Reed Smith Client Alerts

In a “vivid demonstration of the speed with which the English courts can act when the urgency of a matter requires it”, the UK Supreme Court has brought eagerly awaited clarity to an issue which has long divided the courts and commentators. By a majority of 3-2, the Supreme Court delivered a pragmatic, impeccably reasoned and clearly written judgment in Enka Insaat Ve Sanayi A.S. v OOO Insurance Company Chubb1 on 9 October 2020. The judgment sets out the approach to be taken in ascertaining the law governing arbitration agreements.

Among the issues in the Enka case was this: which system of law governs the validity and scope of an arbitration agreement when the governing law of the contract containing it differs from the law of the nominated seat? The Supreme Court’s decision neatly summarises the approach to be taken in such circumstances.

The Supreme Court departed from the reasoning of the Court of Appeal in its decision in the same case of just a few months ago. The Supreme Court ruled that where parties have not specified what law governs the arbitration agreement, but have specified the law governing the contract containing the arbitration agreement, that choice will generally apply to the arbitration agreement even if a different country or national system of laws has been nominated as the “seat” of the arbitration. Where, as in the Enka case, the parties have not expressly or impliedly chosen any law to govern the contract, the arbitration agreement will be governed by the law with which it is most closely connected, and typically this would be the law of the seat.

Whatever your industry, the choice of law to govern not just the contract but also the arbitration agreement is worthy of consideration. So is the express choice of the seat of the arbitration. As the Enka case has shown, the choice of England as the seat, even without English law as the law governing the contract, meant that English law governed the arbitration agreement. The English court was thus able to intervene by exercising its supervisory powers to restrain Russian legal proceedings by means of an anti-suit injunction.

The fact that the Supreme Court was divided in its judgment may result in a continuation of the debate among arbitration professionals and commentators as to whether the majority’s decision was right. Meanwhile, for the foreseeable future, the majority’s decision is binding in law.