Enka v Chubb: Court of Appeal provides welcome clarification on two key points of English arbitration law

On 29 April, the English Court of Appeal handed down judgment in the case of Enka v Chubb [2020] EWCA Civ 574, addressing two questions:

1. When deciding whether to grant an anti-suit injunction restraining foreign court proceedings brought in alleged breach of a London-seat arbitration clause, should the English courts take into account forum conveniens considerations?
2. What principles apply when determining the governing law of an arbitration clause?

These are important issues:

1. When choosing London as the seat of arbitration in their contract, parties expect that the English courts will grant anti-suit relief to protect and enforce their agreement to arbitrate in London, having confirmed that the arbitration clause is valid and covers the dispute at hand, and will never defer to the foreign court to rule on the governing law, validity and scope of the clause.  (This is currently subject to the CJEU's decision in West Tankers where the foreign court is the court of an EU member state, but following Brexit the West Tankers decision is likely to be revisited by the UK Supreme Court.) 
2. The governing law of an arbitration clause will be relevant whenever a jurisdictional issue arises in connection with an arbitration (actual or prospective), as this will turn on the validity and scope of the clause. The English courts may be required to rule on such jurisdictional issues not only in the context of anti-suit relief but also: (a) when granting other injunctive relief under section 44 of the Arbitration Act 1996 (the applicant must show a prima facie case on the merits, including jurisdiction); (b) when determining a challenge to an award on jurisdictional grounds under section 67 of the 1996 Act; and (c) where a party brings proceedings in the English courts in breach of an arbitration clause and the other party applies to stay those proceedings under section 9 of the 1996 Act.

The Court of Appeal’s judgment provides welcome clarification on both points: 

• It confirms that when the English courts are called upon to issue anti-suit relief to protect a London-seat arbitration clause, forum conveniens considerations do not apply. 
• It establishes a new set of principles to determine the governing law of an arbitration clause, replacing those set out in Sulamerica Cia Nacional de Seguros SA v Enesa Engelharia SA [2013] 1 WLR 102.

Background to the Court of Appeal’s decision

Enka is a Turkish construction and engineering company with substantial operations in Russia. It played a part in the construction of the Berezovskaya power plant for Unipro (previously named E.ON Russia). In 2016 there was a huge fire at the plant, and Unipro claimed from its insurers, the Russian arm of the Chubb insurance group. Chubb duly paid out, thereby became subrogated to any rights Unipro had against the contractors, and pursued a claim against Enka (among others) on the basis that the fire was caused by defects in Enka’s work. Enka’s contract contained a London-seat arbitration clause, but Chubb filed its claim in the Russian courts. Enka applied to the English High Court for an anti-suit injunction preventing Chubb from pursuing the Russian proceedings.

In fighting Enka’s anti-suit application in the High Court, Chubb argued that:

• Enka’s contract was governed by Russian law, and that extended to the arbitration clause; 
• Chubb’s claim fell outside the scope of the arbitration clause when construed under Russian law; and
• as a matter of comity and discretion, the High Court should defer to the Russian courts to determine the scope of the arbitration clause; it was a matter of Russian law, and the Russian courts were the more appropriate forum. 

Enka’s position was that the arbitration clause was governed by English law, the law of the seat. Chubb did not dispute that if the arbitration clause was governed by and therefore construed under English law, Chubb’s claim fell within the scope of the clause.

The High Court found in favour of Chubb, dismissing Enka’s application primarily on forum conveniens grounds on the basis that the Russian courts were the more appropriate forum to determine the governing law and scope of the arbitration clause and its impact on Chubb’s claim in Russia. Enka appealed.

The Court of Appeal’s decision

The Court of Appeal allowed Enka’s appeal and granted the anti-suit injunction, holding that: 

• where an arbitration clause provides for London-seat arbitration, the English courts are 'necessarily an appropriate court to grant an anti-suit injunction and questions of forum conveniens do not arise'; and
• the arbitration clause was governed by English law, therefore Chubb’s claim fell within the scope of the clause.

The Court of Appeal’s reasoning is summarised below.

On an application to the English courts for an anti-suit injunction to protect a London-seat arbitration clause, do forum conveniens considerations apply?

In support of the Court of Appeal’s conclusion that forum conveniens considerations do not apply in such cases, Popplewell LJ made three key points.

First, in West Tankers [2007] 1 Lloyd’s Rep 391, the Supreme Court made clear that in choosing a London seat the parties confer a supervisory (or 'curial', as Popplewell LJ preferred to put it) jurisdiction on the English courts which includes the power to grant anti-suit relief. Lord Mance also noted in his Freshfields Arbitration Lecture in 2015 that '[i]n English law eyes, the effectiveness and probably attraction of arbitration' depends, inter alia, on the English courts granting anti-suit relief to protect the parties’ agreement to arbitrate.

