UK Supreme Court confirms strong policy of protecting arbitration agreements through anti-suit injunctions (UniCredit v. RCA)

On 18 September 2024, the UK Supreme Court (“UKSC”) issued its reasoned judgment in UniCredit Bank GmbH v. RusChemAlliance LLC after unanimously dismissing an appeal by Russian company, RusChemAlliance LLC (“RCA”) against an order of the Court of Appeal requiring RCA to cease court proceedings it had commenced in Russia against UniCredit on the basis that the parties had agreed in their English-law-governed bonds to resolve disputes by arbitration under ICC Rules with a Paris seat.

Lord Leggatt's judgment reaffirms the power of the English court to protect arbitration agreements (“AAs”) governed by English law through the issue of anti-suit injunctions (“ASIs”) where parties breach their contractual obligations to arbitrate disputes. In this Legal Update we examine the judgment, which analyses the jurisdictional basis for such orders and provides insights into the underlying policy framework for granting such relief.

This judgment has been issued at an interesting moment. It is, of course, set against the backdrop of the continuing legal fallout following Russia's invasion of Ukraine in 2022, in particular the impact of international sanctions on Russian entities’ contractual relationships including, in the present case, a project to construct LNG plants in Russia. Moreover, the judgment has been delivered in the midst of an evolving, cross-border battle between the parties with rival claims being pursued by RCA against UniCredit (and other banks) before the Arbitrazh (commercial) Court of St Petersburg and Leningrad in Russia. As we report below, there have also been recent developments in these Russian proceedings.

Closer to home, the judgment also tackles the governing law of an AA, which is an area of the law likely to be reversed by the new Arbitration Bill currently progressing through UK Parliament. Lord Leggatt observed that potential legislative change is not a reason to revisit existing legal principles, with the reminder that the courts apply the law as it exists at the time.  

Key Takeaways

1. The UKSC's decision underlines that in an English-law-governed contract, the English courts will, absent strong reasons to the contrary, issue ASIs to hold parties to their contractual promise to arbitrate disputes, regardless of the seat.
2. There is now a relatively straightforward pathway for parties with foreign-seated AAs in English-law-governed contracts to establish the English court’s jurisdiction to protect their AAs by issuing ASIs. Importantly, though, parties will likely no longer be able to rely on that particular jurisdictional pathway if the current Arbitration Bill becomes law.
3. As to establishing the governing law of the AA, Enka remains well-settled authority, recently affirmed by the UKSC in Kabab-Ji. As a general rule, absent express party choice, the choice of law governing the matrix contract will also apply to the AA contained in it (even if there is a different law of the seat).
4. When establishing jurisdiction, if a contract is governed by English substantive law but there is a foreign seat, there is a “presumption” that England will be the proper place in which to bring the ASI claim “unless the fact that the arbitration has a foreign seat makes it inappropriate to do so.”
5. This decision highlights the stark differences in approach between courts in terms of the protection they offer to rights under AAs. There was undisputed evidence that the French courts (the supervisory courts) would not have had jurisdiction to issue final (or interim) relief in this case.
6. The UKSC observed that ASIs issued by arbitrators would not be effective to prevent breaches of an AA since they are non-coercive orders without court-backed sanctions (including sanctions for contempt of court).
7. If anti-suit relief is desirable, and in any case to increase certainty, parties should state expressly in the AA itself that the AA is governed by English law and/or provide for a London seat. However, if contemplating a mismatching clause (eg Paris seat, law of AA English law) then consideration should be given not just to the English law position (where such a combination should be fine) but also to the position under the law of the seat to ascertain whether such a combination may give rise to complications before the supervisory courts.  

Background

The case concerns UniCredit’s refusal to make payments to RCA under seven on-demand English law bonds issued in RCA’s favour. UniCredit’s position is that it is prohibited from so doing by EU sanctions. RCA commenced proceedings in the Russian courts seeking recovery under the bonds. UniCredit applied to the English Courts for an ASI requiring RCA to discontinue the Russian proceedings on the basis this was a breach of the AAs (which refer to the ICC Rules and a Paris seat) in the bonds.

