REUTERS | Ilya Naymushin

Enka v Chubb: English Court of Appeal reinforces London’s position as arbitration venue of choice

In the recent decision of Enka v Chubb, the English Court of Appeal affirmed the English courts’ jurisdiction to determine anti-suit injunctions in support of arbitrations seated in London, even when the courts would need to apply foreign law to decide the issue. The Court of Appeal also clarified that absent an explicit choice of law, it should be strongly presumed that an arbitration agreement is governed by the law of the chosen arbitration seat, and not by the law governing the main contract.

Background

Enka, a Turkish construction company, was engaged as a subcontractor for the construction of a power plant in Russia. Enka’s contract had no explicit governing law provision. It only stipulated that Russian law was to govern specific provisions of the contract. Similarly, the arbitration clause of the contract only stipulated London as the preferred arbitration seat, without providing an express choice of law governing the arbitration agreement.

In 2016, a fire broke out at the Russian power plant. In May 2019, Chubb Russia, the power plant owner’s subrogated insurers, launched proceedings against Enka in Russia, claiming that the fire was due to Enka’s low quality performance of works.

Relying on the arbitration clause, Enka issued a claim in England seeking an anti-suit injunction to restrain Chubb from continuing the proceedings in Russia. Chubb argued, however, that the arbitration agreement was governed by Russian law and not English law, and, as a matter of Russian law, the Russian proceedings did not fall within the scope of the arbitration agreement.

At first instance, the London Commercial Court (Andrew Baker J) declined to decide on whether the arbitration agreement was governed by English or Russian law and dismissed Enka’s claim against Chubb Russia on forum non conveniens grounds. He held that questions as to the scope of the arbitration agreement and its applicability to the Russian claim were more appropriately to be determined by the Russian court. When assessing the significance of London as the designated seat of arbitration, the judge concluded that he did not regard the London seat of arbitration as any real indication of a choice of English law and that, in the context of an ICC arbitration, the choice of London as a seat was only “a joint personal preference to come to London rather than, say, Paris, Geneva, New York, Singapore or any other commonly chosen international arbitration venue”.

Enka appealed the Commercial Court decision, submitting that:

  • As London was the chosen arbitration seat, England was the appropriate jurisdiction to hear the anti-suit injunction.
  • The law governing the arbitration agreement was English law.

The Court of Appeal upheld Enka’s appeal in full.

Jurisdiction of the court

The Court of Appeal held that parties who agree a particular seat for an arbitration deliberately submit themselves to the law of the seat (that is, the curial law) and whatever control it exerts. This is because choosing a seat is driven by legal rather than practical considerations, including the seat’s:

“… established formal legal infrastructure: the neutrality and impartiality of the legal system; the national arbitration law; and its track record for enforcing agreements to arbitrate and arbitral awards.”

The choice of seat is designed to promote legal certainty. If the curial court ceded the question to a foreign court when asked to protect the integrity of an arbitration agreement by anti-suit relief, this could create a risk of parallel proceedings and inconsistent decisions, which is exactly the legal uncertainty the parties wanted to avoid by entering into an arbitration agreement in the first place.

Therefore, the Court of Appeal found that, by choosing London as the seat of arbitration, the parties had agreed that the English courts could exercise curial powers to prevent actual or threatened breaches of the arbitration agreement by issuing, for example, anti-suit injunctions. Even if the arbitration agreement was found to be governed by Russian and not English law, this would not necessitate deferring the matter to the Russian courts. On the contrary, the court noted that the English courts are very familiar with determining issues of foreign law and well equipped to do so, which is an additional perceived advantage of choosing London arbitration as the venue of choice.

Governing law of the arbitration agreement

Having established that the English courts had jurisdiction to decide on this issue, the Court of Appeal turned to the question of what law governed the arbitration agreement in order to decide whether the Russian proceedings were a breach of the arbitration agreement or not.

The court applied the three stage conflict of law rules test established in Sulamerica v Enesa, namely:

  • Have the parties made an express choice of law for the arbitration agreement?
  • If not, is there an implied choice of law?
  • If not, with what system of law does the arbitration agreement have the closest and most real connection?

The Court of Appeal acknowledged that, although the three stage Sulamerica test is clear and well established, the English authorities do not “speak with one voice” on the relative weight to be given to the law of the arbitration seat versus the law of the main contract. It noted that:

“… the current state of the authorities does no credit to English commercial law which seeks to serve the business community by providing certainty.”

After considering the authorities, the court held that an express choice of law in the main contract may amount to an express choice of law for the arbitration agreement as well, but that this would be a matter of construction of the whole contract (see also Kabab-Ji v Kout Food Group).

That said, as a general rule, in all other cases, there will be a strong presumption that the parties have impliedly chosen the law of the arbitration seat as the law of the arbitration agreement, unless there are powerful countervailing factors to the contrary in the relationship between the parties or the circumstances of the case. This is because, according to the Court of Appeal:

“… as a matter of commercial common sense, one would not expect businessmen to choose two different systems of law to apply to their arbitration package.”

In this case, there was no express choice of law governing either the main contract or the arbitration agreement. Therefore, there was a strong presumption that English law, that is, the law of the arbitration seat, should govern the arbitration agreement and that, in this case, there were no powerful factors suggesting it should be otherwise.

Key takeaways

  • This is an important decision which reinforces London’s position as an arbitration venue of choice. The court provided further certainty, emphasising that, absent any express governing law provisions, the selection of an English seat of arbitration would give the English courts jurisdiction to hear anti-suit injunctions to protect the integrity of the arbitration agreements.
  • This judgment also provides some welcome clarification on the application of the Sulamerica test, which may significantly reduce costly and time-consuming arguments as to the law governing arbitration agreements with no express governing law provisions.
  • The second stage of the Sulamerica test, as applied by the Court of Appeal in Enka v Chubb, leads to a very strong presumption in favour of the jurisdiction of the arbitration seat. It remains to be seen, therefore, what circumstances would then require the court to proceed to the third stage of the Sulamerica test, and assess with what system of law the arbitration agreement has the closest and most real connection.
  • It is also noteworthy that the underlying contract in this matter did not have an express governing law clause. If there had been one, the court may well have reached a different outcome applying its approach in Kabab-Ji v Kout Food Group from earlier this year.
  • Finally, this judgment operates as a useful reminder of the importance of including an express choice of law provision in an arbitration clause. It is also a much needed reminder of the importance of clear drafting, especially where the place of performance/governing law of the main agreement may not match the chosen seat in the arbitration agreement.

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