UK Supreme Court grants anti-suit injunction and re-affirms Enka upholding parties’ agreement to arbitrate

In a unanimous decision demonstrating the English court’s willingness to uphold an agreement to arbitrate, the UK Supreme Court has  continued an anti-suit injunction (ASI) preventing parallel proceedings taking place in Russia in contravention of the parties arbitration agreement. The judgment, in UniCredit Bank GmbH v RusChemAlliance LLC [2024] UKSC 30,  follows the Supreme Court decision in Enka v Chubb as to the method for determination of the governing law of an arbitration agreement.   

The judgment upholds the decision of the Court of Appeal, that the appellant RusChemAlliance LLC (RusChem) must cease court proceedings in Russia against the respondent, UniCredit Bank GmbH (“UniCredit”), in circumstances where the parties have agreed, in a contract governed by English law, that any disputes between them shall be settled by arbitration in Paris.  

The background

RusChem had agreed to a series of contracts with various German companies (the Contractors) relating to the construction of gas processing plants in Russia. The Contractors’ performance was guaranteed by performance bonds (the Bonds) issued by UniCredit, an international bank based in Milan, which (along with all non-contractual and other obligations arising out of or in connection with the Bonds) were governed by English law. Following the imposition of EU sanctions after Russia’s invasion of Ukraine, the Contractors ceased work, and RusChem terminated the contracts and made a demand under the Bonds, which was refused by UniCredit.

In spite of the fact that the underlying Bonds were governed by English law and provided for Paris as the seat of arbitration (although crucially they did not specify the governing law of the arbitration agreement), RusChem referred the dispute to the Russian courts.  Article 248 of the Russian Arbitrazh Procedural Code confers exclusive jurisdiction on Russian Arbitrazh Courts over disputes between Russian and foreign persons arising from foreign sanctions and treats an agreement providing for arbitration of such a dispute outside the territory of the Russian Federation as inoperable.  

In turn, UniCredit  applied to the Arbitrazh Court to dismiss RusChem’s claim on the ground that the parties had agreed that all disputes arising out of the Bonds were to be settled by arbitration in Paris under the rules of the ICC and also issued proceedings in the English Commercial Court for an ASI.  Interestingly, the Russian Judge agreed to stay the Russian proceedings until the outcome of the English proceedings were determined. 

The English proceedings 

In the Commercial Court UniCredit relied on the principles laid out in Enka v Chubb, where the Supreme Court held that where parties have not expressly chosen the governing law of an arbitration agreement, but have chosen the governing law of the main contract, that choice would extend to govern the arbitration agreement. In effect, UniCredit argued, the system of law with the closest connection to the underlying contract should be implied to apply to the arbitration agreement as well, irrespective of the fact that  Paris was agreed by the parties to be the seat of the arbitration. 

If the court agreed that English law was the governing law of the arbitration agreement, UniCredit then sought an ASI as this would: 

• help prevent competing claims  and the enforcement of any Russian judgment in the English courts; 
  
• uphold the contract as agreed (with the choice of English law governing the Bonds impliedly extending to the arbitration agreement); and 
  
• provide relief (i.e. the ASI) that would otherwise be unavailable under French law. 

In response, RusChem also relied on Enka but alternatively  argued that the Court should infer that the law of the seat (France) should govern the arbitration agreement in the absence an express choice by the Parties to have the arbitration agreement governed by English law. This would mean that French law would decide the governing law question in accordance with French law principles applicable to international arbitration agreements.  RusChem further submitted that Paris was the proper forum in which to bring the claim. 

The Commercial Court granted an interim ASI and allowed also gave permission to appeal. The Court of Appeal granted a final ASI but RusChem appealed that decision to the Supreme Court. The questions facing the UKSC were:

• whether the arbitration agreement was governed by English law; and
  
• whether England and Wales was the proper place in which to bring the claim.

The Supreme Court's Decision

Which law governed the arbitration agreement?

The Supreme Court upheld the principles established in Enka, affirming that in the absence of a clear choice the governing law of the arbitration agreement is generally the law chosen to govern the principal contract between the parties. Indeed, the court stated that because it was “rare for the law governing an arbitration agreement to be separately specified”, it would be “natural” to apply the choice of English law as the governing law to the arbitration agreement. Here, the governing law of the Bonds was framed very widely and included "all non-contractual or other obligations arising out of or in connection with it". Although, not critical as the words ‘this Bond’ included the whole Bond, the court stated that the words ‘other obligations arising out of or in connection’ meant that the arbitration agreement was covered by the English governing law clause. 

