English Courts prepared to grant anti-suit injunction to protect arbitration seated outside the jurisdiction

Speed read

On 18 September 2024, the Supreme Court handed down its unanimous decision in UniCredit Bank GmbH v RusChemAlliance LLC [2024] UKSC 30. The decision reiterates the orthodox approach to determining the governing law applicable to arbitration agreements where parties have not spelled out explicitly which law should apply, applying the principles from Enka Insaat Ve Sanayi AS v OOO Insurance Company Chubb [2020] UKSC 38. Following Enka, the law chosen to govern the host contract will generally be construed to apply to the arbitration agreement as well, which is exactly what the Supreme Court decided here. RusChem raised some interesting arguments to try and move the court away from Enka but these all failed. 

The timing of the decision is particularly interesting given that the Arbitration Bill currently working its way through Parliament will have the effect of diverting the law away from Enka on this point, if (when) passed. The default rule will be that the arbitration agreement should be governed by the law of the seat if the parties haven’t chosen otherwise – and the law governing the host contract should not factor into the analysis at all.

The decision also makes clear that the English court will not hesitate to hold parties to their agreements to arbitrate, consistent with the New York Convention, even where the arbitration is seated in a different jurisdiction.

The facts

Here is an attempt to set out the various entities involved in simple diagrammatic form:

In short:

• A Russian company (RusChem) and some German companies (the Contractors) entered into contracts to build gas plants in Russia. These contracts were backed by on-demand bonds issued by a German bank, UniCredit. The bonds guaranteed the performance of the German contractors. The bonds also specified that English law applied to any disputes arising out of or in connection with them and that these disputes would be resolved through arbitration in Paris under the ICC rules.
• In the light of the war in Ukraine and EU sanctions imposed on Russia, the Contractors announced they could not complete the projects. RusChem terminated the contracts and demanded payment from UniCredit under the bonds. UniCredit refused on the basis of sanctions.
• RusChem then initiated legal proceedings against UniCredit in Russia. RusChem relied on a Russian law that gave Russian courts exclusive jurisdiction over disputes involving Russian and foreign entities arising from foreign sanctions. This law also deemed any arbitration agreement outside of Russia for those disputes to be unenforceable.
• UniCredit sought an anti-suit injunction from the English Commercial Court, asking it to stop RusChem from pursuing the Russian proceedings. An interim anti-suit injunction was granted but the Commercial Court subsequently decided it did not have jurisdiction to hear the case. The court, however, maintained the injunction pending UniCredit’s appeal.
• The Court of Appeal overturned the Commercial Court’s decision and granted a final anti-suit injunction to restrain RusChem from pursuing the Russian proceedings.
• RusChem appealed this decision to the Supreme Court.
• It’s worth adding that UniCredit also challenged the jurisdiction of the Russian courts in the Russia proceedings launched by RusChem. While the Russian court initially rejected this challenge, it later stayed its own proceedings pending the outcome of RusChem's appeal to the Supreme Court in the UK.

The issue before the Supreme Court

The only issue before the Supreme Court was whether the English court had jurisdiction over UniCredit’s claim for a final anti-suit injunction to restrain RusChem from pursuing the Russian claim.

To put that issue in context, it is uncontroversial that a claimant can establish the English court’s jurisdiction if it obtains the court’s permission to serve a claim form out of the jurisdiction (see CPR rule 6.36). It can only do this if one of the jurisdictional “gateways” in para 3.1 of Practice Direction 6B applies. One of those gateways is informally known as the “contract gateway”. It applies where a claim is made in respect of a contract which is governed by the law of England and Wales (see para 3.1(6)(c) of Practice Direction 6B). Even if a gateway applies, the court will not grant permission unless it is also satisfied that England and Wales is the proper place in which to bring the claim (CPR rule 6.37(3)).

The Supreme Court therefore had to decide the following two questions:

• Were the arbitration agreements in the bonds governed by English law such that the contract gateway was satisfied?
• Was England was the proper place to bring the claim?

Question 1: The governing law of the arbitration agreement

It is trite that arbitration agreements are separable from their host contract. They can therefore be governed by a different law to the host contract. RusChem argued that, although the bond contracts were governed by English law, the arbitration agreements were the relevant contracts for the purposes of UniCredit’s claim and they were governed by French law because the parties had chosen Paris as the seat of arbitration. As such, the contract gateway was not satisfied and the English court therefore had no jurisdiction.

