Standing firm: UK Supreme Court backs arbitration in UniCredit v RusChemAlliance

On 23 April 2024 the UK Supreme Court announced its decision in UniCredit Bank GmbH v RusChemAlliance LLC to dismiss RCA's appeal and maintain the final anti-suit injunction (ASI) in respect of proceedings brought by RCA in Russia (see our previous posts here and here). On 18 September the Supreme Court issued its unanimous reasoned judgment. The judgment is notable in its robust defence of the Supreme Court's prior decision in Enka v Chubb and its steadfast protection of arbitration agreements. Relying heavily on the underlying reasoning in Enka, the court concluded that although the parties had chosen a Paris-seated arbitration, that choice was not in itself a reason why the English court could not or should not uphold the parties' bargain.

The Supreme Court's analysis

The facts of the underlying dispute and the prior procedural history are covered in our earlier blogs (here and here).

The sole issue in the appeal was whether the English court had jurisdiction over UniCredit's claim for an antisuit injunction (ASI). This depended on whether the Court of Appeal was right to decide that (i) the arbitration agreements in the bonds were governed by English law (the Governing Law issue) and (ii) England and Wales was the proper place to bring the claim (the Proper Place issue).

Governing Law Issue

To establish the English court’s personal jurisdiction over RCA, UniCredit was required to establish a good arguable case that the claim fell within one of the relevant gateways for service under PD 6B para 3.1. UniCredit invoked the “contract gateway”, which applies where a claim is made in respect of a contract governed by English law. In both the High Court and the Court of Appeal, UniCredit argued that the arbitration agreements embedded within the bonds were the relevant contracts for consideration.

Although the bonds were governed by English law, the arbitration agreements contained a Paris seat. RCA maintained that Enka v Chubb established an exception to the general rule that the governing law of the contract should also govern the arbitration agreement. This exception would apply if the law of the seat of arbitration would treat the arbitration agreement as governed by that country’s law. In this case, RCA argued that a French court would regard any agreement to arbitrate disputes in France as being governed by French law principles applicable to international arbitration agreements.

The Supreme Court considered its decision in Enka v Chubb, robustly defending its earlier ruling and cautioning parties to consider the decision's "underlying reasoning" rather than focusing solely on the specific wording of the judgment.  The Court rejected RCA’s argument, finding that the French law arguments presented did not stand up to close scrutiny. Moreover, the Court concluded that RCA’s proposed approach would introduce "significant complication" necessitating evidence of how a foreign court would determine the governing law of an arbitration agreement whenever a foreign seat was chosen. Such an approach was deemed unlikely to reflect the intentions of the contracting parties.

Applying the principles set out in Enka, the Court reached a clear and unequivocal decision that English law governed the arbitration agreement, stating that "the short answer...is...the correct answer". The Court reaffirmed that the choice of governing law for a contract typically encompasses any arbitration agreement contained within it. The Court saw no justification to depart from this established principle despite the Paris seat. As a result, the Court of Appeal's decision on the Governing Law issue was upheld.

Proper Place Issue

Where a party seeks to serve a claim form outside of the jurisdiction, CPR 6.37(3) stipulates that the "court will not give permission unless satisfied that England and Wales is the proper place in which to bring a claim".

RCA contended that France rather than England was the proper place in which to bring the claim (whether in the French courts or Paris-seated arbitration) citing the Commercial Court's finding that substantial justice could be done in Paris-seated arbitration.

The Supreme Court first clarified the test for jurisdiction, noting that the Spiliada test - that the English court should not exercise jurisdiction if there is another forum more suitable for the interests of the parties and justice - was inappropriate here, because it was intended for situations where no contractual forum had been agreed. In this case the parties had contractually agreed to arbitration. The appropriate starting point was therefore to hold parties to their contractual bargain "by any court before whom they have been or can properly be brought" (as per the Court of Appeal in Enka v Chubb, para 57).

The Supreme Court clarified that restraining RCA from pursuing the Russian proceedings was not solely a supervisory function to be left to the courts of the seat. The English court's authority to issue ASIs derives from its equitable jurisdiction under section 37 of the Senior Courts Act 1981, rather than its supportive jurisdiction under the Arbitration Act 1996 (the Act).

The Court considered both the test for interim relief under s44 of the Act and the test for personal jurisdiction under CPR PD 6B, para 3.1(6)(c). It opined that the proper principle to apply is that set out in s2(3) of the Act– that a strong reason is required to show why, in the particular circumstances, the court ought not to enforce the parties' arbitration agreement.  It commented that this was consistent with the wording of CPR 6.37(3): in other words, the courts of England and Wales are presumed to be the proper place to bring a claim for an ASI unless the fact that the arbitration has a foreign seat makes it inappropriate to do so. Accordingly, the parties' choice of a French seat was not in itself a reason why the English court could or should not uphold the parties' bargain by restraining breach of the arbitration agreement.

In any case though, the evidence before the Supreme Court was that the French courts would not have jurisdiction to determine a claim of breach of the arbitration agreement and even if they did, they would no power to grant ASIs. Even were the choice of a French seat a reason not for the English court to intervene, it was clear that the French courts were not an available forum to bring the claim.

The Supreme Court also dismissed RCA's alternative argument that Paris-seated arbitration could deliver substantial justice, noting that an arbitrator's award or order lacks the coercive power of a court-ordered anti-suit injunction (ASI) and cannot impose contempt sanctions.  In addition, the French courts would not have the power to enforce any such order made by an arbitral tribunal and the order would not be enforceable in Russia.

The Supreme Court considered it unnecessary to address the abuse of process point raised in the Court of Appeal. However, it commented that RCA’s conduct was "to put it no higher, unattractive…" and that seeking relief through arbitration would not prevent RCA from breaching the arbitration agreement.

Comment

In a clear, authoritative decision, the Supreme Court has unequivocally demonstrated the English Court's willingness to restrain foreign proceedings brought in breach of an arbitration agreement, even where England is not the seat of arbitration.  Parties should be assured that where either the seat or the governing law of the arbitration agreement is English law, the English courts will stand firm in upholding arbitration agreements and provide parties with the requisite support.

ASIs are the obvious tool for international companies to enforce arbitration clauses.  Their need has recently been highlighted by the fact that Russian courts have been readily disregarding foreign arbitration agreements under Article 248.1 of Russia's Arbitrazh Procedure Code.  Given that Russian courts consider compliance with international sanctions to be against public policy, this exposes international companies to litigation risk in Russia. However, given the current geo-political context, it is unlikely that an English ASI will effectively deter Russian sanctioned entities from pursuing Russian court proceedings in breach of jurisdiction clauses.  Nonetheless, an ASI from the English court will prevent enforcement of Russian judgments in England and should, in most cases, make it more difficult to enforce them in third countries.