The bedrock of International Arbitration is a valid agreement to arbitrate, whereby disputants agree to submit some or all of the disputes to Arbitration for a resolution. An agreement to Arbitrate is generally present in an Arbitration clause in a contract, which signifies that parties will resolve their dispute in connection with the contract through Arbitration and by not approaching the courts for the same. An arbitration agreement is very important because it cements the facts that parties have indeed consented to the Arbitration for their dispute resolution. This consent is very essential in an arbitration agreement, lacking which, there is no valid agreement to arbitrate. This also strengthens the very basis of Arbitration, which is party autonomy. In international arbitration, there are several different laws applicable and what makes it more complex is that it is possible for each of the laws applicable to be of different states or jurisdictions. Laws relevant to an International Arbitration are[i]:
- Governing Law of Arbitration (“lex arbitri”), which is the procedural law of Arbitration.
- Law that governs the main Contract, which deals with the merits of the dispute.
- Law governing the Arbitration Agreement.
- Law applied to the parties’ capacity to Arbitrate.
- Governing Law of the place of the Enforcement of an Award.
In the present case [ii]of London seated Arbitration, there was the absence of an express agreement by the parties on the law applicable to the arbitration agreement, and the law of the main contract also differed from the law of the seat. Here, the UK Supreme court gave prevalence to the parties’ intention when agreeing on the law of the main contract. Where the parties have (expressly or impliedly) chosen the law applicable to the main agreement, it would normally govern the arbitration agreement; in the absence of such choice, the arbitration agreement would be governed by the law of the seat as the default rule.
FACTS OF THE CASE
The dispute aroused out of payment of approximately US$400 million by Chubb Russia to the beneficiary of the works in respect of damages caused by a fire at a power plant, after which Chubb Russia moved against the subcontractors, including Enka, to recover the amount paid for the insured event. The primary concern of this appeal was Enka’s request for an anti-suit injunction against Chubb Russia preventing it from pursuing its claim in Russian Courts.
Firstly[iii], the court of appeal found Chubb Russia in breach of the London arbitration clause by bringing proceedings in Russia and issued an anti-suit injunction against it from continuing proceedings in Russian courts disagreeing with the Commercial Court of London which refused to grant the injunction against which this appeal was made. The court of appeal while deciding the proper law of the arbitration agreement held that the governing law of the main contract is Russian law but without an express choice. Which led the court to move to the second stage of the inquiry where it established that there is an implied choice of the law of the seat to govern the arbitration agreement, and this would be a general rule subject to certain cases where there are strong reasons for the contrary.
UK SUPREME COURT’S FINDINGS
The supreme court similar to the Court of Appeals restrained Chubb Russia from proceeding parallelly in Russian courts and held that the law of the seat, in this case, will apply to the arbitration agreement but gave different reasoning to reach this conclusion. The Reasoning/principles laid down by the court to govern the determination of the law applicable to the arbitration agreement in cases of this type[iv]:
- As per the rules, the law applicable to the arbitration agreement would be A) The proper law chosen by the parties (expressly or impliedly). B) In the absence of such a choice, the system of law is most closely related to the arbitration agreement.
- In the absence of law specified to govern the arbitration agreement, the governing law of the main contract will generally apply to the agreement because it forms a part of the main contract. However, the applicability of this rule is subject to additional factors in certain cases which shows that the law of the seat will govern the arbitration agreement and it was deliberately chosen as a neutral forum for the arbitration which parties consider to be pro-arbitration.
These factors are: (a) any provision of the law of the seat which indicates that, where arbitration is subject to that law, the arbitration agreement 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.
- In the absence of any choice of law to govern the arbitration agreement (express or implied), the courts need to find the system of law which is most closely connected to the arbitration agreement, which generally is the governing law of the seat, even if it differs from the law of the main contract.
The court, through this case, cleared mounted ambiguities around the question by giving a set of principles or tests to be followed to determine the governing law of the arbitration agreement. Here the court also grabbed the opportunity to confirm the existence of the already present “validation principle” under English law which can be assessed in other landmarks like Sulamérica.[v] As per which the arbitration agreement should be interpreted in such a way that it should be effective and validated rather than making it futile and dysfunctional. A practical take for parties, especially in international arbitration would be to cautiously draft their arbitration clause and must decide on a governing law for their arbitration agreement, failing which, the parties have to go for litigation to decide upon the issue, which ultimately defeats the purpose of arbitration of time-efficient dispute resolution outside the national courts.
Author’s Name: Dhruv Pratap Bishnoi (Himachal Pradesh National Law University, Shimla)
[i] Redfern and Hunter, Law and Practice of International Commercial Arbitration, 4th Edn., 2004 at [2-04].
[ii] Enka Insaat Ve Sanayi A.E v. OOO Insurance Company Chubb,  UKSC 38.
[iii] Enka Insaat Ve Sanayi AS v OOO Insurance Company Chubb & Ors  EWCA Civ 574 (29 April 2020)
[iv] Supra Note 2
[v] Sulamerica CIA Nacional De Seguros SA & Ors v Enesa Engenharia SA & Ors  EWCA Civ 638