England’s Court of Appeal’s recent judgment in Enka v. Chubb provides much needed clarity to the question of the governing law of the arbitration agreement.  The Court of Appeal confirmed that the arbitration agreement will be deemed to be governed by the law of the seat of the arbitration, unless the parties to the arbitration agreement indicate otherwise.  The Court of Appeal also confirmed that the curial powers of the court of the seat of the arbitration include the power to grant anti-suit injunctions to stop foreign proceedings brought in breach of the arbitration agreement.  

Background 

On 27 June 2012, the appellant, Enka Insaat Ve Sanayi AS (“Enka”), a Turkish construction and engineering company, entered into a subcontract with CJSC Energoproekt for works relating to the boiler and auxiliary equipment installation on the Berezovskaya power plant in Russia (the “Subcontract”).  PJSC Unipro (“Unipro”), the owner of the power plant, had engaged CJSC Energoproekt as general contractor for the design and construction of the power plant.  Enka was to act as subcontractor under the Subcontract.  Enka was one of many contractors or subcontractors providing services in connection with the power plant.  On 21 May 2014, CJSC Energoproekt assigned to Unipro all rights against Enka under the Subcontract.

The Subcontract contained an arbitration agreement, which provided that all disputes arising from or in connection with the Subcontract were to be resolved by arbitration seated in London, England, under the Rules of Arbitration of the International Chamber of Commerce (the “ICC Rules”).  Both the Subcontract and the arbitration agreement were silent in relation to the governing law.

On 1 February 2016, a fire broke out at the Berezovskaya power plant.  Unipro had taken out a primary insurance policy with Chubb Russia Investments Limited (“Chubb”).  It claimed and received under its insurance policy approximately USD 400 million in damages caused by the fire.

In May 2019, Chubb, which became subrogated to Unipro’s rights under the Subcontract, filed proceedings against Enka with the Moscow Arbitrazh Court claiming that the fire and ensuing damage had been caused by defects and deficiencies in the design, structures, fabrication and installation of the facility, including fuel oil pipelines for which Enka was responsible.  Enka argued that the court proceedings in Russia were brought in breach of the arbitration agreement in the Subcontract and that, therefore, the court proceedings should be stayed in favour of arbitration under the ICC Rules in London.

In September 2019, Enka applied to the English court for an anti-suit injunction to restrain Chubb from continuing the Russian court proceedings.  Enka claimed that the arbitration agreement was governed by English law and, in accordance with the principles set out in Aggeliki Charis Compania Maritima SA v Pagnan SpA [1995] 1 Lloyds Rep 87 (the “Angelic Grace”), an anti-suit injunction should be granted unless there were “strong reasons” against doing so.[1]  

Chubb argued, inter alia, that the arbitration agreement was governed by Russian law and, accordingly, the English court should, as a matter of comity and discretion, decline to grant the relief sought by Enka, asserting that the Moscow Arbitrazh Court was the appropriate forum.  

The First Instance Court Decision 

The English Commercial Court considered a number of issues, including (i) the proper law of the arbitration agreement in the Subcontract; (ii) whether the claim brought in the Russian proceedings was within the scope of the arbitration agreement; and (iii) whether to grant an anti-suit injunction against Chubb. 

In his judgment, Andrew Baker J declined to determine the proper law of the arbitration agreement suggesting only that it was “seriously arguable” that the arbitration agreement was governed by Russian law and dismissed Enka’s claim on forum non conveniens grounds.[2]  Baker J held that the English court was not the appropriate forum to hear these issues and that questions relating to the scope of the arbitration agreement and its applicability to the proceedings in Russia were more appropriately to be determined by the Moscow Arbitrazh Court.[3] 

In addition, Baker J considered that Enka’s failure to initiate arbitration proceedings and its participation in the Russian court proceedings were sufficient reasons to refuse the grant of the anti-suit injunction.[4]  Baker J also noted that Enka should have sought injunctive relief from the ICC arbitration tribunal and its failure to do so was “a very significant factor” against Enka’s claim for relief before the English court.[5]     

Baker J further determined that, in this case, the seat of the arbitration (London) was not a true indication of the parties’ intention for English law to be the governing law of the arbitration agreement.  He explained that London as the seat of the arbitration only indicated a “joint personal preference to come to London”, as opposed to any other international arbitration venue in the world.[6]  Baker J acknowledged that, at most, selecting London as the seat of arbitration might indicate a preference for the English court to be the court with jurisdiction to assist the arbitral process.  He noted, however, that even that was “a stretch in the case of ICC Rules arbitration because of its essentially delocalised nature and the role and powers of the ICC Court”.[7]

The Court of Appeal Decision 

The Court of Appeal reversed Baker J’s decision.  The Court of Appeal also took the opportunity to clarify this area of the law, and, in particular “the significance to be attached to the main contract law on the one hand, and the curial law of the arbitration agreement on the other, in seeking to determine the [arbitration agreement] law”.[8]  

Popplewell LJ delivered the main judgment and focused on two main issues: (i) the role of the court of the seat of the arbitration and forum conveniens; and (ii) the governing law of the arbitration agreement.   We discuss each in turn below.

