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UK Supreme Court on law applicable to arbitration agreements

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Written by Stephen Armstrong, lawyer practicing in Toronto, Ontario, Canada with an interest in international arbitration. [Linkedin]

On Friday, October 9, 2020, the United Kingdom Supreme Court released an interesting decision concerning the applicable law governing arbitration agreements in international contracts and the jurisdiction of the courts of the seat of the arbitration to grant anti-suit injunctions. The case is Enka Insaat Ve Sanayi A.S. v 000 Insurance Company Chubb, [2020] UKSC 38.

The full text of the Supreme Court’s decision is available here.

A digestible summary of the case, including the facts, the breakdown of votes, and the reasons, is available here.

Interestingly, the Supreme Court fundamentally disagreed with the Court of Appeal on the role of the seat of the arbitration for determining the law of the arbitration agreement. The Supreme Court held that an express choice of law in the main contract should be presumptively taken as an implied choice of law governing the arbitration agreement. By contrast, the Court of Appeal had held that the law of the seat was the parties’ presumptive implied choice of law for the arbitration agreement. The Supreme Court did, however, affirm the Court of Appeal’s holding that the courts of the seat are always an appropriate forum to grant an anti-suit injunction, regardless of the applicable law.

Unlike other choice of law issues in the UK, this issue is governed by the common law, rather than the EU’s Rome I regulation. This makes the Supreme Court’s decision a common law authority, rather than an EU law authority. I therefore expect that this decision will find purchase throughout the Commonwealth, including my home jurisdiction of Ontario, Canada.

The End of the “Sahyouni Saga”

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The German Bundesgerichtshof (BGH) in August finally decided the case “Sahyouni” that made it twice to the ECJ (Sahyouni I  and Sahyouni II). The BGH decision (German text here) applied the new German rules on private divorces. The German legislator had enacted these rules after the ECJ declared the Rome III Regulation as only applicable on divorces by a court. Additionally, the court took the opportunity to comment on several other private international law issues. The probably most interesting issues of the case are (1) the new German rules, (2) the treatment of parties with more than one nationality if the connecting factor is nationality and (3) the question whether the unilateral private divorce finally was recognized.

  1. German law regarding “private divorces”

Following the second “Sahyouni” decision, new private international law rules were enacted. German private international law follows the principle of “recognition via conflict of laws”, meaning that a divorce not issued by a court decision will only be recognized if it complies with the rules applicable according to German private international law. The new rules basically declared the Rome III Regulation applicable to private divorces mutatis mutandis except for those rules that could not be applied on a private divorce (e.g. the application of lex fori as there is not forum). Furthermore, Article 10 Rome III, the rule that initially triggered the request for the preliminary ruling, is not applicable. Thus, only the “usual” public policy exception can prevent the application of the lex causae.

  1. Treatment of double-nationality

The court came to the conclusion that the spouses did not have a common habitual residence as required by Article 8 lit a, b Rome III (mutatis mutandis). So, the question occurred whether the spouses had a common nationality (Article 8 lit. c). In this special case, both spouses did not only have one common nationality but two: German and Syrian. As the Rome III regulation is silent to the treatment of double-nationals (and, furthermore, Rome III only applied mutatis mutandis), the court applied Article 5 para. 1 EGBGB (English non-official translation here). This rule provides in case of double-nationality (1) a prevalence of the German nationality and (2), if no German nationality is in play, a prevalence of the “effective” nationality, ie the nationality that is closer connected to the person, usually the one of habitual residence. In the context of EU private international law, there was a discussion whether these two rules can hold – given that in Garcia Avello and Haddadi similar rules had been regarded as violating EU primarily law, esp. the principle of non-discrimination.

In “Sahyouni” the BGH concluded that both cases were not relevant. The second (and probably non-effective) nationality of both spouses was the Syrian, a non-EU nationality. Thus, the principle of non-discrimination did not apply. Therefore, German law applied on the case. German law does not allow a “private divorce”. For that reason, the divorce was regarded as invalid in Germany.

  1. Unilateral divorces and public policy

Finally, the court took the opportunity to mention that the poblic policy exception also would have made the divorce invalid: Article 10 Rome III was not applicable, thus, Article 6 EGBGB (English) would have applied. Contrary to Article 10, Article 6 requires an analysis of the concrete result of the application of the lex causae to determine whether this result violates fundamental principles/values of the German legal system. In Germany, divorces by unilateral declarations (such as talaq or ghet) can be regarded as not violating the German ordre public, especially if both spouses agree on the divorce. From the facts of the case the BGH concluded that in “Sahyouni” the wife did not wish for divorce. For that reason, the recognition of the unilateral declaration would violate the German public policy (“would” as this argument was not decisive for the case – as aforementioned, German law applied).

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