UK Supreme Court maintains anti-suit injunction in support of arbitration agreements

On 18 September 2024, the Supreme Court issued its unanimous full judgment in UniCredit Bank GmbH v RusChemAlliance LLC,  in which it maintained a final anti-suit injunction prohibiting Russian court proceedings brought by RusChemAlliance LLC (RCA) against UniCredit Bank (UniCredit) in direct contravention of an arbitration agreement between the parties (see our previous article following the Supreme Court's announcement of its decision in April 2024).

The UniCredit case is a clear statement of willingness by the English courts to uphold arbitration agreements and prohibit foreign proceedings brought in direct contravention of them.

Below, we summarise the background to the case, the Supreme Court's findings, related proposed amendments to the Arbitration Act 1996, and what these developments mean in practice. 

Background

As we explained in our previous article, the underlying dispute arose from RCA's attempt to call on bonds issued by UniCredit in respect of the construction of natural gas facilities in Russia by German companies Linde GmbH and Renaissance Heavy Industries LLC (together, the Contractor) (the Bonds). As a result of EU sanctions on Russia, the Contractor halted its performance of its EPC obligations, prompting RCA to demand payment by UniCredit under the Bonds.  UniCredit refused to meet those demands on the basis that payment was prohibited by EU sanctions.

Notwithstanding that the Bonds provided for disputes to be settled by way of Paris-seated arbitration, RCA commenced proceedings against UniCredit in the Russian Arbitrazh courts. In response, UniCredit brought a claim in the English courts against RCA for an anti-suit injunction an anti-suit injunction against RCA in the English courts to prevent the Russian proceedings (the Anti-Suit Claim). The Court of Appeal found in favour of UniCredit and granted the anti-suit injunction.  The sole issue on appeal to the Supreme Court was whether the English courts had jurisdiction over the Anti-Suit Claim.

In determining the jurisdiction of the English courts, the Supreme Court held that: (i) the arbitration agreements in the Bonds were governed by English law (the so-called governing law issue); and (ii) the appropriate forum to bring the Anti-Suit Claim was England and Wales (the so-called proper place issue).

The Governing Law Issue

To establish that the English court had jurisdiction over the Anti-Suit Claim, UniCredit first had to establish that the Anti-Suit Claim fell within one of the categories of case (or 'gateways') where it is permissible to sue a defendant located abroad. In this regard, UniCredit relied on the 'gateway' which applies where a claim is made in respect of a contract governed by English law. As the Anti-Suit Claim arose in respect of the arbitration agreements in the Bonds, it was necessary for Uncredit to establish that those agreements were governed by English law.

UniCredit argued that the arbitration agreements governed by English law on the basis that the Bonds were expressly governed by English law. However, RCA maintained that the governing law on the arbitration agreements was French law on the basis that they provided for a Paris seat.

In finding in favour of UniCredit on the governing law issue, the Supreme Court strongly affirmed its previous decisions in Enka v Chubb and Kabab-Ji v Kout. The Supreme Court stated that, as a matter of ordinary and reasonable construction, and in the absence of explicit wording to the contrary, it would be natural to interpret the governing law clause as applying also to the arbitration clause "for the simple reason that the arbitration clause is part of the contract which the parties have agreed is to be governed by the specified system of law".

The Supreme Court reiterated the general principle that there could be no inference of an intention to exclude the arbitration clause from the scope of the English governing law clause simply because the parties had chosen a different jurisdiction to be the seat of the arbitration. Therefore, notwithstanding the fact that Paris was the seat of arbitration as set out in the arbitration clause, English law was the governing law of the contract as a whole and this applied also to the arbitration agreement.

Ultimately, the court made clear its preference for a common sense approach, noting that parties always have the power to stipulate what system of law should govern their arbitration agreement. In the absence of express agreement, "the court should not strain artificially to find one by attributing to the parties an unrealistic process of reasoning."

The Proper Place Issue

The second issue was whether England and Wales could be considered the "proper place" in which to bring the Anti-Suit Claim under the Civil Procedural Rules (CPR 6.37(3)). 

The Supreme Court held that the starting point is the principle – as stated by the Court of Appeal in Enka - that "parties should be held to their contractual bargain by any court before whom they have been or can properly be brought". On this analysis, the parties had agreed to arbitrate any disputes in Paris, and RCA, having brought litigation proceedings before the Russian courts, had broken this agreement.

The Supreme Court held that the question was not whether the English courts were an appropriate forum to hear the substantive dispute; it was whether they were a suitable forum to enforce the parties' agreement to arbitrate. Thus the general principle in Spiliada, which states that the English courts should not exercise jurisdiction where there exists another forum in which the case may be tried more suitably, was inapplicable. This, the Supreme Court said could not be a convincing argument since no court should be resolving a dispute which the parties had agreed would be subject to arbitration.

The Supreme Court also held that the French courts were not an available forum in any case as they had no power to grant anti-suit injunctions. Nor could an equivalent interim measure by an arbitrator be considered appropriate; since it would have no coercive force. In circumstances where UniCredit was unable to obtain any effective remedy in either the French courts or from an arbitral tribunal, England and Wales was the proper place in which to bring the Anti-Suit Claim.

Recommendation by Law Commission to amend the law

It is worth noting that the Supreme Court's decision in Enka that the governing law of the arbitration clause is generally likely to be the same as the law governing the contract as a whole - while firmly upheld in the UniCredit judgment - has been the subject of widespread criticism, with the Law Commission describing it as "complex and unpredictable"  in the context of the Arbitration Act 1996 (the Act) reforms (see our previous articles here and here). In this regard, the Law Commission recommended that the Act be amended to provide that the arbitration agreement is governed by the law of the seat of arbitration, unless the parties expressly agree otherwise.  Under the Law Commission's recommendation, the agreement between the parties as to the governing law of the contract of which the arbitration agreement forms part will not constitute an 'express agreement' that the law also applies to the arbitration agreement.

The Arbitration Bill, which is expected to implement this change, is currently at the Report Stage in the House of Lords. It is notable that if the Bill passes into legislation the general principle as established in Enka will cease to apply.

While acknowledging this potential legislative change, the Supreme Court in the UniCredit case made clear that it would be inappropriate to revisit the principles as settled in Enka (and affirmed in Kabab-Ji) in circumstances where the Bill is still before Parliament. That said, if the proposed legislative changes had applied in the UniCredit case, there may have been a different outcome at least in respect of the 'governing law issue' on the basis that the provision for a Paris-seat in the arbitration agreements would mean that those agreements are governed by French Law.

What does this mean in practice?

The UniCredit case demonstrates the English courts' clear intent to support arbitration agreements and to prevent foreign legal actions that directly violate these agreements. That said, in light of the amendments proposed by the Arbitration Bill, this is yet another reminder of the importance of careful drafting of arbitration agreements: it is best practice for parties to agree expressly the law which applies to the arbitration agreement.

While careful drafting will reduce the risk of satellite disputes (and corresponding costs and delays), that risk is not entirely removed, in particular where a Russian entity is involved. The UniCredit case is just one of many recent examples in which Russian entities have disregarded the parties' agreement and have taken the 'home advantage' in the Russian courts pursuant to Russia's 2020 Arbitrazh Procedure Code (read our previous article here). While an English anti-suit injunction may ultimately prevent enforcement of a Russian court judgment in England (and elsewhere), companies contracting with Russian entities will need to be alive to the risk of parallel proceedings in breach of their arbitration agreement.

 Authors: Tom Cummins, Partner; Amy Cable, Senior Expertise Lawyer; Eleanor Zhao, Associate