Enka v Chubb [2020] UKSC 38: The Supreme Court Rules on How to Determine the Law Governing an Arbitration Agreement

Determining what law governs an arbitration agreement is a question that has been plagued, in England & Wales, by contradictory authorities and, internationally, with no universal consensus. With two recent Court of Appeal authorities Kabab-ji v Kout Food Group and Enka v Chubb attempting to cut a path through the swathes of complex caselaw, the time was ripe for the Supreme Court to be afforded the opportunity to consider the issue. The appeal of Enka v Chubb to the UK’s highest court provided just that opportunity. The judgment, handed down in early October 2020, provides much needed clarity on this complex legal question.

The substantive issue in Enka v Chubb was whether the English courts were right to grant an anti-suit injunction against foreign proceedings in Russia. The appellant argued that the answer to that question turned on whether an arbitration agreement in the contract was governed by Russian law (which was, arguably, the law of the main contract), or English law, being the law of the seat of the arbitration.

Having analysed the domestic caselaw, and international and academic commentary the court proceeded, at paragraph 170 of the judgment, to explain the correct test to determine the law of an arbitration agreement. Specifically, the court explained that:

1) First, the main contract’s law and the arbitration agreement’s law can be different;

2) Second, the arbitration agreement’s law can be chosen (either expressly or impliedly) by the parties. If there is no choice, the law that governs is that law with which the arbitration agreement has its closest and most real connection (see Sulamerica v Engenharia [2012] EWCA Civ 638);

3) Third, whether there is a choice depends on construing the contract as a whole, including the arbitration agreement. Indeed, while an arbitration agreement is separable from an arbitration agreement it is not separate. Arbitration agreements are separable to enable them to survive where there is an allegation that the contract was procured by fraud and is therefore inadmissible, but that does not mean that they should be construed in isolation from the main contract. See Kabab-ji v Kout Food Group for more on this.

4) Fourth, where the law applicable to the arbitration agreement is not expressly chosen, the law of the contract will normally be the law of the arbitration agreement. (This was, indeed, the case in Kabab-ji v Kout Food Group).

5) Fifth, a choice of a seat different to the law governing the contract is not, by itself, sufficient to displace that presumption. Additional factors which may, however, negate such an inference and which may in some cases imply that the arbitration agreement was intended to be governed by the law of the seat are: (a) any provision of the law of the seat which indicates that, where an arbitration is subject to that law, the arbitration will also be treated as governed by that country’s law; or (b) the existence of a serious risk that, if governed by the same law as the main contract, the arbitration agreement would be ineffective. Either factor may be reinforced by circumstances indicating that the seat was deliberately chosen as a neutral forum for the arbitration;

6) Sixth, where there is no choice of the main contract’s law, then the choice of a place of arbitration does not indicate that the main contract should be governed by that law;

7) Seventh, in the absence of any choice, the arbitration agreement is governed by the law of the place with which it has its closest and most real connection. This will normally be the law of the seat, even if the law of the main contract is different.

As we see it, the only area for residual confusion concerns the inter-relationship between points (4) and (7). Ostensibly, it seems contradictory that in the absence of an express stipulation the law of the contract should govern, and yet, in the absence of a “choice” the arbitration agreement should be presumed to be governed by the law of the seat. This ostensible difficulty can be explained by the fact that it appears that the Supreme court was referring in point (4) only to an “express” rather than “implied” choice of arbitration agreement law. Accordingly, if there is no express choice of law governing the arbitration agreement there can still be an implied choice that it is governed by the law of the main contract. It is only where there is no choice (express or implied) that the arbitration agreement will likely be governed by the law of the seat.

The Supreme Court judgment provides a much needed answer to a question that has plagued practitioners and academics alike and which remains a hotly contested issue internationally. Whether other jurisdictions move towards or away from the English Supreme Court’s position remains to be seen, but English law is definitely the better for this well-reasoned and lucid judgment, which has provided to all those involved in international arbitration much clarity.

[This article was originally published in the first edition of 36 Stone’s newsletter “Views from the Bridge at 36 Stone” in November 2020, and is being re-published on PakArbitrationLaw with 36 Stone’s consent.]

References

Author:

Francis Hornyold-Strickland

The author is a barrister at 36 Stone. He is also the co-author of the practitioner text 'Debattista on Bills of Lading in Commodities Trade', and the lead author of the website 'Strickland’s Shipping Guide'.