What Is The Correct Approach In Determining The Governing Law Of An Arbitration Agreement?

• Published date: 25 November 2020
• Subject Matter: Corporate/Commercial Law, Litigation, Mediation & Arbitration, Corporate and Company Law, Contracts and Commercial Law, Arbitration & Dispute Resolution
• Law Firm: ONC Lawyers
• Author: ONC Lawyers

Introduction

How to determine the governing law of an arbitration agreement? Should it be the law applicable to the contract containing the arbitration agreement, or should it be the law of the seat of the arbitration? The recent landmark decision by the UK Supreme Court (the "Supreme Court") in Enka Insaat ve Sanayi A.S. (Respondent) v OOO Insurance Company Chubb (Appellant) [2020] EWCA Civ 5 has shed light on this issue.

Facts and procedural history

The Appellant was the insurer of a power plant in Russia owned by PJSC Unipro (the "Owner"). The Owner entered into a contract with another company as the head-contractor for construction work to be carried out at the power plant, who in turn engaged the Respondent as a sub-contractor. The contract between the head-contractor and the Respondent (the "Contract") provided that disputes arising out of the Contract "...shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce" and "...the place of arbitration shall be London, England" (the "Arbitration Agreement").

The power plant was severely damaged by fire in 2016. The Appellant as a result paid out the insurance claim made by the Owner, and hence became subrogated to all the rights of the Owner to claim compensation from third parties, including from the Respondent for the damage caused by the fire.

The Appellant brought a claim against the Respondent in Russia for the damage caused by the fire to the power plant notwithstanding the Arbitration Agreement between them. The Respondent filed a motion in the Russian proceedings to have the Appellant's claim dismissed and refer it to arbitration by reason that the dispute ought to be so resolved pursuant to the Arbitration Agreement instead. The Russian court dismissed the Respondent's motion but also dismissed the Respondent's claims against all the defendants on the merits. The Respondent subsequently brought a claim before the English court on the ground that the Appellant was in breach of the Arbitration Agreement for proceeding in the Russian court and hence sought an anti-suit injunction against the Appellant. The application was dismissed at first instance but was overturned in the Court of Appeal. The Court of Appeal declared that as a general rule, an arbitration agreement is to be governed by the law of the seat as a matter of implied choice if there was no express choice of law, subject to "any particular features of the case demonstrating powerful reasons to the...