine of lex contractus becomes relevant. Scholars and courts, through various judicial precedents, have taken the view that in the absence of express choice of applicable law governing the arbitration agreement, the law governing the contracts (lex contractus) will be applied by default.
The court in the present case addressed the divergent views that whether the proper law of arbitration agreement should follow the lex contractus as the applicable law or is it to be influenced by the law of the seat. In the following section, we will explore judicial precedents to analyse the steps courts have taken to resolve this issue.
The Sulamerica Cia Case: Laying the Foundation
In Sulamerica Cia Nacional de Seguros S.A. v. Enesa Engenharia S.A. and Ors.7, (Sulamerica Cia case), the English Court of Appeal clarified that the law governing the contract may differ from the law governing the arbitration agreement embedded within it. The Court proposed a three-stage enquiry to determine the governing law of the arbitration agreement - (a) express choice of law by the parties; (b) implied choice, assessed from the terms and circumstances of the contract; and (c) closest and most real connection, applied when the first two steps do not yield a clear answer. This structured approach has since become a guiding principle in common law jurisdictions.
Enka v. Chubb: UK Jurisdiction
The UK Supreme Court in Enka Insaat Ve Sanayi AS v. OOO Insurance Company Chubb8 (Enka case) reaffirmed the Sulamerica Cia case principles and clarified that in the absence of an express choice of law governing the arbitration agreement, lex contractus will generally apply.
However, the Court emphasized that choosing a particular seat of arbitration does not, by itself, displace the presumption that lex contractus will govern the arbitration agreement, in absence of an express choice of law. The presumption that lex contractus governs the arbitration agreement may only be rebutted in three specific circumstances which are - (a) the law of the seat mandates that the arbitration agreement be governed by its own legal system; (b) applying the principle of lex contractus would render the arbitration agreement ineffective or invalid or (c) where seat is chosen as a neutral forum.
BYC v. BCZ: Singapore Jurisdiction
In BYC v. BCZ9, the Singapore High Court held that when the arbitration clause forms part of the main contract, lex contractus is a strong indicator of the law governing the arbitration agreement. A different seat of arbitration alone is not sufficient to override this presumption. The court observed that argument of separability would be ineffective, as the doctrine simply means that arbitration clause remains enforceable even if the main contract is found to invalid.
Reasoning and Decision of the Supreme Court
While determining the governing law of the arbitration agreement, the court relied on two key principles - firstly, the three-step test laid down in Sulcamerica Cia case, as adopted and reasoned in Enka case; and secondly, the principle of harmonious interpretation of contractual clauses 16.5 and 18.
Applying the first step of the test laid down in the Sulcamerica Cia case, 'express law' was inapplicable because of the absence of express choice of law for governing the arbitration agreement. Consequently, the court proceeded to the second step i.e. the implied law. In doing so, the court addressed the competing approaches between law of seat vs lex contractus. Relying on the Enka case, the court affirmed that presumption is always in the favour of contract law as the governing law of arbitration agreement, unless the presumption is negated through exceptions. In the present case, none of the exceptions were applicable. As applying Indian Law would not make the arbitration agreement invalid, Bogota was not a neutral forum since Disortho was incorporated there. As a result, the court held that presumption in favour of lex contractus in determining the governing law of arbitration agreement remained unrebutted.
The court also addressed a potential source of confusion regarding the use of premises in Bogota for arbitration proceedings by clarifying that the reference to the Centre's premises or any other location designated by its Director did not imply that Colombian law governs the arbitration agreement. While Clause 18 of the contract mentions that the award shall conform to Colombian law, this applies specifically to the procedural conduct of the arbitration or the substance of the award, not to the law governing the arbitration agreement itself.
In view of the above, the court concluded that the law governing the arbitration agreement would be Indian Law and Indian Courts will have the supervisory jurisdiction pursuant to Clause 16.5.
Conclusion
The Supreme Court's decision in this case provides the much-required clarity on the distinction between lex contractus, lex arbitri, and lex fori in cross-border arbitrations. It affirms that lex contractus will have stronger presumption over law of seat in determining the governing law of arbitration agreement, unless one of the exceptions outlined in Enka case is met. By affirming the three-step enquiry as the guiding framework, the Court has reinforced a consistent and structured approach to determining the law governing arbitration agreements thereby resolving long-standing ambiguities and procedural uncertainty.
Footnotes
* The authors would like to acknowledge the contribution made by Ms Bhavya Sehajpal in finalizing this article. Ms Sehajpal had interned with the Firm.
1. Decided on 18 March 2025; 2025 INSC 352.
2. Blackaby KC, Nigel, Constantine Partasides, and Alan Redfern, Redfern and Hunter on International Arbitration, 7th Edition (2022), Oxford University Press.
3. Melford Capital case, [2021] EWHC 872 (Ch).
4. [1991] 2 Llyod's Rep 127.
5. Id.
6. 2024 INSC 850.
7. [2012] EWCA Civ 638.
8. 2020 UK SC 38.
9. [2016] SGHC 249.
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