Anti-suit injunctions, arbitration clauses and (pro) active English courts

Russia's invasion of Ukraine in 2022 has changed the legal landscape for commercial parties contracting with Russian counterparts in multiple ways. This Legal Insight considers how commercial parties have sought the assistance of English Courts to protect their rights under contractual dispute resolution clauses by seeking orders known as 'anti-suit' injunctions ("ASIs") against counterparties that have initiated proceedings against them in Russia in breach of contract.

Against the backdrop of the imposition and extension of EU sanctions on Russian entities, Russia amended its Arbitrazh Procedural Code in 2020 to introduce articles which (i) disapply contractual dispute resolution clauses and (ii) provide for the exclusive jurisdiction of the Russian courts where disputes involve Russian entities that are subject to foreign restrictive measures such as sanctions. These articles have subsequently been interpreted broadly by the Russian courts (see our earlier Legal Insight on this topic).

In a judgment of the English Commercial Court dated 28 June 2024 in Bayerische Landesbank & Anor v Ruschemalliance LLC¹ ("Bayerische")², Mr Justice Butcher issued a final ASI against Russian company, Ruschemalliance LLC ("RCA"), permanently restraining RCA's proceedings in Russia which it had commenced in breach of its agreement to arbitrate under ICC Rules in Paris. In doing so, Butcher J followed the approach adopted by the Court of Appeal in earlier proceedings involving RCA and UniCredit ("UniCredit")³, noting that those ASI claims were "materially identical" and that RCA's appeal against that decision had been dismissed by the Supreme Court⁴.

Key Takeaways

• The Bayerische judgment builds on ASI jurisprudence and underlines the willingness of the English courts to assume jurisdiction and grant ASIs in support of foreign-seated arbitration agreements in appropriate circumstances and where the arbitration agreement in question is governed by English law.
• The English courts' proactive intervention to protect commercial parties' rights under their dispute resolution clauses by issuing ASIs is likely to reinforce the attraction of London as a "seat" of arbitration. The English courts' position contrasts with that of many other courts, notably the French courts, which do not issue ASIs in such situations.
• However, a complication is coming down the track. The UK Arbitration Bill, if implemented in its current form, is likely to mean that ASI relief will not be available for contracts containing foreign seated arbitration agreements. Under this proposed new legislation there will be a new statutory rule that, absent express party agreement as to the law governing their arbitration agreement, the law of that arbitration agreement will be the law of the seat. This means that an arbitration clause containing, say, a Paris seat in an English law contract will, subject to limited exceptions, be considered to be governed by French law (assuming there is no express provision dealing with the applicable law of the arbitration agreement). Under English jurisdictional rules, it will therefore be difficult to establish that an English court has jurisdiction to issue an ASI.
• Given the above, and the desirability of having the ability to seek an ASI from the English courts to protect arbitration clause rights, commercial parties may focus increasingly on the selection of arbitration seats during their contractual negotiations.

A reminder – what are anti-suit injunctions?

ASIs are orders which restrain a party from the institution or continuance of proceedings in a foreign court in breach of a contractual agreement to refer disputes to the English courts or to arbitration⁵. Such orders date back to the mid-19^th century. They are not directed at foreign courts but rather at parties over whom the English court has in personam jurisdiction to ensure compliance with their contractual obligations. ASIs are discretionary remedies and may be granted on an interim or final basis.

If the respondent is not domiciled in England, it is necessary to establish the jurisdiction of the English court over that party. The power to issue ASIs where foreign proceedings have been instituted in breach of an arbitration agreement is derived from s37 of the Senior Courts Act 1981⁶ and does not require the arbitration to be on foot or even contemplated. The court must be satisfied that it is just and convenient to issue the injunction in all the circumstances. The burden is on the party in breach to establish good reasons why the court should not exercise its discretion. Breaching an injunction constitutes a contempt of court and the consequences of so doing can include imprisonment, fines and confiscation of assets.

Background to the Bayerische case

In 2021, RCA entered into EPC contracts with two German companies, Linde GmbH and Renaissance Heavy Industries LLC (together, the "Contractors"), for the construction of LNG (liquefied natural gas) and GPP (gas processing plant) facilities in Russia. Under the EPC contracts, RCA was obliged to pay, in stages, a total of approximately €10 billion. As is commonplace on large construction projects, Bayerische and another bank (the "Banks") provided on-demand bonds in favour of RCA guaranteeing the performance of the Contractors' obligations under the EPC contracts. The bonds were governed by English law and contained arbitration agreements providing expressly for disputes to be resolved under ICC Rules seated in Paris. The governing law of the arbitration agreements was not specified in the bonds.

