Enka Insaat Ve Sanayi A.S. v OOO Insurance Company Chubb

Case Name: Enka Insaat Ve Sanayi A.S. v OOO Insurance Company Chubb

Court: Supreme Court of the United Kingdom

Judgement Date: 9 October 2020

Neutral Citation: [2020] UKSC 38

Parties involved:

-(Respondent): Enka Insaat Ve Sanayi A.S., a Turkish construction company (Enka)

-(Appellant): OOO Insurance Company Chubb, a Russian insurance company (Chubb)

Introduction and Background to the Appeal

This landmark decision concerns contractual interpretation and jurisdictional issues in an international arbitration agreement. More precisely, the interpretation of an arbitration clause in an insurance contract in the absence of an express or implied term on this matter between the parties. Therefore, the central issue revolves around international commercial arbitration and conflict of laws, whether the governing law of an arbitration agreement is to be determined when the law applicable to the contract containing it differs from the law of the “seat” of the arbitration, in other words, the place chosen for the arbitration in the arbitration agreement.

As for the procedural history, initially while Chubb filed a claim in Russian courts, in December 2019, Enka’s arbitration claim was dismissed by the Commercial Court on the forum non conveniens grounds, in simpler terms, that Russia was the appropriate forum rather than English courts. Then, in April 2020, under the general rule that the arbitration agreement will be governed by the law of the seat, Enka’s appeal was allowed by the Court of Appeal which ruled in favor of Enka. Thus, it was found appropriate to grant the anti-suit injunction applied by Enka. Yet, arguing that the contract specified Russian arbitration as the forum, Chubb subsequently appealed to the Supreme Court.

Facts of the case

The dispute arose after a fire broke out on 1 February 2016 in a power plant that was severely damaged, situated in Russia, more specifically at Berezovskaya. The appellant, Chubb, is a Russian insurance company which had insured the owner of the power plant, med PJSC Unipro company, against such damage. Hence, Chubb alleged negligence against Enka, a Turkish subcontractor, in order to hold it liable for the fire and paid out claims to recover damages.

As a matter of fact, the contract between Enka – the subcontractor – and the main contractor was a large-scale project that involved different international parties, which complicated the legal relationships but still did not contain an express choice of law for the arbitration agreement. However, the construction contract stipulated, in article 50, a dispute resolution clause. It also mentioned that the place of arbitration shall be London, England.

Legal issues

Which law governs the validity and scope of an arbitration agreement if the law applicable to the main contract, i.e., Russian law by virtue of the Rome I Regulation, differs from the law of the agreed “seat” of the arbitration, which in this case was English law? And how did the Supreme Court address this jurisdictional conflict to determine the proper applicable law?

Arguments

On the one hand, Enka argued that the English law should apply by default particularly since the arbitration clause was separate from the main contract and this specific clause stipulated that the seat of arbitration was London, so the arbitration agreement, as it was the most recent contract, was governed by English law logically. In addition, this choice of London as the seat proves a direct intention to apply English Law. Indeed, Enka added that this dispute should be adjudicated by English courts because it involved a matter of construction contract performance that was central to the project. Thus, Enka emphasized the lack of efficiency if the dispute had to be resolved through arbitration in Russia, the reason for which the anti-suit injunction was necessary to uphold the arbitration agreement and to prevent Chubb from undermining the arbitration process by pursuing parallel proceedings in Russia given the multiple parties involved.

On the other hand, Chubb argued that due to the absence of an express choice of law for the arbitration agreement in question, the governing law should be determined by the law of the country with the closest connection to the contract. In fact, the main contract has a closer connection to Russia because the contract was actually performed in Russia, which means that the Russian law governed the arbitration clause. Furthermore, the English courts should not interfere, highlighting that the anti-suit relief was unjustified as long as the Russian courts were competent.

Court’s Analysis

The relevant legal sources that the Supreme Court applied in this landmark decision because of the exclusion of arbitration agreements from the scope of the Rome I Regulation, were eventually the principles of international commercial arbitration with a zoom on the New York Convention (1958)[1] on the Recognition and Enforcement of Foreign Arbitral Awards. This Convention promotes the enforcement of arbitration agreements between contracting parties. Also, the court relied on the Arbitration Act 1996 (England) and the decision was founded after the review of important precedents such as Cie Tunisienne de Navigation SA v Cie d’Armement Maritime SA[2], in which Lord Diplock emphasized the court’s obligation to examine closely the contract to see whether the parties have chosen a law to govern it.

