INTRODUCTION
The five-judge bench of UK Supreme Court on 9 October 2020 pronounced a landmark judgment in Enka Insaat Vs Sanayi AS vs OOO Insurance Company Chubb [2020] UKSC 38, which is considered to be a leading authority in the arbitration regime on the governing law of arbitration agreements and the role of the courts of the seat in granting anti-suit relief.
FACTS
The claimant (“Enka”) is a Turkish company carrying on an international construction and engineering business based in Turkey but with a substantial presence and history of operations in Russia whereas the First Defendant (“Chubb Russia”) is a Russian company and part of the well-known Chubb insurance group. In the present case Enka was one of the subcontractors amongst others providing services in connection with a power plant for the Defendant (“Chubb Russia”).
On 1st February 2016 a severe fire caused massive damage to the plant. The owner, Unipro, claimed from its insurer, Chubb (in this case). In May 2019 Chubb Russia commenced proceedings against Enka and 10 other parties in the Russia (“Russian Proceedings” in Arbitrazh Court), seeking damages in relation to a massive fire in February 2016 at the power plant in Russia. However, over this claim, Chubb Russia asserted that “the accident was caused by defects (deficiencies) in the design, structures, fabrication and installation of the [power plant] including fuel oil pipelines”. To all this, Enka asserted that it had no liability and could have no liability, on the basis that in November 2014 the works which were alleged to have caused the fire had been excluded from the scope of works to be performed by Enka and had subsequently been performed by another contractor.
On 17 September 2019 Enka filed a motion in the Russian proceedings to have Chubb Russia’s claim against it dismissed (or “left without consideration”) pursuant to article 148(5) of the Arbitrazh Procedure Code, which is intended to give effect to Russia’s obligations under article II(3) of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (“the New York Convention”) to refer to arbitration parties who have agreed to submit to arbitration a dispute of which a court of a contracting state is seized. It was well argued and contended by Enka that the claim against it fell within the scope of the arbitration agreement contained in article 50.1 of the construction contract and ought therefore to be resolved, not by the Russian courts, but by an arbitration conducted in accordance with that provision in London. Interestingly after some hearings, the judge in the Russian proceedings announced her decisions (a) not to grant Enka’s motion to refer the claim against it to arbitration and (b) to dismiss Chubb Russia’s claims against all the defendants on the merits. Meanwhile, Enka had on 16 September 2019 brought an arbitration claim in the Commercial Court in London seeking an anti-suit injunction to restrain Chubb Russia from further pursuing the Russian proceedings against Enka on the ground that this was a breach of the arbitration agreement in article 50.1 of the construction contract.
DECISIONS OF THE LOWER COURTS
On 15 October 2019 Carr J declined to grant an interim anti-suit injunction but gave directions for an expedited trial. The trial took place on 11 and 12 December 2019 before Andrew Baker J. He gave judgment on 20 December 2019, dismissing Enka’s claims against all the defendants. His primary reason for doing so was that he considered the appropriate forum to decide whether Chubb Russia’s claim against Enka falls within the arbitration agreement to be the Moscow Arbitrazh Court and not the English Commercial Court.
To note, Andrew Baker also relied on the fact that Enka did not seek an interim order from an arbitral tribunal, and that it did participate to some extent in the Russian court proceedings.
Aggrieved by the decision, Enka applied to the Court of Appeal for permission to appeal from this decision. The application was granted on 6 February 2020 and the appeal was heard on 7 and 8 April 2020. On 29 April 2020 the Court of Appeal (Flaux, Males and Popplewell LJJ) allowed Enka’s appeal and issued an anti-suit injunction restraining Chubb Russia from continuing the Russian proceedings. This appellate court swept the decision of Andrew Baker on the court that he made a wrong decision regarding the law governing the Arbitration Proceeding.
THE COURT OF APPEAL
The court also added that On forum non conveniens grounds, the previous decision was wrong in principle.
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.
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.
The English Court as the court of the seat of the arbitration is for that reason the appropriate forum to exercise the jurisdiction to grant anti-suit relief. It is required to decide whether threatened or actual proceedings constitute a breach of the arbitration agreement, and if they do, to protect the integrity of the arbitration agreement by granting anti-suit relief unless there is a strong reason for not doing so. That is part of the supervisory jurisdiction of the court of the seat, to which the parties submit by choosing the place of the seat. There is no room for the application of any forum non conveniens consideration: either the forum conveniens question does not arise or it is automatically answered in favour of the English Court as the court of the seat.
Further, In order to decide whether to make an anti-suit injunction, the Court would need to decide whether the arbitration clause covered the dispute in question. This required a decision as to what law governed the arbitration agreement. This cannot be decided simply on the basis that the contract provides for the law governing the whole contract, because the arbitration agreement is considered a separate agreement whose governing law might be different (but usually is not). This is particularly possible where the seat of arbitration is different from the governing law, because that opens the way for the argument that it would make more sense for the arbitration agreement to be governed by the law of the place where the arbitration will be seated. Generally there is a presumption that the governing law of the arbitration agreement will be the same as the seat of arbitration.
Therefore, in light of these considerations, The Court of appeal concluded in this case that, even if the main contract was governed by Russian law, it made more sense for the arbitration agreement to be governed by the law of England, which the parties had chosen as the seat of arbitration and hence On the main issue of determining the proper law of the arbitration agreement, the Court of Appeal clarified the relevant principles. It is well established that the proper law of an arbitration agreement (“AA law”) may not be the same as the proper law of the main contract.
