On Sept. 18, the U.K. Supreme Court handed down judgment in its decision to unanimously uphold the granting of an antisuit injunction restraining Russian proceedings brought in breach of an agreement to refer disputes to arbitration in Paris.[1]
The judgment in UniCredit Bank GmbH v. RusChemAlliance LLC demonstrates the English court's willingness to act in such circumstances, and provides helpful guidance on when antisuit injunctions will be available in aid of foreign seated arbitrations.
In late 2022, RusChemAlliance attempted to enforce on-demand bonds provided by UniCredit Bank GmbH in relation to the construction of Russian gas processing facilities. The bonds each included identical English governing law clauses, and arbitration clauses providing for International Chamber of Commerce arbitration in Paris.
RusChem sought to claim under the bonds after the construction contractor halted performance of its contract due to the introduction of European Union sanctions against Russia in 2022. UniCredit rejected RusChem's claim, on the basis that payment was prohibited by those sanctions.
RusChem issued proceedings in August 2023 before the Russian Arbitrazh Court, claiming payment under the bonds. The Arbitrazh Court subsequently dismissed a jurisdiction challenge by UniCredit, but stayed the proceedings pending the outcome of an antisuit injunction application made by UniCredit in England.
That same month, UniCredit was granted an interim injunction by the Commercial Court to restrain the Russian proceedings. RusChem subsequently applied to dispute the English court's jurisdiction, and was successful.
The Court of Appeal disagreed, and granted a final injunction requiring RusChem to discontinue the Russian proceedings. RusChem subsequently appealed to the Supreme Court, which upheld the Court of Appeal's decision.
Here are five key takeaway points from the judgment:
There is a distinction between antisuit relief and supervisory powers
The general position is that the courts of the arbitral seat have sole responsibility for supervising arbitration proceedings. In this case, the seat of the arbitration was Paris.
Giving the lead judgment, however, Lord Leggatt found that the source of the English court's power to enforce an arbitration agreement derives from its equitable jurisdiction under Section 37 of the Senior Courts Act 1981, not its supervisory functions under the Arbitration Act 1996.
Following that reasoning, the choice of a foreign arbitral seat should not prevent the English court from granting antisuit relief. The question of whether to compel a party to comply with an arbitration agreement is not a supervisory issue to be left to the courts of the seat.
The English court will exercise its powers if there is a sufficient connection to England and Wales
The judgment signifies the willingness of the English court to uphold the principles of the New York Convention, which requires contracting states to enforce arbitration agreements, where there is a sufficient connection to England and Wales. In this case, there was a substantial connection, because the arbitration agreement was governed by English law.
A party seeking extraterritorial relief to enforce an arbitration agreement does not have to demonstrate that England is the most appropriate forum. The starting point is that it is desirable for parties to be held to their contractual bargain to arbitrate by any court before which they can properly be brought — and there may be more than one court that can exercise jurisdiction.
The court did not, however, express a view on whether the English court having personal jurisdiction over a defendant — for example, because the defendant is served with a claim form in England, or a jurisdictional gateway is established — will always justify intervention to enforce an arbitration agreement with a foreign seat.
Why was the arbitration agreement governed by English law?
The principle of separability means that an arbitration agreement is treated as distinct from the contract in which it is contained. The question before the court was whether the arbitration agreement was governed by English law as the law of the main contract.
The general rule established in Enka is that, where the law of an arbitration agreement is not specified, the governing law of the main contract will apply, even where the parties have chosen a foreign law arbitral seat.[2] Lord Leggatt emphasized that the rule in Enka naturally follows from English law principles of contractual interpretation, and helps to provide certainty and consistency for contracting parties.
Applying the general rule and construing the arbitration agreement in the context of the main contract, it was clear that the governing law clause of the main contract applied to the arbitration agreement.
Arguments that French law governed the arbitration agreement were rejected
The appellant relied on guidance in Enka that the general rule may be negated where the law of the seat treats an arbitration agreement as governed by that country's law. Lord Leggatt found that this exception should be disregarded in the future.
A rule stipulating that an arbitration agreement is governed by whichever law the courts of the seat would regard as the governing law would not be clear or simple. Foreign law evidence would be required in each case where a foreign arbitral seat is chosen, introducing significant complication.
The position is all about to change
While the court's guidance on Enka will be welcomed by arbitration practitioners, there is tension between the common law principles and the position envisaged in the Arbitration Bill, introduced by the Labour government in July.
The Arbitration Bill proposes to amend the 1996 Act to provide that the governing law of an arbitration agreement is the law of the arbitral seat, unless the parties expressly agree otherwise. Accordingly, the facts in UniCredit Bank may give rise to a different decision in the future — i.e., that French law governs the arbitration agreement — if the Arbitration Bill is enacted and enters into force.
This is because it is unclear whether, in circumstances where a contract is governed by English law but contains a foreign law arbitration agreement, the court would find a sufficient connection with England and Wales to justify granting an antisuit injunction.
UniCredit Bank provides welcome clarity on the application of the Enka principles pending the legislative changes envisaged in the Arbitration Bill. The judgment also lowers the threshold for parties seeking extraterritorial injunctive relief to restrain proceedings brought in breach of an arbitration agreement.
However, this may soon change for foreign-seated arbitrations. The Arbitration Bill could introduce uncertainty, because it is unclear whether antisuit injunctive relief will be available in respect of a foreign seated arbitration agreement that is deemed to be governed by that same foreign law.
The opinions expressed are those of the author(s) and do not necessarily reflect the views of their employer, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.
[1] UniCredit Bank GmbH v RusChemAlliance LLC [2024], UKSC 30.
[2] Enka Insaat ve Sanayi AS v OOO Insurance Company Chubb [2020], UKSC 38.
This article was first published in Law 360, October 2024, and may be found here.
