On 29 April the English Court of Appeal in its decision on Enka v Chubb  EWCA Civ 574 establishes a new approach to the problem of the law applicable to the arbitration agreement in the situation when the law chosen by the parties to govern the wider contract differs from the law of the seat of arbitration.
Background of the case
Enka is a Turkish construction and engineering company with substantial operations in Russia. It played a part in the construction of the Berezovskaya power plant for Unipro (previously named E.ON Russia). In 2016 there was a huge fire at the plant, and Unipro claimed from its insurers, the Russian arm of the Chubb insurance group. Chubb duly paid out, thereby became subrogated to any rights Unipro had against the contractors, and pursued a claim against Enka (among others) on the basis that the fire was caused by defects in Enka’s work. Enka’s contract is governed by Russian law and contained a London-seat arbitration clause, but Chubb filed its claim in the Russian courts. Enka applied to the English High Court for an anti-suit injunction preventing Chubb from pursuing the Russian proceedings.
In fighting Enka’s anti-suit application in the High Court, Chubb argued that: (a) Enka’s contract was governed by Russian law, and that this choice of law extended to the arbitration clause; (b) Chubb’s claim fell outside the scope of the arbitration clause when construed under Russian law. Enka’s position was that the arbitration clause was governed by English law, the law of the seat. Chubb did not dispute that if the arbitration clause was governed by and therefore construed under English law, Chubb’s claim fell within the scope of the clause.
The High Court found in favour of Chubb, dismissing Enka’s application primarily on the ground that the Russian courts were the more appropriate forum to determine the governing law and scope of the arbitration clause and its impact on Chubb’s claim in Russia. Enka appealed.
The Court of Appeal’s decision
The Court of Appeal allowed Enka’s appeal and granted the anti-suit injunction, holding that the arbitration clause was governed by English law, therefore Chubb’s claim fell within the scope of the clause.
To determinate the law applicable to the arbitration agreement, the English courts will apply a three-stage test: (a) is there an express choice of law for the arbitration clause; (b) if not, is there an implied choice of law; (c) if not, with what system of law does the arbitration clause have its “closest and most real connection?
In its earlier decision in Sulamerica Cia Nacional de Seguros SA v Enesa Engelharia SA  1 WLR 102 the Court of Appeal provided the following guidance on the application of this test. According to it, in the case of an arbitration clause situated within a wider contract, an express governing law provision in the contract is “a strong indication” that the parties have impliedly chosen the same law to govern the arbitration clause, and is likely to lead to that conclusion subject to any strong countervailing factors.
In the case in hand the court revisited the mentioned test and established a very different set of principles, according to which where parties have chosen one law for the wider contract and a different law for the seat, having regard to the doctrine of separability there is “no principled basis” for treating the contract law as a significant source of guidance when determining the law governing the arbitration clause. By choosing a seat that differs from the contract law, the parties have already shown that they intend some aspects of their relationship to be governed by another system of law.
On top of that, the court pointed out that as the courts at the seat of arbitration are those to rule on the tribunal’s jurisdiction and determine the validity/scope of the arbitration clause the parties are unlikely to have intended that the courts should apply a system of law other than their own law when they are called upon to exercise such powers.
Enka v Chubb provides a helpful guidance for determination of the law applicable to the arbitration agreement. However, it is highly recommended to commercial parties to avoid the situation when the law applicable to the contract differs from the law of the seat of arbitration. At least, under such circumstances the parties should include an express choice of law for the arbitration clause.