Supreme Court upholds anti-suit injunction in support of a foreign seated arbitration

Introduction

In our Dispute Resolution Yearbook article Anti-suit injunctions for foreign seated arbitrations – a closing door?, we discussed the Court of Appeal's decision in UniCredit -v- RusChemAlliance^[1]in which the Court of Appeal granted a final anti-suit injunction (ASI) restraining RusChemAlliance LLA (RCA) from pursuing court proceedings in Russia, in breach of a Paris-seated arbitration agreement. The Court of Appeal's judgment was the first time that the English Courts had ordered, on a contested basis, that England was the proper place to bring a claim for an ASI in respect of a foreign-seated arbitration clause.

At the time of our article, the Supreme Court had announced that it had dismissed RCA's appeal (as a result of which the Court of Appeal's ASI was upheld), but had reserved the reasons for its judgment. The Supreme Court handed down its full judgment on 18 September 2024,^[2] which reaffirmed the English courts' willingness to hold parties to their agreement to arbitrate, in respect of both domestic and foreign-seated arbitrations. The Supreme Court determined the governing law of the arbitration clause by applying the decision in Enka -v- Chubb (Enka),^[3] but acknowledged that the Arbitration Bill 2024 would change the position under Enka, if enacted as expected.

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The underlying dispute

The dispute arose out of contracts between RCA (a Russian company) and German contractors for the construction of gas processing plants in Russia. The contractors' performance was guaranteed by performance bonds issued by UniCredit (a German bank). The bonds were governed by English law, and included a dispute resolution clause providing for all disputes to be resolved by arbitration seated in Paris.

In 2020, Russia introduced Article 248.1 of the Arbitrazh Procedural Code (the "RAPC"), which conferred exclusive jurisdiction on the Russian Arbitrazh Courts for disputes between Russian and foreign entities arising from foreign sanctions and, accordingly, treating any relevant arbitration clause as inoperable.

Following Russia's invasion of Ukraine in February 2022, the European Union imposed sanctions on Russian entities and individuals (which did not include RCA). The German contractors announced that they were not able to continue to perform the contract due to the EU sanctions. RCA therefore made demands on UniCredit for payment under the bonds, who similarly refused to pay on the ground that payment was prohibited by EU sanctions.

As a result, and pursuant to Article 248 of the RAPC, RCA initiated legal proceedings in Russia against UniCredit for payment under the bonds. UniCredit then initiated proceedings in England & Wales, seeking injunctive and declaratory remedies with respect to the proceedings in Russia. In response, RCA challenged the jurisdiction of the English courts to determine UniCredit's claim.

The Judge at first instance held that the English court did not have jurisdiction to hear UniCredit's claim but allowed an interim ASI to remain in effect until the process of appeal had been exhausted. The Court of Appeal allowed UniCredit's appeal of the first instance decision, granting a final ASI restraining RCA from pursuing the proceedings in Russia. It was RCA's appeal of the Court of Appeal decision which was heard before the Supreme Court in April 2024.

Supreme Court judgment

The sole issue before the Supreme Court was whether the English court had jurisdiction over UniCredit's claim. This required the Court to determine 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" in which to bring the claim.

Governing law of the arbitration agreement

A claimant may serve a claim form on a defendant outside of England and Wales with the permission of the court if any of the grounds (commonly known as "gateways") set out in paragraph 3.1 of Practice Direction 6B apply. UniCredit relied on the gateway under paragraph 3.1(6)(c), which applies where the "claim is made in respect of a contract where the contract – is governed by the laws of England and Wales". It is in this context that the Supreme Court considered whether the arbitration clause in the bonds were governed by English law and, therefore, whether the English court has jurisdiction over RCA (who was not domiciled in England or Wales).

The Supreme Court's earlier decision in Enka set out the general approach to determining the governing law of an arbitration clause. In summary, (i) the law applicable to the arbitration agreement will be (a) the law chosen by the parties to govern it or (b) in the absence of such a choice, the system of law with which the arbitration agreement is most closely connected; (ii) where the law applicable to the arbitration agreement is not specified, a choice of governing law for the contract will generally apply to an arbitration agreement which forms part of the contract; and (iii) the choice of a different country as the seat of the arbitration is not, without more, sufficient to negate an inference that a choice of law to govern the contract was intended to apply to the arbitration agreement.

Applying the general principles in Enka, the Supreme Court agreed with the Court of Appeal that the arbitration clauses in the bonds were governed by English law.

RCA argued that an obiter comment in paragraph 170(vi)(a) of Enka had established an exception to this general rule where the law of the seat chosen by the parties treats the arbitration argument as governed by that country's law: in this situation it may be inferred that the arbitration agreement was intended to be governed by the law of the seat.

