ANTI-SUIT INJUNCTIONS IN RESPECT OF RUSSIAN PROCEEDINGS: ENGLISH COURT OF APPEAL APPLIES ENKA V CHUBB AND ALLOWS THE FINAL ANTI-SUIT INJUNCTION IN THE RUSCHEMALLIANCE TRILOGY

In the recent decision in Unicredit Bank GmbH v RusChemAlliance LLC [2023] EWCA Civ 64, the English Court of Appeal (the Court) reversed the decision of the High Court at first instance and granted a final anti-suit injunction (ASI). The ASI requires RusChemAlliance LLC (RCA) to terminate proceedings brought in Russia in breach of an English-law governed arbitration agreement providing for arbitration seated in Paris. The decision is the latest in a series of applications on materially the same facts in which the English courts have been requested to grant an ASI preventing RCA from bringing Russian proceedings in breach of English-law governed arbitration agreements. We considered those decisions, alongside the first instance decision of Tear J in this case, in a previous post here.

Background

The factual background to this case (which is materially identical to those of the other two cases) is covered in our earlier blog post here. In short, RCA, a Russian company, contracted with two German firms (the Contractor) for LNG and GPP facility construction in Russia. The Contractor received significant advance payments and secured seven performance and repayment bonds from UniCredit Bank GmbH (UniCredit) and other banks, each of which contained English governing law clauses and ICC Paris-seated arbitration clauses. Following the EU's sanctions against Russia, the Contractor stopped work, prompting RCA to terminate the contracts and seek damages from the Contractor, and demand payment under the bonds. UniCredit refused RCA's bond payment demands, citing EU sanctions, which RCA contests do not provide grounds for refusing payment. Despite the arbitration clauses, RCA commenced proceedings against UniCredit in the Russian Arbitrazh Courts, arguing that EU sanctions contravened Russian public policy and that Article 248 of the Russian Arbitration Procedural Code granted local courts exclusive jurisdiction, rendering the arbitration clauses unenforceable. The Russian court accepted jurisdiction, leading UniCredit to obtain an interim ASI from the English court to prevent the Russian proceedings. On 22 September 2023, Teare J heard the application for a final ASI. Neither party has commenced an arbitration.

The High Court's decision

Teare J held that the English court did not have jurisdiction to grant an ASI to restrain proceedings in Russia. He found that:

1. Following the Supreme Court's decision in Enka v Chubb, the arbitration agreements were governed by the French substantive rules applicable to international arbitration as developed by the French courts; and
2. England was not the appropriate forum. Since English law did not govern the arbitration agreements, the only connection with England was that the bonds were governed by English law. While acknowledging that ASIs were not available in France, it did not follow that England was the only forum where substantial justice could be done; Unicredit could obtain substantial justice through damages obtained in an arbitration in France.

Teare J left the interim injunction in place pending an application for permission to appeal. The Court of Appeal granted permission, ordering the injunction to remain in place until the appeal was heard.

Court of Appeal's Decision

Reversing Teare J's decision at first instance, the Court of Appeal granted a final ASI in favour of Unicredit, requiring RCA to terminate the Russian proceedings.

Jurisdiction

RCA is not domiciled in England and Wales and has no presence in the jurisdiction, so the jurisdiction of the Court was dependent on whether service could be effected out of the jurisdiction. To confirm this personal jurisdiction of the Court over RCA, Unicredit was required to satisfy that there was a serious issue to be tried on the merits (which the Court found had already been made out), but also that:

1. There is a good arguable case that the claim falls within one of the relevant gateways for service; and
2. England and Wales is the proper place in which to bring the claim (CPR 6.37(3)).

For the first requirement, Unicredit relied on the "governing law gateway" under paragraph 3.1(6)(c) of Practice Direction 6B, that the claim being brought is in respect of a contract governed by English law. However, as an arbitrations agreement is treated as a separate agreement to the main contract, the arbitration agreements had to be governed by English law for the "governing law gateway".

1. The "governing law gateway": the Arbitration agreements were governed by English law

The Court observed that the "general rule" from the Supreme Court's decision in Enka v Chubb is that where there is an express choice of governing law of the "main" contract (here English law), the parties will usually be taken to have chosen that same law to govern the arbitration agreement, despite the choice of a foreign seat. However, there were exceptions, including when the law of the chosen seat provides that the arbitration agreement itself will be governed by the law of the seat. RCA argued that this exception applied in this case, contending that French law provides that where an arbitration is subject to French law, the arbitration agreement will also be treated as governed by French law.

