Arbitration | Determining the governing law of an arbitration agreement

Last Friday the UK Supreme Court handed down its judgment in the case set to become the leading English law authority on the governing law of arbitration agreements, Enka v Chubb [2020] UKSC 38. In this newsletter we discuss the judgment and any influence it may have on the Norwegian law position on the approach to determining the governing law of an arbitration agreement.

The facts

In 2014, the Turkish contractor Enka and the Russian company Unipro entered into a construction contract for the construction of a Russian power plant. In 2016, a severe fire damaged the power plant causing the insurer Chubb to pay approximately USD 400 million to Unipro. As a result of the payment, Chubb stepped into (subrogated) any claim Unipro may have had against Enka.

The construction contract contained an arbitration agreement in the form of a clause stating disputes were to be resolved by arbitration under the ICC Rules in London, England. The arbitration agreement itself did not provide for choice of law, nor did the main contract include a choice of law clause.

In May 2019, Chubb filed a claim in the Moscow Commercial Court against Enka. Enka subsequently applied to the English courts for an anti-suit injunction against Chubb arguing that the claim brought by Chubb in the Moscow Commercial Court was subject to the arbitration agreement, providing for arbitration in London.

The issue

Whether Chubb’s claim falls within the scope of the arbitration agreement gives rise to the issue; which system of law governs the arbitration agreement? In this case; Russian or English law?

The Court of Appeal judgment

The Court of Appeal granted Enka the anti-suit injunction and held that as a general rule the arbitration agreement is governed by the law of the seat because there is a strong presumption that the parties, have, implicitly, chosen the law of the seat to govern the arbitration agreement, unless there are strong reasons in the case to suggest otherwise.

We have previously discussed the Court of Appeal’s judgment in more detail here.

The Supreme Court judgment

In setting out the approach to the governing law of arbitration agreements, the Supreme Court (unanimously) rejected the general rule set out by the Court of Appeal and took the opposite view; where the parties have not made a specific choice of law in the arbitration agreement, the system of law chosen for the contract containing the agreement (the main contract) will usually apply. The choice of law of the main agreement may be made expressly or implicitly (as per article 3 of the Rome I Regulation). The Supreme Court further held that if no choice of law has been stated in the arbitration agreement or in the main contract (expressly or implicitly), the system of law most closely connected to the arbitration agreement will apply.

In considering this case with the above approach however, the Supreme Court split (3-2).

The majority took the view that the main contract in the case contained no choice of law provision, express or implied. In considering which system of law most closely connected to the arbitration agreement, the majority stated that as a default rule this will be the law of the seat of arbitration. Accordingly, the majority upheld the result of the Court of Appeal that English law governed the arbitration agreement, although for different reasons.

The minority firstly dissented by finding that an implied choice of Russian law had been made in the main contract. Secondly, and regardless of the implied choice of law, the minority dissented to the default rule laid down by the majority and considered that as a default, the law to which the main contract is most closely connected also governs the arbitration agreement as this will also be the law most closely connected to the arbitration agreement. It being common ground between the Justices that the main contract, aside from express or implied choice of law, was most closely connected to Russian law (as a matter of article 4 of the Rome I Regulation); this would dictate Russian law in this case.

Our remarks on the position under Norwegian law on international arbitration

The only hard and fast rule on the governing law of arbitration agreements under Norwegian law, and similar to the approach taken by the UK Supreme Court, is that an express choice of law provision in the arbitration agreement will be determinative and ensure certainty and predictability. This is why we consistently recommend including an express choice of law provision in arbitration clauses.

There is, however, limited Norwegian case law in terms of the governing law of arbitration agreements where the arbitration agreement itself does not include a choice of law provision. In Nordic commercial contracts it is not unusual to use a clause titled “Choice of law and arbitration” which contains separate sub-provisions for both choice of law and arbitration. Whilst this is not optimal, there is a Norwegian Court of Appeal case (LB-2003-20830) suggesting that the choice of law provision may also govern the arbitration agreement where the choice of law and arbitration clause is contained under the same heading. However, in that particular case the Norwegian Court of Appeal also supported its decision in the seat of arbitration matching the choice of law. The general rule adopted by the UK Supreme Court, if applied to such a clause, would however lead to the same result – applying the choice of law of the main contract – regardless of the seat of arbitration.

There is no Norwegian case law on the approach to the governing law of arbitration agreements in the absence of a choice of law provision in both the arbitration agreement and the main contract. Similarly, the issue is unaddressed by the Norwegian Arbitration Act. Following the approach taken by the Norwegian Supreme Court in the I.M. Skaugen-ruling (HR-2017-1932), whereby the Court emphasised the relevance of foreign sources of law in an area where Norwegian rules have largely been adapted to international rules, Norwegian courts may look to the approach taken by the UK Supreme Court in Enka v Chubb should they be faced with this issue.

Choice of Law of Arbitration Agreement The Rare Choice – Governing Law of Arbitration Clauses
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