TRILOGY OF APPLICATIONS FOR ANTI-SUIT INJUNCTIONS – 2 OUT OF 3 AIN'T BAD!

There has been a trilogy of applications for anti-suit injunctions (ASIs) in the English courts brought by three banks (Deutsche Bank, Commerzbank and Unicredit) against RusChemAlliance (RusChem), a joint venture between Gazprom and RusGasDobycha. A fourth ASI against RusChem has also been sought in Hong Kong by the German contractor, Linde. All of the applications related to substantive proceedings brought by RusChem in Russia, ignoring the contractually agreed forum.

These cases illustrate the importance of ASIs as a tool to try to ensure that arbitration agreements are enforced. ASIs have become all the more important in respect of transactions involving Russian parties, given the Russian law which allows the Russian courts to take exclusive jurisdiction over cases which involve sanctions. These cases also demonstrate the English courts' approach to ASI applications where the seat of the arbitration is not in England and Wales.

Background and summary

All three cases that have come before the English courts arise out of the same factual background. RusChem entered into an EPC contract with Linde Engineering for an LNG plant in the port of Ust-Luga. Linde suspended work following the Russian invasion of Ukraine and the imposition of sanctions by the EU. This led RusChem to terminate the contract and demand payment by the banks under various on demand bonds and guarantees. In each case, the banks argued that they were prohibited from making payment by the sanctions. RusChem commenced proceedings against the banks in the Russian courts, despite the existence of arbitration agreements in the bonds and guarantees.

Each arbitration agreement provided for ICC arbitration seated in Paris, and the bonds and guarantees were governed by English law. In each case, the English courts considered whether England was the proper forum to grant anti-suit relief given that it was not the seat of the arbitration.

In two of the three cases (including one Court of Appeal decision), the English court decided that it was the proper forum and there was no good reason not to grant an ASI. In the third case (brought by Unicredit), the Commercial Court declined to grant the ASI on the basis that substantial justice could still be obtained in France (i.e. at the seat of the arbitration). It is interesting to note that in that third case, the court held that the law of the arbitration agreement was French law, unlike the conclusion reached in the other two cases.

Linde has also obtained an interim ASI from the Hong Kong courts pending an HKIAC arbitration – see our blogpost here.

What are the underlying principles for the grant of ASIs in England?

The relevant power to grant an ASI to restrain foreign proceedings in breach of an arbitration agreement arises under s37(1) of the Senior Courts Act 1981. An ASI is a discretionary remedy.

Applying the principles in the well-known case of The Angelic Grace (Aggeliki Charis Compania Maritima SA v Pagnan SpA [1995] 1 Ll Rep 87), the English court will grant an ASI if the claimant can demonstrate with a high degree of probability the existence of an arbitration clause to which the defendant is a party and which covers the dispute, and there are no exceptional circumstances which militate against the grant of relief.

This power is available even where the seat is not England. In the case of Spiliada Maritime Corpn v Cansulex Ltd [1987] AC 460 (The Spilada), the court explained that the task of deciding whether England is the proper forum means to "identify the forum in which the case can be suitably tried for the interests of all the parties and for the ends of justice".

It is worth noting by way of additional context that in mid-2020, changes were enacted to the Russian Arbitrazh (Commercial) Procedure Code to establish the exclusive jurisdiction of Russian Arbitrazh courts over cases where Russian parties had limited access to justice in a foreign forum due to sanctions. In 2021, this was broadly interpreted so that the very fact that a Russian party was subject to sanctions was sufficient to allow the Russian court to take jurisdiction. In practice, this has become a tool by which Russian parties have approached their domestic courts in relation to issues which are within the scope of arbitration clauses. There are now multiple examples of the Russian courts taking jurisdiction rather than staying proceedings consistent with Russia's obligations under the New York Convention 1958.

Overview of the three decisions

We set out below a brief summary of the reasons underlying each decision.

Deutsche Bank v RusChem (formerly known as SQD v QVP)

At first instance, Mr Justice Bright in the Commercial Court declined to grant an ASI. This was an ex parte decision which we summarised in our blogpost here. The decision was reached on the basis that French law had a philosophical objection to anti-suit injunctions. The judge held that for the English court to grant an ASI would be inconsistent with the approach of the courts of the seat of arbitration and could give rise to a perceived conflict or clash. In this case, English law was found to be the law of the arbitration agreement.

Deutsche Bank appealed on three grounds:

• 1. The court should have held that England was the proper place to seek the injunctions, regardless of the seat or whether an ASI was available from the French court;
  2. Alternatively, that the court should have held that rule 29.7 of the ICC Rules made England a proper place to bring the claim (rule 29.7 confirms that the Emergency Arbitrator Provisions do not prevent any party from seeking urgent interim measures from a competent judicial authority); and
  3. The court should not have held that the application was contrary to any French policy.

In support of ground 3, Deutsche Bank advanced fresh evidence on French law, to the effect that although a French court does not have the ability to grant an ASI, it will nonetheless recognise the grant of an ASI by a foreign court, provided that doing so does not cut across international public policy.

The key issue was whether England was the proper place in which to bring the claim. Referring to The Spilada, the court summarised the task as to "identify the forum in which the case can be suitably tried for the interests of all the parties and for the ends of justice". Here, "the ends of justice" involved upholding and enforcing the parties' arbitration agreement. The relief sought could only be obtained in England and not in France. Accordingly, the forum in which the claim for an interim ASI could be suitably tried in the interests of all the parties and for the ends of justice was the English court.

