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IT IS ALL ABOUT THE SEAT! Enka Insaat Ve Sanayi AS v OOO “Insurance Company Chubb” & Ors [2020] EWCA Civ 574

BACKGROUND
The claimant, “Enka”, was a sub-contractor of CJSC Energoproekt in the construction of the Berezovskaya power plant in Russia. The contract contained a dispute resolution clause (Clause 50.1), with three levels of dispute resolution. The third being a three-member tribunal arbitration seated in London, as per the ICC Rules of Arbitration, and to be conducted in the English language.
In 2014, CJSC Energoproekt novated its rights to the owner of the power plant, PJSC Unipro (hereinafter “Unipro”). In February 2016 a fire broke out and caused significant damages which were recovered under the insurance policy from OOO “Insurance Company Chubb” (hereinafter, “Chubb Russia”). Chubb Russia claimed that the fire had been caused by defects due to the low-quality performance of works of Enka and made a claim for the entirety of the damage amount.
Unipro agreed that Enka didn’t have any liability for the said default. On 4 September 2019, the Moscow Court ruled that the claim was now sufficiently particularised and accepted the claim. On 16 September 2019, Enka issued the Arbitration Claim Form in the Commercial Court in London seeking the relief of a declaration that Chubb Russia was bound by Clause 50 of the contract and an injunction restraining it from continuing proceedings in Russia.
Enka filed an application in the Moscow court for the dismissal of Chubb Russia’s and it dismissed the claims of Chubb Russia and also the application of Enka to dismiss Chubb Russia’s claim without going into its merits on 18 March 2020. However, only the operative part of the judgment and not the reasoning was released due to the Covid-19 crisis.
THE TRIAL COURT JUDGMENT
He concluded that he couldn’t see any real indication of the choice of English law in the decision of the parties to choose London as the seat. He opined that it only meant that municipal courts in England could be asked to intervene if the arbitral process was hampered, which was a stretch because of the delocalised nature of the ICC Rules. He refused to choose either English or Russian law to be the governing law of the arbitration agreement.
In his opinion, the exercise of the power to grant an anti-suit injunction to restrain proceedings in Moscow would not be covered by the powers of the arbitral supervisory court. Hence, on the basis of forum non-conveniens, he held that the all questions of the scope of the arbitration agreement and its application to the Moscow claim, including the issue of the governing law of the arbitration agreement would be more appropriately decided by the court in Moscow.
The Judge also observed, that while the primary reason for the failure of the claim by Enka, was the doctrine of forum non-conveniens there also existed a secondary reason. The secondary reason was the exercise of the court’s discretion by the Judge owing to the delay by Enka in participating in the proceedings before the Moscow Court, and to pursue arbitration.
ISSUE BEFORE THE HIGH COURT OF APPEAL
This was an appeal against not granting of an anti-suit injunction against the first respondent, alleged to be in breach of a London arbitration clause by instituting proceedings in Russia. The parties decided that London will be the seat of the arbitration; the issue was of the governing law of the arbitration agreement in the absence of a clear choice.
JUDGMENT  OF THE HIGH COURT OF APPEAL
  1. The Role of the Court of the Seat and Forum Conveniens
The Court held that the English court as the court of the ‘seat’ would necessarily be an appropriate court to grant an anti-suit injunction and that no question of forum conveniens arises. This follows from two essential principles. First, that the choice of the seat is in itself an agreement by the parties to submit to the jurisdiction of the courts of that seat for the exercise of such powers as the choice of seat confers. Secondly, that the grant of an anti-suit injunction to restrain a breach or threatened breach is within the exercise of such powers. Therefore, by choice, the parties agreed that the English Court is an appropriate court to exercise the power to grant an anti-suit injunction.
The court recognised that the choice of ‘seat’ of arbitration is a legal concept which determines the ‘curial law’ and that it is to be distinguished from the geographical ‘venue’ at which the hearings are conducted. It observed that in the absence of a specific agreement to the contrary, hearing can take place at any which place other than the ‘seat’. Hence, it is common ground that in this case, the choice of London (in Clause 50.1) as the place of arbitration is a choice of the English seat and subsequently of English law as the ‘curial law’ without prejudice to the power of the ICC Court to decide the venue.
The court also acknowledged that there may be other courts also which can exercise a similar jurisdiction to “protect the integrity of the arbitral process and restrain a party from taking or pursuing proceedings in breach of an agreement to arbitrate”.
  1. Proper Law of the Arbitration Agreement
