Enka v Chubb: The Supreme Court Rules On The Law Applicable To Arbitration Agreements

Published date08 June 2021
Subject MatterCorporate/Commercial Law, Litigation, Mediation & Arbitration, Contracts and Commercial Law, Arbitration & Dispute Resolution
Law FirmFried, Frank, Harris, Shriver & Jacobson
AuthorMr James Barratt and Rebecca Meredith

On 9 October 2020, the Supreme Court of the United Kingdom handed down an important judgment on the test for determining the applicable law of an arbitration agreement: Enka Insaat Ve Sanayi AS v OOO Insurance Company Chubb [2020] UKSC 38.. The judgment provides welcome clarity to an area of arbitration law which had become unnecessarily complex and uncertain as reflected in conflicting Court of Appeal decisions. In this alert, we summarise the background to the decision and the decision itself before discussing some of the possible implications for parties who choose London as a seat for international arbitration.

Background

Where, as is common in international transactions, parties agree that their contract shall be governed by the law of a given country, but that any arbitration shall be 'seated' in a different country, this may give rise to different applicable laws.

In common with almost all 'arbitration-friendly' jurisdictions, English arbitration law recognises that the arbitration clause or agreement contained within a contract is to be treated as if it were a separate agreement: the so-called principle of separability. This is important to ensure, amongst other things, that any alleged invalidity of the main contract would not similarly taint the arbitration agreement and potentially deprive a party of its right to arbitrate when it matters most.

The law that governs an arbitration agreement governs the existence, validity and scope of the parties' agreement to arbitrate, and may have an important bearing on the jurisdiction of a tribunal and the enforceability of any award. Enka v Chubb is therefore of critical importance to parties who select arbitration as a method of dispute resolution.

In English law, the approach to determining the applicable law of an arbitration agreement has been to engage in a common law conflicts of law analysis. In broad terms, an arbitration agreement is governed by its applicable law, namely: (1) the law expressly or impliedly chosen by the parties; and (2) in the absence of such choice, the law which is most closely connected with the arbitration agreement.1

In practice, however, parties rarely provide in express terms that their arbitration agreement shall be governed by a particular law. What then is the applicable law of an arbitration agreement absent express choice? The rival contenders are: (1) the law of the 'main' contract; or (2) the law of the 'seat' of the arbitration.

For almost two decades there have been conflicting decisions from the English courts regarding the correct approach.2

The Supreme Court has put an end to the debate. In summary:

  • An express choice of law in the main contract will generally apply to an arbitration agreement which forms part of the main contract;
  • The choice of a different country as the seat of the arbitration will not, without more, be sufficient to negate an inference that a choice of law to govern the main contract was intended to apply to the arbitration agreement as well;
  • That inference may be overcome where there is, for instance, a serious risk that if the arbitration agreement were governed by the same law as the main contract, the arbitration agreement would be ineffective; and
  • Where the parties have not chosen a law to apply to the arbitration agreement (either expressly or impliedly), then the applicable law will generally be the law of the seat, even if that differs from the law of the main contract.

The Supreme Court decision is welcome as it promotes certainty. It is also welcome because it demonstrates once again the supportive role of the English courts and the speed with which they can act where the urgency of a matter requires it.

The judgment is comprehensive and addresses a number of important issues in English arbitration law.

Summary of Case

The underlying dispute related to an extensive fire which severely damaged a power plant in Russia in February 2016. Enka was a subcontractor engaged to perform works within the plant, while Chubb acted as insurer to the plant's owner. Following the fire, Chubb paid out a significant sum under an insurance policy and related agreements and subsequently filed a claim against Enka (in addition to ten other parties) in the Moscow Arbitrazh Court seeking damages. In response, Enka issued an Arbitration Claim Form in the English Commercial Court seeking: (i) a declaration that Chubb was bound by the arbitration agreement contained in the relevant contract; and (ii) an anti-suit injunction pursuant to section 37 of the Senior Courts Act 1981 restraining Chubb from continuing the proceedings in Russia and ordering it to discontinue the proceedings.

At first instance, the dispute focused on the question of whether Russian or English law could properly be said to govern the arbitration agreement. Andrew Baker J declined to determine the law of the arbitration agreement, and instead refused Enka's request for relief on the grounds of forum non conveniens.3 He 3 concluded that questions of the scope of the arbitration agreement and its impact on the Moscow claim fell to be determined by the Moscow Arbitrazh Court in the Russian proceedings.

Enka appealed to the Court of Appeal. Following an expedited hearing in April 2020, the Court...

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT