Supreme Court clarifies what law will govern an arbitration where there is no express or implied term present. Summary of Enka Insaat Ve Sanayi AS v. OOO Insurance Company Chubb  UKSC 38 by CJC Trainees Sam Jones and Joehunt Jinnah, based in our London and Singapore offices respectively.
The case of Enka Insaat Ve Sanayi AS -v- OOO Insurance Company Chubb  UKSC 38 concerned the question of how the validity and scope of an arbitration agreement would be governed when the law applicable to the contract containing it differed from the law of the seat of the arbitration. The Supreme Court noted their attempt to bring both clarity and certainty to an issue that has long been divisive for both courts and commentators.
The Supreme Court held that, on the facts, the arbitration agreement was most closely connected with English law, being the law of the seat. They came to this conclusion even after they had found that the underlying contract was governed by Russian law. There were two main issues discussed in this judgment, relating to the arbitration agreement and to the anti-suit injunction. The focus of this summary will be on the issue relating to the arbitration agreement.
A Russian power plant, owned by PJSC Unipro (‘Unipro’) and insured by Chubb Russia (‘Chubb’), was damaged in a fire. The plant had been constructed by CJSC Energoproekt (‘CJSC’), which had engaged Enka Insaat Ve Sanayi AS (“Enka”) as a sub-contractor for the project. The contract between CJSC and Enka stipulated that the place of arbitration was to be London. CJSC subsequently transferred their rights and obligations to Unipro.
Chubb paid Unipro under its property insurance policy and thereby became subrogated to any rights of Unipro to claim compensation from third parties.
Chubb subsequently commenced proceedings in the Moscow Commercial Court against Enka and ten other entities. Enka filed a motion to have the claim dismissed and to have the dispute referred to arbitration in London. The Russian judge declined to grant Enka’s motion, but also dismissed Chubb’s claims. Chubb and Enka filed appeals respectively.
In particular, Enka brought an arbitration claim in the Commercial Court in London, seeking an anti-suit injunction to restrain Chubb from pursuing the Russian proceedings (the “ASI”). The ASI was declined, but directions were given for an expedited trial. At trial, Enka’s claims were dismissed, with it reasoned that the appropriate forum to decide whether Chubb’s claim fell within the arbitration agreement was Moscow.
Enka appealed and the ASI was granted, restraining Chubb from continuing in the Russian proceedings. Enka subsequently gave notice to Chubb and a request of arbitration was filed with the International Chamber of Commerce. Chubb challenged the jurisdiction of the arbitrators and denied that Enka was entitled to any of the reliefs claimed.
Chubb then appealed the England and Wales Court of Appeal decision to the Supreme Court.
On the facts, it was common ground that no system of law was chosen to govern the arbitration agreement. The Supreme Court also noted that the contract did not contain a choice of governing law clause and stated that this was surprising in such a professionally drafted commercial contract. It agreed with Enka that the most obvious explanation was that the parties could not agree on the governing law.
It was reiterated by the Supreme Court that, when determining whether there has been a choice of law applicable to an arbitration agreement, English law will be applied as the law of the forum rather than the provisions of the Rome I Regulation. This was because the Rome I Regulation excludes from its scope “arbitration agreements and agreements on the choice of court.” Thus, the relevant English law rules will be the common law rules which require the courts to interpret the contract as a whole by applying the normal rules of contractual interpretation. Accordingly, these rules state that the law applying to the arbitration agreement will be (i) the law chosen by the parties to govern it or, in absence of that, (ii) the system of law with which the agreement is most closely connected.
When determining whether parties have agreed on a choice of law to govern the arbitration agreement, the court will review the arbitration agreement and the contract together, applying the rules of contractual interpretation of English law. Where such is not expressly specified, the choice of governing law for the contract will, as a general rule, apply to the arbitration agreement. (N.b. This was where the Supreme Court disagreed with the Court of Appeal’s statement that there is a strong presumption that the parties have impliedly chosen the law of the seat to govern the arbitration agreement.)
The Supreme Court further stated that the choice of a different country as the seat of the arbitration is not, by itself, sufficient to negate the inference that a choice of law to govern the contract was intended to apply to the arbitration agreement. This said, additional factors may, in certain circumstances, negate such an inference. For example:
- a provision of the law of the seat that indicates the arbitration will also be treated as being governed by that country’s law; or
- if governed by the same law as the main contract, the arbitration agreement would be void or invalidated.
Failing the above and in the absence of any choice to govern the arbitration agreement, the arbitration agreement will be governed by the law it is most closely connected to. Where parties have chosen a seat of the arbitration, this will, generally, be the law of the seat even if this differs from the applicable law to the parties’ substantive contractual obligations.
It was therefore held that the arbitration agreement was governed by the law of the chosen seat of arbitration, as this was the law which it was most closely connected to. The Supreme Court affirmed the decision of the Court of Appeal (although with different reasons), concluding that English law was applicable to the arbitration agreement.
Whilst this was a slight majority ruling (3-2), the decision by the Supreme Court ought to be welcomed as it brings clarity to parties that incorporate arbitration agreements. When applied in practice, however, it may remain difficult to determine whether there has been a choice of governing law for the arbitration agreement. Further, while the judgment sets out a clear approach in determining the correct governing law for an arbitration agreement, parties should ensure that in circumstances where the law governing the contract and arbitration agreement differ, express provision should be given to the law governing the arbitration agreement.
The judgment of the Supreme Court can be found here.