UK Supreme Court Confirms Anti-Suit Injunction in Favour of Foreign-Seated Arbitrations

The UK Supreme Court recently handed down its judgment in UniCredit Bank GmbH v. RusChemAlliance, reaffirming the English court’s support for arbitration and for holding parties to their agreement to arbitrate. However, to ensure the availability of the support of the English court, readers should check that the jurisdiction clauses in their contracts are sufficiently specific—particularly in light of likely changes to the English Arbitration Act.

FACTS AND PROCEDURAL BACKGROUND

RusChemAlliance LLC (RCA), a Russian company, entered into contracts valued at about €10 billion with various German companies (together, the contractors) in respect of the construction of liquefied natural gas and gas processing plants in Russia. UniCredit, a German bank, issued a number of performance bonds in connection with the project which were governed by English law and specified that all disputes be settled by Paris-seated arbitration under the Arbitration Rules of the International Chamber of Commerce.

Following the Russian-Ukrainian war and the imposition of extensive EU sanctions on Russia, the contractors claimed they could no longer perform their obligations under the contracts. RCA then terminated those contracts and demanded the return of the advance payments. UniCredit refused to honour the bonds on the basis that payment was prohibited by EU sanctions.

Despite the bonds being governed by English law and specifying a Paris arbitration seat, RCA initiated proceedings against UniCredit in Russia in breach of the arbitration agreement between the parties. In doing so, RCA relied on Article 248.1 of the Arbitrazh Procedural Code, implemented in Russia in 2020, which grants exclusive jurisdiction to Russian arbitrazh courts over disputes between Russian and foreign entities which arise as a result of foreign sanctions on Russian entities.

UniCredit then commenced proceedings in England successfully obtaining an interim anti suit injunction to prevent RCA from continuing the Russian proceedings in breach of the arbitration agreement.

RCA appealed, disputing the jurisdiction of the English court to grant anti-suit injunctions in support of arbitrations seated in other jurisdictions. Perhaps surprisingly, in November 2023, the judge in the Russian proceedings stayed those proceedings pending the outcome of the English Court of Appeal’s decision. The English Court of Appeal upheld the anti-suit injunction, finding, inter alia, that the French law position was that the law governing the arbitration clause depended upon the parties' common intention and that this did not alter the presumption that English law governed the arbitration clause.

Despite the English Court of Appeal’s ruling, the Russian court resumed proceedings, adding UniCredit’s Russian-based entity as a co-defendant and implementing measures such as seizing shares in UniCredit’s Russian subsidiaries as well as some other assets it owned.

RCA then appealed the English Court of Appeal’s decision to the UK Supreme Court.

The UK Supreme Court’s Judgment

The issue before the UK Supreme Court was whether the English court had jurisdiction over UniCredit’s application for an anti-suit injunction. This depended on whether the English Court of Appeal was correct in deciding that:

• The arbitration agreement in the bonds were governed by English law (the governing law issue); and
• England and Wales was the proper place to bring the claim (the proper place issue).

Governing Law Issue

The UK Supreme Court recognised that an arbitration agreement contained in a contract can have a different governing law than that of the underlying contract, a common practice in international contracts. Since there was no express election (which is also not uncommon), the UK Supreme Court had to determine which law governed the arbitration agreement.

RCA argued that the governing law of the arbitration agreement was French law on the basis that Paris was the seat of the arbitration, whereas UniCredit argued that English law should govern the arbitration agreement since it was the governing law of the underlying bond. UniCredit was likely motivated by the fact that the French court would not be able to grant an anti-suit injunction to prevent the litigation in the Russian court.

The UK Supreme Court applied the principle from the recent case of Enka Insaat Ve Sanayi AS v. OOO Insurance Co. Chubb (Enka) that a choice of law in the underlying contract should generally be construed as also applying to the arbitration agreement, even if the parties have selected a different jurisdiction as the seat of the arbitration. Accordingly, it found that the arbitration agreement was governed by English law.

A point of crucial importance is that the Arbitration Bill—currently being considered in the UK Parliament—includes a provision which, if enacted, would effectively reverse the rule in Enka so that where parties do not expressly specify the governing law in an arbitration agreement, the governing law of the seat will apply to the agreement.

Proper Place Issue

It was not sufficient for the arbitration agreement to be governed by English law for the injunction to be in place; the English court also had to be satisfied that England was the proper place to bring the claim. In considering this point, the UK Supreme Court confirmed that, had the parties expressly elected England as the seat of the arbitration, the English court “would not hesitate to enforce the parties’ bargain by issuing an injunction.” However, the parties had not done so.

The UK Supreme Court considered that it should not exercise any jurisdiction where there is “some other available forum, having competent jurisdiction, which is the appropriate forum for the trial of the action.” However, in this instance, the court found this principle to be unsuitable given that more than one court could properly exercise jurisdiction. The UK Supreme Court referred to the further principle in Enka that parties should be held to their contractual bargain and thereby determined that the fact that the parties had agreed to submit to the supervisory jurisdiction of the French courts in respect of the arbitration “is not itself a reason why an English court cannot or should not uphold the parties’ bargain by restraining a breach of the arbitration agreement.”

In reaching this conclusion, the UK Supreme Court rejected RCA’s contention that UniCredit could obtain substantial justice by way of arbitration proceedings and noted that a French court could not grant an anti-suit injunction in support of those proceedings—i.e., any award or order of the Tribunal would simply be a contractual obligation (and one which RCA was unlikely to adhere to given its initiation of proceedings in Russia). Accordingly, the UK Supreme Court was prepared to conclude that England was the proper place in which to bring the claim for an anti-suit injunction.

CONCLUSION

Since the imposition of EU sanctions on Russia, there have been numerous proceedings initiated within Russia by Russian parties which contradict valid arbitration agreements. Where parties agree to arbitrations seated in England, a non-Russian party may apply to the English court for an anti-suit injunction, thereby prohibiting the Russian party from continuing proceedings in Russia.

This decision confirms that the English court will have the discretion to grant an anti-suit injunction provided that the parties have either chosen an English seat or the arbitration agreement is deemed to be governed by English law. However, as noted above, the position under English law may change if the Arbitration Bill is enacted—including the proposed reform that, in the absence of an express governing law provision within an arbitration agreement, the law of the seat would apply instead of the law of the underlying contract. Going forwards, parties should consider expressly electing English law to govern arbitration agreements where appropriate.

Sindhu Kugan contributed to this LawFlash.