When an international contract is governed by the law of one country but provides for disputes to be referred to arbitration in another, this can lead to difficult issues for the courts to resolve.
The latest case of this kind was decided by the English Court of Appeal in Enka Insaat Ve Sanayi v OOO Insurance Company Chubb.
The claimant (E) was a contractor involved in the construction of a Russian power plant, under a contract which provided for disputes to be resolved by international arbitration under ICC Rules in London. In 2016 a major fire at the plant caused losses of about US$400m.
Should the English court intervene?
The owner of the plant was insured by C, which commenced proceedings against E in Moscow. E applied to the English court for an anti-suit injunction requiring the claim to be pursued by arbitration.
The Commercial Court judge refused to grant the injunction, finding it more appropriate to leave it to the Russian court to decide the issues, including what was the governing law of the arbitration agreement and whether C’s claims fell within the scope of the agreement. E appealed to the Court of Appeal, which disagreed with the judge’s approach.
English or Russian law?
The parties’ choice of London as the seat of the arbitration amounted to a choice of English law as the “curial law” governing the dispute resolution procedure. The English court was therefore required to decide whether the Russian proceedings amounted to a breach of the arbitration agreement and should be restrained by an injunction. However, it was also necessary to consider whether the law governing the arbitration agreement itself (referred to as the “AA law”) was English law or Russian law. The court considered previous decisions on this question and found them contradictory as to whether the AA law should be the same as the curial law or (if different) the governing law of the main contract.
Injunction granted
In the hope of providing clarity, the court set out some general principles for resolving this issue. Applying those principles in the present case, the court concluded that there was no express choice of Russian law as the law of the main contract and there was therefore a strong presumption in favour of applying the curial law (the law of the place chosen as the seat of the arbitration) as the law governing the arbitration agreement.
There were no special factors to displace that presumption in this case and the AA law was therefore English law. On this basis the Russian proceedings were a breach of the arbitration agreement and an injunction should be granted to restrain C from pursuing them.