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Neil Newing, Of Counsel and Johnny Shearman, Professional Support Lawyer, discuss anti-suit injunctions and the relevance of English law in the context of arbitration agreements, in Thomson Reuters Practical Law.

Neil and Johnny’s article was published in Thomson Reuters Practical Law, 30 January 2020, and can be found here.

The English courts have not shied away from granting anti-suit injunctions to restrain foreign proceedings (outside of the EU) that have been brought in breach of an arbitration agreement. The basis for granting an anti-suit injunction is that the foreign proceedings, which the claimant has promised not to bring, deprive the defending party of its contractual right to arbitrate. However, the High Court recently refused to grant an anti-suit injunction on the basis that it was not the appropriate forum to determine whether the substantive claims fell within the scope of the arbitration agreement (Enka Insaat veSanayi AS v 000 “Insurance Co Chubb” and others [2019] EWHC 3568 (Comm)).

Enka highlights the limit of the English court’s jurisdiction to grant an anti-suit injunction and provides a reminder that injunctive relief is a discretionary award. The judgment further clarifies that the court’s power to grant anti-suit injunctions does not require the arbitration agreement to be governed by English law. In addition, the court analysed the relevance of the choice of seat to the law governing the arbitration agreement.

The dispute

Enka Insaat ye Sanayi AS, an international construction company, was involved in the construction of a power plant in Russia. Enka was engaged under a contract that included an agreement for disputes to be referred to International Chamber of Commerce (ICC) arbitration with a London seat. However, no governing law was specified, either in relation to the contract as a whole or the arbitration agreement.

A fire at the power plant caused around $400 million of damage. The insurer, Chubb Russia Investments Limited, paid an insurance claim and subrogated the right to pursue any underlying claims against Enka. Chubb Russia started proceedings against Enka and several other defendants in a Moscow court. After a period of delay, Enka applied to dismiss the Moscow proceedings on the basis that Chubb Russia’s claims should be determined under the arbitration agreement. Enka then brought a claim in the High Court for an anti-suit injunction and related relief against Chubb Russia and a number of other entities in the Chubb group.

The parties agreed that the arbitration agreement was valid and binding as between Enka and Chubb Russia. The principal issue in dispute was whether the claims in the proceedings before the Moscow court were tortious and therefore fell outside the scope of the arbitration agreement. Chubb Russia argued that Russian law should govern the arbitration agreement and that, on that basis, claims in tort would fall outside of its scope. Enka’s position was that English law should apply, in which case Chubb Russia’s claims would fall within the scope of the arbitration agreement.

• In making its decision, the English court considered:

• The effect of the choice of London as the seat for arbitration on the law governing the arbitration agreement.

• Whether it was appropriate for the English court to intervene even if the arbitration agreement was not governed by English law.

Choice of seat

Enka claimed that the arbitration agreement was governed by English law as the choice of ICC arbitration with a London seat was indicative of the parties’ intention that English law should govern the arbitration agreement. It asserted that the Moscow proceedings were in breach of the arbitration agreement and so an anti-suit injunction should be granted. Chubb Russia argued that both the contract and the arbitration agreement contained within it were governed by Russian law.

The court rejected Enka’s arguments, establishing that the issue was one of construction by interpreting the contract as a whole. It agreed with the Court of Appeal in Sulamerica SA v Enesa Engenharia SA that a choice of seat may indicate an implied choice of the law governing the arbitration agreement even where a choice of law provision in the contract as a whole provides for a different governing law ([2013] EWCA Civ 638). The court further affirmed that the House of Lords decision in Compagnie Tunisienne de Navigation SA v Compagnie d’Armement Maritime SA remains good law; that is, where a seat is specified but there is no choice of law for the contract generally, the choice of seat may convey the choice of law ([1971] AC 572).

However, in this instance, where there was no governing law clause, the court nonetheless determined that the choice of an English seat was not a significant factor in identifying the governing law of the arbitration agreement, nor did it necessarily indicate the parties’ intention to apply English law to the arbitration agreement. It is notable, however, that Enka had previously claimed in the Moscow proceedings that Russian law applied to the entire contract before adopting the contrary position before the English court. It is apparent from the judgment that the court considered this to be a significant factor in its decision. However, it is not clear whether the court’s view on the relevance of the seat would have differed if Enka had not asserted these inconsistent arguments.

High Court intervention

Despite establishing that the choice of seat was not determinative of the law governing the arbitration agreement, the court reasoned that this did not in any way limit the court’s inherent jurisdiction to grant an anti-suit injunction. That jurisdiction arises when a court is properly seized of a dispute, regardless of whether or not the arbitration agreement is governed by English law.

However, on the facts, the court found that the English court was not the appropriate forum to determine the underlying dispute. The Moscow proceedings were on foot, were being pursued in good faith and there was a good arguable case that the claims did not fall within the scope of the arbitration agreement because they were based in tort.

While the English court has a supervisory role as the court of the seat, the grant of an anti-suit injunction does not involve the exercise of that supervisory function. If Enka did not want to pursue its application to dismiss the Moscow proceedings before the Moscow court, it should have commenced arbitral proceedings and sought relief from the arbitrators. In other words, Enka was premature in seeking injunctive relief from the English court.

The English court also concluded that even if it was the appropriate forum for deciding the principal issue, it would not have used its discretion to grant the injunction due to Enka’s delay in responding to the Moscow proceedings.

Practical implications

The implications of this decision are twofold. Firstly, to avoid a situation such as the one encountered in Enka, it is critical to specify the governing law of the arbitration agreement, especially where it is envisaged that the choice of law governing the arbitration agreement will be different from the governing law of the contract as a whole. Best practice would be to always specify the choice of governing law of an arbitration agreement. The choice of seat alone is not determinative.

Secondly, if a party believes that proceedings have been commenced in breach of an arbitration agreement, it should start arbitral proceedings and seek appropriate relief from the arbitrator without delay. Only following this would it be appropriate to seek assistance from the court of the seat.