The English High Court granted an interim injunction on an ex parte basis but in September 2023, Mr Justice Teare declared the English court had no jurisdiction to hear the claim on the grounds that the AAs were governed by provisions of French law which apply to international arbitration and that, in any event, England was not the proper place for the ASI claim. The interim injunction was left in place pending an appeal.

In January 2024, the Court of Appeal reversed the High Court decision and held that the AAs were governed by English law (the law governing the underlying bonds) applying Enka. It also held that England was the proper place to bring the claim because, inter alia, the evidence was that ASIs cannot be granted in France. The Court of Appeal granted a final mandatory injunction requiring RCA to discontinue the Russian proceedings.

The UKSC decision

The UKSC had to decide whether the English court had jurisdiction over UniCredit’s claims, which involved consideration of two core issues.

1. Are the AAs between the parties governed by English law?
2. Is England the proper place to bring the ASI claim?

Governing law of the AA

RCA is not domiciled in England and had no presence in England. UniCredit sought permission to serve its claim for an ASI out of the jurisdiction under the contractual "jurisdictional gateway" at paragraph 3.1(6) of PD 6B namely "Claim is in respect of a contract governed by English law". It argued that the governing law of the AA was English law and relied on the UKSC decision in Enka, as applied recently in Kabab-Ji. RCA argued that French law governed the AA as the seat was Paris.

In making its argument, RCA relied on an exception to the general rule in Enka, namely that it is possible to imply the law of the seat as the law of the AA if the law of the seat indicates that the AA will also be treated as governed by that law. 

Lord Leggatt, who also gave judgment in Enka, rejected this approach noting parties need a rule which is clear and simple to apply. An approach which treats the AA as governed by whichever law the law of the seat would regard as the governing law would be a “very unsatisfactory rule” for any legal system to adopt (evidence of the foreign law would need to be adduced every time one needs to determine the law governing the AA) and it was unreasonable to suppose that the parties had intended this.  

Applying Enka to this case, the UKSC found the position was clear: English law as the choice of law governing the matrix contract also applies to the AA contained in it (and it made no difference that French law governed the seat of arbitration).  As a matter of construction, the reference to “this bond” in the governing law clause was enough to mean "the whole bond”, including the arbitration clause. 

Two drafting points to note in the context of this discussion:

1. Lord Leggatt stated “it is rare for the law governing an arbitration to be separately specified, either in the arbitration clause itself or elsewhere in the contract”. In fact, in many international finance contracts such a provision is now included expressly in the AA (and sometimes elsewhere). This trend was relatively uncommon a decade ago and so it may be that such contracts have not yet come before the English court.
2. Lord Leggatt also observed that the governing law clause in the bonds was framed in “particularly wide terms” and covers not only the bond itself but “all non-contractual or other obligations arising out of or in connection with it" noting that the obligations created by the AA were certainly obligations “in connection with” the bond. This text (commonly referred to as "Rome II" language) is routinely included in governing law clauses and practitioners will note, with interest, the wide potential effect of this language.

Proper place

RCA argued that the proper place to bring the claim was either in the French courts (as the courts with supervisory jurisdiction) or in an arbitration commenced pursuant to the AAs.  The UKSC rejected this argument.

There was uncontradicted evidence in this case that the French courts would have no power to grant ASIs.  Thus, the French courts would neither be an available nor an appropriate forum for the ASI claim.

As to relief available from the tribunal, the UKSC considered that substantial justice could not be obtained through arbitration because an arbitrator’s award or order has no coercive effect. An order made by an arbitrator creates a contractual obligation which, Lord Leggatt noted, was unlikely to have an impact on future conduct in the present case.

The UKSC emphasised that the source of jurisdiction for final injunctive relief is section 37 of the Senior Courts Act 1981 ("SCA 1981") (and not section 44 of the Arbitration Act 1996 ("1996 Act") which sets out the English court's jurisdiction to issue interim relief in aid of arbitrations). Section 37 gives the High Court a general power to grant an injunction "in all cases in which it appears to the court to be just and convenient to do so", including – in the present circumstances – for the purpose of enforcing the negative promise (not to bring court proceedings) contained in the AA, regardless of whether arbitration proceedings are in existence or anticipated.

