The interactions between arbitration, the English courts and the courts in the jurisdiction of the arbitral seat have always been difficult to navigate, with some room for uncertainty. Some of that uncertainty is the target of parts of the Arbitration Bill currently working its way through parliament, but in the meantime the Supreme Court has provided welcome clarity on one important issue in UniCredit Bank GmbH v RusChemAlliance LLC.
That issue was whether the English court had jurisdiction to grant an anti-suit injunction to restrain the pursuit of proceedings in Russia where the contract is governed by English law, but provided for arbitration in Paris under ICC rules.
The Court of Appeal concluded that the English Court did have jurisdiction [2024] EWCA Civ 64, overturning the High Court’s decision at first instance. On 23 April, the Supreme Court decided to uphold the Court of Appeal’s decision, but with reasons to follow. We will therefore have to see whether the Supreme Court’s reasoning differs from that of the Court of Appeal in due course, but the decision offers helpful clarification.
RusChemAlliance is a Russian company which entered into construction contracts with two German contractors for the construction of gas facilities in Russia. The contractors provided bonds guaranteeing the performance of their obligations and repayment (if necessary) of advance payments made to them under the contracts. Some of those bonds were provided by the claimant, UniCredit Bank GmbH.
The bonds provided in pretty standard terms for English law and for any disputes to be resolved by ICC arbitration with the seat of arbitration in Paris.
As a result of the Russian invasion of Ukraine, the contractors halted performance of the contracts. RusChem terminated the contracts and made demands of UniCredit under the terms of the bonds. UniCredit refused to pay on the basis that payment was prohibited under the EU sanction regime.
RusChem then issued proceedings against UniCredit in the Arbitrazh Court of St Petersburg and the Leningrad Region. It asserted that the arbitration agreement in the bonds was unenforceable as a matter of Russian law.
This prompted UniCredit to issue a claim in the English court and obtain an interim anti-suit injunction in August 2023.
The issues for the court at first instance and at both levels of appeal were: (1) whether the arbitration agreement (as distinct from the ‘main’ or ‘matrix’ contract) was governed by English law; and (2) whether England and Wales is the ‘proper place in which to bring the claim’.
Governed by English law?
Paragraph 170 of Enka Insaat Ve Sanayi AS v OOO Insurance Company Chubb [2020] UKSC 38 sets out the principles to be applied when determining the law applicable to an arbitration agreement.
In essence, those principles provide that the law applicable to the arbitration agreement is to be identified (by applying English common law rules) as the law chosen by the parties, or otherwise the system of law with which the arbitration agreement is most closely connected. Importantly, where the law applicable to the arbitration agreement has not been specified, a choice of governing law for the ‘main’ or ‘matrix’ contract will generally apply, but that general rule can be displaced in certain circumstances.
At first instance, the judge held that the starting point that English law also governed the arbitration agreement was displaced, and that the arbitration agreement was governed by French law. In particular, the judge relied on the sixth principle in Enka, that is, if French law contained a provision that where an arbitration is subject to French law, the arbitration agreement will also be treated as governed by French law.
The Court of Appeal determined that such a provision did not need to be a legislative provision, as long as it was a sufficiently clear rule of which the parties can fairly be taken to have been aware. In this case, the Court of Appeal found that the relevant principle of French law was that the law governing the arbitration agreement depends on the parties’ common intention. Accordingly, the general rule applied and the arbitration agreement was governed by English law.
Is England and Wales the ‘proper place in which to bring the claim’?
In answering this question, the court has to determine ‘where the case can suitably be tried in the interests of all parties and for the ends of justice’. The judge at first instance concluded that the English court was not the appropriate forum because any arbitral tribunal could award damages for breach of the arbitration agreement (albeit the judge accepted this might be difficult to enforce in Russia and that the French court could not order an anti-suit injunction).
The Court of Appeal had no hesitation in concluding that England was the proper place to bring the claim. An important factor in its judgment was the prospect of RusChem applying for an injunction in the Russian courts, preventing UniCredit from pursuing an arbitration. Tellingly, RusChem did not offer an undertaking not to apply for such an injunction. The court therefore concluded that it was abusive for RusChem to rely on the availability of substantial justice in France as the seat of arbitration while at the same time pursuing the Russian proceedings and maintaining that the arbitration clause was unenforceable.
A different solution?
An Arbitration Bill is going through the legislative process, following recommendations from the Law Commission. One intended provision is to designate the law of the seat of the arbitration as the law of the arbitration agreement in the absence of an express choice by the parties (and that an agreement as to the law applying to the ‘main’ or ‘matrix’ contract does not constitute an express choice). On the facts of UniCredit, had the Arbitration Bill applied, French law would have been the law applicable to the arbitration agreement.
Jason Woodland is a partner at Peters & Peters and a committee member of the London Solicitors Litigation Association
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