The parties chose London as the seat of arbitration for a Russian construction project but did not expressly choose a law for the contract. The legal question in 2020 was which law determined the scope of their promise to arbitrate. This mattered because a subrogated insurer had brought proceedings in Moscow.
The contract and the proceedings
Enka, a Turkish contractor, was engaged in June 2012 to carry out construction work at a power plant in Russia. The contract required the parties first to negotiate and, if a dispute remained, to refer it to arbitration in London under the rules of the International Chamber of Commerce, before three arbitrators and in English. It contained no clause stating which law governed the contract. The authoritative text was the Russian-language version.
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The plant was severely damaged by fire in February 2016. Chubb Russia, which had insured the owner, paid 26.1 billion roubles (approximately US$400m) and, as the owner’s subrogated insurer, sued Enka and ten other defendants in the Moscow commercial court. Enka said that the claim against it had to be arbitrated in London. It asked the English court for an anti-suit injunction. Andrew Baker J dismissed that claim, principally because he considered the Moscow court the appropriate forum to decide whether the Russian claim fell within the arbitration agreement. The Court of Appeal, in a judgment given by Popplewell LJ, allowed Enka’s appeal and granted the injunction. Chubb Russia appealed.
The choice-of-law question
An international arbitration can involve three laws: the law governing the parties’ substantive rights, the law governing the agreement to arbitrate, and the law of the seat, which governs the arbitration process and the supporting powers of the local courts. The appeal concerned the second, where the seat is in one country and the contract is connected with another. Courts and commentators had long divided on it.
The Court of Appeal had treated the law of the seat as the general rule. Unless the parties had expressly chosen a law for the arbitration agreement, they were to be taken to have impliedly chosen the law of the seat, unless powerful reasons pointed the other way. Chubb Russia said that this was wrong, and that a choice of Russian law for the construction contract also governed the arbitration clause.
The common law approach applied in 2020
Lord Hamblen and Lord Leggatt, with whom Lord Kerr agreed, held that the Rome I Regulation does not decide this question, because it excludes arbitration agreements. English common law conflict rules apply. Whether the parties have chosen a law is decided by construing the whole contract under English rules of interpretation, as the law of the forum. The Court of Appeal had been wrong to say that the interpretation rules of the main contract’s law should be used instead.
Where the parties have chosen a law for the contract, that choice generally covers an arbitration clause in it, even if the seat is in another country. The clause is part of the contract they have agreed to subject to the chosen law. Separability allows the clause to survive if the main contract is invalid or has come to an end, but it does not make the clause a separate contract for every purpose, and it does not require a different governing law. A London seat, and the application of the Arbitration Act 1996, does not itself imply that English law governs the agreement to arbitrate. The Act allows a foreign law to govern that agreement even where England is the seat. Under section 4(5), non-mandatory provisions of the Act then give way on matters governed by the foreign law. The Court of Appeal’s “overlap” between the law of the seat and the law of the arbitration agreement therefore did not justify a presumption that a London seat is an implied choice of English law.
The majority accepted limits. Parties are generally unlikely to have intended the contract’s law to govern the arbitration agreement if there is at least a serious risk that it would significantly undermine that agreement. A rule of the law of the seat which itself treats the arbitration agreement as governed by that law may also point the other way. Neither limit had to be applied here.
If the parties have chosen no law for the contract or the arbitration agreement, the agreement is governed by the law with which it is most closely connected. The majority held that this is generally the law of the seat, even where that differs from the law of the substantive obligations. The seat is where, in law, the agreement to arbitrate is performed, and its courts supervise the arbitration and can enforce the promise not to litigate. The same default rule appears in the New York Convention and in section 103(2)(b) of the 1996 Act for the validity of an arbitration agreement when recognition of an award is resisted: the chosen law, or, failing any indication of it, the law of the country where the award was made. Using a different rule before an award is made, or only because the seat is England, would be incoherent. A clear default also lets parties predict the result and choose a different law if they wish. A multi-tier clause, requiring negotiation or another step before arbitration, does not displace that default.
A London seat does not, without more, imply that the parties chose English law for the contract or for the arbitration agreement. Where there is no choice, the law of the seat is applied as the closest connection, not as a presumed intention.
Application to this contract
The majority found no choice of Russian law. In a long, professionally drafted contract, the omission of a governing-law clause was unlikely to have been accidental. An obvious explanation was that the parties had not been able to agree one. The defined term “Applicable Law”, meaning Russian law, was used to require compliance with local laws and regulations. It did not say that Russian law governed the validity and interpretation of the contract. Obligations as to delay, force majeure, payment and termination did not depend on that definition.
Russian law did govern the main contract, but only under the Rome I default rules. The contract was manifestly more closely connected with Russia than with any other country: the work was there, the employer side was Russian, the authoritative language was Russian, the price was payable in roubles to a Russian account, and the contract required compliance with Russian regulation. Enka’s residence in Turkey did not displace that connection. London as the seat was not a sufficient connection for English law to govern the substantive obligations.
Because there was no chosen law for the arbitration agreement, the majority applied the law of the seat. English law governed article 50.1 as a whole, including the duties to negotiate and to involve senior management before arbitration. Once English law applied, it was common ground that the agreement was valid and that Chubb Russia’s claim fell within it.
The dissent
Lord Burrows, with whom Lord Sales agreed, would have held that the parties had impliedly chosen Russian law. The references to Russian law, the place of performance, the Russian employer side, the language and the currency clearly demonstrated that choice under the Rome I Regulation, and the same conclusion followed at common law. That choice carried across to the arbitration agreement. He would have treated the law of the main contract as presumptively the law of the arbitration clause whether it applied by choice or only by closest connection. He did not accept that the New York Convention required the law of the seat to be the common law default: the relevant provision concerns recognition and enforcement, and the live issue here was interpretation, not validity.
On that view, the injunction question should have been remitted to the Commercial Court, to decide on evidence of Russian law whether the Russian proceedings breached the agreement. Lord Sales agreed with the majority that the English court, as the court of the seat, could determine that foreign law and should enforce a promise to arbitrate by injunction if a breach were made out.
Anti-suit injunctions
The majority also held, although this was not necessary once English law applied, that the approach to an anti-suit injunction does not change merely because a foreign law governs the arbitration agreement. By choosing an English seat, the parties submit to the English court’s supporting jurisdiction, including its power to restrain breach of the promise not to litigate. Forum conveniens does not affect that jurisdiction, and comity has little role where the ground of relief is that promise. The court upholds the bargain unless there is a strong reason not to.
Verdict: By three votes to two the Supreme Court dismissed Chubb Russia’s appeal. Under the common law rules then applicable, English law governed the arbitration agreement. The injunction restraining Chubb from pursuing the Russian claim against Enka stood.
Source: Enka Insaat Ve Sanayi AS v OOO Insurance Company Chubb [2020] UKSC 38