The UKSC then discussed a new “presumption which treats the courts of England and Wales as the proper place in which to bring the claim for an [ASI] unless the fact that the arbitration has a foreign seat makes it inappropriate to do so.”  Further, “strong reasons need to be shown as to why in the particular circumstances the court ought not to exercise its jurisdiction to restrain a breach of the contractual bargain”. Lord Leggatt concluded the principled approach is that permission to serve out of the jurisdiction should be granted unless the fact that the seat is or is likely to be outside England makes it “inappropriate on the facts of the case” to exercise the court's jurisdiction to grant relief aimed at enforcing the AA or supporting the arbitral process.

If the Arbitration Bill is enacted will this change the position?

The Arbitration Bill currently includes a new rule that an AA will be governed by the law of the seat unless parties expressly agree otherwise (the “Default Rule”). This provision would effectively reverse the rule in Enka.¹ If the Bill is enacted in its current form, where parties have provided for a non-English seat in their arbitration clause (and not included an express governing law clause for the AA), even if the substantive contract is governed by English law, they would be generally unable to rely on the “English contract” jurisdictional gateway as that AA would now be considered to be governed by the law of the non-English seat.  The Default Rule is subject to limited exceptions where the common law will continue to apply.²

What’s next?

The Russian court had adjourned the Russian proceedings pending the outcome of the UKSC decision. However, since the UKSC’s decision in April 2024, RCA has obtained updated freezing orders against UniCredit (and other banks) in the Russian courts.  Further, on 12 July 2024, the Russian court ruled in favour of RCA on its substantive claims. A hearing relating to an appeal against this decision is to be heard on 16 October 2024.

On 16 September 2024, the Arbitrazh Court registered new claims by RCA against UniCredit and four other banks. Press reports indicate that RCA is seeking injunctive relief to prohibit the banks from continuing (or initiating) proceedings against RCA in foreign courts as well as damages (should the banks fail to comply with the Russian court order).  These developments suggest that this cross border battle may continue for some time to come.   

Legal points of interest

This judgment offers practitioners some useful insights:

1. Given changes to the governing law position that are likely to be coming down the track in the Arbitration Bill, to preserve an ability to seek ASI from the English courts and promote certainty, parties may wish to include an express provision in their AA that “this AA is governed by English law" and/or select a London seat. If selecting a foreign seat but providing that the AA is governed by English law, care should be taken to investigate whether this selection gives rise to any complexities under the law of the foreign seat (i.e., before the supervisory court). For example, in the present case, if a French seat had been chosen and yet the Arbitration Bill had been passed (thereby rendering French law as the law governing the AA) the English courts may have found themselves without the ability to enforce to "negative promise" in the AA by granting an ASI.
2. It may be that this decision and the impending changes in the Arbitration Bill cause further reflection on the “jurisdiction gateways” in relation to arbitration claims in English procedural rules. In this regard, Lord Leggatt noted an apparent anomaly in relation to the test for service of a claim form out of the jurisdiction in the English procedural rules. A claim form seeking an order for interim relief under s44 of the 1996 Act can be served with permission under CPR 62.5(1)(b) even if the seat of arbitration is outside England. A claim under Section 37 of the SCA 1981 for an ASI against a defendant over whom the English court has personal jurisdiction under the contract gateway in CPR PD 6B para 3.1(6)(c) still has to satisfy the additional “proper place” test (discussed above). Further, this gateway can only be relied on where the arbitration is (or will be) seated within the English jurisdiction.   
3. Stepping back, Lord Leggatt acknowledges that whatever the position under UK law, there is no international consensus as to whether (i) the Enka rule or (ii) the rule set out in the Arbitration Bill on the governing law of AAs, should be preferred. This issue is likely to continue to be debated in international arbitration circles in years to come.

Related publications

• Legal Update about Bayerische and Ors v. RusChemAlliance which applied the reasoning of the Court of Appeal in UniCredit.
• The implications of the Default Rule in the new Arbitration Bill are discussed in this Legal Update.
• The clash between the French courts and English courts are discussed in our Kabab-Ji alert.