Disputes arising under international commercial contracts that contain arbitration agreements implicate at least three different systems of law, including the law governing the substance of the dispute, the law governing the agreement to arbitrate, and the law governing the arbitration process, or the “curial law.” In Enka Insaat Ve Sanayi AS v OOO Insurance Company Chubb [2020] UKSC 38, the Supreme Court of the United Kingdom addressed an issue that “has long divided courts and commentators,” both in the United Kingdom and internationally, namely, the question of what law governs the validity and scope of an arbitration agreement contained in an international commercial contract when the law governing the contract differs from the law of the seat of arbitration.

The dispute at issue in Enka Insaat Ve Sanayi AS v OOO Insurance Company Chubb arose in connection with a fire that severely damaged a power plant in Berezovskaya, Russia. Chubb, which was a Russian insurer of the plant, paid the plant owner’s claims for damages related to the fire under its property-insurance policy and, as subrogee, filed a claim in the Arbitrazh (i.e., Commercial) Court in Moscow against, among others, Enka, which was a Turkish engineering subcontractor involved in the construction of the plant, alleging that the subcontractor and others were jointly liable for the damage caused by the fire. The Arbitrazh Court denied the subcontractor’s motion to refer the dispute to arbitration pursuant to the arbitration agreement contained in its construction contract with the Russian head-contractor that had been hired by the plant owner to design and construct the plant, in which the subcontractor argued that the insurer’s claims against it fell within the scope of the arbitration agreement, and ultimately dismissed the insurer’s claims on the merits.

While the Russian proceedings were still pending, the subcontractor commenced proceedings in the Commercial Court in London, seeking an anti-suit injunction to prevent the insurer from further pursuing the Russian proceedings on the basis that the insurer had breached the arbitration agreement in the construction contract. The Commercial Court dismissed the subcontractor’s claim on the ground that the appropriate forum to decide whether the parties’ dispute fell within the arbitration agreement was the Arbitrazh Court in Moscow, rather than the Commercial Court in London. The Court of Appeal allowed the subcontractor’s subsequent appeal and issued an anti-suit injunction restraining the insurer from continuing the Russian proceedings, and the subcontractor commenced arbitration pursuant to the arbitration agreement against the insurer in the International Chamber of Commerce.

In an appeal from the decision of the Court of Appeal, the insurer argued that the construction contract between the subcontractor and the head-contractor was governed by Russian law, because the only non-Russian elements of the contract were that the subcontractor was a Turkish entity and that the contract specified that the place of arbitration was London, England. The insurer maintained that the parties chose Russian law to govern the contract and impliedly intended the arbitration agreement contained in the contract also to be governed by Russian law, despite the parties’ choice of London as the seat of the arbitration.

The Supreme Court of the United Kingdom dismissed the insurer’s appeal, holding that the arbitration agreement was governed by English law. Lord Hamblen and Lord Leggatt, with whom Lord Kerr agreed, explained that, in an international commercial contract containing an arbitration agreement, the law applicable to the arbitration agreement was not necessarily the same as the law applicable to other parts of the contract, and that the law governing arbitration agreements had to be determined by applying English common-law rules for resolving conflicts of laws; according to those rules, arbitration agreements were governed by either the law chosen by the parties or, in the absence of such a choice, the system of law with which the arbitration agreement was most closely connected.

Applying those principles to the instant matter, the Supreme Court held that the construction contract in dispute contained no choice of law with respect to either the contract as a whole or the arbitration agreement in the contract, and that, while the contract was governed by Russian law, because “the main body of the construction contract [was] manifestly more closely connected with Russia than with any other country,” the validity and scope of the arbitration agreement contained in the contract was governed by English law, as the law of the chosen seat of arbitration and the law with which the arbitration agreement was most closely connected.

The Supreme Court pointed out that its decision to treat an arbitration agreement as governed by the law of the seat of arbitration in the absence of another choice of law was consistent with international law and legislative policy, as embodied in the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention), to which the United Kingdom became a party in 1975, and the national law giving effect to the New York Convention in England and Wales.

In addition, the Supreme Court noted that its conclusion “accord[ed] with the approach taken by the American Law Institute” in the Proposed Final Draft of Restatement of the Law, The U.S. Law of International Commercial and Investor–State Arbitration § 2.14, which “recommends a rule that a court should determine whether an international arbitration agreement is null and void in accordance with: (1) the law to which the parties have subjected the arbitration agreement; or (2) in the absence of such a choice of law, the law of the seat of arbitration.” The Supreme Court further pointed out that § 2.15 of the Proposed Final Draft “adopts the same rule for the purpose of determining whether a matter falls within the scope of an arbitration agreement, taking the position that the law applicable to determining the scope of an agreement to arbitrate should parallel the law applicable to determining whether the agreement is valid.”

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ANDREA K. WOOSTER

The American Law Institute

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