In its recent judgment in UniCredit Bank GmbH v RusChemAlliance LLC [2024] UKSC 30, arising out of a dispute between a Russian energy developer and a German bank concerning the effect of EU sanctions on Russia, the UK Supreme Court ("UKSC") has confirmed that the English courts have the power to grant anti-suit injunctions in support of foreign-seated arbitration agreements where the arbitration agreement is governed by English law.
The unanimous judgment, published on 18 September 2024, also helpfully clarifies the test under English law for determining the law applicable to an arbitration agreement, following the UKSC's landmark 2020 decision in Enka v Chubb.1 The court's judgment confirms that the test set out in Enka continues to apply, with a strong presumption that the law applicable to the main contract will also apply to the arbitration agreement in the absence of an express choice of law by the parties.
Background to the dispute
The dispute arose out of the non-payment of monies owed by UniCredit Bank GmbH ("UniCredit") to RusChemAlliance LLC ("RusChem") under a performance bond relating to a €10 billion contract for the construction of an LNG facility in St. Petersburg, Russia. Following commercial disruptions caused by Russia's invasion of Ukraine, RusChem's German contractors stopped work on the project. RusChem subsequently terminated the contract and made demands on UniCredit for payment under performance bonds for an advance of €448 million it had made to the German contractors. UniCredit refused to pay, claiming that EU sanctions did not permit the transfer of funds to Russia.
The arbitration agreement contained in the bonds referred disputes to ICC arbitration seated in Paris. English law governed the bonds but there was no specific choice of law applicable to the arbitration agreement.
In breach of the arbitration agreement, RusChem initiated proceedings against UniCredit in the Arbitrazh Court in St. Petersburg, seeking payment of €448 million (the "Russian proceedings"). RusChem relied on a controversial Russian law, passed in 2020, that (i) grants exclusive jurisdiction to the Russian Arbitrazh Courts over disputes between Russian and foreign parties relating to foreign sanctions; (ii) invalidates foreign-seated arbitration agreements providing for the arbitration of such disputes; and (iii) allows Russian parties affected by foreign sanctions to seek an anti-suit injunction in the Russian courts to prevent proceedings before foreign courts or tribunals.2
UniCredit's attempt to have the Russian proceedings dismissed on the basis that this breached the arbitration agreement was unsuccessful.
Proceedings in the lower courts
UniCredit additionally sought an order from the English High Court to restrain RusChem from pursuing the Russian proceedings in breach of the arbitration agreement. In the High Court, Sir Nigel Teare held that the court did not have jurisdiction to grant the injunction. The Court of Appeal overturned that decision, holding that the court had jurisdiction to grant the injunction because the governing law of the arbitration agreement was English law.
RusChem appealed to the UKSC on two grounds:
- the governing law of the arbitration agreement was not English law, but the law of the seat of the arbitration (i.e., French law), and therefore the English courts lacked jurisdiction to grant an anti-suit injunction; and
- in any event, England and Wales was not the "proper place" for UniCredit to bring proceedings for an anti-suit injunction against RusChem under Rule 6.37(3) of the Civil Procedure Rules ("CPR").3
Issue No. 1: The law governing the arbitration agreement
The first issue was whether the governing law of the arbitration agreement was the law applicable to the bonds (as argued by UniCredit) or the law of the seat of the arbitration (as argued by RusChem). This was relevant because the English courts would have jurisdiction under the CPR to hear UniCredit's claim for an anti-suit injunction only if the relevant contract (i.e., the parties' arbitration agreement) was governed by English law.4
Leggatt LJ, writing for the court, confirmed, following the court's 2020 decision in Enka and its 2021 decision in Kabab-Ji (which also concerned an English law-governed agreement providing for ICC arbitration seated in Paris),5 that the parties' choice of law applicable to the main contract will generally extend to the arbitration agreement, even if that law differs from the law of the arbitral seat chosen by the parties.6 Thus, English law, which governed the bonds, also applied to the arbitration agreement, notwithstanding the parties' choice of a Paris seat of arbitration.7
In so holding, the court rejected RusChem's argument that the parties' choice of the seat of arbitration constituted an implied choice of the law applicable to the arbitration agreement. In Enka, the court had suggested (at paragraph 170(vi)(a)) that the law of the arbitral seat might apply to the arbitration agreement where a "provision of the law of the seat [...] indicates that, where an arbitration is subject to that law, the arbitration agreement will also be treated as governed by that country's law".8 Leggatt LJ now clarified that the court had not intended by this observation to establish an exception to the general rule that the parties' choice of governing law for the main contract also extends to the arbitration agreement.
