In a pivotal decision on 18 September 2024, the UK Supreme Court upheld a significant ruling in the case of UniCredit Bank GmbH v RusChemAlliance LLC[1]. The judgment has far-reaching implications for international arbitration and the enforcement of arbitration agreements.
Background
In 2021, RusChemAlliance LLC (RusChem) entered into contracts with two German companies to construct gas processing plants in Russia. RusChem made significant advance payments of around EUR 2bn. The obligations of the German companies were guaranteed by bonds payable on demand, some of which were issued by UniCredit Bank GmbH (UniCredit). Each of the bonds specified that:
- the bond was governed by English law;
- disputes would be settled by the International Chamber of Commerce (ICC); and
- the seat of the arbitration would be Paris.
As a result of the sanctions put in place by the EU against Russia following the war in Ukraine, the German companies ceased work on the gas plants. RusChem therefore terminated the construction contracts and requested the return of the advance payments. The construction companies refused to repay the sums on the basis of payment being prohibited by the EU sanctions. RusChem therefore demanded payment under the bonds. However, UniCredit refused to pay under the bonds for the same reason.
RusChem initiated legal proceedings in Russia against UniCredit despite the existing arbitration agreement. UniCredit applied to the Russian court for dismissal of RusChem’s claim on the ground that the parties had agreed to arbitrate disputes in Paris. The application was refused. UniCredit therefore sought an anti-suit injunction from the English courts to halt the Russian proceedings. RusChem disputed the English court’s jurisdiction to hear the claim.
The High Court previously held that the English court did not have jurisdiction to hear the claim. The Court of Appeal reversed this decision granting an injunction for the discontinuance of proceedings in Russia. RusChem then appealed to the Supreme Court.
The issue on appeal to the Supreme Court, was whether the English court had jurisdiction over UniCredit’s anti-suit injunction. In making its assessment, the Supreme Court had to consider whether:
- the arbitration agreements in the bonds were governed by English law; and
- England and Wales was the proper place to bring the claim.
The governing law
When considering the governing law of the arbitration agreements, the Supreme Court outlined the relevant principles it had upheld in the case of Enka Insaat Ve Sanayi AS v OOO Insurance Company Chubb[2]. The general rule is that the governing law of a contract will also apply to the arbitration agreement in the contract, even if the seat of the arbitration is in a different location. The judgment in Enka recognised an exception to the general rule where the parties have not expressly made a choice as to the applicable law of the contract and in that scenario, the law “most closely connected with the arbitration agreement” would be the law governing the arbitration agreement (there it was the laws of the seat of arbitration).
RusChem argued that the exception to the general rule applied in this case, and that since a French court would regard any agreement to arbitrate disputes in France as governed by French law, the same governing law should apply wherever it is looked at.
The Supreme Court did not agree with RusChem. It agreed with the Court of Appeal that since the choice of English law governed the bonds, English law also applied to the arbitration agreement which forms part of the bonds.
The proper place to bring the claim
CPR 6.37(3) provides that “the court will not give permission unless satisfied that England and Wales is the proper place in which to bring the claim”. However, RusChem was of the view that the proper place to bring the claim for an injunction was either the French courts or in an arbitration.
In considering this point, the Supreme Court referred to the principle of “forum non conveniens”. This is the notion (as set out in the case of Spiliada Maritime Corpn v Cansulex Ltd[3]) that the English court does not have jurisdiction if there is “some other available forum, having competent jurisdiction, which is the appropriate forum for the trial of the action, i.e. in which the case may be tried more suitably for the interests of all the parties and the ends of justice.”[4]
However, the Supreme Court noted that neither of the parties in this case suggested that the courts of England and Wales are an appropriate forum for the trial of the dispute about payment under the bonds. The parties had agreed a forum for the resolution of the dispute (arbitration), and it was not relevant to consider whether another forum was more appropriate.
The Supreme Court instead held that the starting point should be as stated by the Court of Appeal in Enka: “it is desirable that parties should be held to their contractual bargain by any court before whom they have been or can properly be brought”.
Is bringing a claim for an injunction compatible with an arbitration agreement?
The Supreme Court was of the view that an agreement to refer disputes to arbitration does not prohibit a party from applying to a court for relief needed either to hold the other party to its agreement or to support the process of arbitration.
It held that the courts of the place where an arbitration has its seat are responsible for supervising the process. However, the extent of the court’s supervisory role is defined by national law. The French courts do not have the power to grant anti-suit injunctions, and other than the seat of arbitration being Paris, there was no other link to France. The Supreme Court was therefore of the view that the French courts would not have jurisdiction for a claim by UniCredit to enforce the arbitration agreements.
The Supreme Court also commented that, unlike the courts, an arbitrator’s order directing a party to discontinue proceedings would have no coercive force. An arbitration decision only creates a contractual obligation, which given the circumstances, is unlikely to deter RusChem.
Therefore, given that UniCredit is unable to obtain any effective remedy in the French courts, or through arbitration, the Supreme Court upheld the Court of Appeal’s decision and concluded that England and Wales was the proper place to bring the claim.
What does this decision mean?
This decision is a demonstration of the English courts’ support of international arbitration agreements. The ruling provides greater certainty for international businesses particularly if their arbitration agreements have either an English law seat or governing law, providing reassurance that their arbitration agreements will be enforced, thereby reducing the risk of parallel proceedings in different jurisdictions. When the Arbitration Bill comes into force in the UK, the position is likely to be clarified further.
In any event, the ruling highlights the ongoing jurisdictional conflicts and the broader economic and political tensions between the EU and Russia. It demonstrates how legal disputes can be influenced by geopolitical factors, with courts potentially becoming arenas for broader political conflicts.
Catherine Penny
Miranda Joseph