Enka v Chubb: The Nuanced Presumptions 'test' On The Law Of Arbitration Agreements

• Published date: 01 December 2020
• Subject Matter: Corporate/Commercial Law, Litigation, Mediation & Arbitration, Contracts and Commercial Law, Arbitration & Dispute Resolution
• Law Firm: Akin Gump Strauss Hauer & Feld LLP
• Author: Mr Hamish Lal, Josephine Kaiding and Léa Defranchi

The United Kingdom Supreme Court in Enka Insaat Ve Sanayi AS v OOO Insurance Company Chubb¹has now resolved the question: which system of national law governs the validity and scope of an arbitration agreement when the law applicable to the contract containing it differs from the law of the seat of the arbitration? Will it be the law governing the contract; the law governing the procedure (the law of the seat); or another system of national law altogether? Noting that this issue "has long divided courts and commentators, both in this country and internationally"² the Supreme Court has provided an elegant and nuanced answer which in practice will require application of rules of contractual interpretation of English law. Put simply:

• where the law applicable to the arbitration agreement is not specified, a choice of governing law for the contract will generally apply to an arbitration agreement which forms part of the contract.
• In the absence of any choice of law to govern the arbitration agreement, the contract is governed by the law with which it is most closely connected. Where the parties have chosen a seat of arbitration, this will generally be the law of the seat, even if this differs from the law applicable to the parties' substantive contractual obligations.
• The fact that the contract requires the parties to attempt to resolve a dispute through good faith negotiation mediation or any other procedure before referring it to arbitration will not generally provide a reason to displace the law of the seat of arbitration as the law applicable to the arbitration agreement by default in the absence of a choice of law to govern it.

Enka addresses an important issue in international arbitration. For example, the interpretation and validity of the arbitration agreement can be a fundamental issue at the start of a dispute and especially so when there are questions about the coverage of the arbitration agreement to other parties. An obvious but perhaps unavoidable consequence of the layered presumptions in Enka is a potential dichotomy between the 'governing law' answer in England as opposed to an answer favoring the seat at the law of the country where the award was made. We say this because Article V(1(a) of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards provides that the validity of the arbitration agreement should be verified, "failing any indication [of the law of the arbitration agreement by the Parties], under the law of the country where the award was made".

The Facts

The claimant, a Turkish construction company, was a sub-contractor providing certain building works on the construction of a power plant in Russia. In the construction contract there was an arbitration agreement providing for arbitration under the ICC Rules with the Seat in England.³The contract did not expressly state what law governed the contract or what law governed the...