Sulamerica CIA Nacional De Seguros SA & Ors v Enesa Engenharia SA & Ors

The proper law of an arbitration agreement is determined by a three-stage enquiry: express choice, implied choice, and, failing either, the system of law with which the agreement has its closest and most real connection. An express choice governing the substantive contract strongly indicates the same implied choice for an embedded arbitration agreement. That inference may be displaced where other factors, including the seat and the effect of the putative law on the arbitration agreement’s effectiveness, point elsewhere.

An agreement to mediate is enforceable only if it defines the parties’ obligations with sufficient certainty. An undefined mediation process cannot operate as a condition precedent to arbitration. Dispute resolution provisions should be read together and, where their language permits, construed to cover all disputes consistently with commercial sense.

The insured claimed under policies covering risks connected with a Brazilian hydroelectric project. The policies selected Brazilian law and the exclusive jurisdiction of the Brazilian courts, but also contained mediation provisions and an arbitration clause providing for London as the seat. After the insurers commenced arbitration, the insured brought Brazilian proceedings and obtained an injunction restraining resort to arbitration.

The Commercial Court continued an anti-suit injunction restraining the insured from pursuing the Brazilian proceedings. The insured appealed. The principal issues were whether the arbitration agreement was governed by Brazilian or English law, whether mediation was an enforceable condition precedent, and whether the arbitration clause covered disputes about liability and coverage rather than quantum alone.

1. The appeal was dismissed unanimously. Permission to appeal on the proposed fourth ground, concerning whether arbitration was mandatory or permissive, was refused. Moore-Bick LJ gave the principal judgment. Hallett LJ agreed, and the Master of the Rolls agreed with Moore-Bick LJ’s conclusions and reasoning.

2. The proper law of an arbitration agreement is determined through a three-stage enquiry: express choice, implied choice, and closest and most real connection. Although an arbitration agreement is separable from the substantive contract, separability exists to preserve the parties’ chosen dispute resolution mechanism. It does not insulate the arbitration agreement from the substantive contract for every purpose.

3. An express choice of law for the substantive contract is a strong indication of an implied choice for an arbitration agreement embedded within it. That inference is not conclusive. Here, the selection of London as the seat imported English law governing the conduct and supervision of the arbitration. More importantly, applying Brazilian law might have made arbitration dependent upon the insured’s consent, undermining the apparently bilateral and unqualified agreement. The parties had therefore made no implied choice of Brazilian law. The arbitration agreement had its closest and most real connection with English law, as the law of the seat and of the supporting and supervisory jurisdiction.

4. The mediation provision imposed no binding obligation. It prescribed neither a defined process nor the procedure of an identified mediation provider, and its uncertain content made it incapable of enforcement. For the same reason, events relating to that undefined process could not constitute legally effective factual preconditions to arbitration.

5. Conditions 11 and 12 formed a composite dispute resolution procedure. Read together and in accordance with commercial sense, the arbitration clause covered every dispute arising out of or connected with the policy. A failure to agree on the amount payable included a dispute whether anything was payable, and therefore encompassed liability and coverage.

6. The Brazilian exclusive jurisdiction clause retained a limited supporting role consistent with arbitration, including proceedings concerning arbitrability, validity or enforcement. The proposed challenge to the judge’s treatment of arbitration as mandatory did not provide an independent basis for setting aside his order and mischaracterised reasoning adopted only for the purpose of addressing that argument.

• Court of Appeal (Civil Division): The appeal was dismissed and the Commercial Court’s continuation of the anti-suit injunction was upheld. Permission to appeal on ground 4 was refused: [2012] EWCA Civ 638.
• High Court, Commercial Court: Cooke J continued the anti-suit injunction restraining the insured from pursuing the Brazilian proceedings. No neutral citation is stated in the judgment.