The Supreme Court confirms strong pro-arbitration stance on upholding arbitration agreements through anti-suit injunction.
UniCredit Bank GmbH v RusChemAlliance LLC [2024] UKSC 30.
The Supreme Court of the United Kingdom has published a unanimous judgment giving reasons for its earlier, important decision in April 2024 clarifying key elements that parties considering anti-suit injunction (“ASI”) applications should bear in mind.
The decision upheld an ASI restraining proceedings brought in the Russian Federation in breach of agreements that provide for arbitration in Paris.
Factual Summary
In 2021, a Russian company, RusChemAlliance (“RCA”) entered into contracts with two German companies (jointly referred to as the “Contractor”) for the construction of liquefied natural gas and gas processing plants in the Russian Federation. Pursuant to the contracts, RCA was to pay approximately €10 billion, which included an advance payment of €2 billion. These payments were guaranteed by seven demand bonds issued by the German bank, UniCredit. The bonds were governed by English law, with disputes to be resolved through ICC arbitration in Paris.
Since the start of the Russian-Ukraine conflict in February 2022, the EU imposed sanctions in respect of business and activities relating to the Russian Federation. Although RCA was not a designated entity under these sanctions, the Contractor claimed that due to the EU sanctions, it could not perform under the contracts nor return the advance payment. Subsequently, RCA terminated the contracts and, in October 2022 and April 2023, called on payment under the bonds provided by UniCredit.
UniCredit refused to pay on the basis of Article 11 of Council Regulation (EU) No 833/2014, which restricts financial transactions involving certain Russian activities. The dispute centred on whether UniCredit’s refusal to pay is valid given the sanctions.
On 22 August 2023, UniCredit issued proceedings before the Commercial Court requesting injunctive and declaratory relief for RCA to be prohibited from pursuing Russian proceedings that the Russian company had already commenced. The application issued without notice by UniCredit was granted. RCA challenged the English courts’ jurisdiction to hear the claim. The Commercial Court decided that the English courts do not have jurisdiction to hear the claim but continued the injunction until all appeal mechanisms have been exhausted i.e. pending any appeal and its outcome. UniCredit appealed the decision. Then on 29 January 2024, the Court of Appeal granted final relief including an ASI requiring RCA to discontinue the Russian proceedings. RCA appealed the decision of the Court of Appeal before the Supreme Court.
The sole issue that was subject to appeal before the Supreme Court was whether the English courts have jurisdiction to grant UniCredit the application for an ASI. The crux of the matter was whether the Court of Appeal was right to decide that:
(i) the arbitration agreements in the bonds were governed by English law; and
(ii) that England and Wales was the proper place to bring the claim.
Governing law of the arbitration agreement
UniCredit sought to establish jurisdiction in England by invoking the “contract gateway,” under para 3.1(6)(c) of Practice Direction 6B arguing that the arbitration agreements in the bonds were governed by English law. RCA’s position, by reference to Enka v Chubb, was that the arbitration agreements should be governed by French law due to the Paris seat, which meant that the law of the arbitration was French law.
The Supreme Court rejected RCA’s arguments, confirming the principles previously set out in Enka v Chubb. The Court confirmed that the choice of governing law for a contract generally extends to its arbitration provisions, regardless of the seat. This decision upheld the principle that clarity and coherence in jurisdictional matters are essential, and it dismissed RCA’s approach as overly complicated. Consequently, the Court of Appeal’s decision was upheld, affirming that English law governed the arbitration agreements.
Proper place to bring the claim
The Supreme Court proceeded by addressing the criteria for serving a claim form outside of England and Wales under CPR 6.37(3), namely that “[the] court will not give permission unless satisfied that England and Wales is the proper place in which to bring the claim”.
RCA claimed that France was the proper jurisdiction for the claim, citing that substantial justice could be achieved through Paris-seated arbitration.
The Court clarified that the jurisdiction test set out in the leading case of Spiliada Maritime Corporation v Cansulex Ltd [1987] 1 AC 460, 476 was not applicable since the parties had agreed to arbitration and referred to the importance of upholding contractual agreements. It noted that the English court’s authority to grant ASIs derives from its equitable jurisdiction, not just from the Arbitration Act 1996.
The Supreme Court decided that English courts are generally presumed to be the proper place for claims if the governing law of the contract is English regarding ASIs, unless the foreign seat of arbitration makes it inappropriate. The highest English court noted that the French courts would likely lack jurisdiction to address breaches of the arbitration agreement and would not be able to grant ASIs.
The Supreme Court rejected RCA’s argument that Paris-seated arbitration could provide substantial justice, highlighting that an arbitrator’s award lacks the enforceability and coercive power of an ASI. Ultimately, it deemed the French courts unavailable for the claim and described RCA’s conduct as “unattractive,” indicating that pursuing relief through arbitration would not excuse breaching the arbitration agreement.
Comment
The Supreme Court has clearly affirmed the English court’s authority to restrain foreign proceedings that breach arbitration agreements, even if England is not the seat of arbitration. This reinforces that when the seat or governing law of an arbitration agreement is English law, the English courts will actively support these agreements.
ASIs are crucial for parties who are seeking to enforce arbitration clauses, especially as Russian courts have been ignoring foreign arbitration agreements. This poses litigation risks for companies operating in Russia, particularly given in the context of international sanctions. While an English ASI may not effectively deter Russian parties from pursuing local court actions, it can prevent the enforcement of Russian judgments in England and complicate their enforcement in other jurisdictions.
