Recently, the  UK Supreme Court handed down the judgement in Enka Insaat Ve Sanayi AS v OOO “Insurance Company Chubb” & Ors(‘Enka v. Chubb’),[i] in an attempt to settle the law on the determination of the law of arbitration agreement. The Court differed from the law previously settled in Sulamerica Cia Nacional de Seguros SA v Enesa Engenharia SA (‘Sulamerica’),[ii] while also clarifying the applicability of the position taken by the Court of Appeal bench in Kabab-Ji SAL (Lebanon) v Kout Food Group (Kuwait)(‘Kabab-ji’).[iii]

1. Background of the Case

The dispute before the court arose from an insurance agreement between the respondent (‘Chubb’), and Unipro Russia, for the construction of the Berezovskaya Power Project. After signing the insurance agreement, Unipro transferred its rights against the claimant (‘Enka’) to Chubb. Chubb later sued Enka, a Turkish construction company, for losses caused due to a fire in the power project.

Chubb subsequently initiated proceedings in the Arbitrazh Court in Moscow, against which Enka moved the High Court of England and Wales for an anti-suit injunction, citing an arbitration agreement between the parties. The arbitration agreement provided for a London seated arbitration, governed by the Arbitration Rules of the ICC. The law governing the underlying contract as a whole was Russian law.

The High Court determined the law governing the arbitration agreement to be Russian law. On appeal, the English Court of Appeal reversed this decision, and held English law to be the law of the arbitration agreement, and refused to grant an anti-suit injunction. On further appeal, this case reached the Supreme Court against the decision rendered by the Court of Appeal.

1. The question regarding the law of the arbitration agreement:

The question before the court, inter alia (the other issues are outside the scope of this comment), was whether it could grant an anti-suit injunction with respect to the proceedings in the Moscow Court. This determination, however, relied on the law of the arbitration agreement.

Enka claimed that the law of the arbitration agreement was English law – therefore subjecting the scope of arbitration to English standards, and allowing the court to issue an anti-arbitration injunction to prevent the parties from pursuing litigation in Russia.

On the other hand, Chubb argued that the scope of the arbitration agreement could not be determined by English courts, since the law governing it was Russian arbitration law. Therefore, the Arbitrazh Court in Moscow would be competent to decide whether the dispute between Enka and Chubb was within the scope of arbitration.

Therefore, the question before the Court boiled down to that of the law governing the arbitration agreement.

1. Decision:

The court held that the law of the arbitration agreement was English law. While undertaking this determination, the Court of Appeal explored the existing law regarding the determination of the law governing the arbitration agreement, and settled the law with a unified test. The test laid down by the Court of Appeal in Enka v Chubb was referred to by the Supreme Court to determine the law of the arbitration agreement when the substantive law is different from the seat. This has been provided hereunder: –

1. The proper law of the arbitration agreement has to be determined using the three-stage test under the English conflict of law rules, which is reproduced herein –
   1. Determination of whether the parties have made an express choice of law
   2. Determination of whether the parties have made an implied choice of law
   3. The law which has the closest connection to the arbitration agreement
2. The law governing the underlying contract as a whole may also govern the arbitration agreement if a special contractual construction is present. The parties may wish to import the principles of contractual interpretation of the substantive law to the whole agreement, including the arbitration clause. This may be done either through an express provision, or be implied from contractual construction (such as where parties stipulate that the contract should be constructed as a whole).^[iv] Additionally, where the parties have chosen the entire contract (including the arbitration clause) to be governed by a particular law, it would be presumed that the body of law would govern the arbitration clause. Merely choosing a different seat of arbitration would not rebut such a presumption.
3. In other cases, the law of the arbitration agreement would be the law of the seat.

The parties had not made a selection on the law of the arbitration agreement in the instant contract. Therefore, the court was beset with a situation where the parties had chosen Russian law as the substantive law, English law as the curial law, but had made no choice as to which law would apply to the arbitration agreement.

