UK Supreme Court upholds anti-suit injunction in favour of Paris seated arbitration

Introduction

The recent Supreme Court judgment in UniCredit Bank GmbH v RusChemAlliance LLC [2024] UKSC 30 has significant implications for arbitration agreements and anti-suit injunctions. This article provides a comprehensive analysis of the judgment, its background, and its potential impact on future arbitration disputes.

Background

The dispute concerned performance bonds issued by UniCredit Bank GmbH (“UniCredit”) in favour of RusChemAlliance LLC (“RusChem”) to guarantee the construction of liquefied natural gas and gas processing plants in Russia. The bonds were governed by English law and contained arbitration agreements selecting Paris as the seat of arbitration, without specifying any separate governing law. When RusChem terminated the underlying construction contract and called upon the bonds, UniCredit refused payment due to EU sanctions. 

In response to UniCredit's refusal to pay under the bonds, RusChem initiated proceedings in the Arbitrazh Court of  St Petersburg, relying upon Russian legislation that confers exclusive jurisdiction on Russian courts over disputes involving foreign sanctions. UniCredit, in turn, sought an anti-suit injunction in the English courts to restrain RusChem from continuing the Russian proceedings. The Commercial Court initially granted an interim injunction, but RusChem challenged the English court's jurisdiction. The Court of Appeal subsequently upheld the injunction, leading to RusChem's appeal to the Supreme Court.

The issues

The question before the Supreme Court was whether the English court had jurisdiction to be able to grant the anti-suit injunction, which required analysis of two issues.

1. Whether the arbitration agreement was governed by English law:
   
   The first issue required UniCredit to demonstrate that one of the jurisdictional gateways for service outlined in the Civil Procedure Rules applied, providing some link to England and Wales under one of the specified categories.  UniCredit relied upon the ‘contract gateway’ which applies when a claim is made involving a contract governed by English law.  The court was therefore required to decide whether the arbitration agreements were governed by English law.
    
2. Whether the English court was the proper place to hear the claim:
   
   Under the second issue, both parties relied on the Spiliada test, which states that the English court should not exercise jurisdiction if there is another more suitable forum for the interests of the parties and the ends of justice.

Were the arbitration agreements governed by English law?

The Supreme Court held that English law governed the arbitration agreements and therefore the English court had jurisdiction to hear the claim. To reach this decision, the Supreme Court had to revisit the law governing arbitration agreements where the parties do not separately specify a choice of law for the arbitration. Lord Leggatt, the author of the judgment, set out the position on this issue in the  case of Enka Insaat ve Sanayi AS v OOO Insurance Company Chubb [2020] UKSC 38 (“Enka”).

In Enka it was established that, in the absence of a choice of law within the arbitration agreement, the governing law of the main contract should be applied. However, the judgment included a caveat indicating that this inference may be negated if the law of the seat stipulates that any arbitration agreement selecting that seat should be governed by the seat's law. Using this caveat RusChem argued that, by selecting Paris as the seat, the parties must have been aware that, under French law, the arbitration agreements would be subject to French jurisdiction.

The Supreme Court rejected this argument, but acknowledged the need for greater certainty in this area. Lord Leggatt remarked that judicial statements should not be treated as statutory law and that the caveat in Enka was obiter dicta that should be "disregarded". Instead, the parties should focus on the court’s underlying reasoning; namely, that the arbitration agreement is governed by the law agreed upon by the parties, or, in the absence of such an agreement, the law with which the arbitration agreement is most closely connected.

In this case, the governing law clause in the bonds was drafted in broad terms and covered “all non-contractual or other obligations arising out of or in connection with it”. The wording did not exclude the arbitration clauses from this choice, and the selection of Paris as the seat did not justify a different result. This interpretation led to the conclusion that the arbitration agreements were subject to English law.

Is the English court the proper place to bring the claim?

