No More Russian’s Rushing Between Courts: UK Supreme Court rules Russian firm cannot pursue litigation in Moscow

October 26, 2020

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3 min read

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What's going on here?

A Russian insurance company cannot pursue litigation in Moscow as this would breach an arbitration agreementgoverned by English and Welsh law, the UK Supreme Court has ruled.

What does this mean?

The case began following a 2016 fire in a Russian power plant. The power plant had been insured by Chubb Russia (the appellant) and had provided against this kind of damage. In 2019 it brought a claim against Enka (the defendant), a sub-contractor in the construction project, in the Moscow courts.

Enka responded by bringing an arbitration claim in the High Court in London stating that “by proceeding in the Russian court, Chubb Russia was in breach of the arbitration agreement.” Arbitration is a method of resolving a dispute outside the court. Third parties act as arbitrators and ultimately issue an “arbitration award” which is legally binding and enforceable in court. Enka, therefore, wanted to prevent Chubb from pursuing a claim in the Russian courts and sought an “anti-suit injunction.” This is an injunction that prevents an opposing party from starting or continuing legal proceedings in another jurisdiction. This was granted by the Court of Appeal and was challenged by Chubb meaning the decision was put before the Supreme Court. By a majority of 3:2, the Supreme Court dismissed the appeal., asserting that the “validity and scope of the arbitration agreement is governed by the law of the chosen seat of arbitration”. In this case, it was London.

What's the big picture effect?

The main question concerned was determining which laws governed the arbitration agreement. In Enka v Chubb [2020] UKSC 38, Chubb was prepared to accept that if the arbitration was governed by English Law, the Court of Appeal could grant the anti-suit injunction. Chubb’s challenge was to argue that the arbitration agreement was in fact governed by Russian law. Jurisdictional disputes can be incredibly complex especially when the law governing the main contract can often be different to the law which governs the seat of arbitration the contract contains. In Enka, the construction contract was governed by Russian law but the seat of arbitration in London. Therefore, the question posed to the Supreme Court is if different laws govern the main contract and the procedure to resolve disputes which law should govern?

The decision of the Supreme Court can be broken down into three main points. First, the courts should consider if there is an “express or implied choice of law” for the arbitration agreement. If no law was chosen but there was a law governing the main contract that law will apply. Finally, if the parties did not choose the law relating to the main contract then by default the arbitration will be most closely connected to the law governing the seat of arbitration.

The decision by the Supreme Court has been welcomed by many practitioners in England. As one commentator put it “the decision highlights the powers the English Court is prepared to deploy in determining anti-suit injunctions and thus the attractiveness of choosing England as a seat of international arbitrations.” For any company operating internationally the decision highlights the need for contracting parties to agree which legal jurisdiction governs the contract upon its formation. A failure to do so could cause unwanted litigation, especially where arbitration is concerned.

Report written by Michael Johnson

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