Updated: Aug 3
Arbitration agreement is made in advance in most of the disputes, however many of the parties do not pay attention to law applicable to arbitration agreement itself. In this article, English Supreme Court’s take on the process of determining law applicable to the arbitration agreement in regards to Enka v. Chubb decision given by the said court.
In a fire erupted in an electrical power plant, after the incident, it is decided that building a new electrical power plant is necessary. When building a new plant, a new contract is prepared and in Art. 50 of the said construction contract there is a lengthy dispute resolution clause which included seat of arbitration being London, England.
For the construction project, OOO Insurance Company Chubb (“Chubb Russia”) insured the owner of the power plant in the first place and with the completion of construction, contractor transferred its rights to PJSC Unipro (“Unipro”) as it is agreed in the construction agreement.
When Unipro faced another fire outbreak in February 2016 Chubb Russia paid approximately US$400m to Unipro under its property insurance policy and thereby became subrogated to any rights of Unipro to claim compensation from third parties for the damage caused by the fire.
After the incident, Chubb filed a lawsuit against contractor and many sub-contractors which included a Turkish construction firm, Enka İnşaat ve Sanayi AŞ (“Enka”), in Russian courts.
However, construction agreement included a clause for dispute resolution which can be extended to the sub-contractor agreements. Enka, then also filed a lawsuit against Chubb on antisuit injunction before the English courts, as it is the seat of arbitration and the court in which authorized to decide on anti-suit injunction.
In brief, it is stated in the decision it is actually common for determining law applicable to the main contract however it is unusual when it comes to arbitration agreements, which is explained by Moore-Bick LJ said in Sulamérica decision:
“It is common for parties to make an express choice of law to govern their contract, but unusual for them to make an express choice of the law to govern any arbitration agreement contained within it; and where they have not done so, the natural inference is that they intended the proper law chosen to govern the substantive contract also to govern the agreement to arbitrate.”
As it is stated in the decision, “Where the parties have made no choice of law to govern the arbitration agreement, either specifically or by choosing the law which is to govern the contract as a whole, the court must determine the law with which the arbitration agreement is most closely connected.”
“In general, the arbitration agreement will be most closely connected with the law of the seat of arbitration”, Court stated and it shows that the general rule. This rule is supported by the following considerations by the Court:
(i) the seat is where the arbitration is to be performed (legally, if not physically);
(ii) this approach maintains consistency with international law and legislative policy;
(iii) this rule is likely to uphold the reasonable expectations of contracting parties who specify a location for the arbitration without choosing the law to govern the contract; and
(iv) this approach provides legal certainty, allowing parties to predict easily which law the court will apply in the absence of choice.”
These considerations show English Supreme Court’s determination of governing law for the arbitration agreement.
This decision is also important for number of reasons, which are the following.
1. Determining law applicable to the arbitration agreement is crucial for large scaled projects in order to prevent disputes being arisen.
2. General rule for the determination of law is looking into express and implied choices. If there is no determination on choices of the parties, one can determine the law with which the arbitration agreement is most closely connected.
3. When preparing and negotiating, chosen law system must be examined and researched.
M. Tuğberk Dekak
 Enka Insaat Ve Sanayi A.S. (Respondent) v OOO Insurance Company Chubb (Appellant)  UKSC 38.