Choice of law and arbitration: the UK SC in Enka v Chubb unlikely to settle the issue.

I discussed the first instance judgment in Enka Insaat here and the Court of Appeal’s findings here. The Supreme Court’s judgment, Enka Insaat Ve Sanayi AS v OOO Insurance Company Chubb [2020] UKSC 38 attempts to settle one of the many issues which choice of law in arbitration provokes, as I first flagged in a post on Sulamerica here: one needs to determine lex arbitri (the law that governs the arbitration agreement; it decides issues such as what issues are arbitrable, and whether the agreement to arbitrate is valid at all); the curial law or the ‘law of the seat’ (the procedural law which will guide the arbitration proceedings; despite the latin curia not commonly referred to as lex curiae); the ‘proper law’, the law that governs the actual contract (lex contractus) of which the agreement to arbitrate is only one part; and the locus arbitri and the lex locus arbitri:  the venue of the arbitration and its laws, which may or may not interact with the proceedings. That 2013 post on Sulamerica contains many further references, including comparative ones. Further case-law may be found by using the search tag ‘Sulamerica’ on the blog.

The Supreme Court held 3-2 in favour of dismissing the appeal, but only on the facts. Lord Burrows dissented in part, Sales dissented. The Supreme Court has now effectively held that unlike the Court of Appeal’s suggestion,  in the absence of express contractual provision there is no “strong presumption” of an implied term for the lex curiae, the law of the seat of the arbitration, to be  the lex arbitri (the law that governs the arbitration agreement), instead pushing the lex contractus (of the agreement of which the arbitration agreement is part) as the lex arbitri.

There has been plenty of analysis since the 9 October judgment and I shall let readers find that for themselves (Google search ‘proper law arbitration Enka v Chubb’ should do the trick). Ex multi I found Peter Ashford’s analysis very useful, including his use of the term ‘host contract’.

As the discussion here shows, with 2 strong dissenters and open discussions on the determination of implied choice of law, I do not think judgment in Enka v Chubb has truly settled the issue. Per inspiratio Steven Barrett’s quote, this might be one of those authorities one can drive a coach and horses through.

Geert.

GMR Energy: The Delhi High Court on ‘international’ agreements, and privity of arbitration clauses.

Update 03 12 2019 for a recent example in Switserland: the Swiss SC has confirmed that under Swiss lex arbitri the fact that a party is a state-owned entity is not sufficient per se, to extend an arbitration clause to a non-signatory state: Decision 4A_636/2018 (24.09.2019)

I have reported before on the relevance of lex curia /curial law and other lex causae decisions to be made in the arbitration context. I have also reported on the qualification of ‘international‘ for conflict of law /private international law purposes. And finally of course privity of choice of court and -law is no stranger in my postings either. All these considerations apply in the arbitration context, too.

Thank you Herbert Smith for flagging CS(COMM) 447/2017 GMR Energy, in which all these issues featured in the arbitration context. The judgment would not seem to add anything new (mostly applying precedent) however it is a usual reminder of the principles. As reported by HS (and with further factual background there), GMR Energy argued

  • on the plain reading of the arbitration clauses, Singapore was not the seat of arbitration but only the chosen place or venue for hearings; Not so, the High Court found: reference to SIAC rules and to Singapore  points to Singapore as the curial seat;
  • the parties being Indian, choice of a foreign seat for arbitration would be in contravention of Section 28 of the Indian Contract Act 1872 which provides that agreements which restrain parties’ rights to commence legal proceedings are void (save for those which do so by way of an arbitration agreement) – GMR Energy contended that an agreement between Indian parties to arbitrate offshore would fall foul of this provision. This, too, the High Court rejected: per precedent, offshore arbitration is compatible with the Act. (It is also particularly useful for Indian subsidiaries of foreign companies); and
  • for two Indian parties to choose an overseas seat for their arbitration (thereby disapplying Part I of the Arbitration Act) would amount to a derogation from Indian substantive law, and therefore would not be permissible. This, the High Court ruled, is not a decision to make at the stage of jurisdictional disputes between the parties.

Further, on  the issue of privity, Doosan India ‘contended that GMR Energy should be party to the SIAC Arbitration proceedings by virtue of common family ownership and governance, lack of corporate formalities between the companies, common directorships, logos and letterheads, and GMR Energy’s past conduct in making payments towards GCEL’s debts’ (I am quoting HS’s briefing here). This is referred to as the alter ego doctrine and the High Court upheld it. Liability for affiliated undertakings’ actions is to be discussed on the merits (here: by the arbitral tribunal). But a the level of jurisdiction (including reference to arbitration), Doosan India’s arguments were upheld: the common ownership between the entities; the non-observance of separate corporate formalities and co-mingling of corporate funds; and GMR Energy’s undertaking to discharge liabilities of GCEL (and the fact that it had made part payments towards the same) all conspire to the conclusion that GMR Energy is bound by the arbitration agreement.

An interesting confirmation of precedent and ditto application of the alter ego doctrine.

Geert.