Enka v Chubb Russia: Role of the Seat of Arbitration

The English Court of Appeal has recently confirmed in Enka v Chubb that English courts are competent to grant anti-suit injunctions in support of arbitrations seated in England and has provided further clarifications on how to properly determine the governing law of the arbitration agreement.

A massive fire broke out in 2016 during the reconstruction of Berezovskaya power plant in Russia. The Defendant, Chubb Russia, commenced proceedings before the Russian Arbitrazh Court, claiming that the fire occurred but-for Enka’s faulty performance as a sub-contractor.

In response, Enka sought an anti-suit injunction from the English Court to restrain Chubb from further pursuing proceedings in Russia. The Enka contract contained an arbitration clause providing for the ICC arbitration with the seat in London, but the dispute resolution provision was silent on its governing law, which caused considerable debate and led to the current dispute.

The question arose whether Russian or English law shall govern the arbitration agreement, the answer to which greatly dictated the outcome of the case. In its appeal, Enka argued that the proper law of the arbitration agreement was English law, which does not differentiate between contractual and tortious claims in determining the scope of the arbitration agreement.

The jurisdiction of English courts to issue an anti-suit injunction

The Court of Appeal held that the trial judge’s refusal to exercise jurisdiction based on forum non conveniens grounds was wrong in principle. The court has explicitly confirmed that the English court as the court of the seat of the arbitration was necessarily an appropriate court to grant an anti-suit injunction and the question of forum non conveniens did not arise.

Justice Popplewell emphasized that the power of the court in the seat of the arbitration to grant an anti-suit injunction was crucial to the proper and effective protection and enforcement of the integrity of the arbitration agreements. Indeed, the parties’ ”legitimate expectations of certainty and business efficiency“ arising from their agreement to arbitrate and choice of the seat deserved the utmost importance.

As such, the decision confirms that the English court, as the court of the seat, has the mandate to exercise its supervisory jurisdiction irrespective of the fact that doing so might require the court to consider and resolve issues of foreign law, in that case – Russian law.

Choice of law in international arbitration

International arbitration can give rise to tortuous choice-of-law questions. It is necessary to distinguish between three distinct bodies of law that come into play in international arbitrations: firstly, the substantive law governing merits of the underlying contract; secondly, the law governing the arbitration agreement (e.g. scope, validity); and, lastly, the law applicable to the arbitral proceedings (the so-called ”lex arbitri“).

Although not common, it may well be that each of these three issues is governed by different laws. In case of Enka v Chubb, the parties selected London as the seat of arbitration, Russian law governed the underlying contract, and the place of performance was Russia, whilst the contract remained silent on the law governing the arbitration agreement. The Court of Appeal has provided useful guidelines on what law governs the arbitration agreement in this case.

The law governing the arbitration agreement

As to the issue of conflict of laws, Justice Popplewell observed that the current state of affairs ”does no credit to English commercial law“ and that it was high time to ”impose some order and clarity on this area of the law”.

The Justice endorsed the English common law three-stage test, previously articulated in Sulamerica, as the correct starting point. Namely, the court first assessed whether there is an express choice of law and, secondly, whether the parties have impliedly indicated their choice.
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In the event they have not, the court identifies the system of law that has ”closest and most real connection”.

The application of the above test oftentimes led to unpredictable or even conflicting results. The courts interpreted the test to imply that an express choice of law in the main contract amounted to an implied choice of the law of the arbitration agreement. In Enka v Chubb, Justice Popplewell added that whether this presumption might be entertained by the English court is a matter of interpretation of the whole contract, that the judges should decide on a case by case basis.

By contrast, absent an express choice of law in the underlying contract, Justice Popplewell held that there was a strong presumption towards parties’ implied choice of the law of the seat of arbitration as the law governing the arbitration agreement.  Justice Popplewell described this to be the ”general rule“ with an exception where ”powerful countervailing factors in the relationship between the parties or the circumstances of the case“ indicate the contrary.

Justice Popplewell noted that the subcontract in the case at hand specified no express choice of law for either the subcontract itself or the arbitration agreement it contained. Accordingly, the court applied the ”strong presumption“ and, further, found no other relevant factors in this case to displace the presumption.
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Therefore, the court determined English law as the governing law of the arbitration agreement at the case at bar.

The court also observed that commercial parties do not usually intend for application of different bodies of law to two closely related aspects of their transaction, even if they might choose a different system to govern a third, distinct aspect.
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In the case at hand, the Russian law governed only a limited number of provisions in the main contract. As such, the above-mentioned principles led the Court of Appeal to apply a presumption that the parties had impliedly chosen the governing law of the arbitration agreement to be the law of the seat, which was the English law.

Concluding remarks

The Court of Appeal has confirmed that the English court will always have jurisdiction to issue anti-suit injunctions in support of an arbitration seated in England. It has also clarified that, in the absence of an express choice of law in the main contract, there is a strong presumption that the governing law of the arbitration agreement will be the law of the designated seat of the arbitration.

About the Author:

Rinat Gareev is a US-qualified attorney (admitted in New York), holds civil and common law degrees. In his current role of a Legal Consultant at a New York based law firm, Rinat represents domestic and international entities on a variety of general corporate matters and cross-border transactions, as well as assisting clients in navigating complex compliance issues. Prior to returning to legal consulting, Rinat has gained experience by working and training in leading arbitral institutions in Malaysia, South Korea, Russia, international organizations (UNCITRAL) and law firms. Through Rinat's professional and educational experience, he has developed expertise in trade law, aviation law, arbitration and cross-border dispute resolution. He has published several papers in international and local journals on issues relating to cross-border dispute resolution and also provides expert opinions on various domestic and international law-related issues. Rinat is HKIAC-accredited tribunal secretary.

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