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Litigation, Columns

Apr 30, 2020

Court of Appeal Clarifies Important Issues Regarding Arbitration in London

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COURT OF APPEAL CLARIFIES IMPORTANT ISSUES REGARDING ARBITRATION IN LONDON

The English Court of Appeal has granted an anti-suit injunction in favour of our client ENKA Insaat ve Sanayi AS restraining an entity in the Chubb insurance group from pursuing proceedings commenced in the Russian courts in breach of an agreement to resolve disputes through ICC arbitration seated in London.

Overturning the decision of the Commercial Court, the Court of Appeal held that it had been wrong to decline anti-suit relief on the basis that the English Court was not an appropriate forum. The Court of Appeal also provided important clarification on the determination of the law governing arbitration agreements, as well as the scope of the English Court’s jurisdiction arising from the choice of London as the seat. The Court of Appeal’s judgment demonstrates the readiness of the English Court to protect the rights of those who agree that disputes are to be resolved through arbitration in England and reinforces the attractiveness of London as an arbitral seat.

Key Facts

The Appellant, ENKA Insaat ve Sanayi A.S. (“ENKA”), is a major Turkish construction company. In June 2012, ENKA became a subcontractor in the construction of the Berezovskaya power plant in Russia (the “BPP”), entering into a contract (the “Contract”) with CJSC Energoproekt (which later assigned its rights to PJSC Unipro (“Unipro”)) as general contractor. The Contract contained an arbitration agreement providing for all disputes to be resolved by ICC arbitration seated in London (the “Arbitration Agreement”). There was no express choice of governing law for the Arbitration Agreement. There was also no express choice of governing law for the Contract; only a defined term, “Applicable Law,” which referred to Russian law and regulation and was then used in certain specific provisions in the Contract.

In February 2016, a fire occurred at the BPP. Unipro claimed and received approximately $400m from its insurer, OOO “Insurance Company CHUBB” (“Chubb”) in respect of damage caused by the fire.

On 3 September 2019, Chubb effectively commenced proceedings in the Moscow Arbitrazh Court against ENKA and ten other defendants, claiming recovery of the sums paid to Unipro.

The First Instance Decision

On 16 September 2019, ENKA commenced proceedings in England seeking anti-suit relief in respect of the Russian proceedings. At an expedited hearing in December 2019, Mr Justice Andrew Baker was asked to decide, in particular:

  • The governing law of the Arbitration Agreement (English or Russian)
  • If the governing law was Russian, whether the dispute fell within the scope of the Arbitration Agreement as a matter of Russian law (an issue on which expert evidence was adduced)
  • Whether the court should exercise its discretion to grant anti-suit relief in this case

Andrew Baker J dismissed ENKA’s claim for anti-suit relief on the grounds that England was not the appropriate forum to decide the issues (an issue which Chubb had not itself raised).

Andrew Baker J held that the a priori jurisdiction lay with the arbitral tribunal. As there was no arbitration on foot in the present case, the proper forum to determine the governing law of the Arbitration Agreement and the question of breach was the Russian Court seised of the proceedings (and to which ENKA had made a motion to dismiss the claim against it). Andrew Baker J further held that he would not, in any event, have exercised his discretion to grant anti-suit relief due to i) ENKA having not commenced arbitration; ii) ENKA’s participation in the foreign proceedings; and iii) ENKA’s delay in bringing the anti-suit proceedings.

The Appeal

The Court of Appeal granted ENKA’s request for an anti-suit injunction and made the following key findings.

The Appropriate Forum

The Court of Appeal held that the approach taken at first instance had been wrong in principle. The English court (as the court of the seat) is necessarily the appropriate court to grant an anti-suit injunction, and questions of forum conveniens therefore do not arise. It referred to two “essential principles”:

  • The choice of the seat of the arbitration is an agreement by the parties to submit to the jurisdiction of the courts of that seat in respect of the exercise of such powers as the choice of seat confers
  • The grant of an anti-suit injunction to restrain a breach or threatened breach of the arbitration agreement is an exercise of such powers

The Court considered the use of labels such as “supportive” or “supervisory” jurisdiction not to assist in analysing the issues, stating that:

“What matters is whether the scope of the powers conferred on the English Court by the choice of English curial law includes the jurisdiction which the English Court undoubtedly has to grant declaratory and anti-suit relief in relation to foreign proceedings brought in breach of the arbitration agreement.”

