English Court of Appeal restrains Russian proceedings in support of Paris-seated arbitration

In a decision that re-emphasises the importance for parties to commercial agreements of specifying the choice of law that applies to their agreements to arbitrate, the Court of Appeal in England has granted a final anti-suit injunction restraining proceedings brought in the Russian courts in breach of a French-seated arbitration clause.

In doing so, the Court of Appeal clarified the scope and application of one of the exceptions to the general rule established by the Supreme Court in Enka Insaat ve Sanayi A.S. v OOO Insurance Company Chubb [2020] UKSC 38 (“Enka”), namely, that where there is no express provision in relation to the governing law of the arbitration agreement, an express choice of governing law in the main contract will generally represent an implied choice of law applicable to the arbitration agreement.

Background and decision of the English High Court 

• The case (UniCredit Bank GmbH v. RusChemAlliance LLC [2024] EWCA Civ 64) concerns performance bonds issued by UniCredit Bank GmbH (“UniCredit”) to guarantee the performance of German contractors’ obligations under two EPC contracts for the construction of liquified natural gas facilities in Russia under which RusChemAlliance LLC (“RCA”) was obliged to pay approx. Euro 10 billion. Each of the bonds provided for English law and ICC arbitration in Paris.
• Following the imposition of sanctions on specified Russian entities by the EU, the contractor halted performance of the contracts, following which RCA purported to terminate the contracts and made demands on UniCredit for payment under the bonds. Instead of commencing ICC arbitration in Paris, RCA issued proceedings against UniCredit before the Arbitrazh Court of St Petersburg and the Leningrad Region. 
• UniCredit issued a claim in the English court, together with an application for an interim anti-suit injunction to restrain the pursuit of the Russian proceedings; the interim injunction was granted. 
• At the first instance hearing to determine whether a final injunction should be granted, the High Court considered that the general rule in Enka (referred to above) was negated because there was a provision of the law of the seat, i.e. French law, indicating that where an arbitration is subject to that law, the arbitration agreement would also be treated as governed by that country's law. The provision of French law was not a statutory provision but a principle developed in case law. The judge described it as “a substantive rule of international law of arbitration whereby the existence and effectiveness of the arbitration agreement is to be determined in accordance with the parties' common intention”, which formed part of French law. He therefore concluded that French law governed the arbitration agreement, or rather “provisions of French law which apply to international arbitration”. 
• The judge went on to decide that, if he were wrong and English law governed the arbitration agreement, the English court did not have jurisdiction over UniCredit's claim for an anti-suit injunction because substantial justice could be done in the arbitration in France, even though the remedy of an anti-suit injunction would not be available. Permission to appeal was granted. 

The decision of the Court of Appeal 

The Court of Appeal reversed the High Court’s decision on the governing law of the arbitration agreement. In doing so, it held: 

• The principle of French law relied on by RCA did not mean that a choice of Paris as the seat of arbitration indicated that French law was to govern the arbitration agreement. Rather, the principle stated that the law governing the arbitration agreement depended on the parties' common intention. 
• This fell short of what the Supreme Court in Enka contemplated would be sufficient for the exception to the general principle to apply. 
• Therefore the exception in Enka did not apply and English law governed the arbitration agreement. 

On the question of jurisdiction, the court found that England was the proper forum to bring the claim for the anti-suit injunction. The court held: “the suggestion that substantial justice could be obtained by UniCredit in France, whether in court or in arbitration, is an illusion…. it is abusive for RCA to rely on the availability of substantial justice in France as the seat of arbitration while simultaneously seeking to pursue proceedings in Russia on the basis that the arbitration clause is unenforceable.”

The Court of Appeal therefore decided that RCA was in breach of its agreement to arbitrate and issued a final injunction requiring RCA to terminate the proceedings it had brought in Russia. 

Conclusions 

• This case concerns an anti-suit injunction application, which typically prompts the courts to assess whether they have jurisdiction to grant such an injunction and incidentally look at the arbitration agreement. In that respect, the courts have typically adopted a cautious pro-jurisdiction approach. 
• The judgment of the Court of Appeal confirms that the question of the governing law of agreements to arbitrate may be highly significant when the English court is considering whether it is willing to grant an anti-suit injunction in support of a foreign-seated arbitration. 
• The general principle in Enka (where the governing law of the agreement to arbitrate follows the governing law of the main contract), will continue to apply until new anticipated UK legislation is enacted. Clause 1 of the Arbitration Bill that is currently before the UK parliament expressly deals with the issues raised by Enka by stating that in the absence of an express choice,  the default law of the arbitration agreement will be the law of the seat. 
• Until then, in order to avoid uncertainty and costly litigation,  it is advisable for parties to commercial agreements expressly to specify the law that governs their agreements to arbitrate.