In the beginning of its analysis, the court reasoned that the English Arbitration Act did not allow the court to draw any inference that, by choosing an English seat, the parties had automatically chosen to apply English law to the arbitration agreement. However, the court ruled that the curial law had the closest connection with the arbitration agreement. It said this for four reasons. First, by choosing the place of performance of the arbitration agreement as England, it would be in line with the parties’ intention to have the curial law govern all matters relating to arbitration. Second, it was in the interest of commercial sensibility that the parties would subject the arbitration to a single body of rules. Third, placing the seat as the default choice for governing the arbitration agreement provides legal certainty to the contracting parties. Of course, if the parties do not wish to apply the curial law to the arbitration agreement, they have the freedom to choose a different law. Lastly, the court referred to the UNCITRAL Model Law and the New York Convention to conclude that it was in line with international practice that the curial law have the closest and most real connection with the arbitration agreement.

Therefore, in the absence of an express or implied selection, the curial law would govern the arbitration agreement.  So finally, the court affirmed that English law would govern the arbitration agreement, providing the court with the authority to issue the anti-arbitration injunction (which it declined to do).

1. Law of the Arbitration Agreement: Settled or Muddled?

                                       Kabab-ji Clarified                                                           

The Court of Appeal in Enka v. Chubb clearly fit the judgement handed down in Kabab-ji within the general framework of English conflict of law rules concerning the law of the arbitration agreement.

The contract between the parties in Kabab-ji provided that the agreement consisted of all attachments, documents and paragraphs, which in itself was to be construed as a whole. Article 1 of the Agreement provided that:

“This Agreement consists of the foregoing paragraphs, the terms of agreement set forth herein below, the documents stated in it, and any effective Exhibit(s), Schedule(s) or Amendment(s) to the Agreement or to its attachments which shall be signed later on by both Parties. It shall be construed as a whole and each of the documents mentioned is to be regarded as an integral part of this Agreement and shall be interpreted as complementing the others.”

Further, a duty to apply the provisions of the underlying agreement was put upon the tribunal. The Court of Appeal had held this to be a case of express choice of the proper law of the arbitration agreement.[v]

Enka v. Chubb clearly makes a provision for situations wherein parties have formulated a contract in a manner which imports the principles of the substantive law to the arbitration agreement. The bench refers to Kabab-ji as an instance of express choice arising from peculiar contract formation.

Therefore, the inclusion of Kabab-ji styled contracts in the test laid out in Enka v. Chubb integrates the law regarding the determination of the law of the arbitration agreement further. It clarifies the stage at which an analysis similar to one taken in Kabab-ji should be undertaken – that is, immediately after the failure to find an express choice of law within the arbitration agreement. This would now mean that once no express choice can be found, the next step would be to look at the drafting of the contract itself, as was undertaken in Kabab-ji. In this respect, at least, the court has clarified steps to be taken for the determination of the proper law of the arbitration agreement.

State of the Sulamerica Presumption:

While Enka v. Chubb attempted to settle the law by laying down a comprehensive test for the determination of the proper law of the arbitration agreement, it may have put the spanner in the position resolved by the bench in Sulamerica. The two judgements have differed on the issue of the governing law of the arbitration agreement, in the absence of an express choice.

In Sulamerica,[vi] the Court of Appeal clarified that there was no general principle that the law of the arbitration agreement was the same as the law of the arbitral seat.. Although it was a key factor in determining the law governing the arbitration agreement, it would not automatically coincide with the arbitration agreement. On the other hand, the law of the underlying contract would have had the closest connection to the arbitration agreement, marking a presumption in its favour in the absence of an express choice.^[vii]

However, the English position before Sulamerica bore a closer connection with the decision in Enka v. Chubb. The English High Court in XL Insurance v. Owens Corning held that it was more likely for the law of the seat to bear a closer connection with the arbitration agreement. Dividing the procedural and substantive provisions of the English arbitration law would merely be an artificial distinction.[viii]

In C v. D,^[ix] the Court of Appeal held that the parties’ choice of substantive law had no bearing on the arbitration agreement. According to the court, by choosing London as the seat, the parties had chosen to be governed by the curial law. Applying the substantive law as the law of the arbitration agreement would subject the arbitration to more than one jurisdiction. This would lead to excess litigation and confusion, because parties would be able to obtain contrary judgements from different jurisdictions, and defeat the purpose of arbitration. For these reasons, the court held that it could not be the parties’ intention to apply the substantive law as the law of the arbitration agreement. Finally, it held that the law of the seat had the closer and more real connection with the arbitration clause. This position was reverberated in Abuja International Hotels v. Meridien SAS,[x] wherein the English High Court held that the parties’ choice of Nigerian law for the substantive contract held no relevance for the determination of the law of arbitration agreement. 