The Court considered that the application of this exception depended on all the circumstances, including what the parties can be fairly taken to have known about the content of the law of the seat. While the Supreme Court in Enka had clearly contemplated legislative provisions to this effect, the Court accepted that a "clear rule of the law of the seat established by case law is capable of
satisfying the exception". However, the Court found that there was no such clear provision of French law to this effect: the principle of French law relied upon by RCA was merely that "the law governing the arbitration agreement depends on the parties' common intention". This fell short of what the Supreme Court contemplated would be sufficient for the exception to apply. Emphasising that it did not matter that the French courts might reach a different view on the law governing the arbitration agreement applying their own conflict of law rules, the Court determined the exception to the "general rule" had not been made out, and the arbitration agreements in the bonds were governed by English law.

2. The English court is the "proper place" to bring the claim

The Court then considered whether the English courts were the proper place to bring the claim. The appropriate forum is where the case "can be suitably tried for the interests of all parties and for the ends of justice". This involved considering the "natural forum" for the claim, and "whether there is a real risk that justice will be unobtainable in that forum".

At first instance, Teare J had contrasted the availability of relief from the English courts with arbitration seated in Paris, which RCA argued was the "natural forum" for such relief. Since it would be possible for Unicredit to obtain an award of damages for RCA's breach of the arbitration agreement, he concluded that justice could be achieved through arbitration. The Court, however, observed that this comparison was "unrealistic". Obtaining an ASI from an emergency arbitrator or arbitral tribunal was possible but could take time and was unlikely to be enforceable in Russia. RCA would likely seek an anti-arbitration injunction from the Russian courts and Unicredit, which has assets in Russia, would have to comply with that injunction. Further, it was highly likely that, in the absence of an ASI, the Russian courts would proceed to give judgment in favour of RCA. The Court found the suggestion that substantial justice could be obtained by UniCredit in France, whether in court or in arbitration, to be an "illusion". The Court further found that it was "abusive" for RCA to argue before the English Court that justice could be obtained in an arbitration in France while arguing before the Russian courts that the arbitration agreement was unenforceable.

In the earlier decision in Deutsche Bank, the Court had found that (i) the ends of justice in these cases was that parties adhered to their agreements to arbitrate, and (ii) although the French courts could not grant an ASI, they would not consider the grant of an ASI by the English courts to be an interference with their jurisdiction. Following this decision, the Court had "no hesitation in concluding that England is the proper forum for this claim".

A final anti-suit injunction should be granted

Having established that the English courts had jurisdiction over the claim, the Court proceeded to consider whether a final ASI should be granted.

The Court observed that the English courts should be more cautious to grant ASIs where the arbitration is not seated in London, "as the court in the country of the seat has primary responsibility for supervising any arbitration" and may consider the English courts granting an injunction as being "an unwarranted interference with its jurisdiction". In this case, however, there were no "strong reasons" offered by RCA not to grant the relief sought. The Court considered that "the fact that the contract, including the agreement to arbitrate, is governed by English law, together with the policy of English law that those who agree to arbitrate should adhere to their bargain provides [the English courts with] a sufficient interest or connection in this case" to grant the ASI.

Comment

This judgment of the Court in this case is the first of the "trilogy" of cases which has resulted in final anti-suit relief and in which RCA took an active part. As such, the reasoning and rationale for the grant of the relief may have greater weight for future potential applicants of ASI relief than either the Commerzbank or Deutsche Bank cases. The judgment confirms that parties may be able to obtain ASI relief from the English courts without an English seat, provided that the court is satisfied it has personal jurisdiction over the respondent party. The requirement that the English court has personal jurisdiction can be satisfied by an English law governed arbitration agreement. The court will also have to be satisfied that it is the proper forum for the claim but, in short, the Court has indicated that the English court is prepared to take on a role in upholding arbitration agreements, even when it is not the curial court.

It remains to be seen whether these decisions may lead to more applications for ASIs from the English courts in support of foreign arbitrations. The applications in this trilogy of cases rest on the Supreme Court’s decision in Enka which has established the “general rule” that the arbitration agreement will be governed by the governing law of the contract. This rule looks set to be replaced during 2024, as the draft Arbitration Bill 2024 provides for the default law of the arbitration agreement to be the law of the seat. This may limit opportunities for parties to argue for an English governing law and to meet the jurisdictional gateway requirements for the English court to act. To avoid uncertainty, parties should ensure that the law of the arbitration agreement is expressly addressed in their contracts.

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

The authors would like to thank Luke Hard for his contribution to this blog post.