In Sulamérica Cia Nacional de Seguros SA and ors v Enesa Engenharia SA and
ors,
(11) the English Court of Appeal held that English law was the governing law of an
arbitration agreement, even though it appeared in a contract that was governed by
Brazilian law and which also reserved exclusive jurisdiction in relation to any disputes
under the contract to the Brazilian courts. In addition to the Brazilian governing law and
jurisdiction clause, the contract separately provided for arbitration seated in London
under the Aida Reinsurance and Insurance Arbitration Society (ARIAS) Arbitration
Rules.
3.17 The case concerned two insurance policies covering various risks arising in
connection with the construction of a hydroelectric generating plant in Brazil. A dispute
had arisen between the parties over Sulamérica's liability for certain claims made by
Enesa under the policies and Sulamérica gave notice of arbitration to Enesa. In response,
Enesa commenced proceedings in the Brazilian courts, where it obtained an anti-suit
injunction restraining Sulamérica from pursuing the arbitration. Sulamérica, in turn,
obtained an anti-suit injunction in the English Commercial Court, restraining Enesa from
pursuing the action in the Brazilian courts. Enesa appealed to the English Court of
Appeal, arguing (among other things) that it was not bound to arbitrate because the
arbitration agreement was governed by the law of Brazil, under which the arbitration
agreement could be invoked only with Enesa's consent.
3.18 The English Court of Appeal upheld Sulamérica's anti-suit injunction, finding
(among other things) that the proper law of the arbitration agreement was English law.
The central question concerned the relative importance to be attached to the parties'
express choice of proper law and their choice of London as the seat of arbitration.
3.19 The English Court of Appeal held that the law of the arbitration agreement was to
be determined by application of the three-stage enquiry established at common law.
• (1) If the parties made an express choice of law to govern the arbitration
agreement, that choice would be effective, regardless of the law applicable to the
contract as a whole.
• (2) Where the parties failed expressly to specify the law of the arbitration
agreement, it was necessary to consider whether the parties had made an implied
choice of law.
• (3) Where it was not possible to establish the law of the arbitration agreement by
implication, it was necessary to consider what would be the law with the ‘closest
and most real connection’ with the arbitration agreement.
3.20 Where the parties had not made an express choice of law, the English Court of
Appeal accepted that it was fair to start from the assumption that, in the absence of any
contrary indication, the parties intended the whole of their relationship to be governed by
the same system of law. Starting from that assumption, the ‘natural inference’ was that
the partiesintendedthatlawchosentogovernthesubstantivecontractalsotogovernthe
agreement to arbitrate. Such an approach accorded with previous authority recognising
that the proper law of the arbitration agreement would typically be the same as the
substantive law of the contract, whereas the lex arbitri would usually be the law of the
seat of the arbitration. (12)
3.21 However, the English Court of Appeal held that, in the present case, two specific
factors indicated that the parties did not intend that Brazilian law should govern the
arbitration agreement.
3.22 First, it was argued that, under Brazilian law, the arbitration agreement was
enforceable only with Enesa's consent. The English Court of Appeal recognised that
there was no indication that the parties intended the arbitration agreement to be
enforceable by only one party and, accordingly, there was a serious risk that a choice of
Brazilian law would entirely undermine the arbitration agreement. Such a risk militated
against an implied choice of Brazilian law as the proper law of the arbitration agreement.
3.23 Secondly, the choice of London as the seat of arbitration entailed acceptance by the
parties that English law would apply to the conduct and supervision of the arbitration,
which suggested that the parties intended English law to govern all aspects of the
arbitration agreement. The English Court of Appeal was fortified on this point by two
prior decisions, C v D (13) and XL Insurance Ltd v Owens Corning. (14) Both cases
concerned insurance contracts containing a New York applicable law clause, along with
a clause providing for arbitration in London under the English Arbitration Act 1996. In
both cases, the relevant court recognised that the choice of London as the seat of the
arbitration implied a choice of English law as the law governing the arbitration
agreement.
3.24 Accordingly, turning to the third stage of the enquiry, the English Court of Appeal
held that, in the circumstances of the case, the arbitration agreement had its closest and
most real connection with the law of the place where the arbitration was to be held,
which would exercise the supporting and supervisory jurisdiction necessary to ensure the
effectiveness of the arbitral procedure. In arriving at its decision, however, the Court
conceded that prior authority on establishing the proper law of the arbitration agreement
was not entirely consistent.
In the Bulbank case,
the Bulgarian Foreign Trade Bank (Bulbank) concluded a contract with an Austrian
bank. (16) The contract containing the arbitration clause expressed a choice of Austrian
law. A dispute arose between the two parties and arbitral proceedings were initiated in
Stockholm. Bulbank challenged the award in the Swedish courts on the basis that the
arbitration agreement was void for breach of an allegedly implied term of
confidentiality. The Supreme Court of Sweden held that the arbitration agreement was
valid under the law of the seat of arbitration, Swedish law, stating that:
...no particular provision concerning the applicable law for the arbitration agreement
itself was indicated [by the parties]. In such circumstances the issue of the validity of the
arbitration clause should be determined in accordance with the law of the state in which
the arbitration proceedings have taken place, that is to say, Swedish law.