The court recognised that it is well established that the law of the Arbitration Agreement (hereinafter, “AA law”) may not be the same as the main contract law. It summarised the position of the parties- Enka contends that the ‘AA law’ of Clause 50 of the Contract is English law and Chubb Russia that it is Russian law. It was however agreed upon by both parties that the main contract law is Russian law. The court discussed the Sulamérica case in detail which laid down a three-factor test. First, an express choice, second, the identification of an implied choice and the third, is the test of the closest and most real connection.
The court then opined that where the ‘AA law’ question can be answered at the first stage, that there is an express choice of the ‘AA law’, no conceptual difficulty arises. If that is not the case, it may impliedly be found in the terms of an express choice of the main contract law, or a combination of such express choices with the terms of the arbitration agreement. However, this solution is likely to be confined to cases where there is an express choice of main contract law, but the foundation of the fact that Russian law was the main contract law, was also in question, even if accepted.
The court found that the above test could not support a finding of an express choice of ‘AA law’ if the main contract law is also not picked by express choice. In all other cases, the court held that the general rule should be that the ‘AA law’ is the ‘curial law’, as a matter of implied choice, subject only to any particular features of the case demonstrating powerful reasons to the contrary. The court arrived at this decision by using three rationales.
First, the principal rationale for considering an express choice of main contract law as an indication of the choice of ‘AA law’ is not some connection between the subject-matter of the two, but the desire to not be governed by multiple legal systems, however, this rationale ceases to apply when there is an express choice of a “seat”. Second, there is an overlap between the scopes of the ‘curial law’ and that of the ‘AA law’ which strongly suggests that they should usually be the same. This is not case-specific, but will apply in every case where English law is the ‘curial law’ and equally as a general rule to any curial law. Thirdly, this was regarded as a matter of implied choice under the second factor of the ‘AA law’ inquiry in Sulamerica, rather than the third factor.
Hence, it summarised that there is a strong presumption that the parties have impliedly chosen the ‘curial law’ as the ‘AA law’ and may only yield to another system where there are powerful countervailing factors in the relationship between the parties or the circumstances of the case. Accordingly, the presumption applied that the parties had impliedly chosen that the ‘AA law’ should coincide with the ‘curial law’ and be the English law and the court could not find any countervailing factors. It was hence found that the Moscow claim by Chubb Russia was brought and pursued in breach of the agreement to arbitrate in clause 50.1 of the Contract and that the AA law was English Law.
  1. Delay by Parties
The Trial Judge had treated that delay by Enka had started right after the letter by Chubb Russia making the claim. However, the High Court of Appeal held that since the Moscow claim was sufficiently particularised on 4 September 2019 and Enka issued its Arbitration Claim Form on 16th September 2019, there was no undue delay in Enka initiating steps to protect its rights in either jurisdiction.
CONCLUSION & COMMENTS
The appeal was allowed. An injunction to prevent Chubb Russia from exercising its Russian appeal rights was issued, and Enka was ordered that it will not treat this decision as giving rise to an issue estoppel if the claim is now pursued in arbitration.
This decision will have a significant impact on the practice of ICA. The UK High Court of Appeals has significantly straightened out the process to decide the AA law where one was not decided by express choice. It also furthers the importance of the decision of the seat of the arbitration as it can have an additional impact on the procedure of the ICA.
What it also does, is it almost entirely negates the “closest and most real connection” test for ICA around the world. It is rare to find an arbitration agreement which doesn’t include the AA law and seat, both. Courts generally have a great amount of discretion in the application of the “closest and most real connection” test. Hence, the application of the “closest and most real connection” test has been significantly curtailed. This judgement also makes the courts of the seat even more powerful, it also removes a great variable and makes the decisions of the courts in similar cases much more predictable.
I see this is a progressive step towards making the realm of ICA more stable and uniform around the world. However, the real-life application of this judgment is yet to be witnessed as the legal field is stagnant because of the courts being shut due to the pandemic. It will be fascinating to see how other courts in other jurisdictions and internationally constitute tribunals interpret and utilise this judgement.

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ABOUT THE AUTHOR

 

Sahibnoor Singh Sidhu is a 5th-year law student at Jindal Global Law School.

 

In Content Picture Credit: RostrumLegal

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