Arbitration, Litigation & Commercial
The Role of the Court of Seat and Law Governing Arbitration Agreements: the English Court of Appeal Decision
12 June 2020
Enka Insaat Ve Sanayi AS v OOO "Insurance Company Chubb" & Ors (Rev 1) [2020] EWCA Civ 574 concerns a construction contract between the parties to the proceedings whose governing substantive law is Russian law. The contract provides for any dispute or disagreement arising from or in connection with the contract to be settled under the ICC Rules of Arbitration with London as the seat of the arbitration. The contract does not specify the governing law of the arbitration agreement.
The Dispute
The dispute arose and the First Defendant (“Chubb Russia”) brought a claim against the Claimant (“Enka”) and others before a Russian court. Enka contended that those proceedings were in breach of the arbitration agreement and applied to the Russian court to dismiss the claim against it. Enka also brought a claim before the English Commercial Court seeking declaration that Chubb Russia and other Defendants are bound by the arbitration agreement and anti-suit injunction against Chubb Russia requiring it to discontinue the Russian proceedings. In the Commercial Court, Enka’s principal contention was that the arbitration agreement was governed by English law, as the law of the seat. If correct in that contention, it was the common ground between the parties that the Chubb’s Russian Claim fell within the scope of the arbitration agreement and that anti-suit injunction should be granted unless there was strong reason not to do so. Chubb's main submission was that the construction contract with the arbitration agreement contained within it was governed by Russian law and therefore the Commercial Court should as a matter of comity and discretion decline to grant the relief sought by Enka and leave it to the Russian court to determine, inter alia, whether the Russian Claim fell within the scope of the clause.
Commercial Court Decision
The Commercial Court Judge, on his own initiative, refused to reach a decision on the governing/proper law of the arbitration agreement and dismissed Enka's claim against Chubb Russia on forum non conveniens grounds, namely that all questions of the scope of the arbitration agreement and its applicability to the Russian Claim, including the conflicts issue as to the governing law of the arbitration agreement, were more appropriately to be determined by the Russian court in the Russian proceedings. Enka appealed to the Court of Appeal.
Court of Appeal Decision
Role of the Court of Seat and Forum Conveniens:
On the issue of the role of the court of the seat and forum conveniens, the Court of Appeal held that:
“The Judge's approach was wrong in principle. The English court as the court of the seat of the arbitration is necessarily an appropriate court to grant an anti-suit injunction and questions of forum conveniens do not arise. This follows from two essential principles. First, the choice of the seat of the arbitration is an agreement by the parties to submit to the jurisdiction of the courts of that seat in respect of the exercise of such powers as the choice of seat confers. Secondly, the grant of an anti-suit injunction to restrain a breach or threatened breach of the arbitration agreement is an exercise of such powers. It follows, therefore, that by the choice of English seat the parties agreed that the English Court is an appropriate court to exercise the power to grant an anti-suit injunction.” [42]
The Court observed that choice of English seat makes mandatory provisions of the Arbitration Act 1996 applicable irrespective of the law governing the arbitration agreement, that even the non-mandatory provisions apply by virtue of the choice of seat in the absence of agreement to the contrary [43], that the anti-suit injunction jurisdiction arises from the choice of seat [52] and that in order to determine whether to grant anti-suit injunction the Court must necessarily interrogate the substantive jurisdiction of the arbitral tribunal or potential tribunal if none has been or is intended to be appointed in determining whether the foreign proceedings are a breach of the agreement to arbitrate the dispute in question [53].
Law Governing the Arbitration Agreement:
On the question of the law governing the arbitration agreement, the Court of Appeal, after discussing various authorities, summarised the relevant principles at paragraph [105]:
“(1) The AA law (the law governing an arbitration agreement) is to be determined by applying the three stage test required by English common law conflict of laws rules, namely (i) is there an express choice of law? (ii) if not, is there an implied choice of law? (iii) if not, with what system of law does the arbitration agreement have its closest and most real connection?
“(2) Where there is an express choice of law in the main contract it may amount to an express choice of the AA law. Whether it does so will be a matter of construction of the whole contract, including the arbitration agreement, applying the principles of construction of the main contract law if different from English law.
“(3) In all other cases there is a strong presumption that the parties have impliedly chosen the curial law (law of the place of the seat is usually referred to as the curial or procedural law or the lex fori) as the AA law. This is the general rule, but may yield to another system of law governing the arbitration agreement where there are powerful countervailing factors in the relationship between the parties or the circumstances of the case.”
Applying these principles to the current case the Court of Appeal held that the law governing the arbitration agreement is English law. The Court said that the governing law of the contract is Russian law but that is not by express choice [106] and that even if it is this is not one of those rare cases where it is or informs an express choice of the law governing the arbitration agreement [108]. The presumption applies that the parties have impliedly chosen that the proper law of the arbitration agreement should coincide with the curial law and be English law [109]. Accordingly, the Russian claim was brought and pursued by Chubb Russia in breach of the arbitration agreement and there was no good reason not to grant anti-suit injunction.
Comments
The approach of the Court of Appeal in this case is unexceptional. This case highlights the importance of clarity in drafting arbitration agreements/clauses at the drafting stage in order to avoid needless costly litigation. Had the clear and express choice of law governing not only the main contract but also separately the arbitration agreement been made in this case, it may not have given rise to this set of litigation.
Chubb Russian has appealed this decision to the UK Supreme Court. The appeal is scheduled to be heard on 27th & 28th July 2020. We will keep the readers of this Blog updated of any progress to be made in this case.