The English jurisdiction is generally seen as an arbitration-friendly (or ‘pro-arbitration’) institution. Decisions of the English courts that touch upon issues of arbitration practice and procedure are, therefore, highly anticipated by the many international clients (and their lawyers) around the world that use arbitration and the English jurisdiction as a means of dispute resolution.

In the recent past, there have been a number of such decisions that make for interesting and valuable reading. We have selected and summarised some of the key recent decisions below, which between them have considered the following questions:

1. How does the English court approach the question of whether an arbitration agreement is valid?
2. How does the English court navigate a situation where there are overlapping dispute resolution clauses within multiple agreements?
3. What is the scope of the English court’s supervisory powers in support of arbitration to make an order against non-parties to an arbitration?
4. How does English law determine the law applicable to an arbitration agreement where the agreement contains no express choice by the parties?

1. How does the English court approach the question of whether an arbitration agreement is valid?

On 31 March 2020, the English High Court handed down its decision in Carpatsky Petroleum Corporation v PJSC Ukrnafta [2020] EWHC 769 (Comm), in which the court had to consider (among other issues) whether a valid arbitration agreement had been concluded between the disputing parties. This important decision is a reminder of the English courts’ pro-arbitration stance and the risks of a party waiving jurisdictional arguments. In this case, the court found that arbitration agreements can be created after a dispute arises by virtue of the parties’ conduct and participation in arbitration proceedings.

Facts

In 2007, Carpatsky filed a request for arbitration with the Arbitration Institute of the Stockholm Chamber of Commerce (“SCC”) to which Ukrnafta responded without contesting jurisdiction. Only after two rounds of submissions by each party did Ukrnafta serve objections to the arbitral tribunal’s jurisdiction. It claimed that the arbitration agreement was invalid under Swedish law because it had been concluded not by Carpatsky but by a third-party entity, Carpatsky Petroleum Corporation, Texas, which had later merged into Carpatsky and then ceased to exist. The tribunal held that it did have jurisdiction on the basis that by Ukrnafta participating in the arbitration without contesting jurisdiction, the parties had through conduct agreed to arbitrate.

The tribunal issued its award in favour of Carpatsky. However, when seeking to enforce that award in Ukraine in 2013, the Kiev Commercial Court ruled that Carpatsky could not do so on the ground that there had been no valid written arbitration agreement. Carpatsky successfully applied to the English Commercial Court to enforce the award. Ukrnafta sought to set aside the English court order granting permission to enforce, arguing that, under Ukrainian law, the arbitration agreement was invalid.

Decision

Applying the test in Sulamerica v Enesa Engenharia [2012] EWCA Civ 638 (as to which, see further below), the English court held that the applicable law of the arbitration agreement was Swedish law and that in applying Swedish law a valid arbitration agreement was formed between Ukrnafta and Carpatsky.

As part of its decision, the court was asked to consider a number of issues, including whether there was an issue estoppel in respect of any of Ukrnafta’s arguments. In the event, Ukrnafta was held to be estopped from arguing that Ukrainian law governed the arbitration agreement and that a valid arbitration agreement had previously been determined. However, and importantly, the court added that even if no such arbitration agreement had existed previously, the parties’ conduct, participation and exchange of pleadings in the SCC arbitration had created an arbitration agreement in any event.

Comment

This decision underlines the importance of determining and understanding the potential effects of the law governing the arbitration agreement. It is also a good illustration of the English court’s pro-arbitration stance. It demonstrates its preparedness to consider and apply foreign law and its willingness not to deviate unnecessarily from the decision of the tribunal.

The decision also serves as a cautionary reminder that when faced with an arbitration where there are concerns or questions about jurisdiction, parties should not be too quick to take steps in the arbitration that could later rid them of the ability to raise jurisdictional objections. It underlines the prudent advice that parties should involve their lawyers immediately and work with them to determine a holistic strategy at the outset of a matter. Decisions taken at the earliest stages of the arbitration may relieve a defendant of an important argument that it could otherwise have validly run.

2. How does the English court navigate a situation where there are overlapping dispute resolution clauses in multiple agreements?

On 14 February 2020, the English court handed down its decision in Albion Energy Ltd v Energy Investments Global BRL [2020] EWHC 301 (Comm), which provides further clarity on its approach to competing dispute resolution clauses in multiple agreements concluded by the parties.