The position in Sulamerica, however, was strengthened in Habas Sinai Ve Tibbi Gazlar Istihsal Endustrisi v VSC Steel Co Ltd,[xi] wherein the English High Court clearly laid out the Sulamerica principles. The law of the arbitration agreement is likely to be the same as the choice of law made by the parties in the contract. The selection of a seat different from the substantive law is a significant pointer to the law of the arbitration agreement being synonymous with it. However, it cannot topple the presumption in favour of the law of the underlying contract by itself. Still, the law of the seat can govern the arbitration agreement if sufficient accompanying factors are present.[xii]

However, the court of Appeal in Enka v. Chubb has strayed away, at least in part, from the law laid down in Sulamerica. Whereas the court recognised the three-staged test, it differed on the path to be taken by the court if an express choice could not be found. While Sulamerica favoured the law of the underlying contract to govern the arbitration agreement, the court in Enka v. Chubb favoured the older position laid out in XL Insurance and C v. D – that the law of the seat of arbitration governs the arbitration agreement in the absence of an express choice.

Both the benches in Enka v. Chubb (Court of Appeal) and Sulamerica, were co-equal benches of the English Court of Appeal. Therefore, one judgement cannot be said to overrule another. This created confusion in the law regarding the determination of the proper law of the arbitration agreement. However, with the recent Supreme Court verdict in Enka v Chubb upholding the Court of Appeal’s approach, there is no doubt that there is clarity regarding the balance between the various positions taken by English Court (discussed above). The Supreme Court has found a middle ground between the Sulamerica presumption, and the position in C v. D. Where the parties have clearly expressed the law governing the contract which contains the arbitration agreement, the courts would presume the law governing the arbitration agreement would be the same as the one governing the entire contract. However, where no law is applied to the contract, the law of the seat will be default law applying to the arbitration agreement.

Cross Jurisdictional Perspective Concerning the Sulamerica Presumption:

Looking through an Indian lens, the Indian Supreme Court, in NTPC v. Singer Company, had taken a position similar to the one later taken by English courts in Sulamerica. The Supreme Court held that the substantive law of the underlying agreement had the closest and most real connection with the law of the arbitration agreement.[xiii]

However, the dictum of the Supreme Court in Bharat Aluminium Corporation v. Kaiser Aluminium Services ltd strengthened the case for the law of the seat. Here, the Supreme Court affirmed the findings in C v. D to state that dividing the jurisdiction between the law of the arbitration agreement, and the law of the seat dilutes the exclusive jurisdiction of the seat. Furthermore, the selection of the seat of arbitration means that all the issues regarding the arbitration would be governed by the law of the seat.[xiv]

The Indian Supreme Court in Enercon (India) Ltd and Ors v Enercon Gmbh and Anr,[xv] has affirmed the principles in C v. D as well, holding that the law of the arbitration agreement is likely to be the same as the law of the seat. Quite interestingly, both these Supreme Court judgements have affirmatively cited the High Court judgement in Sulamerica (which was subsequently questioned by the Court of Appeal). The decision of the High Court in Sulamerica followed the rule laid down in C v. D.[xvi] Therefore, English law has taken a position closer to the one in Indian law, which itself was borrowed from the older English position enunciated in C v. D.

From a Singaporean perspective, the whole-hearted adoption of the position in Sulamerica may have resulted in a departure from the new English position concerning the law of the arbitration agreement. Although initially rejected by the Singapore High Court in FirstLink Investments Corp Ltd v GT Payment Pte Ltd and others,[xvii] where the court held that the choice of a Swedish seat would also govern the arbitration agreement, the court itself moved away from this approach in BCY v. BCZ.[xviii] The court held that there was no general principle holding that the law of the arbitration agreement should coincide with the arbitral seat.

Finally, in BNA v. BNB and another,[xix] the Singapore Court of Appeal affirmed the Sulamerica test, and its subsequent presumption regarding the law of the underlying contract. The court held that the law of the Peoples’ Republic of China (‘PRC law’) would govern an arbitration agreement in the absence of an express choice of law, relying on the fact that PRC law governed the underlying agreement.