The English court saw no good reason not to grant to the injunction. It also granted an anti-enforcement injunction. The reason for this was that even if RusChem filed a motion in the Russian proceedings to discontinue them, it was argued that the Russian courts may not approve that application and judgment could still be entered. The anti-enforcement injunction would then prevent the enforcement of the Russian judgment in England.

Commerzbank v RusChem

Mr Justice Bryan first satisfied himself that there was a high degree of probability that there had been a breach of the arbitration agreement and that Commerzbank had acted promptly, and then concluded that this was an archetypal case for the granting of an ASI. He took the view that the arbitration agreement was subject to English law, which differs from the decision of Sir Nigel Teare in the Unicredit case below, but mirrors the approach in the Deutsche Bank case above.

Applying the principles laid down in The Angelic Grace referred to above, an ASI would be granted as a matter of course provided there were no exceptional circumstances. The only factor to be addressed was the fact that the seat of the arbitration was Paris, not London.

Mr Justice Bryan concluded that England and Wales was the proper place to bring the claim because (i) the arbitration agreement and bond were governed by English law (ii) English law provides a juridical advantage in the form of an ASI, which the French courts do not and (iii) neither Russia nor France were the proper places to obtain the type of relief sought.

Mr Justice Bryan also distinguished his decision from that of the first instance judge in the Deutsche Bank case (which has in any event been subsequently successfully appealed). He did so on the basis that he had received fuller and different expert evidence on French law. The nature of this evidence was that there is no philosophical objection to ASIs under French law and that, on the contrary, a French court, if seised of the matter, would be likely to recognise, and indeed welcome, an anti-suit injunction issued by the English court to safeguard an arbitration agreement.

Accordingly, there were no exceptional circumstances which militated against the granting of interim relief in this case.

Unicredit v RusChem (G v R)

We understand that an ASI was originally granted in this case by Mr Justice Robin Knowles CBE on 24 August 2023 (although the judgment does not appear to have been published). There was a subsequent trial of the action for final ASI relief which came before Sir Nigel Teare in the Commercial Court.

RusChem challenged the jurisdiction of the English court to grant the relief, arguing that the law of the arbitration agreement was French law. The judge referred to the cases of Enka v Chubb, Kabab-Ji v Kout and Dallah v Government of Pakistan to ascertain what law governs the arbitration agreement under French law, as the law of the seat. He concluded that French law would not regard the parties' choice of English law as governing the arbitration agreement, Instead, the governing law of the arbitration agreement was the French substantive rules applicable to international arbitration that the French courts have developed. He also noted that the parties would have been aware of the fact that ASIs are not available in France and would have had those in mind when making their choice. He concluded that French law was the governing law of the arbitration agreement (contrary to the decisions above).

Having concluded that English law did not govern the arbitration agreement, however, this meant that the only connection with England was that the underlying contract was governed by English law. In line with the Deutsche Bank case, the judge had regard to The Spiliada test of the proper forum being that where "the case may be more suitably tried for the interests of all the parties and the ends of justice".

Although the judge noted that ASIs were not available in France, his view was that it did not follow that England was the only forum where substantial justice could be done. Were there to be an arbitration in France, the claimant could still seek damages for breach of the arbitration agreement.

We understand that Unicredit has sought permission to appeal this decision from the Court of Appeal.

Comment

These cases illustrate the importance of ASIs as a tool for trying to ensure that arbitration agreements are upheld. In each of these three cases, the value of an ASI was demonstrated in the context of RusChem seizing the Russian courts in sanctions-related cases. The ASIs that have been granted will require RusChem to apply to discontinue the Russian proceedings or else face contempt of court in England. Moreover, the anti-enforcement injunction granted in the Deutsche Bank case is intended to ensure that RusChem cannot execute any judgment of the Russian court in England. However, if RusChem were to take a Russian judgment to the courts of a different jurisdiction, it would be a question for those courts as to whether to recognise and enforce that judgment. Any ASIs and/or anti-enforcement injunctions granted by the English courts could potentially be used by the banks as evidence of the English court's view that the Russian proceedings were brought in breach of an arbitration agreement.

It is clear from these cases that, while the English courts are, in theory, ready and willing to grant ASIs for breach of arbitration agreements, they need to be satisfied that England is the proper forum for seeking such relief. This means looking in the round at the interests of the parties and the ends of justice, and - importantly – the parties' choice of seat.

The Deutsche Bank and Commerzbank judgments clearly indicate that parties can obtain ASI relief from the English courts without an English seat, particularly if they can demonstrate a connection to England and Wales, such as English governing law. These decisions may lead to more applications for ASIs from the English courts where Russian proceedings have been commenced, particularly where there is an English governing law.  It is presently unclear whether the Court would grant an ASI if ASIs are available at the seat of the arbitration.

Although two of the ASIs were granted, it is worth noting that had the parties chosen an English seat, these decisions would have been more straightforward since there would have been no requirement to prove a "connection to England and Wales" in order to seek this remedy.

Permission has been sought to appeal the decision in the Unicredit case and it will be interesting to see whether permission is granted and, if so, whether these divergent approaches remain.

For further information, please contact Hannah Ambrose, Partner, Vanessa Naish, Professional Support Consultant, Liz Kantor, Professional Support Lawyer, or your usual Herbert Smith Freehills contact.