Ercüment Erdem Att. Melissa Balikci Sezen

Enka v Chubb: Law Applicable to the Arbitration Agreement

December 2020

Introduction

As put by Moore-Bick LJ in Sulamerica, “It is common for parties to make an express choice of law to govern their contract, but unusual for them to make an express choice of the law to govern any arbitration agreement contained within it[1]. As a result, the determination of the law applicable to the arbitration agreement has been an issue that has divided courts and commentators all around the world[2]. The Supreme Court of the United Kingdom handed down its judgment in Enka v Chubb on 9 October 2020[3], in which it clarified the correct approach to ascertaining the governing law of an arbitration agreement under English law.

Background

The background of the dispute brought before the English courts related to damage caused in a power plant in Russia. PJSC Unipro (“Unipro”) had engaged with CJSC Energoproekt for the design and construction of a power plant in Russia. Such plant was insured by OOO Insurance Company Chubb (“Chubb Russia”).

CJSC Energoproekt (“Energoproekt”) had engaged with Enka Insaat ve Sanayi A.S (“Enka”), one of the subcontractors, an international construction and engineering company based in Turkey that has substantial presence and history of operations in Russia. As subcontractor, Enka was to provide services related to the installation of a boiler and auxiliary equipment installation. The construction contract between Enka and Energoproekt included a dispute resolution clause that provided for ICC arbitration in London.

In May 2014, Energoproekt transferred its rights and obligations under the construction contract to Unipro pursuant to an assignment agreement made between Energoproekt, Unipro and Enka, which expressly referred to the arbitration clause contained in the construction contract.

In February 2016, massive damage was caused due to a fire that occurred at the power plant. Unipro was compensated by Chubb Russia pursuant to an insurance claim. As Chubb Russia had assumed any rights of the owner to claim compensation, it sought damages from several defendants, including Enka, by commencing a claim before the Russian Courts in May 2019.

Following this, Enka brought an arbitration claim in the High Court in London arguing that the proceedings brought against it in Russia was in breach of the arbitration agreement, and also sought an anti-suit injunction[4], restraining Chubb Russia from pursuing its claim in Russia.

The judge dismissed Enka’s claims, primarily on the ground that the English court was not the appropriate forum to determine the dispute and declined to make a determination as to the law applicable to the arbitration agreement[5].

Decision of the Court of Appeal

The appeal to the Court of Appeal was filed against the decision of the High Court rendered by Mr Justice Andrew Baker on 20 December 2019. In its decision, the Court of Appeal overturned the judge’s decision and ruled that in the absence of a choice of law governing the arbitration agreement, “The general rule should be that the AA [arbitration agreement] law is the curial law, as a matter of implied choice, subject only to any particular features of the case demonstrating powerful reasons to the contrary[6]. The decision of the Court of Appeal was then appealed by Chubb Russia.

Decision of the Supreme Court

The Supreme Court dismissed the appeal by a majority. It is important to note that the reasoning in reaching the same conclusion was significantly different.

The Supreme Court firstly determined that, where an English court must decide which system of law governs an arbitration agreement, since the scope of the Rome I Regulation excludes arbitration agreements, it should apply the English conflicts of law rules[7].

According to common law rules, the law applicable to the arbitration agreement will be:

  • The law expressly or impliedly chosen by the parties;
  • In the absence of such choice, the system of law most closely connected to the arbitration agreement.

The court found that, where there is an express or implied choice of law governing the contract, this shall also govern the arbitration agreement. Differing from the findings of the decision of the Court of Appeal, the Supreme Court held that “The separability principle does not require that an arbitration agreement should be treated as a separate agreement for the purpose of determining its governing law[8].

The majority found that in the absence of such choice, the system of law most closely connected to the arbitration agreement was the law of the seat[9].

The court held that there was no express or implied choice of law governing the main contract of the arbitration agreement. As the law of the seat, English law was held to be the law most closely connected to the arbitration agreement and thus the court held that the arbitration agreement was governed by English law.

However, although the minority agreed that where there is an express or implied choice of law governing the contract, this shall also govern the arbitration agreement, they opined that, absence of such choice, the system of law most connected to the arbitration agreement would be the law of the main contract.

Conclusion

This decision provides the clarification and certainty with regards to the English courts approach to ascertaining the governing law of an arbitration agreement. This decision should also serve as an important reminder to parties that particular attention should be given to arbitration agreements during drafting. In order to avoid any doubt as to the governing law of the arbitration agreement, an express choice of law should be included.

[1] Sulamérica Cia Nacional de Seguros SA v Enesa Engenharia SA [2012] EWCA Civ 638 at para 11.

[2] For general explanations with regards to the law applicable to arbitration agreements, please refer to Işık, Fatih, The Applicable Law to the Substance of an Arbitration Agreement,” Erdem&Erdem Newsletter, October 2013, http://www.erdem-erdem.av.tr/publications/law-post/the-applicable-law-to-the-substance-of-an-arbitration-agreement/.

[3] Enka Insaat Ve Sanayi AS (Respondent) v OOO Insurance Company Chubb (Appellant) [2020] UKSC 38, https://www.bailii.org/uk/cases/UKSC/2020/38.html

[4] The aspects related to the granting anti-suit injunctions have not been analyzed in this newsletter.

[5] [2019] EWHC 3568 (Comm), https://www.bailii.org/ew/cases/EWHC/Comm/2019/3568.html

[6] Para 99 of the decision of the Court of Appeal https://www.bailii.org/ew/cases/EWCA/Civ/2020/574.html

[7] Paras 25-28 of Enka v Chubb.

[8] Para 41 of Enka v Chubb.

[9] Paras 118 and 119 of Enka v Chubb.