The Court also endorsed the view expressed in other authorities and by respected commentators that parties choose particular arbitral seats because of their legal infrastructure, arbitration law and track record for enforcing agreements to arbitrate.

The Court rejected the proposition that the arbitral tribunal was the a priori forum for any jurisdictional challenge and stated that “…the court of the seat always remains the primary arbiter of the substantive jurisdiction of the tribunal and will examine that jurisdiction not only in a challenge to the tribunal’s ruling on its own substantive jurisdiction, but if necessary in advance of it.”

The Court of Appeal also held that, even if the Arbitration Agreement had been found to be governed by Russian law, this would not have been a reason to defer to the Moscow Court, stating 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.”

Governing Law

The Court of Appeal held that the law governing the Arbitration Agreement is English law. This case raised the question of the relative weight to be given to the law of the seat and the law of the contract in which the arbitration agreement is found, where they differ, in determining the law of the arbitration agreement itself.

The Court set out the applicable conflict of laws rules: 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?

Popplewell LJ undertook a thorough review of the relevant authorities. He concluded 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 of the whole contract, including the arbitration agreement, whether that was also a choice of that law for the arbitration agreement. In all other cases, the general rule should be that the law of the arbitration agreement is that of the curial law (i.e. law of the seat) as a matter of implied choice, subject to any particular features of the case demonstrating powerful reasons to the contrary. The Court identified a number of reasons supporting this conclusion. In particular, the overlap between the scope of the curial law and that of the arbitration agreement strongly suggests that they should usually be the same. It is, the Court said, unlikely that businessmen would have chosen that the curial court should apply two different systems of law when exercising that function.

Applying these principles to the case, the Court of Appeal held that the law of the Arbitration Agreement is English law. As such (and this was common ground), Chubb had brought and pursued proceedings in Russia in breach of the Arbitration Agreement.

Discretion

Having concluded that Chubb was in breach of the Arbitration Agreement, the Court turned to the question of its discretion as to whether or not to grant ENKA anti-suit relief. The Court rejected Andrew Baker J’s approach to the issue. In particular, it held that:

  • The judge’s criticism of ENKA for not commencing arbitral proceedings was unfounded; it was clear from the decision in AES Ust-Kamenogorsk Hydropower Plant LLP v Ust-Kamenogorsk Hydropower Plant JSC [2013] 1 WLR 1889 that the anti-suit jurisdiction arose 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”
  • The judge had been wrong to criticise ENKA’s involvement in the Russian proceedings—ENKA had done no more than was necessary to protect its position and attempt to get the Russian court to force Chubb to respect its bargain
  • There was no culpable delay by ENKA. It commenced its arbitration claim only twelve days after receiving notice that the Russian claim had been properly commenced. If ENKA had applied for anti-suit relief before this, “…it would have risked wasting time and expense in an unnecessary application and being told that the application was premature”

The Court of Appeal therefore held that there was no good reason for refusing to exercise its discretion to grant anti-suit relief—and granted ENKA anti-suit relief on the terms sought.

Shearman & Sterling acted for ENKA (Partners, Susanna Charlwood and Alex Bevan, Associates, Chris Collins and Jonathan Swil and Trainee, Lauren Richardson)

Authors and Contributors

Susanna Charlwood

Partner

Litigation

+44 20 7655 5907

+44 20 7655 5907

London

Alex Bevan

Partner

International Arbitration

+971 2 410 8121

+971 2 410 8121

+971 4 249 2100

+971 4 249 2100

Abu Dhabi

Chris Collins

Associate

Litigation

+44 20 7655 5688

+44 20 7655 5688

London

Jonathan Swil

Counsel

Litigation

+44 20 7655 5725

+44 20 7655 5725

London