The Supreme Court rejected the argument that the governing law of the main contract should automatically apply to the arbitration agreement. Moreover, it considered, in the context of conflicting jurisdiction clauses, many legal principles in its analysis, focusing on the interpretation of arbitration clauses. For instance, the court shed light on the choice of a seat of arbitration which is considered a strong indication of the parties’ implied choice of law for the arbitration agreement under the scope of the principle of party autonomy. It also concluded, after reviewing precedents on the issue, that in the case where an arbitration agreement is present, it generally prevails over a conflicting jurisdiction clause. Nevertheless, the Supreme Court affirms the Court of Appeal’s decision that it makes no difference whether the arbitration agreement is governed by English or foreign law, as the inquiry in both cases remains the same: whether there has been a breach of the agreement and, if so, whether it is convenient to grant an injunction to restrain that breach.

Decision

As for the judgement of the UK Supreme Court, it ruled in favor of Enka. Given that being closely connected to English law and due to the choice of London as the seat of arbitration, consequently, the arbitration agreement was governed by English law rather than Russian law, holding that the absence of an explicit choice of law for the arbitration agreement means the clause should be governed by the law of the arbitration seat, more specifically in this case the dispute was to be resolved through arbitration in London. Evidently, Chubb’s argument was not upheld, so Chubb got restrained from continuing its claim in the Russian courts.

As for the dissenting judgement, although there was a general agreement by a 3-2 majority, yet there was also nuanced differences in reasoning. Lords Hamblen and Leggatt gave the majority judgment, with which Lord Kerr agreed, while Lords Burrows and Sales wrote dissenting judgments[3]. Indeed, Lord Burrows and Lord Sales agree with the majority that in case the parties have expressly or impliedly chosen the law of the contract, this choice applies to the arbitration agreement. Though, they dissent on what the default rule should be in the absence of such choice. Simply put, they considered that it should be the law that applies to the main contract that should govern the arbitration agreement since it is this law with which that agreement was most closely connected. In this scenario, that was Russian law because the main contract was to be performed in Russia, its primary language was Russian and the contractual price was to be paid in Russian currency to a Russian bank account.

Significance

Aligning with English common law rules, the law applicable to the arbitration agreement in principle will be the law expressly or impliedly chosen by the parties; or in the absence of such choice, the law most closely connected with the arbitration agreement. 

In this case there has been no express choice nor implied choice. Hence, the court must determine the law with which the arbitration agreement is most closely connected. To put it differently, a default rule was supported by the majority, so the law of the seat of arbitration would be the law most closely connected with the arbitration agreement. To clarify, the justification of this strong presumption was the following: firstly, the seat is the legal place of performance of the arbitration; secondly, this approach is consistent with international law and legislative policy; and finally, it provides legal certainty, ensures coherence and predictability in the absence of choice, while avoiding complexity and artificiality.[4]

A distinctive feature of this case was that the proceedings before the Commercial Court, the appeal to the Court of Appeal and the appeal to the Supreme Court were all heard within just over seven months. This was a vivid demonstration of the speed with which the English Courts can act when necessary.

Conclusion

This cornerstone decision in International Arbitration Law dealt with the critical conflict between an arbitration clause in an insurance policy and a jurisdiction clause in an underlying construction contract. The Supreme Court of the UK ruled in favor of Enka and confirmed English law as governing the arbitration agreement.

This case is worthy of note and a crucial development of English arbitration law[5] for all commercial parties who choose to carefully draft arbitration agreements in their international contracts. It revolves around the English legal approach to international arbitration and underscores the intersection of contract law and arbitration, especially within the context of disputes between several jurisdictions. This decision also demonstrates implicitly the growing global reliance on arbitration as a preferred method of resolving international commercial disputes.

In contradiction to the majority agreement on the judgement, my view differs on the main issue, in other words, the reasoning of Lords Burrows and Sales seems quite interesting, offering a broader and more just view of the case. Their logical arguments tend to admit that the proper law of the arbitration agreement is Russian law instead of English law. Furthermore, taking into account the role of anti-suit injunctions in protecting the integrity of arbitration proceedings, I question whether an anti-suit injunction should be ordered to the English Commercial Court.

Reference(S):

[1] Article V1(a) of the New York Convention (1958)

[2] Cie Tunisienne de Navigation SA v Cie d’Armement Maritime SA [1971] AC 572, 603

[3] Enka Insaat ve Sanayi AS v OOO Insurance Company Chubb [2020] UKSC 38. (2020).

[4] Spalton, G. and McDonald, I. (2020) Enka v. Chubb in the Supreme Court: Which law is it anyway? 4 New Square Chambers. Available at: https://www.4newsquare.com/enka-v-chubb-in-the-supreme-court-which-law-is-it-anyway/ (Accessed: 22 March 2025).

[5] Tandon, A. (2020) International Arbitration Report – issue 15, International Arbitration Report – Issue 15 | Publication | Knowledge | Global Law Firm | Norton Rose Fulbright. Available at: https://www.nortonrosefulbright.com/en/knowledge/publications/667a9f4c/enka-v-chubb (Accessed: 22 March 2025).