Enka Insaat: A Seat Centric Approach to International Arbitration & its Impact on Indian Arbitration Law

 

The Final Pull Of

England’s Court of Appeal affirms to take a seat centric approach in resolving the disputes in International Arbitration Law in its recent judgment in Enka Insaat Case (Enka v.  Chubb).The Court of Appeal asserts the endowment that the arbitration agreement will be deemed to be governed by the law of the seat of the arbitration, unless the parties to the arbitration agreement indicate otherwise. The Court of Appeal also envisages the affirmation that the seat of the arbitration is not bound to not to issue anti-suit injunctions against the foreign proceedings brought in breach of the arbitration agreement. Another main outcome of the judgment is that the questions regarding forum conveniens are irrelevant when a court of the seat decided whether to grant an anti-suit injunction. The Court of Appeal has endeavored to bring a principle “to impose some order and clarity” on the determination of how the governing law of the arbitration agreement should be followed.

Background

Enka Insaat ve Sanayi As (“Enka”) is a Turkish construction and engineering company entered in a subcontract with PJSC Unipro (“Unipro”) for the performance of equipment installation works at a power plant (“Contract”). Enka entered in this Contract with an arbitration clause, which provided for disputes to be resolved by the arbitration seat of London under the ICC Rules (“Arbitration Agreement”).

A fire incident occurred at the ongoing power plant resulting losses of US$ 400 million. Chubb Russia Investments Limited (“Chubb”) was an insurer of this power plant in the Contract with Unipro. The insurer in this case paid out total required amount to the party. Furthermore, Chubb claimed that it was subrogated to Unipro’s right under the subcontract. Chubb tried Enka in the Moscow Arbitrazh Court and claimed that the Enka was responsible for the fire and caused damaged from it and sought to recover the paid amount (“Moscow Claim”). Chubb argued that the fire happened because the defects and deficiencies in the design, structures, fabrication and installation of the facility and the fuel oil pipelines which were in under the observations of the Enka. Enka argued in the response of this claim that a breach of the arbitration clause in the subcontract materialized when the court proceedings were brought in Russia, therefore, the court proceedings should be stayed in favor of arbitration under the ICC Rules in London.

In the meantime of this proceeding Enka made an urgent ex parte application in the English Court by challenging the jurisdiction of Russian Proceedings and contended that the Arbitration Agreement was governed by English Law. If correct in that contention, it was common ground that the Moscow Claim fell within the scope of the clause in the light of Fiona Trust and Holding Corpn v Primalov, and that an anti-suit injunction should be granted unless there was strong reason not to in accordance with the principles set out in Angeliki Charis Compnia maritime SA v Pagnan Spa (the “Angelica Grace”). Against this contention Chubb’s primary submission was that the Arbitration Agreement in clause 50 was governed by Russian law; and that having reached that conclusion, the judge should as a matter of comity and discretion decline to grant relief but leave it to the Moscow Court to determine whether the Moscow Claim fell within the scope of the clause as a clearly more appropriate forum to address that question of Russian law, which it would do on Enka's motion in the Russian proceedings. Enka contended that if the arbitration agreement was, contrary to its primary case, governed by Russian law, the Court should decide on the Russian Law evidence before it that the Moscow Claim was brought in breach of the arbitration agreement and grant the final relief sought. Chubb submitted that if the court concluded that the Moscow Claim was within the scope of the Arbitration Agreement either because English law applied or because Russian law applied and had that effect, relief should be refused as a matter of discretion because Enka's delay, and conduct in both sets of proceedings, provided strong reason for doing so.¹

The trial Court refused to grant an anti-suit injunction and held that the Russian Court is well apprehended to determine law of the governance to the Arbitration Agreement. The Court provided following considerations to deliver its judgment in favor of Chubb:

(1) That Enka delayed in bringing proceedings in the English Court.

(2) That Enka has degree of participation in the Russian Court.

(3) That Enka has failed to commence arbitration proceedings.

(4) That the Court accepts the contention of Chubb in regarding to the question of forum non conveniens.

After this judgment, Enka filed an appeal in the Court of Appeal containing that the Trail Court has taken the principal of forum non conveniens in deciding the case is wrong substantially.

Finally, The Court of Appeal reversed the judgment of commercial court and delivered its final judgment containing some guidelines on 29 April 2020 in favor of Enka and issued an anti suit injunction restraining the Russian Proceedings. The Court was addressing mainly two issues in this appeal: (a) the determination of the role of the Court of the seat of the arbitration and forum conveniens; and (b) the governing law of the arbitration agreement.