The court also clarified that the English Courts will exercise their “curial Jurisdiction” to grant anti-injunction based on the parties choice of London as an arbitration seat and regardless of the law governing the AA. The court also emphasized that the “anti-suit injunction jurisdiction is concerned to protect and enforce the integrity of arbitration agreement” and hence the role of the curial court is to “interrogate the substantive jurisdiction of the arbitral tribunal (or the putative 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.” The court also pointed out that even in cases where the AA is governed by foreign law, consideration of foreign conveniens and comity should not be taken into account by English Courts in deciding the grant of anti-suit injunctions.
DECISION OF THE SUPREME COURT
In the landmark judgment given by Lord Hamblen and Lord Leggatt (with which Lord Kerr agreed), the Supreme Court confirmed that, under English common law, the search for the main contract law is governed by the Rome I Regulation (Regulation (EC) No 593/2008 of the European Parliament, see Article 3.1 and 4). However, Questions regarding the law governing arbitration agreements, on the other hand, are not covered by the Rome I Regulation and is excluded from the preview of Article 1(2)(e). The AA law is to be determined by applying the three stage test required by English common law conflict of laws rules, namely:
IS THERE AN EXPRESS CHOICE OF LAW?
If not, is there an implied choice of law?
If not, with what system of law does the arbitration agreement have its closest and most real connection?
The rules of English law on contractual interpretation will be applied by the English Court to decide the issue.
The court then relied on a previous decision where the valiant attempt by Hamblen J (as he then was) in Habas Sinai Ve Tibbi Gazlar Istihsal Endustrisi AS v VSC Steel Co Ltd [2013] EWHC 4071 (Comm); [2014] 1 Lloyd’s Rep 479, to set out, as clearly as possible, the relevant principles to determine the law governing the AA.
Even if an arbitration agreement forms part of a matrix contract (as is commonly the case), its proper law may not be the same as that of the matrix contract.
The proper law is to be determined by undertaking a three-stage enquiry into (i) express choice, (ii) implied choice and (iii) the system of law with which the arbitration agreement has the closest and most real connection.
Where the matrix contract does not contain an express governing law clause, the significance of the choice of seat of the arbitration is likely to be “overwhelming”. That is because the system of law of the country seat will usually be that with which the arbitration agreement has its closest and most real connection.
Where the matrix contract contains an express choice of law, this is a strong indication or pointer in relation to the parties’ intention as to the governing law of the agreement to arbitrate, in the absence of any indication to the contrary.
The choice of a different country for the seat of the arbitration is a factor pointing the other way. However, it may not in itself be sufficient to displace the indication of choice implicit in the express choice of law to govern the matrix contract.
Where there are sufficient factors pointing the other way to negate the implied choice derived from the express choice of law in the matrix contract the arbitration agreement will be governed by the law with which it has the closest and most real connection. That is likely to be the law of the country of seat, being the place where the arbitration is to be held and which will exercise the supporting and supervisory jurisdiction necessary to ensure that the procedure is effective.”
The principal rationale for treating an express choice of main contract law as indicative of a choice of AA law is because businessmen do not usually intend that their relationship should be governed by more than one system of law (see Sulamerica Cia Nacional de Seguros SA v Enesa Engelharia SA [2013] 1 WLR 102 per Moore-Bick LJ at [11]).
The Court of Appeal stipulated that “this is a sensible starting point where there is no arbitration clause with a different seat; but it ceases to have any application where there is. In such cases, whatever the AA law, the parties have necessarily chosen their relationship to be governed in some respects by two systems of law, namely the curial law and the main contract law” (paragraph 95, emphasis added). Overall, as emphasised by Lord Neuberger in Sulamerica at [51], determining the proper law of the arbitration agreement was in each case a matter of contractual interpretation.
Applying these principles set above, the Court of Appeal found that the AA law in the Contract was governed by English law. Whilst the governing law of the Contract was Russian law, this was not by express choice.
Further, In this case, there was no choice of law to govern the contract as a whole and the general rule would be applied in that situation so that the law of the seat of arbitration governs the arbitration agreement.
Therefore English law governed the arbitration agreement and the Court of Appeal›s basis for granting the anti-suit injunction remains sound.
The Supreme Court considered the possibility that, where the law governing the contract also governs the arbitration agreement, this would nullify the arbitration agreement fully or partially. The Court acknowledged the possibility that might justify a departure from the general rule in order to give effect to the principle that generally, contracts should be construed so as to avoid invalidity.
The Supreme Court also confirmed the Court of Appeal›s decision that it was appropriate for the court to consider whether to grant the anti-suit injunction, given that England was the seat of arbitration.
Interestingly, Lord Burrows and Lord Sales partially dissented from the decision of three judges in this case.
CONCLUSION
This is a remarkable judgment by the Supreme Court of England and is going to be an authority in the pro-arbitration regime. The court has clearly clarified the position and power of the English courts to exercise the curial law in order to grant anti-suit injunctions as a matter of relief. As pointed out by Lord Justice Popplewell in paragraph 109 that “the scope of the curial law is not limited to the exercise of purely procedural powers. It involves the curial court determining aspects of the substantive rights of the parties under their arbitration agreement by reference to the curial law.” Saying this, Lord Justice Popplewell has vested a responsibility on the draftsman to draft the AA more diligently. The law set out with regard to the governing law of the arbitration agreement will also be considered to be a remarkable authority and will be a helpful percent for complicated cases in future.