From Russia with law: English CoA provides guidance on law governing arbitration agreements
The Court of Appeal recently provided some welcome guidance as well as “some order and clarity” in relation to the function of the court of the seat of arbitration, how that court should determine applications for anti-suit injunctions, and how the governing law of an arbitration agreement (the AA law) should be determined.
The dispute in Enka Insaat ve Sanayi AS v OOO Insurance Co Chubb  EWCA Civ 574 concerned an application for an anti-suit injunction by Enka Insaat ve Sanayi AS (Enka) who sought to prevent Chubb Russia Investment Limited (Chubb Russia) from pursuing an action in Russia, on the basis that doing so was in breach of an arbitration agreement which provided for disputes to be settled under ICC Rules at an arbitration seated in London (the Arbitration Agreement). The Arbitration Agreement was set out within the terms of a contract in relation to works carried out by Enka at a Russian power plant (the Contract). The Court of Appeal considered whether it is the primary function of an English Court, as the court of the seat to determine whether an anti-suit injunction should be granted, notwithstanding that the Contract was governed by Russian law.
The Court of Appeal recognised that in cases where the law of the seat differed from the law governing the main contract, “[t]he current state of the authorities does no credit to English commercial law” when it comes to determining the AA law.
Between November 2016 and May 2017, Chubb Russia paid c.US$400 million under an insurance policy in relation to damage caused by a fire at the power plant where Enka was responsible for certain works. Chubb Russia commenced proceedings against Enka in the Moscow Arbitrazh Court, seeking to recover the sums it had paid out under the insurance policy (the Russian Claim).
The Russian Claim was filed in May 2019 and dismissed in March 2020, but a written judgment has not yet been published. Chubb Russia intended to exercise its automatic right of appeal to the Arbitrazh Appellate Court in Moscow once a written judgment was published.
In October 2019, Enka made an application to the English Commercial Court seeking an order requiring Chubb Russia to withdraw the Russian Claim and stay the proceedings in Moscow. The trial judge refused to grant the application, with the main reason (amongst others) being that the English Court is not the appropriate forum to determine whether the obligation to arbitrate extends to the dispute which was the subject of the Russian Claim. The judge also held that the choice of arbitral seat does not convey a choice of governing law of the Arbitration Agreement.
Function of the court of the seat
In relation to the question of the primary function of the English Court as the court of the seat, the forum non conveniens grounds relied upon by the Commercial Court ceded all questions regarding the scope of the Arbitration Agreement, its application to the Russian Claim and the AA law to the Moscow Arbitrazh Court. This was a course purely of the Judge’s own initiative, not urged on him by either side. The Court of Appeal disagreed with this approach, noting that 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 relation to the exercise of powers conferred by the curial law of that seat. Exercising such a power includes granting an anti-suit injunction in order to restrain the breach or threatened breach of the Arbitration Agreement. The choice of English seat meant that the parties agreed that the English Court is an appropriate forum to consider granting an anti-suit injunction.
The governing law of the arbitration agreement
In seeking to impose “order and clarity” in relation to circumstances where the main contract law and the law of the seat of the arbitration differ, the Court of Appeal reasserted a three step process to follow when determining the AA law: (i) asking whether there is an express choice of AA law – in the arbitration agreement itself, or (exceptionally) in the choice of main contract law; (ii) if not, asking whether there is an implied choice of AA law – with the general rule being that the law of the arbitration agreement is the law of the seat; and (iii) if not, with what system of law does the arbitration agreement have its closest and most real connection?
Based on the above principles, English law governed the Arbitration Agreement, notwithstanding that the Contract was governed by Russian law. The choice of Russian law in the Contract was not an express choice, applied by any clause in the Contract, but rather the result of a term defined in an attachment to the Contract. Applying principle (ii) above, in the absence of an express choice of Russian law, the presumption applies that the parties impliedly chose to have the Arbitration Agreement governed by the law of the seat – English law.
Determining anti-suit injunctions
Having determined that the English Court was the appropriate forum and that the Arbitration Agreement was governed by English law, the Court of Appeal then had to determine whether Chubb Russia was in breach of the Arbitration Agreement by commencing the Russian Claim and if so, whether injunctive relief should be granted as a matter of discretion. The Court of Appeal saw it as “illogical and impermissible” to determine the proper law of the Arbitration Agreement but then cede part of the issue to a foreign court by not considering whether there has been a breach of that agreement. The Court of Appeal concluded that the court below was wrong in choosing not to decide this issue and went on to confirm that Chubb’s pursuit of the Russian Claim was in breach of the Arbitration Agreement.
The injunctive relief sought by Enka was granted by the Court of Appeal as it did not consider there to be reason not to do so. The Court of Appeal’s decision in this regard rejected the criticisms by the trial Judge, including those relating to Enka’s purported delay in engaging with the Russian Claim or in bringing the English proceedings.
Commercial parties will no doubt welcome this judgment, which gives primacy to the express provisions of an agreement and a strong preference for the choice of seat made by the parties, when granting anti-suit injunctions. The Court of Appeal’s confirmation that forum non conveniens is not a relevant factor removes an element of uncertainty that could have further complicated this area of conflict of laws, where the authorities do not speak with one voice. The easily digestible three stage process reaffirmed and applied by the Court of Appeal in determining the law that governs an arbitration agreement will hopefully mean that parties can avoid having to engage in competing dispute resolution processes in multiple jurisdictions.
The judgment also highlights and reiterates the importance of expressing terms with clarity and precision when drafting both governing law/jurisdiction clauses and arbitration clauses respectively, in addition to choosing the arbitral seat. We acknowledge that the interrelationship between these midnight clauses will likely still leave room for some uncertainty, as noted by the Court of Appeal in recognising that the provisions of the judgment “may yield to specific contrary factors thrown up by the circumstances of individual cases”… and that “[t]here may in any given case be specific factors which may point in one direction or another.”.
With thanks to intern Daniel Sayahpour for his assistance with this blog.