Arbitration: English seat does not guarantee English governing law and anti-suit injunction

OOO “Insurance Company Chubb” (Chubb Russia) filed a tort claim in the Russian courts against Enka Insaat ve Sanayi SA (Enka), a subcontractor on a power plant construction project in Russia, claiming damages for insurance losses arising out of a fire at the plant (the Russian proceedings). 

It was common ground that there was a valid and binding arbitration agreement between Enka and Chubb Russia (as subrogated insurer of Enka’s original contractual counterparty), which provided for ICC arbitration in London.  However, no arbitration was commenced.  Nevertheless, 18 months after first being on notice of a dispute, Enka applied to the English court for an anti-suit injunction restraining Chubb Russia from pursuing the Russian proceedings against Enka on the basis that the Russian proceedings had been brought in breach of the arbitration agreement. Chubb Russia claimed that there was no breach as the arbitration agreement did not extend to claims in tort. 

The English court’s decision ultimately focused on whether the English court was the appropriate forum to rule on the scope of the arbitration agreement. In doing so, the court considered the relevance of the law governing the arbitration agreement. The court also considered whether an anti-suit injunction should be granted, even if (contrary to its view) the English court were the appropriate forum.  

English court not the correct forum

The primary question, in the judge’s analysis, was whether the English court was the appropriate forum to issue the anti-suit relief requested by Enka.  

The court considered that the London seat in the arbitration agreement did not give the English courts exclusive or even primary jurisdiction over enforcing the parties’ obligation to arbitrate (and the corresponding obligation not to litigate). An English court, when issuing an anti-suit injunction, would not be exercising supervisory powers in relation to the arbitration, but instead would be exercising independent primary jurisdiction. Ordinary jurisdictional principles therefore applied, and so it was necessary to demonstrate that the English courts had personal jurisdiction over all of the injunction defendants and that the English courts were the most appropriate forum.  

On the facts, the judge held that the English court was not the appropriate forum.  Among other things, the judge seems to have taken into account: (i) that it seemed more likely that the arbitration agreement was governed by Russian law (see below); (ii) that proceedings were on foot in Russia, where the issue could more conveniently be determined; and (iii) that a further, more appropriate forum (in addition to Russia) was ICC arbitration, which Enka could have commenced but had not done so.

Choice of seat not determinative of governing law of the arbitration agreement 

An interesting aspect of the decision is its analysis of the law governing the arbitration agreement, even though this is not a central factor in the court’s decision. Enka argued that a key reason why anti-suit relief should be granted was that, in its submission, the arbitration agreement was governed by English law.  If this was right, the tort claim in the Russian proceedings would be within the scope of the arbitration agreement.  In contrast, Chubb Russia claimed that the arbitration agreement was governed by Russian law, and that its tort claim in the Russian proceedings was outside the scope of the arbitration agreement if it was governed by Russian law. 

Neither the contract itself nor the arbitration agreement had an express governing law provision.  Recent English decisions (eg Sulamerica CIA Nacional de Seguros SA & ors v Enesa Engenharia SA & ors [2012] EWCA Civ 638, and Arsanovia Ltd & ors v Cruz City 1 Mauritius Holdings [2012] EWHC 3702 (Comm)) are arguably split on the relevance of the choice of seat to determining the governing law of an arbitration agreement. Enka argued that the seat of the arbitration provided an implied choice as to the governing law of the arbitration agreement and that, as a result, it was governed by English law. That argument was rejected.  Instead, the court held that the governing law of the arbitration agreement should be determined by an ordinary process of construction of the whole contract, including any express governing law clauses in that contract (and not just the arbitration agreement, even though it is a separate contract as a matter of law under s7 Arbitration Act 1996). 

The court did not accept that the choice of governing law for the arbitration agreement was as critical as Enka submitted.  The true question was whether England was the appropriate forum to rule on the scope of the arbitration agreement.  In any event, while not making a final determination, the court found that it was at least well arguable that the arbitration agreement was not governed by English law.  Among other things, the court (perhaps oddly) found it significant that the arbitration clause provided for ICC arbitration, which was said to be a “supranational” choice.  The lack of clarity on the governing law of the arbitration agreement was at most a factor against the English court being the most appropriate forum to rule on the scope of the arbitration agreement.  

Don’t delay

The judge went on to consider whether he would have granted an injunction even if the English court had been the appropriate forum.  He held that he would not have done so.  He considered that there was not a strong arguable case that the Russian proceedings were in breach of the arbitration agreement because it was likely that Russian law governed the arbitration agreement. The judge also considered that Enka’s participation in the Russian proceedings and its delay in seeking anti-suit relief would have militated against its application.

Comment

The jurisdiction of the English courts to issue an anti-suit injunction for breach of an arbitration agreement is well established.  However, as this case demonstrates, an anti-suit claimant must first demonstrate that the English courts are the correct forum to determine whether there has been a breach of the arbitration agreement.  On this issue, the decision makes some notable points.  First, the English courts will not accept jurisdiction simply because there is an English seat.  Secondly, the decision seems to imply that anti-suit claimants will have to explain why they have not started an arbitration so as to seek anti-suit relief through the arbitration. This proposition seems to qualify the Supreme Court’s decision, in the AES Ust-Kamenogorsk case ([2013] UKSC 35), that the English court has power to issue anti-suit relief to restrain foreign proceedings even if no arbitration is commenced.  Thirdly, the law governing the arbitration agreement may be relevant to whether England is the appropriate forum.  

This case also illustrates the importance of including an express provision stating the governing law of an arbitration agreement. A London seat may not be sufficient to ensure that the arbitration agreement is governed by English law. The case shows that the governing law can have important consequences, including on interpretation of the scope of the arbitration agreement. 

Finally, as is well known, delay can be fatal to any application for an anti-suit injunction.

Further information

For more information please contact Amy Edwards, amy.edwards@allenovery.com.