The role of the court of the seat of arbitration and forum conveniens

The Court of Appeal held that Baker J’s approach was wrong in principle.  The English court, as the court of the seat of the arbitration, was the appropriate court to grant an anti-suit injunction. This meant that questions of forum conveniens did not arise.  Popplewell LJ’s reasoning was based on two essential principles: (1) 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”; and (2) the grant of an anti-suit injunction to restrain a breach or threatened breach of the arbitration agreement “is an exercise of such powers”.[9]  In other words, by choosing London as the seat of arbitration, the parties agreed that the English court was an appropriate court to grant an anti-suit injunction.

Popplewell LJ referred to a number of authorities in support of his reasoning, including West Tankers Inc. v. RAS Reiunione Adriatica di Sicurta SpA (The “Front Comor”) [2007] 1 Lloyd’s Rep 391, in which Lord Hoffman stated (at 21) that the court’s power to restrain foreign court proceedings is an “important and valuable weapon” available to the court exercising supervisory jurisdiction over the arbitration.  Popplewell LJ emphasised that the anti-suit injunction promotes legal certainty and protects the integrity of the arbitration agreement.[10]  Indeed, questions of the substantive jurisdiction of the tribunal are “paradigm issues of curial law assigned to the court of the seat”, and arise from the internationally accepted principle of Kompetenz-Kompetenz.[11]  Thus, according to Popplewell LJ, the court of the seat always remains the primary arbiter of the substantive jurisdiction of the tribunal and will examine that jurisdiction not only in a challenge to the tribunal’s ruling on its own substantive jurisdiction, but if necessary in advance of it.  It follows from this that the curial court has the primary role of determining the substantive jurisdiction of an arbitral tribunal as the necessary inquiry in addressing whether to grant anti-suit relief to protect such substantive jurisdiction.  If the court were to cede the question to a foreign court when asked to protect the integrity of an arbitration agreement, it would lead to the potential risk of parallel proceedings and inconsistent decisions.[12]

Popplewell LJ went on to explain that once it is recognised that it is the primary function of the court of the seat to determine whether an anti-suit injunction should be granted, it follows that the court must address two relevant questions, namely (1) whether the foreign proceedings are a breach of the arbitration agreement; and (2) if so, whether relief should be granted as a matter of discretion.[13]  Only once the court has answered the first question, and answered it in the affirmative, can there be any consideration of the factors which weigh against the grant of anti-suit relief as a matter of discretion.    

Proper law of the arbitration agreement

The Court of Appeal upheld the three-stage test required by English common law conflict of laws rules to determine the governing law of the arbitration agreement:

1. is there an express choice of law;
2. if not, is there an implied choice of law;
3. if not, with what system of law does the arbitration agreement have its closest and most real connection.

The Court of Appeal held that where the main contract contains an express choice of law, it will be a matter of construction of the whole contract, including the arbitration agreement, whether that was also a choice of that law for the arbitration agreement.  In many instances, the governing law of the main contract will be the same as the curial law of the arbitration agreement.  In those cases, the presumption is that the parties intended the same system of law to apply to both the substance of the dispute and to the arbitration agreement.[14]  If, however, the parties have chosen a curial law (i.e., a seat of arbitration) that is different from the governing law of the main contract, the Court of Appeal held that, as a general rule, there is a presumption that the parties have impliedly chosen the seat of the arbitration as the law of the arbitration agreement, subject to any particular features of the case demonstrating “powerful reasons” to the contrary.[15]  Put another way, “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”.[16] 

In applying these principles to the case, the Court of Appeal held that although the main contract was governed by Russian law, nothing in the main contract suggested that the parties’ general choice of law would also govern the arbitration agreement.  On the contrary, the fact that the parties chose London to be the seat of arbitration indicated that the parties intended the governing law of the arbitration agreement to be English law.[17]   

The Court of Appeal therefore allowed the appeal and held that the Russian court proceedings were brought in breach of the arbitration agreement. 

Comment

The Court of Appeal has confirmed that for London seated arbitrations, the English courts will have the power to grant anti-suit injunctions to stop foreign proceedings brought in breach of the arbitration agreement.  By choosing London as the seat of the arbitration, parties can be confident that the English courts will have full curial powers, including the power to grant anti-suit relief.

The Court of Appeal has also removed any doubt regarding the general principle that the presumed applicable law of the arbitration agreement is the law of the seat of the arbitration.  Future cases are likely to test the boundaries of this general principle (e.g., what constitutes “powerful reasons” not to apply the seat of the arbitration as the law of the arbitration agreement).  Popplewell LJ’s detailed analysis of the prior authorities will be useful to practitioners navigating through this area.  It remains to be seen how these principles will be applied to individual cases, and whether these principles will be applied consistently.

The Court of Appeal decision is an important reminder for parties to be careful when drafting their arbitration agreements, especially when the governing law of the main contract is different from the law of the seat of the arbitration.  If the parties do not wish the law of the seat to be the law governing the arbitration agreement, they must make this express.

It remains to be seen whether the Court of Appeal’s judgment will be appealed to the Supreme Court.  For now, it is a welcome restatement of the law regarding the powers of the curial court and the governing law of the arbitration agreement insofar as it simplifies previous authorities and provides certainty.

Enka Insaat Ve Sanayi AS v OOO “Insurance Company Chubb” & Ors [2020] EWCA Civ 574

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