In Enka v Chubb, the English Court of Appeal has provided welcome guidance on the supervisory role of the court of the seat and the law that governs the arbitration agreement in the absence of an express choice of law in the contract.
The contract for the construction of a power plant contained an arbitration clause. The parties agreed that the contract was governed by Russian law but there was no express choice of law in the contract. The arbitration clause provided for arbitration at the ICC seated in London.
Chubb commenced court proceedings in Russia seeking to exercise its rights of subrogation as insurer under the contract. Enka applied for an anti-suit injunction in England to prevent the Russian proceedings continuing in breach of the arbitration agreement but did not commence arbitration.
Law of the seat governs arbitration agreement in the absence of an express choice of law in the contract
The Court of Appeal preferred to refer to the law of the seat as the “curial law” noting that it is often referred to as the procedural law or lex fori. It helpfully analysed the case law in this area and took the opportunity to outline the principles that apply to determining the law governing the arbitration agreement:
- The AA law is to be determined by applying the three stage test required by English common law conflict of laws rules, namely (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?
- Where there is an express choice of law in the main contract it may amount to an express choice of the AA law. Whether it does so will be a matter of construction of the whole contract, including the arbitration agreement, applying the principles of construction of the main contract law if different from English law.
- In all other cases there is a strong presumption that the parties have impliedly chosen the curial law as the AA law. This is the general rule, but may yield to another system of law governing the arbitration agreement where there are powerful countervailing factors in the relationship between the parties or the circumstances of the case.
Finding that there was no express choice of law in the contract although there was a reference to Russian law in an appendix, the Court of Appeal held that business men would expect the arbitration agreement to be governed by one law and found that the law of the seat applied.
Supervisory role of the courts of the seat
The Court of Appeal also emphasised the important supervisory role played by the court of the seat deriving from the parties’ choice of that court to supervise in the arbitration agreement. The choice of seat is a submission to the curial jurisdiction. The English court as the court of the seat is necessarily an appropriate court to grant an anti-suit injunction and questions of forum conveniens do not arise. This follows from 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.
It follows, therefore, that by the choice of English seat the parties agreed that the English Court is an appropriate court to exercise the power to grant an anti-suit injunction.
The Court of Appeal found that it is clear from AES Ust-Kamenogorsk that the anti-suit injunction jurisdiction arises 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. It also found that it was the primary function of the English court in exercise of its curial jurisdiction, rather than the arbitral tribunal, to determine the scope of the arbitration agreement. Enka was entitled to invoke the Court’s curial jurisdiction without commencing arbitration proceedings to seek a declaration of non-liability.