A case summary of UniCredit Bank AG -v- RusChemAlliance LLC
Introduction
On 2 February 2024, the Court of Appeal handed down its written judgment in UniCredit Bank AG -v- RusChemAlliance LLC [2024] EWCA Civ 64, in which it issued a final anti-suit injunction ("ASI") restraining RusChemAlliance LLC ("RCA") from pursuing court proceedings in Russia in breach of a foreign seated arbitration agreement.
This is the first time that the English court has ordered on a contested basis that England is the proper place in which to bring and decide a claim for an ASI to enforce an arbitration agreement that has a foreign seat (in this case, Paris). The judgment is consistent with two 2023 judgments: Deutsche Bank AG -v- RCA [2023] EWCA Civ 1144 and Commerzbank AG -v- RCA [2023] EWHC 2510 (Comm). But, the Deutsche Bank and Commerzbank judgments were for interim injunctions and were not contested. Therefore, the reasoning and analysis in the UniCredit judgment will have greater force and relevance for future applications of this type.
1. Factual Background and the High Court decision
RCA (a Russian company) entered into two EPC contracts for the construction of LNG and GPP facilities in Russia. The two contracts required the contractor to provide on demand bonds guaranteeing performance of its obligations. Some of those bonds were provided by UniCredit Bank AG ("UniCredit"). Those bonds each provided for English law and ICC arbitration in Paris. However, the contract did not expressly provide for any governing law of the arbitration clause itself.
Following Russia's invasion of Ukraine, the European Union imposed sanctions on Russia and on specified Russian entities and persons (though this did not include RCA). However, following clarification from the German Federal Office for Economic Affairs and Export Control (who advised the contractor that it could not continue to perform the EPC contracts), the contractor halted performance. RCA therefore sought to terminate the contracts on the basis that the contractor had materially breached its obligations and made demands on UniCredit for payment under the on demand bonds. UniCredit rejected payment on the basis of the EU sanctions.
Instead of commencing arbitration, RCA issued proceedings against UniCredit before the Russian courts. RCA asserted that the Russian courts are competent to determine the dispute because the arbitration clause contained in the performance bonds is unenforceable as a matter of Russian law. The Russian courts accepted the claim and fixed a hearing to consider the substantive trial of the claim. Accordingly, on 22 August 2023, UniCredit issued a claim in the English court, together with an application for an interim ASI to restrain pursuit of the Russian proceedings. The interim application was heard urgently and was granted. A hearing was also fixed for the claim for final relief. RCA acknowledged service of the claim, but indicated its intention to challenge jurisdiction.
The High Court decision
The trial of the claim for the final anti-suit relief and RCA's challenge to the jurisdiction of the English court was heard on 22 September 2023. The judge (Sir Nigel Teare) refused to grant an ASI. First, the judge found that, applying the principles of Enka -v- Chubb (see our separate briefing) that the governing law of the arbitration agreements was French law, not English law. Second, in case he was wrong on that issue, the judge considered whether England was the appropriate forum. He decided that it was not for two main reasons: he said (1) the only connection with England was the assumption that the arbitration agreements were governed by English law; and (ii) that although an ASI would not be a remedy available from the French court, if there were to be an arbitration in France, in which UniCredit claimed for a breach of the arbitration agreement, the remedy of damages would be available. The judge therefore concluded that the English court did not have jurisdiction. However, he left in place the existing interim injunction, pending an application for permission to appeal.
2. The Court of Appeal judgment
Notwithstanding the interim injunctions that had been granted in Deutsche Bank and Commerzbank, the Court of Appeal decided for various reasons that it needed to consider the issues and principles for themselves. For the reasons summarised below, the Court of Appeal overturned the decision of the High Court, declared that the English court has jurisdiction, and granted an ASI ordering RCA to terminate the Russian proceedings.
Jurisdiction
As RCA is not domiciled in England or Wales and has no presence there, the jurisdiction of the English court depended on whether service can be effected on RCA out of the jurisdiction. In order to do that, UniCredit had to satisfy three requirements: (1) that there is a serious issue to be tried; (2) there is a good arguable case that the claim falls within one of the relevant gateways under the Civil Procedure Rules; and (3) that England and Wales is the proper place to bring the claim. The Court of Appeal had no difficulty with the first requirement, but looked more closely at the second and third.