The Supreme Court disagreed with RCA's interpretation of Enka because:

i. The language in paragraph 170(vi)(a) of Enka was permissive, rather than prescriptive. The Court warned of treating sentences and phrases in a judgment as if they had textual authority in the same way as an Act of Parliament.

ii. In any event, after examining the reasoning which underlies the obiter comment, the Supreme Court concluded that the so-called exception established by paragraph 170(vi)(a) of Enka would be a very unsatisfactory rule for any legal system to adopt, as it would be neither clear nor simple to apply. It would have the consequence that, in every case where the parties have chosen a foreign seat for the arbitration, evidence of that country's law would have to be obtained in order to know what law governs the arbitration agreement.

iii. For these reasons, it would not be appropriate to infer that parties had intended an arbitration agreement to be governed by whatever law a court of the seat would regard as the governing law of the arbitration agreement, without express words to that effect.

On this basis, the Supreme Court concluded that there was no valid / reasonable basis for inferring that the parties had intended the arbitration clause in the bonds to be governed by French law, and that what was said in paragraph 170(vi)(a) of Enka should be disregarded in future. The Supreme Court further reiterated that parties always have it in their power to agree what system of law should govern their arbitration agreement – the court should not strain artificially to find an agreement by attributing an unrealistic process of reasoning to the parties.

Whether England & Wales was the "proper place" to bring the claim

Both parties approached this question on the assumption that the test for forum non conveniens (i.e. the principle that an English court should not exercise jurisdiction if there is some other available forum more appropriate for the trial of the action) is applicable. However, the Supreme Court clarified that this principle is not applicable in circumstances where the parties have contractually agreed on a forum (i.e. arbitration) for the resolution of the dispute.

Rather, the Supreme Court held that the appropriate starting point is that stated by the Court of Appeal in Enka: parties should be held to their contractual bargain. Contrary to the principle of forum non conveniens, there may be more than one court which can properly exercise jurisdiction over a party for the purposes of preventing that party from breaking its agreement to arbitrate a dispute.

The Supreme Court further rejected RCA's argument that the French courts were the proper forum for the claim (on the basis that the parties had chosen Paris as the seat of arbitration) or, in the alternative, arbitration under the bonds:

i. Not only did the parties agree that French courts have no power to grant ASIs, the French courts would not have jurisdiction to determine any claim brought by UniCredit complaining of a breach by RCA of the arbitration agreement in the bonds – the French courts were therefore not an available forum at all.

ii. Even if the French courts were an available forum, there is no reason why it would be inappropriate for an English court to restrain a breach of the arbitration agreements by granting an ASIs.

iii. In terms of RCA's alternative argument that arbitration is the proper forum for UniCredit's claim, the Supreme Court agreed that UniCredit would not be able to obtain substantial justice by seeking relief through arbitration proceedings. An arbitral award or order is not backed by the powers available to a court to enforce performance of its orders (including sanctions for contempt of court). An arbitral award creates only a contractual obligation, which has clearly been ineffective in deterring RCA from issuing proceedings in Russia in breach of the parties' existing arbitration agreement in the bonds.

Future of ASIs

In our Dispute Resolution Yearbook article, we explained that a corollary of the proposed section 6A in the Arbitration bill 2024 would be to bring an end to the jurisdictional gateway on which the Court of Appeal was able to grant the ASI in RusChem (upheld by the Supreme Court):

The Arbitration Bill 2024

“6A Law applicable to arbitration agreement

1. The law applicable to an arbitration agreement is—

(a) the law that the parties expressly agree applies to the arbitration agreement, or

(b) where no such agreement is made, the law of the seat of the arbitration in question.

2. For the purposes of subsection (1), 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.”

Applying the proposed 6A to the facts of UniCredit, the arbitration clause in the bonds would have been governed by French law (as the parties had chosen Paris as the seat of the arbitration), rather than English law. Accordingly, UniCredit would not have (in theory) been able to rely on the gateway under paragraph 3.1(6)(c) of Practice Direction 6B, which requires that the "claim is made in respect of a contract where the contract – is governed by the laws of England and Wales" (being the arbitration clause, which the Court accepted is a distinct contract from the underlying bonds).

In UniCredit's written case before the Supreme Court, it raised a suggestion that, even if the arbitration agreements in the bonds were found to be governed by French law, the gateway under paragraph 3.1(6)(c) was still engaged because English law on any view governed the rest of the bond contracts and it could be said that UniCredit’s claim was made in respect of those contracts. However, since UniCredit had not sought permission to raise this new point, the Supreme Court declined to consider the argument. Parties will therefore have to wait and see whether this is a potential method to plug the gap created by the Arbitration Bill 2024 (if enacted), when this interpretation of paragraph 3.1(6)(c) is next mooted before the courts.

However, in upholding the ASI granted by the Court of Appeal, the Supreme Court emphasised that "the policy of securing compliance with the parties’ contractual bargain is further reinforced by the strong international policy of giving effect to agreements to arbitrate disputes". These same policy considerations may well drive a broader interpretation of paragraph 3.1(6)(c) to support ASI relief, particularly where (as in RusChem) ASIs are not available in the foreign seat of the arbitration.

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