The Court of Appeal gives a close insight in its judgment that The Judge's approach was wrong in principle. The English court as the court of the seat of the arbitration is necessarily an appropriate court to grant an anti-suit injunction and questions of forum conveniens do not arise. This follows from two essential principles. First, the choice of the seat of the arbitration is an agreement by the parties to submit to the jurisdiction of the courts of that seat in respect of the exercise of such powers as the choice of seat confers. Secondly, the grant of an anti-suit injunction to restrain a breach or threatened breach of the arbitration agreement is an exercise of such powers. It follows, therefore, that by the choice of English seat the parties agreed that the English Court is an appropriate court to exercise the power to grant an anti-suit injunction.² It means that The Court of Appeal takes away the consideration that by when parties were engaged in Arbitration Agreement by choosing London as the seat of arbitration, the parties agreed that the English court was an appropriate court to grant an anti-suit injunction.

The Court of Appeal goes to the extant to comprehend the three-stage test to touch the conflict of governing law in the arbitration agreement and sets out the certain principle to resolve the issue. We can understand these principles by having an inside look to this flowchart:

Source: https://hsfnotes.com/arbitration/2020/05/13/english-court-of-appeal-issues-clear-guidance-on-the-law-governing-arbitration-agreements-and-grants-anti-suit-injunction-restraining-party-from-pursuing-russian-court-proceedings/

In view of these principles, the Court of Appeal came with conclusion that the Arbitration Agreement was governed by English law and there was no implied construction in agreement which expresses the applicability of a different system of law other than English law. The Court pointed out that Russian law in this matter was merely a relevant regulatory legislation but not preferred as a law of the seat to govern the Arbitration Agreement. Hence, in the pertinence of this the Court of Appeal held that the Russian Court Claim was brought in breach of the Arbitration Agreement.

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Indian Arbitration Law’ in present form

The seat of arbitration determines the court which would exercise jurisdiction over the arbitration proceedings. The Supreme Court of India (the Supreme Court) has dealt with the question of the seat mainly in three recent judgments and laid down its observations to establish the guidelines on the determination of the seat centric jurisdiction in India.

The first of these three judgments is Hardy Exploration Case (2018). In this case the parties agreed in their arbitration agreement that the venue of conciliation or arbitration proceedings shell be Kuala Lumpur unless the parties otherwise agree. When this case reached to the Supreme Court, it held in its judgment that the parties had not chosen the seat of arbitration and the arbitral tribunal had also not determined the seat of arbitration. The choice of a venue does not imply in itself that the venue had become the seat of arbitration. It further noted that the venue could be the seat only if “something else is aided to it as a concomitant”.

The second case is Soma JV Case (2019) in which the parties were in an arbitration agreement stipulating that “Arbitration Proceedings shall be held at New Delhi/Faridabad, India…” In its judgment the Supreme Court has dealt to comprehend the issue whether a chosen venue could be treated as the seat of arbitration and goes to the extant to underline some guidelines on how to deal with the expression of arbitration agreement proclaimed by the parties. Finally, on these guidelines the Supreme Court prescribed that a chosen venue for arbitration proceedings would become the seat of arbitration in the absence of any “significant contrary indicia”, however the Supreme Court did not describe that which factors constitute “significant contrary indicia”. This judgment in Soma JV Case was in diametrically contrary to the Hardy Exploration Case in which it stipulated that a chosen venue could not by itself become the seat of arbitration.

The third and more resultant case is Mankastu Impex (2020) in which the Supreme Court again addressed the issue of seat determination. In this case the parties were in arbitration agreement provided that “… any dispute, controversy… shell be referred to and finally resolved by arbitration administered in Hong Kong” and “… the place of arbitration shall be Hong Kong…”. The governing law in the MoU provided that “… this MoU is governed by the laws of India… and Courts at New Delhi shall have the jurisdiction.” The supreme Court again delivered a contravening judgment to its previously determined guidelines in Soma JV Case and considered that the use of the expression “place of arbitration” could not decide the intention of the parties to designate that place as the seat of arbitration and such intention had to be determine from other clauses in the agreement between the parties and their conduct.

Impact of Enka Insaat Case in Indian Context

As we can see the Supreme Court delivered complex decisions in above mentioned judgments and we still could not derive the sharp lines on the determination of the seat but at the same time the Supreme Court managed to establish the development in the seat centric arbitration law. In the Mankastu Impex Case the Supreme Court did not explicitly follow the judgment of Hardy Exploration Case and also did not set aside the outcomes of Soma JV Case as a whole. This complexity in the observations of the Supreme Court does not align with the Enka Insaat Case.

The three-stage test instituted in Enka Insaat Case would put some more light in the future cases of the seat determination perplexity. The Supreme Court in Soma JV Case laid down in one of its guidelines that “in the context of international arbitration, the choice of a supranational body of rules to govern the arbitration (for example, the ICC rules) would further indicate that the chosen value is actually the seat of arbitration. In the context of domestic arbitration, the choice of the Indian arbitration and conciliation act, 1996 would provide such indication”. This observation leads us to understand the willingness of the Supreme Court to get a symmetric position with the seat centric jurisdictional process in international arbitration law. The three-stage test in Enka Insaat case would put a procedural insight on the forthcoming decisions of The Supreme Court of India.