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Supreme Court decision on governing law of arbitration agreement

09.10.20

The Supreme Court has today handed down Enka Insaat Ve Sanayi AS (Respondent) v OOO Insurance Company Chubb (Appellant) [2020] UKSC 38.

The main issue was how to determine the governing law of an arbitration agreement when the law applicable to the contract containing it was not the law of the seat of the arbitration.

The issue arose in proceedings by the Claimant in the High Court in London for an anti-suit injunction against proceedings brought in Russia by the Defendant insurer. The Claimant sought the anti-suit injunction in favour of arbitration it had brought in London, the contractually specified seat.

The Supreme Court held that English common law conflicts of law principles apply to determine the applicable law of the arbitration agreement, rather than Rome I, as the latter excludes arbitration agreements from its scope.

According to the common law rules: (1) the law applicable to the arbitration agreement will be the law expressly or impliedly chosen by the parties to apply to the same (as determined applying English law rules of construction as the law of the forum); (2) if the parties have made such a choice, it will be the system of law “most closely connected” to the arbitration agreement.

In relation to (2), the Supreme Court held that the law most closely connected with the arbitration agreement will generally be the law chosen to govern the contract containing the arbitration agreement. In this respect the Supreme Court differed from the Court of Appeal, who had held that there was a “strong presumption” that by choosing the seat the parties had chosen the law of that seat to govern the arbitration agreement.

The Supreme Court held, however, that where the parties have made no choice of law to govern the arbitration agreement, either specifically or by choosing the law which was to govern the contract as a whole, then the general position will be that the laws of the seat of the arbitration will be those most closely connected with the arbitration agreement and hence will govern the arbitration agreement.

On the facts, the majority held that the contract contained no choice of the law intended to govern the contract or the arbitration agreement within it. The validity and scope of the arbitration agreement was thus governed by the law of the chosen seat of arbitration, as the law with which the dispute resolution clause was most closely connected. As the seat of the arbitration was London, English law governed.

The Supreme Court also affirmed (obiter) the Court of Appeal’s decision that, on the question of whether to grant an anti-suit injunction, it makes no difference in principle whether the arbitration agreement is governed by English or foreign law, as the inquiry in both cases remains the same: has there been a breach of the agreement and, if so, is it is just and convenient to grant an injunction to restrain that breach?

In that latter regard, the Court held that generally deference to foreign courts should give way to upholding the importance of the parties bargain. Hence the English Court need not usually await a decision of a foreign court before granting the injunction. The Supreme Court therefore agreed with the Court of Appeal that this was an appropriate case for the grant of an anti-suit injunction against the Russian proceedings.

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