Second, the courts at the seat are the 'primary arbiter' of the tribunal’s jurisdiction: any ruling by the tribunal on its own jurisdiction can be set aside by the courts at the seat on a challenge to the award, and if set aside the award will generally not be enforceable under the New York Convention. Consistent with that status, where one party brings foreign court proceedings in breach of an arbitration clause and the other party seeks anti-suit relief from the courts at the seat to protect and enforce the tribunal’s jurisdiction, the courts at the seat should 'perform the primary role' in determining the validity and scope of the arbitration clause and should in no circumstances defer that task to the foreign court on forum conveniens grounds. Popplewell LJ emphasised that this is the case irrespective of whether the arbitration clause is or may be governed by English law or the law of the foreign court, or any other law; the English courts will conduct the analysis by reference to whatever foreign law is applicable.

Third, in most cases involving an application to serve out of the jurisdiction, the English courts will need to be satisfied that England and Wales is the proper place to bring the claim, under Part 6.37(3) of the English Civil Procedure Rules. However, that does not apply to anti-suit applications to protect London-seat arbitration clauses; such applications are governed by Part 62, which does not include a forum conveniens requirement.

What principles apply when determining the governing law of an arbitration clause?

As noted above, wherever the English courts are required to rule on an issue of arbitral jurisdiction, they will need to consider the validity and scope of the arbitration clause, and in that context they will need to determine which law applies to the arbitration clause.

Under the doctrine of separability, an arbitration clause is treated as a distinct agreement that is separable from the wider contract; it follows that the arbitration clause may be governed by a different law to the wider contract. Where the contract law and the law of the seat are the same (eg English law, London seat), there should be no controversy that the arbitration clause is governed by that law. However, where the contract law and the law of the seat differ, an issue may arise. That was the situation in Enka v Chubb: Chubb argued for Russian law, the (alleged) contract law; Enka argued for English law, the law of the seat.

In such circumstances, under English common law conflict of laws rules the English courts will apply a three-stage test: 

1. Is there an express choice of law for the arbitration clause? 
2. If not, is there an implied choice of law? 
3. If not, with what system of law does the arbitration clause have its 'closest and most real connection'?

The Court of Appeal last provided guidance on the application of this test in Sulamerica, which involved an insurance policy governed by Brazilian law with a London-seat arbitration clause. In determining an application by the insurers for anti-suit relief restraining court proceedings in Brazil, the English courts were required to consider which law governed the arbitration clause. The Court of Appeal held that the starting assumption should be that the parties intended the whole of their relationship to be governed by the same system of law; accordingly, absent an express choice of law for the arbitration clause, the 'natural inference' was that the parties intended the clause to be governed by the contract law. On that basis the Court of Appeal established the following principles:

• In the case of a free-standing London-seat arbitration agreement without an express governing law provision, there is unlikely to be a sufficient basis for finding any implied choice of law. However, when applying the closest-and-most-real-connection test, the parties’ choice of a London seat will point to English law as the governing law of the arbitration agreement.
• In the case of an arbitration clause situated within a wider contract, an express governing law provision in the contract is 'a strong indication' that the parties have impliedly chosen the same law to govern the arbitration clause, and is likely to lead to that conclusion subject to any strong countervailing factors.

In Enka v Chubb, Popplewell LJ revisited Sulamerica and established a very different set of principles:

• Where an arbitration clause is part of a wider contract and there is an express governing law provision in the contract, that may amount to an express choice of the same governing law for the arbitration clause. Whether it does so will be a matter of construction of the whole contract, including the arbitration clause.
• Where there is no finding of an express choice of law for the arbitration clause, there is a 'strong presumption' that the arbitration clause is governed by the law of the seat, as a matter of implied choice. This is 'the general rule', subject to any strong countervailing factors.

In arriving at this analysis, Popplewell LJ reasoned as follows:

First, where parties have chosen one law for the wider contract and a different law for the seat, having regard to the doctrine of separability there is 'no principled basis' for treating the contract law as a significant source of guidance when determining the law governing the arbitration clause. The starting assumption posited in Sulamerica – that the parties intended the whole of their relationship to be governed by the same system of law – is misplaced in such circumstances. By choosing a seat that differs from the contract law, the parties have already shown that they intend some aspects of their relationship to be governed by another system of law.

Second, arbitration legislation at the seat, eg the Arbitration Act 1996, is not limited to points of procedure; it also contains provisions relating to the parties’ substantive rights under the arbitration clause. In particular, such legislation will typically confer powers on the courts at the seat that involve ruling on the tribunal’s jurisdiction. When the courts are called upon to exercise such powers, the parties are unlikely to have intended that the courts should apply a system of law other than their own law when determining the validity/scope of the arbitration clause.

Although not addressed in the judgment, it seems clear from Popplewell LJ’s reasoning that a free-standing arbitration agreement without an express governing law clause will generally be governed by the law of the chosen seat but, contrary to Sulamerica, as a matter of implied choice rather than by application of the closest-and-most-real-connection test.

The Court of Appeal’s revised guidance in Enka v Chubb provides helpful clarification on this important issue, but the key takeaway for commercial parties should be to avoid such disputes arising: wherever they select a seat that differs from the governing law of the wider contract, they should include an express choice of law for the arbitration clause. That is the only means of achieving certainty as to which law will apply to the critical issue of arbitral jurisdiction.