The position in Singapore is at odds with the position taken in Enka v. Chubb. Since the decision in First Link v. GT Investment no longer holds sway, the legal positions in Singapore and England now find themselves at opposing sides again, however partially. This is because of the new position espoused by the UK Supreme Court, which creates a balance between the approach of the court in C v D and Sulamerica.

Lastly, from the perspective of Hong Kong law, the judgement in Enka v. Chubb takes a similar line to the one taken by the Court of First Instance in Klockner Pentaplast GMBH & Co KG v. Advance Technologies (HK) Company Limited,[xx] wherein the court considered the decision in C v. D and reached the conclusion that the arbitration agreement is most likely to yield to the law of the seat. However, the court recognised that the parties’ agreement to the contrary would overrule this presumption. Additionally, as is evident from OCBC Wing Hang Bank Ltd v Kai Sen Shipping Co Ltd,[xxi] the court would first seek to determine an express choice of law, followed by an implied choice, which may be a result of the construction of the contract.

Therefore, so far as Enka v. Chubb is concerned, the legal position in Honk Kong is very similar to the position established in England. The court would, in the absence of an express choice, look out for specific contractual constructions which would point to the law of the arbitration agreement. If that is unsuccessful, the court would likely determine the arbitration agreement to be governed by the seat.

• Conclusion

Enka v. Chubb has created a consolidated test for the determination of the law governing the arbitration agreement, based on the test laid down in Sulamerica. It has integrated the decision handed down in Kabab-ji with the Sulamerica test. However, it marks a departure from the presumption regarding the law governing the underlying contract, and has favoured the seat of arbitration to govern the arbitration agreement. This actually moves the current legal position closer to the pre-Sulamerica trends.  

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[i] Enka Insaat Ve Sanayi AS v OOO “Insurance Company Chubb” & Others, [2020] UKSC 38; from the Court of Appeal in Enka Insaat Ve Sanayi AS v OOO “Insurance Company Chubb” & Others, [2020] EWCA Civ. 574.

[ii] Sulamerica Cia Nacional de Seguros SA v Enesa Engelharia SA, {2012] EWCA Civ. 638.

[iii] Kabab-Ji SAL (Lebanon) v Kout Food Group (Kuwait), [2020] EWCA Civ. 6.

[iv] A good example of such a construction is the contract in Kabab-ji, which will be discussed later.

[v] Supra note 3.

[vi] Supra note 2.

[vii] The decision in Sulamerica should be reconciled with its ratio. Faced with a London seated arbitration substantively governed by Brazilian law, the court did hold that English law governed the arbitration agreement. However, it did so because Brazilian law only allowed the arbitration to be commenced upon the assent of one party – which made the case for English law to govern the arbitration agreement (in addition to London being the seat).

[viii] XL Insurance Ltd. v. Owens Corning, [2001] 1 All E.R. (Comm) 530

[ix] C v. D, [2007] EWCA Civ. 1282.

[x] Abuja International Hotels Ltd v. Meridien SAS, [2012] EWHC 87 (Comm).

[xi] Habas Sinai Ve Tibbi Gazlar Istihsal Endustrisi v VSC Steel Co Ltd, [2013] EWHC 4071 (Comm).

[xii] The case in Sulamerica provides for a great example as to what accompanying factors could drive a court’s reasoning [Refer note 7].

[xiii] National Thermal Power Corporation v. Singer Company, (1992) 3 SCC 551.

[xiv] Bharat Aluminium Corporation v. Kaiser Aluminium Services ltd, (2012) 9 SCC 552.

[xv] Enercon (India) Ltd and Ors v Enercon Gmbh and Another, (2014) 5 SCC 1.

[xvi] Sulamerica Cia Nacional de Seguros SA v Enesa Engenharia SA, [2012] EWHC 42 (Comm).

[xvii] FirstLink Investments Corp Ltd v GT Payment Pte Ltd and others, [2014] SGHCR 12.

[xviii] BCY v. BCZ, [2016] SGHC 249.

[xix] BNA v. BNB and another, [2019] SGCA 84.

[xx] Klockner Pentaplast GMBH & Co KG v. Advance Technologies (HK) Company Limited, [2011] HKCFI 458.

[xxi] OCBC Wing Hang Bank Ltd v Kai Sen Shipping Co Ltd, [2020] HKCFI 375.