Facts

This case related to an application for summary judgment brought by Albion, the seller, against EIGL, the buyer, for non-payment for shares due under a sale and purchase agreement (“SPA”). The SPA contained an exclusive English court jurisdiction clause. After the SPA had been concluded, the parties entered into an escrow agreement pursuant to which the disputed sum would be held in escrow in an attempt to resolve the dispute. The escrow agreement contained an arbitration clause providing for London-seated ICC arbitration.

Albion brought its summary judgment proceedings for payment of the disputed sum before the English court consistent with the jurisdiction clause under the SPA. In response, EIGL contended that the matter was instead referable to arbitration in accordance with the escrow agreement, which agreement it said superseded the exclusive jurisdiction clause in the SPA. EIGL, therefore, sought a court order under section 9 of the Arbitration Act 1996 to stay Albion’s proceedings so as to allow the matter to be resolved in arbitration.

Decision

The court was tasked with considering whether the subject matter of the dispute fell within the arbitration agreement under the escrow agreement or the English court jurisdiction clause under the SPA.

The court considered the guidance set out in BNP Paribas v Trattamento Rifiuti Metropolitani SpA [2019] EWCA Civ 768 to resolve the issue. That guidance focused on identifying the parties’ likely intentions, from the starting presumption that in cases where there are two competing jurisdiction clauses, the jurisdiction clause in one contract was “probably not intended to capture disputes more naturally seen as arising under a related contract”.

Following this guidance, the judge examined the language used in the arbitration clause in the escrow agreement. It referred to “any dispute or difference … arising out of or in connection with this letter (including any question regarding its existence, validity, interpretation, performance or termination)”. The judge held it likely that the words “this letter” was intended to refer to the escrow agreement only, such that the arbitration agreement under the escrow agreement was not intended to cover disputes involving the SPA.

Furthermore, the judge placed weight on the fact that the escrow agreement concerned only three of the six parties to the SPA. This suggested that the parties could “only have intended the arbitration agreement to have a localised effect” to avoid the position where claims between some of the parties to the SPA were subject to the English court jurisdiction, and other claims under the SPA were subject to ICC arbitration.

The judge also referred to the analogous case of Transocean Offshore International Ventures Ltd v Burgundy Global Exploration Corp [2010] 2 SLR 821 in which the dispute resolution clause in the principal agreement provided for arbitration, whereas the escrow agreement provided for the jurisdiction of the Singaporean High Court. The judge in Transocean held that the parties were “likely to have deliberately chosen a dispute resolution provision for the escrow agreement which could ensure more speedy relief”. See here for a separate article written by Stewarts about the Transocean case.

As such, the court concluded that it was more likely the arbitration agreement was intended to address the security under the escrow agreement, rather than displace the jurisdiction clause under the SPA altogether. The agreements were intended to subsist together, dealing exclusively with their own subject matter. The court refused EIGL’s application for a stay to Albion’s summary judgment application on the basis that the claims in question fell outside the scope of the arbitration agreement.

Comment

This case highlights the need to be clear in drafting, particularly where there is a suite of transaction documentation. Where that documentation is being prepared at the same time (eg, as part of a single transaction or project), parties can consider adopting mirrored dispute resolution clauses for ease (eg, to facilitate, in the case of arbitration, the consolidation of cases) or an overarching dispute resolution umbrella agreement.

Where that documentation is prepared sequentially, care must be taken to define precisely the scope of the jurisdiction clause and particularly its inter-relationship with other jurisdictional clauses, including if it supersedes previous jurisdictional agreements (as might be the case with a restated or amended agreement, for example).

Where issues do arise, this decision demonstrates that the English court will approach the issue through the lens of contractual interpretation and construction in seeking to determine the parties’ intentions. While the usual English law principles governing contractual interpretation will usually apply, parties are nonetheless advised for certainty’s sake to ensure at the outset that their drafting is clear as to the intended effects of any clause.

3. What is the scope of the English court’s supervisory powers in support of arbitration to make an order against non-parties to an arbitration?

