The Supreme Court has given judgment in the case of Enka Insaat ve Sanayi AS v OOO Insurance Company Chubb  UKSC 38, giving important guidance on the determination of the proper law of an arbitration agreement and clarifying the role of the English Court in granting anti-suit relief in relation to English seated arbitrations.
The Shearman team representing ENKA included partners Alex Bevan and Nick Buckworth, and associates Jesse Sherrett and Chris Collins.
Chubb, an insurer, brought a claim in the Russian courts against Enka and several others, for losses caused by a fire at the Berezovskaya power plant, in respect of which Chubb paid the owner of the plant $400 million under an insurance policy. Enka had carried out works at the power plant and was alleged to be jointly and severally liable for those losses.
In September 2019, Enka sought anti-suit relief in the Commercial Court on the basis that the contract under which it carried out the works at the power plant contained an arbitration agreement (AA) requiring disputes to be settled by ICC arbitration seated in London. Neither the AA nor the contract contained an express governing law clause. There was a dispute between the parties as to whether the AA was governed by English law or Russian law, the scope of the AA (if Russian law applied) and whether anti-suit relief should be granted.
At first instance, Mr Justice Andrew Baker dismissed Enka’s claim on the basis that England was not the forum conveniens (a ground which Chubb had not itself raised). He held that the a priori jurisdiction lay with the arbitral tribunal; as there was no arbitration on foot, the proper forum to determine the jurisdictional dispute was the Russian court which was already seised of the proceedings.
The Court of Appeal granted Enka’s appeal. On the question of appropriate forum, the court noted that the English court (as court of the seat) is necessarily the appropriate court to grant an anti-suit injunction, and that “…ceding the decision to the court seised of the allegedly abusive proceedings cannot be justified on grounds of comity, whether as a matter of forum conveniens or as a relevant factor in the exercise of discretionary relief.”
The Court of Appeal found that the proper law of the AA was English law. It held that where there is an express choice of law for the contract in which the arbitration agreement is found, it will be a matter of construction whether such choice extends to the arbitration agreement. In all other cases, the Court said, the general rule is that the law of the arbitration agreement would reflect the law of the seat as a matter of implied choice and subject to any particular features of the case demonstrating powerful reasons to the contrary.
Chubb’s appeal raised the following issues:
The Supreme Court, by majority, found that the AA was governed by English law. However, it did so not on the basis of implied choice, but on the basis that the law of the seat was the law with which the AA had its closest and most real connection, in the absence of a choice of law for the main contract.
In reaching this conclusion, the Supreme Court addressed a number of points of interest:
Lord Burrows and Lord Sales gave dissenting judgments, concluding that the AA was governed by Russian law. They did so on the basis that the parties had made an implied choice of Russian law to govern the main contract, which therefore extended to the AA. They also dissented from the majority in their view that an AA ordinarily has its closest and most real connection with the law of the main contract.
This important decision provides clarity to what had been an area of considerable uncertainty. Although the judgment rolls back on the expansive view taken by the Court of Appeal as to the significance of a choice of seat, it nonetheless provides a useful framework for identifying the law applicable to arbitration agreements. In most cases, parties include governing law clauses in their contracts, and this clause will now generally be taken to extend to the arbitration agreement, even where there is a choice of a different seat. This will also generally be the case where there is an implied choice of law for the contract. However, the Supreme Court’s judgment gives new significance to the distinction between a governing law for a contract arising from an implied choice, and one identified by reference to the test of closest and most real connection. This may therefore give rise to increased litigation by parties regarding the basis for the law governing their contracts and, therefore, their arbitration agreements.
The decision further reinforces the English Court’s jurisdiction to protect parties’ rights under London-seated arbitration agreements, through the issuance of anti-suit injunctions. The availability of such injunctive relief to protect arbitration agreements will increase the appeal of London as an arbitral seat.
This case involved some complex, technical issues of law of real importance to the commercial world. The legal issues were finally balanced, as can be seen from the majority and dissenting opinions. In that context, the fact that the Supreme Court took less than ten months after the Commercial Court decision to issue its judgment demonstrates its commitment to clarify areas of English law that will better serve the business community as quickly as possible.
 Enka denied liability and was vindicated by the Russian court in a decision in May 2020.