Oct 12, 2020

UK Supreme Court Clarifies Key Issues for English Seated Arbitrations

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UK SUPREME COURT CLARIFIES KEY ISSUES FOR ENGLISH SEATED ARBITRATIONS

The Supreme Court has given judgment in the case of Enka Insaat ve Sanayi AS v OOO Insurance Company Chubb [2020] 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.

Enka was represented by Shearman & Sterling partner Susanna Charlwood and associate, Chris Collins, together with partners Alex Bevan and Nick Buckworth, and associate Jesse Sherrett.

History of the Dispute

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.[1]

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.

Supreme Court Decision

Chubb’s appeal raised the following issues:

  • the correct approach to determining the proper law of an arbitration agreement;
  • the relevance of the parties’ choice of law for the main contract; and
  • the role of the court of the seat of an arbitration and the circumstances in which it is appropriate or permissible for the English Court to permit a foreign court to decide whether proceedings before that foreign court are a breach of an arbitration agreement.

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:

  • Where parties have made a choice (express or implied) of the law to govern the main contract, this will generally extend to an arbitration agreement within that contract.
  • Factors that may negate this outcome are (a) a provision of the law of the seat that applies that law to the arbitration agreement; and (b) a serious risk that, under the law of the contract, the arbitration agreement would be ineffective (an endorsement of the “validation principle”).
  • An arbitration agreement stipulating, for example, that arbitrators should be selected from an English institution might also affect this general rule.
  • Where parties have made no choice of law for the main contract, the arbitration agreement will be governed by the law with which it is most closely connected—generally this will be the law of the seat.
  • Where the arbitration agreement forms part of a broader dispute resolution clause, (e.g., one providing for negotiation of a dispute prior to any arbitral proceedings) the law of the arbitration agreement will also apply to the wider dispute resolution clause.
  • Forum conveniens considerations are irrelevant, and comity has little if any role to play where anti-suit relief is sought for breach of an arbitration agreement. It is irrelevant whether the arbitration agreement is governed by English law—the principle arises from the fact of the promise made, not the law by which it was governed. If the arbitration agreement is not governed by English law, the English courts are more than capable of taking evidence on and deciding any issues of foreign law which arise (e.g., scope).

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.

Comment

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.

脚注

[1]  Enka denied liability and was vindicated by the Russian court in a decision in May 2020.

著者等

Susanna Charlwood

パートナー

紛争解決

+44 20 7655 5907

+44 20 7655 5907

ロンドン

Alex Bevan

パートナー

国際仲裁

+971 2 410 8121

+971 2 410 8121

+971 4 249 2100

+971 4 249 2100

アブダビ

Chris Collins

アソシエイト

紛争解決

+44 20 7655 5688

+44 20 7655 5688

ロンドン