Where the English court’s jurisdiction is triggered under the Arbitration Act 1996, section 44 of that Act empowers the court upon application to act in a number of ways in support of arbitral proceedings. A series of judgments have over the years considered the application, scope and effects of each of the section 44 powers. The latest is the decision in A and B v C, D and E [2020] EWCA Civ 409, which tackled the question of whether an English court can exercise its section 44(2)(a) power to make an order against non-parties to an arbitration for the purposes of the taking of evidence of witnesses.

This is an important decision for parties considering whether they can apply to the English court to compel a witness to give evidence in a foreign jurisdiction in which an arbitration is being heard.

Facts

The appellants applied to the English court under section 44(2)(a) of the Arbitration Act for an order that an English resident and non-party to a foreign-seated arbitration be required to give evidence by way of deposition (in accordance with CPR 34.8) for use in that arbitration. The application had been refused at the first instance.

Decision

At first instance, the judge had relied on the decisions of Cruz City Mauritius Holdings v Unitech Limited [2014] EWHC 3704 (Comm) and DTEK Trading SA v Morozov [2017] EWHC 94 (Comm), where it was held that section 44, as a whole, did not include a power to make an order against a non-party to an arbitration. In these cases, the reasoning adopted was that the wording of certain subsections of section 44 pointed towards an interpretation that they could only take effect as between parties to an arbitration (eg, subsections 4, 5, 6 and 7). To find that other subsections, absent express language to the contrary, could take effect as against third parties was, therefore, an unattractive conclusion. The first instance judge in the present case, therefore, dismissed the application made under s.44(2)(a).

Preferring to leave the issue of whether Cruz City and DTEK were properly decided to a separate occasion when the specific subsections considered in those cases fell before it, the Court of Appeal concluded unanimously that section 44(2)(a) does give the court a power to order the taking of evidence from a non-party. It set out its reasoning, which can be summarised as follows:

1. The wording of the Arbitration Act imposes no limitation on the court’s ability to exercise its powers against non-parties. Section 44(1), when read with section 2(3) and the definition of “legal proceedings” in section 82(1), makes it clear that the English court has the same powers under section 44(2)(a) in relation to arbitrations as it has in relation to civil proceedings (provided any other limitations built into the section are satisfied). Additionally, the words “the taking of the evidence of witnesses” cover all witnesses, not just parties to an arbitration, particularly as the Act distinguishes between ‘party’ and ‘witness’ when necessary. Similarly, nothing within the wording of CPR 34.8 prevents a court ordering a deposition in support of foreign court proceedings.
2. This interpretation of section 44(2)(a) would not sit inconsistently with section 44(7)’s limitation on rights of appeal, as it would be open to non-parties to appeal an order made against them under section 44(2)(a).

Having decided that section 44(2)(a) did empower the court to issue the order in question, the Court of Appeal turned to assess whether it ought to exercise that power and issue the requested order in the particular case. The Court of Appeal agreed with the judge at first instance that the appropriate test was that set out in Commerce & Industry Insurance. That test broadly requires the applicant to demonstrate that the witness could provide relevant evidence that would justify his or her attendance. The Court of Appeal confirmed that this test did not require that the witness’ evidence would have an important bearing on the outcome of the dispute, just that it was “necessary for the just determination of the dispute”.

Comment

This is an important decision which helps settle an open question as to whether the English court’s supervisory powers under section 44 of the Act can be deployed against a non-party to an arbitration. While, strictly speaking, the effects of the decision are limited to the power under section 44(2)(a) only, the Court of Appeal suggested that the approach it adopted might equally apply to other powers under section 44(2). Its decision casts doubt on whether Cruz City and DTEK remain good law.

No doubt time will tell in respect of the other sub-sections of 44. But this decision is a timely reminder of both the scope and extent of the English court’s supervisory powers in support of arbitration and how it retains its pro-arbitration attitude in exercising them, even, as was the case on this occasion, in support of foreign-seated arbitrations.

Clients should recall that the territorial scope of the Arbitration Act 1996 extends beyond arbitrations seated within the English, Welsh or Northern Irish jurisdictions. So, one must always consider the extent to which the English courts can be deployed to support arbitral proceedings using one of the many powers granted to them under that Act.

4. How does English law determine the law applicable to an arbitration agreement where the agreement contains no express choice by the parties?

The Court of Appeal handed down its judgment of Enka v. Chubb [2020] EWCA Civ 574 on 29 April 2020. Its decision may well turn out to be the leading authority for ascertaining the proper law of an arbitration agreement in the absence of the parties making an express choice.