Following Russia's invasion of Ukraine in February 2022, the EU extended its existing sanctions and imposed new sanctions on Russia and specified Russian entities and persons. RCA was not sanctioned initially, although it has subsequently been sanctioned. The Contractors were informed by the German government that they could no longer perform on the project. RCA sought to terminate the EPC contracts and made demands for payments under the bonds against the Banks (together with other banks) which were rejected on the basis that such payment was prohibited by EU sanctions.

In August 2023, despite the arbitration clauses in the bonds providing for Paris-seated ICC arbitration, RCA commenced proceedings in the Russian courts claiming over €320 million. The Banks applied to the English court for ASIs to protect their rights to have their disputes determined by arbitration in Paris. In February 2024, the court issued interim injunctions and considered there was no material delay in bringing the claim. By the time of trial, RCA was no longer represented by English counsel but the judge found that RCA was aware of the proceedings.

In April 2024, one of the Banks in this case initiated ICC arbitration proceedings seeking declaratory relief upholding the validity of the arbitration agreement in its bond and damages for legal costs of defending the Russian proceedings. In response, RCA challenged the tribunal's jurisdiction on the grounds that the Russian courts have exclusive jurisdiction over the dispute. In June 2024, RCA obtained freezing orders against the Banks from the Russian court aiming to secure its position before the substantive hearing.

There was evidence before the court that the Russian court could imminently grant judgment on RCA's pending claims against the Banks. (In the event, the Russian court issued a judgment in favour of RCA on 22 July 2024, after the issuance, on 28 June 2024, of the final ASI by the English court in this case).

Changes to Russian law

The following developments have meant that Russian parties affected by sanctions, like RCA, have been able to initiate proceedings before the Russian courts (notwithstanding their contractual terms).

• In 2020, the Arbitrazh (Commercial) Procedure Code was amended to provide Russian courts with exclusive jurisdiction over certain disputes involving foreign sanctions and/or a Russian (or, in certain narrow circumstances a non-Russian) party that is subject to foreign sanctions (the "Amendments"). The broad purpose of these Amendments was to provide Russian individuals and entities impacted by foreign sanctions with the right to have their disputes determined in Russia due to concerns that sanctioned entities will not receive a fair trial in an "unfriendly" jurisdiction. In particular, the Amendments allow the Russian courts to assume jurisdiction over disputes covered by an arbitration agreement (if such an agreement is deemed inoperable as a consequence of foreign sanctions impeding the affected party's access to justice) and to issue anti-suit orders and fines for non-compliance with these measures.
• In December 2021, the Russian Supreme Court⁷ held that the introduction of sanctions against a Russian party, in itself, raised doubts as to whether it could have a fair trial in a foreign jurisdiction or before a tribunal with foreign arbitrators and, therefore, the affected party was not required to provide any evidence that the imposition of sanctions affected its access to justice.

Jurisdiction – service out of the jurisdiction

In the present case, the dispute resolution clause provided for arbitration seated in Paris. The Banks therefore needed to establish the basis upon which the English courts had jurisdiction to grant a final ASI because RCA was not domiciled in England and had no presence in the jurisdiction. The court's jurisdiction depended on whether service out of the jurisdiction could be effected on them.

The jurisdictional 'gateway' relied upon by the Banks was paragraph 3.1(6) of Practice Direction 6B - "Claim is in respect of a contract governed by English law". 

The bonds were governed by English law but there was no express choice of law governing the arbitration agreement. The UK Supreme Court set out guidance to determine the applicable law of an arbitration agreement in Enka⁸. In Enka it was held that where the law applicable to the arbitration agreement is not specified, the governing law of the contract will generally apply to an arbitration agreement (and the choice of a different country as the seat of the arbitration is not, without more, sufficient to negate this inference). Butcher J applied Enka (following the approach of the Court of Appeal in UniCredit as upheld by the Supreme Court earlier this year) and concluded that the choice of law of the bonds extended to the arbitration agreements such that they were also governed by English law.

Was England the proper forum?

Butcher J then went on to consider whether England was the proper forum in which to bring the claim. Butcher J said the "essential question" was whether the "present claims could suitably be tried in the interests of all the parties and the ends of justice".

