On appeal from: [2020] EWCA Civ 574

The central issue on this appeal is how 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, the place chosen for the arbitration in the arbitration agreement.

After a fire broke out in a power plant in Russia, the appellant insurer of the plant’s owners brought proceedings in Russia against the respondent, a subcontractor, alleging liability for the fire. The respondent began proceedings in England contending that the dispute was subject to an arbitration agreement in the contract under which it had performed the works, and seeking an order that the appellant discontinue the Russian Proceedings (“an anti-suit injunction”).

The respondent’s claim was dismissed by the High Court at first instance at an expedited trial.

The Court of Appeal subsequently allowed the respondent’s appeal, granting an anti-suit injunction and restraining the appellant from appealing the decision of the Russian court. It held that, unless there has been an express choice of the law that is to govern the arbitration agreement, the general rule should be that the arbitration agreement is governed by the law of the seat, as a matter of implied choice; that there was no express choice of law in this case and that the arbitration agreement was therefore governed by English law; and that it was appropriate to grant an anti-suit injunction to restrain the appellant from pursuing the Russian claim.

The appellant appealed to the Supreme Court.

There were three issues to be decided:

  1. What is the correct approach to determining the proper law of an arbitration agreement?
  2. What is the relevance of the parties’ choice of law for the main contract under Rome I?
  3. What is the role of the court of the seat of an arbitration and in what circumstances is it appropriate or permissible for the English court to permit a foreign court to decide whether proceedings before the foreign court are a breach of an arbitration agreement?

By a majority, the Supreme Court dismissed the appeal. The contract contains no choice of the law that is intended to govern the contract or the arbitration agreement within it. In these circumstances the validity and scope of the arbitration agreement is governed by the law of the chosen seat of arbitration, as the law with which the dispute resolution clause is most closely connected. The seat of the arbitration is London. Therefore, the majority upholds the Court of Appeal’s conclusion that English law governs the arbitration agreement, albeit for different reasons.

The majority judgment was given by Lord Hamblen and Lord Leggatt with whom Lord Kerr agreed. Lord Burrows delivered a dissenting judgment, with which Lord Sales agreed. Lord Sales also gave his own judgment.

The majority held that, where an English court must decide which system of law governs an arbitration agreement, it should apply the English common law rules for resolving conflicts of laws rather that the provisions of the Rome I Regulation, as the latter excludes arbitration agreements from its scope.

According to the common law rules, the law applicable to the arbitration agreement will be: (i) the law expressly or impliedly chosen by the parties; or (ii) in the absence of such choice, the system of law “most closely connected” to the arbitration agreement. In determining whether the parties have made a choice of law, the court should construe the arbitration agreement and the contract containing it by applying rules of contractual interpretation of English law as the law of the forum.

Where the parties have not specified the law applicable to the arbitration agreement, but they have chosen the law to govern the contract containing the arbitration agreement, this choice will generally apply to the arbitration agreement. This general rule encourages legal certainty, consistency and coherence while avoiding complexity and artificiality. The Court of Appeal was wrong to find that there is a “strong presumption” that the parties have, by implication, chosen the law of the seat of the arbitration to govern the arbitration agreement.

Where there is no express choice of law to govern the contract, a choice of the seat of the arbitration does not by itself justify an inference that the contract (or the arbitration agreement) is intended to be governed by the law of the seat.

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.

The appellant does not dispute that, if the arbitration agreement is governed by English law, it was legitimate for the Court of Appeal to grant an anti-suit injunction in this case. The Supreme Court, however, affirms the Court of Appeal’s decision that, in principle, 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 been a breach of the agreement and, if so, whether it is just and convenient to grant an injunction to restrain that breach. While there may be circumstances in which it would be appropriate to await a decision of a foreign court before granting an injunction, defence to foreign courts should generally give way to upholding the importance of the parties’ bargain.

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To watch the hearing:

27 Jul 2020 Morning session Afternoon session
28 Jul 2020 Morning session Afternoon session

To watch the judgment summary:

08 Oct 2020 Judgment summary