Facts

This case concerned a contract for the construction of a power plant in Russia. The contract between the employer and the contractor (Enka) contained an arbitration agreement that provided for a London-seated ICC arbitration. While the contract did not expressly specify the law governing the arbitration agreement, it did specify that the contract governing law was Russian law.

Following a catastrophic fire at the plant in 2016, an insurer, Chubb, issued proceedings against Enka and 10 other defendants in the Russian courts. It sought, on a subrogated basis, to recover damages in respect of the sums that it had paid out to the employer under an insurance policy in respect of the fire damage.

Enka applied to the English court for an anti-suit injunction seeking to prevent the Russian proceedings on the basis of the arbitration agreement to which, it was accepted, Chubb had become a party. In response, Chubb argued that the arbitration agreement (consistent with the ‘host’ contract) was governed by Russian law and that, under Russian law, the nature of its subrogated claims – being, it said, tortious claims – fell outside the scope of the arbitration agreement and were, therefore, correctly brought before the Russian courts.

The English court was tasked with determining the law applicable to the arbitration agreement, in the absence of the parties having made an express choice.

Decision

When assessing that question, the English court has, for many years, applied a three-stage test required by English common law conflict of laws rules. That test is often referred to as the Sulamerica test given its detailed consideration in the case of Sulamerica v Enesa Engenharia [2012] EWCA Civ 638. That test sets out a cascade of three questions to be considered, which can be summarised as follows:

1. Is there an express choice of law by the parties?
2. If not, is there an implied choice of law by the parties?
3. If not, with what system of law does the arbitration agreement have its closest and most real connection?

In practice, however, the approach of the English court in applying the Sulamerica test has been inconsistent where the parties had made no express choice of law. Should it be implied that the parties intended the law governing the arbitration agreement to be the same law chosen by them to govern the host contract? Or, is the better answer that the parties’ express choice of the seat for arbitration should also stand as their implied choice for the law governing the arbitration agreement? Further, how, if at all, does the third stage of the test assist in selecting between the governing law or the law of the seat being the applicable law?

The Enka decision brings clarity to the area. There is now “a strong presumption” that in the absence of an express choice the parties impliedly chose the law of the seat of the arbitration as being the law governing the arbitration agreement. While only a presumption, “powerful countervailing factors” would need to be demonstrated to reach a different conclusion. Thus, in Enka, English law (and not Russian law) was found to govern the arbitration agreement. Interpreting the arbitration agreement under English law, the court found that the claims did fall within its scope, and so issued the anti-suit injunction to restrain the Russian proceedings.

Comment

At the contracting stage, parties often give little thought to the question of what law should govern the arbitration agreement. The Enka decision is a good example of how that question may be critical to the outcome of a dispute between parties where an arbitration clause is involved.

The Enka decision is a welcome one to settle the debate that has been ongoing for many years as to the proper law of the arbitration agreement where no express choice has been made. That said, the scope of the court’s helpful clarification in that case must not be overstated. The court will still start with the first limb of the Sulamerica test: namely, whether the parties have made an express choice of law. As demonstrated by the Court of Appeal in its recent judgment in Kabab-Ji SAL (Lebanon) v. Kout Food Group (Kuwait) [2020] EWCA Civ 6 (as to which, see Stewarts’ summary here), the court may deploy the principles of contractual interpretation in seeking out such an express choice, even if no express choice is clear on first blush. Put another way, parties should not be overly quick to move to questions two and three of the three-staged test, as has sometimes been the case. We now look forward to seeing whether the Supreme Court agrees with the Court of Appeal’s approach as permission to appeal and a stay of the anti-suit injunction obtained by Enka has been granted.

Notwithstanding the welcome clarification in the Enka decision, the best approach and practice will always be for parties to take the time at drafting stage to ensure that they have expressly stated in their contracts which law is to govern the arbitration agreement between them.

For further analysis of the Enka decision, see our article dated 1 May 2020 here.

This article was written by our Senior Paralegal Anoushka Nehra

You can find further information regarding our expertise, experience and team on our International Arbitration page.

If you require assistance from our team, please contact us or alternatively request a call back from one of our lawyers by submitting this form.

Subscribe – In order to receive our news straight to your inbox, subscribe here. Our newsletters are sent no more than once a month.