The Supreme Court disagreed. The approach to determining the applicable law of an arbitration agreement was set out in Enka Insaat Ve Sanayi AS v OOO Insurance Company Chubb [2020] UKSC 38, as applied in Kabab-Ji SAL v Kout Food Group [2021] UKSC 48. The general rule is that a choice of law to govern a host contract will usually be construed to extend to any arbitration agreement incorporated into that contract, unless the parties have expressly specified a law to govern the arbitration agreement. Following Enka, the choice of a different country as the seat of the arbitration is not, by itself, enough to displace that conclusion. So the arbitration agreement was governed by the same law as the bonds, namely English law, and this head of RusChem’s appeal failed. This is simply an orthodox application of Enka.

What makes the case particularly interesting is that RusChem tried to escape that conclusion by hanging its case on an obiter remark in Enka which suggested the position might be different if the law of the seat of arbitration provided that the arbitration agreement should also be treated as governed by that country’s law. So RusChem tried to suggest that the law of the seat (here, French law) would mandate that the law of the arbitration agreement should also be French law. Ruschem then argued that the parties should be taken to have known this when agreeing the bonds, which itself should be taken as indicating that the parties intended the arbitration agreement to be governed by French law. The Supreme Court rejected this on the basis that it was far too elaborate and it would mean that, in every case where parties choose a foreign seat for an arbitration, evidence of that country’s law would have to be obtained in order to know what law governs the arbitration agreement. There was a far simpler solution, namely to rely on the principles set out in Enka.

It is worth bearing in mind that the default position expressed in Enka will not be around for long. The Arbitration Bill is currently making its way through Parliament and a new s.6A is planned to be inserted into the Arbitration Act 1996. It will mean that the law governing the arbitration agreement will be the law of the seat unless the parties have expressly chosen otherwise. And s.6A(2) will make clear that a choice of law in the host contract will not extend to the arbitration agreement. The outcome on this head of the appeal would likely therefore have been different if the new rule had been in force and had applied to this case.

Question 2: The governing law of the arbitration agreement

RusChem argued that UniCredit had failed to satisfy the further requirement of showing that England was the proper place to bring the claim for an injunction. RusChem contended that the proper place to bring the claim was either the French courts, namely the courts with responsibility for supervising any arbitration being the courts of the seat, or in an arbitration commenced pursuant to the arbitration agreements in the bonds.

Interestingly, both parties proceeded on the assumption that this was a question about forum non conveniens, applying the test from Spiliada Maritime Corp v Cansulex Ltd [1987] 1 AC 460. That test is applied to ensure that, where there is no contractually agreed forum, the case is allocated to the most suitable of the available forums. The Supreme Court found this was the wrong approach. Here, there was no suggestion that the main substantive question of whether UniCredit was actually obliged to pay under the bonds should be tried in the English courts. The parties had agreed to arbitrate that question in Paris. The English court was simply being asked whether it would grant injunctive relief to restrain a breach of the arbitration agreement elsewhere, because RusChem had started a claim to determine the substantive question in Russia. And the Court’s starting point was that it is “desirable that parties should be held to their contractual bargain by any court before whom they have been or can properly be brought”.

The role of the courts in the seat of an arbitration is to supervise the arbitration itself. Preventing a party from breaching the agreement to arbitrate is not a supervisory function. Further, in uncontested evidence, the French courts would not have jurisdiction over RusChem and, even if they did, they have no power to grant anti-suit injunctions in any event. The French courts would therefore not be an available forum, let alone an appropriate forum. Additionally, while an arbitrator could make an order to direct RusChem to discontinue the Russian proceedings, that order would have no coercive force because arbitrators lack the powers available to a court to enforce its orders. An order made by an arbitrator would only create a contractual obligation. RusChem was already under a contractual obligation not to bring proceedings against UniCredit in the Russian courts, which it ignored.

Accordingly, given that UniCredit could not obtain any effective remedy in the French courts or from an arbitral tribunal, the Supreme Court held that the Court of Appeal was right to conclude that England and Wales was the proper place in which to bring this claim. The Supreme Court therefore dismissed the appeal, upholding the decision of the Court of Appeal to grant an anti-suit injunction.