International arbitration – the seat matters

The English Court of Appeal has in a recent judgment provided welcome clarity on two important questions that have been the subject of much recent debate:

1. The impact of the seat of the arbitration on the English court’s supervisory role.
2. The governing law of the arbitration agreement in the absence of an express choice.

Background

In this case the arbitration agreement provided for all disputes to be resolved by ICC arbitration seated in London. It was common ground that the main contract was governed by Russian law but there was debate about whether this is was an express or implied choice.

A claim was brought in Russia and an application was then made to the English court seeking an anti-suit injunction in respect of the Russian proceedings. In the context of the application the court also considered the governing law of the arbitration agreement.

The role of the seat

The Court of Appeal held that the English court as the court of the seat of arbitration was “necessarily” the appropriate court to grant an anti-suit injunction and the question of forum conveniens, which the first instance judge had taken account of, did not in fact arise.

This conclusion rests on two principles:

(i) “the choice of the seat of the arbitration is an agreement by the parties to submit to the jurisdiction of the courts of that seat in respect of the exercise of such powers as the choice of seat confers”; and

(ii) “the grant of an anti-suit injunction to restrain a breach or threatened breach of the arbitration agreement is an exercise of such powers”.

The English courts exercise curial jurisdiction – that is, the supervisory powers conferred on them by the parties’ choice of the seat – irrespective of the law governing the arbitration agreement.

Consequently, the English court has the power to grant anti-suit injunctions when acting in its role as the curial court, notwithstanding that other courts may concurrently also have such powers (e.g. those exercising personal jurisdiction over a defendant or those before which proceedings are brought – in this case the Moscow Arbitrazh Court).

Disposing of the forum conveniens issue, the Court of Appeal held that: “[i]f the curial court were to defer on forum conveniens grounds to the non-curial court, it would be defeating rather than upholding the considerations of certainty and party autonomy which go with the control which the parties agree the curial court should exercise by reason of their choice of seat”.

The Court of Appeal therefore concluded that forum conveniens is not a relevant discretionary factor in deciding whether to exercise its supervisory powers in granting anti-suit relief where the seat is in England.

Governing law of the arbitration agreement

The governing of the arbitration agreement is a question that has been debated by the English courts on many occasions and there is a range of judgments on this issue. The Court of Appeal has now taken the opportunity to “impose some order and clarity on this area of the law”.

The Court of Appeal set out the following test to determine the governing law of the arbitration agreement:

1. Application of the English common law conflict of laws rules, namely: (i) is there an express choice of law? (ii) if not, is there an implied choice of law? (iii) if not, with what system of law does the arbitration agreement have its closest and most real connection?
2. Where there is an express choice of law in the main contract it may amount to an express choice of the law for the arbitration agreement. Whether it does so will be a matter of construction of the whole contract, including the arbitration agreement, applying the principles of construction of the main contract law.
3. In the absence of express choice, there is a strong presumption that the parties have impliedly chosen the law of the seat as the governing law of the arbitration agreement. However, this is a rebuttable presumption and another system of law could govern the arbitration agreement where there are powerful countervailing factors in the relationship between the parties or the circumstances of the case.

The court treated the choice of seat in the arbitration agreement as an implied choice of law for the arbitration agreement in accordance with the test at 1(ii) above. The court commented that as a matter of commercial common sense one would not expect businessmen to choose two different systems of law to apply to their arbitration package. The court’s decision was influenced by the fact that in this case the governing of the main contract was not express and clear. The court’s decision was not biased towards an English seat/English law. This is made clear in the judgment where the court has confirmed that the rule applies irrespective of the seat.

In giving importance to the seat, the court recognised but did not deal with the problem that would arise where there is no choice of seat.

Conclusion

This judgment provides significant clarity and helpful guidance from the Court of Appeal. Where parties have chosen an English seat for their arbitration it ensures the English court is available to act decisively and help parties enforce their agreements.