As to whether a gateway could be established under the Civil Procedure Rules, UniCredit relied on paragraph 3.1(6)(c) of Practice Direction 6B – i.e. that the relevant contract (in this case the arbitration clause in the bonds, which is separate to the main agreement) is governed by English law. In order to determine the governing law of the arbitration agreements, the Court of Appeal applied the principles set out by the Supreme Court in Enka -v- Chubb. In this regard, the Court of Appeal noted "it is clear that the general rule, in a case such as the present where the main contract is expressly governed by English law, and the arbitration agreement contained within that contract provides for arbitration with a foreign seat but does not say anything specific about the governing law of the arbitration agreement, is that the parties are taken to have made a choice of English law as the law applicable to the arbitration agreement." However, there are exceptions to this general rule, which would include where the law of the seat provides that the law of the arbitration agreement will be governed by the law of that seat. In the High Court, the judge had found that this exception applied and that the general rule had been displaced, which was why he decided that French law applied to the arbitration agreement. However, the Court of Appeal disagreed with this conclusion and, in particular, found that there was no firm principle under French law to that effect. Accordingly, the Court of Appeal concluded that the arbitration agreement in the bonds was governed by English law.
Appropriate forum
In order to determine whether England and Wales is the "proper place in which to bring the claim", the Court of Appeal had to consider the "natural forum" and whether "there is a real risk that justice will be unobtainable in that forum." In this regard, RCA submitted that France was the natural forum for the claim, and is an available forum where UniCredit could obtain substantial justice (i.e. suitable relief could be obtained in an arbitration). The Court of Appeal said that while it accepted that ICC arbitrators have power, not only to award damages for a breach of the arbitration agreement, but to make an award ordering a party to refrain from proceedings brought in breach of an arbitration agreement, it found that those protections were more theoretical because obtaining such orders might take many months and it was clear that such an award would not be enforced in Russia. The Court of Appeal also found that it seemed highly unlikely that an arbitration in Paris would be allowed to proceed because RCA would seek an ASI from the Russian courts. In summary, the Court of Appeal found the suggestion that substantial justice could be obtained by UniCredit in France to be an "illusion" and, accordingly, found that England was the proper forum for the claim.
Should a final injunction be granted?
Having accepted that the English court had jurisdiction over the claim, the final question for the Court of Appeal was whether it should grant a final injunction. The Court of Appeal noted that where the seat of the arbitration is abroad, the English court will need to be more cautious on whether or not to grant an ASI, as the court in the country of the seat has primary responsibility for supervising any arbitration. However, the Court of Appeal also noted that the French courts would not find an ASI from the English courts as an unwarranted interference with its own jurisdiction.
The Court of Appeal saw no reason in principle why the English court, having assumed jurisdiction, should not grant an ASI in support of an arbitration agreement providing for a foreign seat. RCA relied on three arguments as to why a final injunction should not be allowed in this case: (1) that the French courts would not recognise the English order – however, the Court of Appeal found this to be irrelevant – what matters is whether the French court would not regard the ASI as an interference with its own jurisdiction; (2) that the EU sanctions provided no defence to UniCredit in relation to RCA's claim under the bonds – however, the Court of Appeal said that was a matter for any arbitration in Paris, applying English law; and (3) that the English court has no sufficient interest or connection with the matter to justify an indirect interference with a foreign court – however, the Court of Appeal did not accept this and found that the fact that the contract, including the agreement to arbitrate, were governed by English law (combined with the English law policy that those who arbitrate should adhere to their bargain), provided for a sufficient interest or connection in this case.
3. Analysis and Impact
The Court of Appeal's judgment provides confirmation (in the context of a contested hearing in relation to a final injunction) that the English court will issue an ASI in relation to a foreign seated arbitration where it has jurisdiction over the respondent. The judgment will certainly lead to many more applications of this sort. Those claims will no doubt raise interesting arguments in relation to the application of Enka -v- Chubb and, in the context of the relevant foreign seat, whether England is the appropriate forum.
Of critical importance in granting the ASI in this case was the Court of Appeal's decision (applying Enka -v- Chubb) that the arbitration agreement was governed by English law. However, the draft Arbitration Bill (which follows a review of the Arbitration Act 1996) is set to replace the general rule in Enka -v- Chubb – i.e. that, absence express choice from the parties, the law of the arbitration agreement is the law of the underlying contract, not the seat. Instead, the draft Arbitration Bill establishes a general rule that, absence express choice from the parties, the law of the arbitration agreement is the law of the seat. If the draft Arbitration Bill had been applied in this case, UniCredit would not have been able to meet the jurisdictional gateway in relation to English governing law. Therefore, the draft Arbitration Bill may severely limit the future ability to obtain ASIs from the English court in relation to foreign seated arbitrations.
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