Butcher J found that England was the natural forum for the Banks' claims for various reasons:

1. An ASI is not a remedy available in the curial courts of the arbitration, i.e. the French courts.
2. Granting the ASIs did not give rise to any comity concerns: "it [is] likely, in fact, that the French courts would welcome the grant of an ASI, the effect of such relief being to uphold the New York Convention, to which France is a party, and to support arbitration in Paris, being the seat provided for in the arbitration agreements."
3. Although an ICC arbitration tribunal seated in Paris could make an award requiring RCA to refrain from or terminate Russian proceedings, that did not mean England was not the proper place for the Banks' ASI claims. (Indeed, the judge noted it would be "unconscionable" for RCA to act in breach of the arbitration agreements by suing the Banks in Russia on the basis that the arbitration agreements are unenforceable whilst simultaneously suggesting that the pursuit of arbitration in France renders England an inappropriate forum for the Banks' claims).
4. An award by an ICC arbitration tribunal seated in Paris would not be an effective or timely remedy because:
   "…it would be both unrealistic and illusory to consider that the pursuit of anti-suit injunctive relief through Paris arbitration would provide the Banks with substantial justice on the facts of this case. In particular, there is a real risk that the Russian court will grant judgment on RCA's claims against the banks on 4 July 2024 or shortly thereafter, and obtaining an award against RCA in the ICC arbitration is likely, by contrast, to take months, and on any view will not realistically happen before the 4 July 2024. In any event, an award made against RCA is, on the evidence of Mr Usoskin, unlikely to be enforceable in Russia. Furthermore, an award will not carry the coercive effect of a court order, and the curial court in France has no power to convert a tribunal's ASI into a coercive court order".
5. There was a significant probability of RCA applying for, and obtaining, an anti-arbitration injunction from the Russian court, meaning a real risk that a Paris arbitration would not be possible.

Merits of the ASI claims

Where court proceedings are brought in breach of an arbitration agreement, Butcher J reiterated that the English "court will generally grant an ASI, unless there are strong reasons not to do so". He noted that RCA had pursued proceedings in Russia in breach of its promise not to litigate and that, since the Supreme Court's dismissal of its appeal in April 2024, RCA had engaged in further breaches of the arbitration agreement by obtaining freezing orders against the Banks.

Butcher J considered that there was no strong reason to refuse an ASI and concluded that final injunctive relief was likely to help maximise the protection afforded to the Banks, particularly if RCA sought to enforce any Russian judgments against the Banks in other jurisdictions. He also found that the Banks had acted promptly in seeking the relief and that it was just and convenient to grant it.

Comment

It is a fundamental principle of English law that parties should be held to their bargain, subject to limited exceptions. Where parties have agreed to refer disputes to arbitration, this decision underlines that the English courts are, in appropriate circumstances, willing to utilise the tools available to protect those rights and seek to ensure compliance with the agreed bargain.

This decision has been welcomed in the market, viewed as an example of the English courts acting in an "arbitration friendly" and proactive manner. However, it is interesting to note that the outcome may well have been different if the proposed new UK Arbitration Bill had been in force.

The Arbitration Bill ("Bill") is to form part of the new Labour government's Parliamentary programme⁹. The Bill seeks to implement many of the recommendations made in a Law Commission review of the UK Arbitration Act 1996, discussed in our prior Legal Update. Assuming the Bill is implemented in its present form, it will introduce a new default rule that, unless the parties have expressly specified otherwise, the law of the jurisdiction in which the arbitration is seated governs the arbitration clause. This means that, even where the substantive contract is governed by English law, if parties provide for a non-English seat in their arbitration clause, subject to limited exceptions they will be unable to rely on the English law jurisdictional gateway¹⁰ as that arbitration agreement will now be considered to be governed by the law of the non-English seat¹¹.   

Two further related points to note. First, it has been indicated in recent Parliamentary debates that where parties have not expressly chosen the seat of arbitration and no seat has been designated by the court or tribunal, the common law rules (i.e. Enka) will continue to apply. Secondly, the latest version of the Bill provides a carve-out from this rule in respect of non-ICSID investor-state arbitration agreements.

What does all of this mean for commercial parties negotiating arbitration clauses with counterparties? To mitigate risks, the most effective way to increase the prospects of the English court being able to step in and protect your rights under an arbitration clause is for the arbitration clause to include an express provision that it is governed by English law. This is particularly important if you are selecting a non-English seat.