Pick a seat (carefully!)

Published: 19/05/20

Enka Insaat Ve Sanayi AS v OOO “Insurance Company Chubb” & Ors [2020] EWCA Civ 574

At the end of April, the English Court of Appeal handed down judgment (remotely) on an important case regarding the significance to be attached to the choice of London as the seat of the arbitration in exercising such jurisdiction and in determining the proper law of the arbitration agreement.

The seat is a key factor in any arbitration. It provides a “home” for the arbitration, determines the law governing the relationship between the tribunal and the courts, and also determines which court has supervisory jurisdiction over the arbitration (giving them the power to, among other things, grant an injunction or set aside an award). The choice of seat also determines where the award is made for the purposes of whether it is an award governed by the New York Convention.

Facts

The claimant (“Enka”) is a Turkish company carrying on an international construction and engineering business with a substantial presence and history of operations in Russia. Enka entered into contractual arrangements as a subcontractor to provide works relating to the boiler and auxiliary equipment installation for the Berezovskaya power plant built for PJSC Unipro, at the time named E.ON Russia (“Unipro”). A massive fire occurred at the power plant and the main defendant (“Chubb Russia” – part of the well-known Chubb insurance group) paid out circa. US$400 million to Unipro in respect of damage caused by the fire, and so became subrogated to any rights Unipro might have against Enka or others in respect of liability to Unipro for the fire.

The contract between Enka and Unipro was executed in Russian and English versions within a single document and provided that the Russian language version of its terms prevailed in case of inconsistency or conflict. The contract contained no explicit “governing law” clause but the term “Applicable Law” was defined as meaning Russian law. The dispute resolution clause provided for ICC arbitration and that “the place of arbitration shall be London, England.”

Chubb Russia commenced proceedings against Enka in the Moscow Arbitrazh Court, seeking damages in relation to the fire. Enka’s case before the English High Court was that Chubb Russia was in breach of the London arbitration clause by bringing proceedings in Russia and that the English courts, being the courts of the procedural law of the arbitration, should grant an anti-suit injunction to stop the Russian proceedings on the basis Chubb Russia is bound by the arbitration agreement.

Enka lost in the High Court and subsequently appealed to the Court of Appeal.

Decision

In finding in favour of Enka, that the seat of the arbitration was England and the English court exercising its supervisory jurisdiction could grant an anti-suit injunction, Lord Justice Popplewell took the opportunity to clarify the test for determining the governing law of an arbitration agreement as “the current state of the authorities does no credit to English commercial law which seeks to serve the business community by providing certainty.” A three stage test should be applied:

  1. The governing law of the arbitration agreement is to be determined by applying the three stage test required by English common law conflict of laws rules, namely (i) is there an express choice of law? (ii) if not, is there an implied choice of law? (iii) if not, with what system of law does the arbitration agreement have its closest and most real connection?
  2. Where there is an express choice of law in the main contract it may amount to an express choice of the arbitration agreement law. Whether it does so will be a matter of construction of the whole contract, including the arbitration agreement, applying the principles of construction of the main contract law if different from English law.
  3. In all other cases there is a strong presumption that the parties have impliedly chosen the procedural law (the law of the “seat”) as the arbitration agreement law. This is the general rule, but may yield to another system of law governing the arbitration agreement where there are powerful countervailing factors in the relationship between the parties or the circumstances of the case.

A nuance explored in the case was the circumstance in which the governing law of the arbitration clause differs from the law of the “seat” of the arbitration. In that instance, the procedural law of the arbitration would be the law of the “seat”, the substantive issues of the dispute would be governed by the laws of the contract and any dispute over the arbitration agreement itself would be governed by the laws of the arbitration clause.

The Court of Appeal also reaffirmed in this case that the power to grant anti-suit injunctions is part of the “supervisory jurisdiction” of the procedural court. A further key finding was that the anti-suit injunction jurisdiction arises irrespective of any actual or contemplated arbitration proceedings because an arbitration agreement contains the independent negative promise not to commence proceedings anywhere in the world.

Comment

The case goes someway to help clarify this complicated area of law. The key takeaway for businesspeople and lawyers alike is to ensure your arbitration clause is well drafted and fully reflects the intention of the parties.

With regard to an the arbitration agreement being governed by a different governing law to the “seat”, Lord Justice Popplewell stated “as a matter of commercial common sense, one would not expect businessmen to choose two different systems of law to apply to their arbitration package”, however, the restated test leaves open the argument that parties did indeed want different laws to apply.

Parties should answer the following questions and ensure each specific point is reflected in the drafting of any contract:

  • What law should govern the commercial terms of the contract? – this is the typical “governing law” provision and will be the body of law used to determine any substantive dispute about the terms of the contract.
  • What law should govern the procedural law of any arbitration between the parties? The arbitration clause should express the “seat” of the arbitration. Will the chosen seat impart additional benefits, for example anti-suit injunctions are a remedy available to English courts.
  • What law should govern the arbitration clause itself? Typically, this is the law of the seat but Enka has still left the door ajar on that argument. It therefore doesn’t harm to expressly state the governing law of the arbitration clause.
  • Where should the hearings be located? The geographical location of hearings is a separate matter and parties should be careful that any drafting does not imply the parties intend the “location” to be the seat of the arbitration. For example, parties may wish to hold the arbitration hearings in the Seychelles but keep London as the “seat” – those two points should be addressed separately.

As a further word of warning on the terms used in your drafting:

Process and Industrial Developments Ltd v Federal Republic of Nigeria [2019] EWHC 2241 (Comm)

In a recent High Court case, the enforcement of an arbitration award against the Federal Republic of Nigeria relating to a Nigerian law gas supply agreement was resisted on the grounds that the “seat” of the arbitration was not England. The clause stated that “[t]he venue of the arbitration shall be London, England or otherwise as agreed between the Parties”. Nigeria argued that the seat was Nigeria, and that “venue” in the arbitration agreement was intended to refer only to the physical location of hearings. The court held that the reference to “venue” referred to the legal seat and the seat was therefore England.

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