Once it was established that the arbitration agreements were subject to English law, the Supreme Court was required to determine whether the English court was the most appropriate forum for issuing an anti-suit injunction. The Spiliada test has typically been used to assess whether the English court should exercise jurisdiction over a dispute when there is an argument that another forum is more appropriate.

However, the Supreme Court found that the Spiliada test was not applicable in this case, as it applied where there was no contractually agreed forum.  Here, the parties had contractually agreed to arbitrate their disputes in Paris under the ICC rules. Lord Leggatt explained that “a strong reason needs to be shown as to why in the particular circumstances the court ought not to exercise its jurisdiction to restrain a breach of the parties' contractual bargain.” The fact that the parties had selected Paris as the seat of arbitration did not provide sufficient grounds for the Supreme Court to decline to uphold their agreement to arbitrate by granting the anti-suit injunction.

Two further questions arose. The first was whether it was inconsistent with international comity for an English court to intervene in this dispute between a Paris arbitration and Russian litigation. The Supreme Court concluded that the English court has sufficient interest in enforcing arbitrations agreements governed by English law to allow for such intervention. The second question was whether it was inconsistent with the parties’ choice of Paris as the seat of arbitration for the English court to intervene. The Supreme Court held that an agreement to arbitrate should not be interpreted as prohibiting a party from applying to a court for relief where one party acts contrary to this agreement. In any event, the evidence demonstrated that the French court was not available as a forum. Even if it were, the English court’s power to grant injunctive relief does not require it to have supervisory jurisdiction.

Commentary

The  judgment highlights the English courts' pro-arbitration stance, as the Supreme Court was willing to issue an anti-suit injunction in favour of arbitration despite the arbitral seat being located elsewhere.

Willingness of the English courts to enforce contractual bargains to arbitrate: The decision provides clear guidance that when English law governs an arbitration, the English courts will uphold contractual choices and grant anti-suit injunctions in support of arbitrations where necessary. While this is unlikely to deter certain parties from pursuing claims in breach of arbitration agreements, the English court’s ability to grant anti-suit injunctions will at least prevent the enforcement of a foreign judgment against assets in England and frustrate it in other jurisdictions.

Clarification on the governing law of arbitration agreements: By reaffirming the principles set out in Enka, the Court has provided greater certainty for parties drafting arbitration agreements. The decision to disregard the caveat from Enka regarding the law of the seat further simplifies the determination of the governing law.

The decision should also be a clear reminder that parties can avoid uncertainty by simply agreeing on the governing law of an arbitration agreement. Governing law and arbitration clauses are often referred to as “midnight clauses” due to their tendency to be drafted at the last minute. Of all the major arbitral institutions, only the Hong Kong International Arbitration Centre’s model arbitration clause includes a provision prompting parties to specify the law of the arbitration clause. Instead, it is more common practice for parties to specify the governing law of the contract and rely on an interpretation that it will also apply to the arbitration clause forming part of that contract. However, there is no international consensus on this approach, with some jurisdictions (such as France) treating the law of the seat as the governing law. It is therefore advisable for parties to specify the governing law they wish to apply to the arbitration clause.

Impact of the Arbitration Bill 2024: The Enka principles, which were strongly upheld in this case, are likely soon to be replaced by a new default rule, following the Law Commission’s review of the Arbitration Act 1996. Clause 6A of the Arbitration Bill 2024, which is scheduled to take effect in 2025, stipulates that an arbitration agreement is governed by the law of the seat of arbitration, unless the parties expressly agree otherwise. This is a departure from the current common law position that the law governing the main contract will be interpreted as applying to an arbitration clause forming part of the contract. In this case, it would mean that French law would have applied to the arbitration agreement.

It is crucial to note that this provision of the Arbitration Bill 2024 will have retrospective effect, applying to all arbitration agreements, whenever entered into, unless they are already the subject of proceedings. Therefore, clients may wish to review their agreements now, and seek to agree on the governing law where this may change.

This article was prepared with the assistance of Magnus Chisholm, trainee in CMS London.