Switzerland: English Supreme Court Rules On The Proper Law Of The Arbitration Agreement

On 9 October 2020, the English Supreme Court (the "Court") in Enka Insaat Ve Sanayi AS ("Enka") v OOO Insurance Company Chubb ("Chubb") 1 clarified the applicable principles for determining the proper law of an arbitration agreement. The contract in question did not contain a choice of law governing the contract or the arbitration agreement, and the Court held, by majority,2 that the validity and scope of the arbitration agreement was governed by English law, the law of the seat of the arbitration, being the law most closely connected to the dispute resolution clause. Applying English law, the Court held that the arbitration agreement was valid, and the dispute fell within its scope. Consequently, the anti-suit injunction granted by the Court of Appeal to restrain Chubb from proceeding against Enka in the Russian courts was properly granted.

While on the facts of this case the applicable law of the arbitration agreement was the law of the seat, the majority confirmed that generally, where parties have not specified the law applicable to the arbitration agreement, but have chosen the law to govern the underlying contract, it is this choice of law that governs the arbitration agreement, even if there is a different choice of seat. Accordingly, while the Court ultimately reached the same conclusion as the Court of Appeal, the Court departed from the Court of Appeal's finding that there was a strong presumption of an implied choice that the law of the seat governs the arbitration agreement.

Why is this relevant? The law governing the arbitration agreement governs its scope and validity. The applicable law of the arbitration agreement therefore has wide ranging consequences on the jurisdiction of the tribunal to determine the dispute. It can also impact whether interim measures, such as anti-suit injunctions, are granted. As was the case here, there can be different possible applicable laws with different outcomes. In this case if English law had applied, the scope of the arbitration agreement would have encompassed claims in contract and tort. If Russian law had applied, the arbitration agreement may have been interpreted as applying only to contractual claims and not the issue of joint tortious liability. Accordingly, if Russian law was the applicable law of the arbitration agreement, Chubb's claims before the Russian court may not have fallen within the scope of the arbitration agreement. Moreover, in determining whether to grant the interim relief, the question of which law governed the arbitration agreement was critical.

Background facts

Enka was engaged by CJSC Energoproekt ("Energoproekt"), a Russian company, as one of many sub-contractors for the design and construction of a power plant. Enka and Energoproekt concluded a construction contract (the "Contract") which contained an arbitration agreement that specified London as the seat of arbitration. The Contract did not contain an express governing law clause for the contract or the arbitration agreement. Energoproekt assigned its rights and obligations to PJSC Unipro ("Unipro"), the owner of the power plant.

On 1 February 2016 the power plant was severely damaged by fire. Chubb had insured Unipro against such damage. After the fire, Chubb paid 26.1 billion roubles to Unipro under the insurance policy and thereby became subrogated to any rights of Unipro to claim compensation from third parties for the damage caused by the fire. Consequently, Chubb commenced proceedings in the Moscow Arbitrazh Court against Enka and others, who were jointly liable for the damage caused by the fire. Enka filed an application in the Russian proceedings to have Chubb's claims dismissed and asserted that the claim fell within the scope of the arbitration agreement in the Contract. On 18 March 2020 the Moscow Arbitrazh Court refused to grant Enka's application to refer the claim to arbitration and dismissed Chubb's claims. Both Enka and Chubb have appealed this decision, respectively.

On 16 September 2019, Enka filed an arbitration claim in the English Commercial Court in London seeking an anti-suit injunction to restrain Chubb from proceeding with the Russian proceedings on the ground that it was in breach of the arbitration agreement in the Contract. On 15 October 2019, Carr J refused to grant the injunction but directed an expedited trial. On 20 December 2019, the English Commercial Court dismissed Enka's claims and considered that the appropriate forum to decide on whether Chubb's claims fell within the scope of the arbitration agreement was the Moscow Arbitrazh Court. Enka appealed, and on 29 April 2020 the Court of Appeal allowed the appeal and issued an anti-suit injunction restraining Chubb from continuing the Russian proceedings. Chubb applied for permission to appeal the Court of Appeal's decision, and on 5 June 2020, the Supreme Court granted the appeal and stayed the anti-suit injunction pending the outcome of the appeal. In parallel, on 11 March 2020, Enka commenced arbitration proceedings.

Footnotes

1 [2020] UKSC 38

2 Lord Hamblen, Lord Leggatt and Lord Kerr.

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