Following the decision in Enka, the court held that this conclusion was not superseded by the choice of a seat of arbitration and procedural law which was different from the law chosen to govern the Bonds. It also disagreed with RusChem’s submission regarding French law and thought that this would unduly complicate matters as it would mean that a foreign court would have to consider the issue each time a foreign seat was chosen.  The courts of the seat may have a different opinion and apply their own law to the arbitration agreement, but this is not a valid reason to decide otherwise.  Therefore, the Court of Appeal rightly determined that UniCredit's claim falls under the contract gateway for service of proceedings outside the jurisdiction.

Were the English courts the proper forum to hear the dispute?

Addressing the issue of whether the English courts were the proper place to bring the claim and therefore  grant an ASI, the Supreme Court noted that English courts were the appropriate venue for the dispute because (i) French courts do not have a procedural mechanism that would allow them to provide relief to UniCredit (in the form of an ASI), (ii) the choice of Paris as the seat of arbitration did not preclude interventions by English courts, and (iii) the French courts were unlikely to view such an intervention as a jurisdictional interference. 

In summary, the Supreme Court provided several reasons for granting the ASI:

• Contractual Autonomy: The Court emphasized the importance of upholding the parties' contractual choices, including the choice of English law as the governing law of the Bonds which extended by virtue of the reasoning in Enka to the governing law of  the arbitration agreement. This meant that the English courts were the appropriate forum  . 
  
• Prevention of Parallel Proceedings: The ASI was necessary to prevent RusChem from pursuing parallel proceedings in the Russian courts, which would undermine the arbitration agreement and lead to inconsistent outcomes. The court was able to do this under its equitable jurisdiction which was a wider power than that granted to it by the Arbitration Act 1996. 
  
• Enforcement of Arbitration Agreements: The ASI was essential to ensure that the arbitration agreement was given full effect and that the parties were held to their contractual bargain. The Court highlighted the need to protect the integrity of the arbitration process and to prevent parties from circumventing their arbitration agreements. 
  
• Mechanism for Relief: The Court noted that “the fact that an arbitration has a French seat does not, of itself, confer jurisdiction on any French court to order interim relief”.  Expert evidence on French law determined that the French court would not have jurisdiction over RusChem and therefore even though the arbitration would be seated in  Paris, the French court would not have jurisdiction over the dispute, as it would be unable to grant injunctive relief such as an ASI, or order sanctions against RusChem. The English courts had the necessary mechanisms to grant the relief sought by UniCredit, whereas the French courts did not. This made the English courts the proper place  to enforce the parties agreement. 

Practical Takeaways  

There are some clear practical implications for parties drafting arbitration clauses from this decision of the UK Supreme Court. It is important that contracting parties:

1. Review their arbitration clauses and ensure that they include a governing law clause;
   
2. If the arbitration agreement already contains a governing law clause a party should ensure that  the choice of law is clear; and
   
3. Finally consider (or reconsider) whether the seat of arbitration chosen provides the appropriate protections and interim relief measures which may be required (such as an ASI). 

These practical steps are particularly important as the amendments proposed in the new Arbitration Bill have the potential to alter the position established in Enka and now UniCredit. The changes will supersede Enka and UniCredit and specify that where no governing law for the arbitration agreement is chosen, the law of the seat will govern the arbitration in question. While in the long-term, this should encourage parties’ to elect the law governing their arbitration agreements, it may have unintended consequences, as in this case where if French law had been deemed to be the governing law of the arbitration agreement, UniCredit would have been unable to seek an ASI from the English courts to enforce the agreement with RusChem.  

Additionally, the choice of an English governing law clause in both the main contract and the arbitration agreement also serves to protect the contract, and the underlying disputes mechanism set out within it if the contract is affected by the imposition of sanctions. While RusChem is still able to pursue proceedings in Russia, should the Judge of the Arbitrazh Court choose to lift the stay imposed, the granting of the ASI means that any resulting Russian judgment would not be recognised or enforced in the UK courts and would also make it more difficult to enforce in third countries. 

Next Steps 

The Arbitration Bill is currently making its way through the House of Parliament and we are monitoring its progress. If you would like to discuss whether your arbitration agreements could be affected by this judgment and the possible changes proposed by the Arbitration Bill please reach out to any of the authors of this article or to your usual Bird & Bird Disputes contact. 

Thank you to Elliot Levy for his help in drafting this article.