Leggatt LJ (who had also formed part of the court hearing Enka) observed that in paragraph 170(vi)(a) of Enka, the court likely had in mind the High Court's 2020 decision in Carpatsky Petroleum Corpn v PJSC Ukrnafta.9 In that case, which concerned enforcement of an arbitral award made in Sweden (in which the respondent sought to resist enforcement on the basis that the arbitration agreement was invalid under Ukrainian law, the substantive law applicable to the dispute), Butcher J held that Swedish law applied to the arbitration agreement. Section 48 of the Swedish Arbitration Act provides that, in the absence of an express choice of law by the parties, the arbitration agreement should be governed by the law of the arbitral seat. Accordingly, Butcher J reasoned, the parties must have known that by failing to make an express choice of law and seating their arbitration in Sweden, their arbitration agreement would be governed by Swedish law. The parties had therefore made an implied choice of Swedish law as the law governing their arbitration agreement. Moreover, although the presumption arose under Swedish (and not English) law, "the parties can be taken to have intended that if Swedish law was to be the governing law of the arbitration agreement when the matter was looked at in Sweden, it should be the governing law of the arbitration agreement wherever it was looked at".10
In Enka, the UKSC had distinguished Carpatsky on the basis that no equivalent presumption to section 48 of the Swedish Arbitration Act applied under English law (although noting that a similar presumption does apply under Scottish law). In UniCredit, however, Leggatt LJ now also considered and rejected Butcher J's underlying reasoning, holding that (i) it imputed an unreasonable degree of legal foresight to the parties' intentions in choosing a seat of arbitration; (ii) the argument that the analysis applicable under the law of the seat of arbitration (e.g., Swedish law) should be followed in all other jurisdictions was not supported by any international consensus; and (iii) this would require, in every case, evidence of foreign law on the choice of law rules applying at the seat of arbitration.11 Such a "transnational" approach would likely be "neither clear nor simple to apply", and would therefore be "a very unsatisfactory rule for any legal system to adopt".
Accordingly, even where the law of the seat contains a provision such as section 48 of the Swedish Arbitration Act providing that the law of the seat should govern the arbitration agreement, this does not displace the general presumption under English law established in Enka that the law of the main contract should govern the arbitration agreement. Paragraph 170(vi)(a) of Enka (which was, in any event, obiter dicta) should therefore be disregarded.
Notably, the court further held that it would be "inappropriate" to revisit the principles it had so recently laid down in Enka (and settled in Kabab-Ji) in the light of the Law Commission's proposed Arbitration Bill, currently before Parliament, which would effectively reverse Enka and establish a presumption in favor of the law of the seat of arbitration.12Accordingly, while the court's decision in UniCredit affirms the rule in Enka for now, it remains to be seen whether legislative intervention will soon upend this position.
Issue No. 2: Is England and Wales the proper place to bring the proceedings?
The proper forum
Because English law applied to the parties' arbitration agreement, the first test for jurisdiction was met. That was not, however, the end of the enquiry: the second issue concerned whether England and Wales was the "proper place" under CPR 6.37(3) to bring proceedings for an injunction to restrain a breach of an arbitration agreement with a foreign seat (i.e. Paris).
Applying the principle stated by the Court of Appeal in Enka, the UKSC confirmed that it was desirable to hold the parties to their contractual bargain to arbitrate their disputes wherever the claim for an anti-suit injunction was brought.13There was no doubt that the English courts would not hesitate to enforce the parties' bargain if they had chosen an English seat of arbitration.14 Section 2(3) of the English Arbitration Act 1996 expressly confirms that the court's powers to grant interim relief in support of arbitration apply to arbitration proceedings with a foreign seat; while the present case fell instead under section 37 of the Senior Courts Act 1981 (because arbitration proceedings had not yet been commenced), there was no principled reason that it should be approached differently.15 Accordingly, considerations of forum non conveniens (i.e., whether the English courts were the most appropriate forum to hear the claim) did not arise. This reasoning was supported by the UNCITRAL Model Law (which has influenced the arbitration law in more than 120 countries, including England and Wales) and the ICC Arbitration Rules, both of which expressly allow a party to seek interim relief in support of an arbitration from any competent court.16
Thus, the court held, a party seeking to restrain its counterpart from pursuing foreign proceedings by an anti-suit injunction should not be restricted in bringing its claim by being required to show that the English courts were the "most appropriate forum". It is well established that the English courts have jurisdiction to restrain foreign proceedings in favor of a third forum where (i) there is a sufficient or substantial jurisdictional link, and (ii) the exercise of the court's jurisdiction is consistent with international comity.17 Applying this test, Leggatt LJ held that an obligation governed by English law (i.e., the parties' English law-governed arbitration agreement) constituted a substantial jurisdictional link justifying the court's intervention.18 Issues of comity were significantly less relevant where the parties' agreed forum was arbitration: by definition, no court was the "natural" forum where the parties had agreed to arbitration, and it was unlikely that "any court would be offended by the grant of an injunction to restrain a party from invoking a jurisdiction which he had promised not to invoke and which it was its own duty to decline".19
Accordingly, the court concluded, as a general rule, the English courts can exercise jurisdiction over an application for an injunction to restrain a breach of an arbitration agreement governed by English law, unless the fact that the arbitration agreement has a foreign seat makes it inappropriate on the specific facts of the case (or where a foreign court is already, or is likely to be, seized of the matter).20 The fact that the parties had chosen any future arbitration to be subject to the supervisory jurisdiction of the French courts was not itself a reason why the English courts could not, or should not, uphold the parties' agreement to arbitrate.21 Moreover, the French courts were unlikely to have jurisdiction to grant an anti-suit injunction in the present case, as they did not have the power to grant anti-suit injunctions against defendants, such as RusChem, located outside their jurisdiction.22
Comments
The UKSC's decision, confirming that the English courts have jurisdiction to grant an injunction even where England and Wales has not been chosen by the parties as the seat of arbitration, is an important development in English arbitration law.
While the circumstances in which the court may nevertheless decide that it is "inappropriate" to grant an anti-suit injunction in favour of foreign-seated proceedings remain to be determined by future case law, the UKSC has established that the mere availability of relief from the courts of the seat of the arbitration does not necessarily make it inappropriate for the party to seek the relief in the English courts.
The UKSC's judgment also confirms, in line with its previous decisions in Enka and Kabab-Ji, that the parties' express choice of law governing the main contract will generally extend to the choice of law governing the arbitration agreement irrespective of their agreement as to the seat of the arbitration (and irrespective of what the law of the seat may have to say about the matter). In this respect, the decision is a helpful reminder that courts should determine the applicable law by applying standard rules of contract interpretation, rather than attempting to infer the parties' intention (e.g., from their choice of arbitral seat) where no such intention exists.
However, as noted above, it is possible that the UKSC's jurisprudence on this issue will soon be overturned by the Arbitration Bill currently before Parliament. We will continue to monitor these developments closely and provide an update in due course.
Footnotes
1. Enka İnşaat ve Sanayi AS v OOO Insurance Company Chubb [2020] UKSC 38; [2020] 1 WLR ("Enka").
2. Russian Arbitrazh Procedural Code, Articles 248.1 & 248.2.
3. CPR 6.37(3) provides that the High Court will not give permission for a party to serve a claim form outside the jurisdiction unless satisfied that England and Wales is the "proper place" in which to bring the claim.
4. UniCredit had also sought to advance an argument on appeal that the English courts would have jurisdiction so long as the contract as a whole (i.e., the bonds) was governed by English law. However, the UKSC held that the argument had been raised too late.
5. Kabab-Ji SAL v Kout Food Group [2021] UKSC 48; [2021] Bus LR 1717.
6. UniCredit at [22], [25].
7. Ibid at [31].
8. Enka at [170(vi)].
9. Carpatsky Petroleum Corpn v PJSC Ukrnafta [2020] EWHC 769 (Comm); [2020] Bus LR 1284.
10. Ibid at [70(1)].
11. Unicredit at [51]–[58].
12. Ibid at [28]–[29]. The Law Commission's proposal provides (at para 12.78) that an "agreement between the parties that a particular law applies to an agreement of which the arbitration agreement forms a part does not [...] constitute express agreement that that law also applies to the arbitration agreement".
13. Enka Insaat Ve Sanayi A.S. v OOO "Insurance Company Chubb" and Ors [2020] EWCA Civ 574; [2020] Bus LR 1668 at [57].
14. UniCredit at [71].
15. Ibid at[89]–[92].
16. Ibid at [85]–[87].
17. Airbus Industrie GIE v Patel [1999] 1 AC 119.
18. UniCredit at [83].
19. Ibid at [78]–[79], citing The Angelic Grace [1995] 1 Lloyd's Rep 87, 96.
20. Ibid at [93], [101].
21. Ibid at [100].
22. Ibid at [101]–[104].
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