Case Comment on UniCredit Bank GmbH v RusChemAlliance LLC [2024] UKSC 30
In UniCredit Bank GmbH v RusChemAlliance LLC [2024] UKSC 30 (RusChem), the Supreme Court considered the grant of an anti-suit injunction (‘ASI’) where proceedings were brought in Russia in breach of dispute resolution clauses providing for arbitration in Paris. The significance of this case lies in the Court’s application of the principles laid down in Enka Insaat ve Sanayi AS v OOO Insurance Company Chubb [2020] UKSC 38 (‘Enka’) to establish the governing law of the arbitration clauses, as well as its readiness to grant an ASI in support of foreign-seated arbitral proceedings.
Facts and procedural background
In 2021, Russian energy conglomerate RusChemAlliance LLC (‘RusChem’) contracted with two German companies for the construction of gas processing plants in Russia, in return for approximately €10bn (of which €2bn were paid in advance). The construction companies’ contractual obligations to RusChem were backed by bonds issued by German bank UniCredit Bank GmbH (‘UniCredit’).
The bonds expressly stated that they were governed by English law, and that any dispute concerning their “validity, interpretation or performance” was to be referred to arbitration in Paris. However, the bonds were silent as to what law governed the arbitration clauses within them.
Following the 2022 Russian invasion of Ukraine, the German construction companies renounced their contracts with RusChem, citing sanctions. RusChem proceeded to terminate those contracts and request repayment of the €2bn paid in advance. The construction companies refused, again citing EU sanctions. RusChem then sought payment from UniCredit under the bonds; UniCredit also refused, and on the same basis.
RusChem then brought a claim for payment under the bonds against UniCredit in Russia. After an unsuccessful stay application before the Russian court, UniCredit applied to the English court for an ASI to restrain those Russian proceedings.
RusChem disputed the jurisdiction of the English Court on the basis that:
(i) the claim did not fall within the categories of cases where it is permissible to sue a defendant located abroad (here because, in RusChem’s submission, the arbitration agreements were not governed by English law); and
(ii) England and Wales was not the proper place in which to bring the claim (which, in light of the arbitral seat specified in the bonds’ arbitration clauses, RusChem argued was Paris).
Issues on appeal
There were two issues for the Supreme Court to determine:
(i) In the absence of an express choice of law, were the arbitration agreements between the parties governed by the law of the seat of arbitration (French law) or the law of the parties’ main contracts (English law)?
(ii) Were the courts of England & Wales the proper place for UniCredit to bring its claim for an ASI against RusChem, or should the claim have been brought in France?
Issue (i): The governing law of the arbitration agreements
The Court followed the principles it had laid down in Enka, whereby:
Parties can expressly agree which law applies to an arbitration clause (Enka, [27]);
Where there is no express agreement on the law governing the arbitration clause, but there is an express choice of law governing the main contract in which that clause features, the parties are taken to have impliedly chosen that law to govern the arbitration clause (Enka, [43]-[52]);
In the absence of an express or implied choice of law, the governing law will be that with which the arbitration clause is most closely connected (Enka, [27]). This by default will be the law of the seat of arbitration (Enka, [118]-[119]).
Applying these principles to the facts, the Court held that the choice of English law to govern the bonds was reasonably understood to apply to the arbitration clauses within them ([31], [62]). In doing so, the Court rejected RusChem’s argument that since a French court would regard the arbitration clauses as governed by French law, the presumption in favour of the law of the main contract should be rebutted.
Such an approach had been suggested by the Court in Enka (at [170(vi)(a)]). However, as the Court in RusChem noted, [170(vi)(a)] of Enka was obiter (RusChem, [50]). Moreover, the Court in RusChem reasoned that adopting the approach in [170(vi)(a)] of Enka would introduce undesirable complexity which in turn it would be unreasonable to suppose that the contracting parties even considered (let alone intended) when agreeing on an arbitral seat (RusChem, [55]–[58]). As such, the Court went as far as to hold that [170(vi)(a)] of Enka should in future be disregarded (RusChem, [59]), thereby substantially simplifying the Enka approach.
Issue (ii): The proper place to bring the ASI claim
The Court considered whether it made any difference to the test which the courts should apply in deciding whether to exercise jurisdiction over a foreign defendant to grant anti-suit relief that the seat of arbitration was outside of England & Wales (here, France). The Court concluded that the classic test for forum conveniens did not apply – in the instant case, UniCredit did not contend that England & Wales was the appropriate forum for their substantive dispute, which the parties had contractually agreed to exclusively refer to arbitration seated in Paris. The starting point therefore was to ensure that the parties stuck to that contractual bargain ([73]-[75]).
In any event, on the parties’ uncontradicted evidence, the French courts were not an available (let alone appropriate) forum. Not only would they ultimately find that they did not have jurisdiction to determine a claim that RusChem had breached the arbitration agreements by bringing the Russian proceedings, they also would have no power to grant an ASI in restraint of that breach ([101]–[104]). Furthermore, the Court opined that an arbitrator’s order would also be wholly ineffectual to prevent RusChem from breaking its agreement to submit the dispute to arbitration as such an order would be unenforceable both in France and Russia ([105]–[110]). In these circumstances, where UniCredit could not obtain an effective remedy from either the French courts or an arbitral tribunal, the Court held that England and Wales was the proper place in which to bring the claim for an injunction ([112]).
RusChem and the Arbitration Bill
The approach to ascertaining the governing law of an arbitration clause is set to change with the passing of the Arbitration Bill, under which, as it currently stands (see Clause 1):
· The default governing law of an arbitration agreement will be the law of the seat;
· Parties can expressly agree that a law other than the law of the seat applies;
· However, express agreement as to the law governing a contract does not constitute express agreement as to the law governing an arbitration clause contained within that contract.
The Supreme Court recognised that this reform would make a significant change in approach to determining the governing law of an arbitration agreement ([28]). However, the Court nonetheless declined to revisit the Enka principles, on the basis that (see [29]):
(i) these principles were only recently settled in Enka in 2020 (and affirmed in Kabab-Ji SAL v Kout Food Group [2021] UKSC 48 (‘Kabab-Ji’) in 2021);
(ii) the very fact that the governing law issue is “the subject of draft legislation currently before Parliament” was a “positive reason” why it would be “inappropriate” for the Court to revisit Enka; and
(iii) RusChem’s ground did not raise a point of law “which the court should consider at this time”.
As such, the Court proceeded on the basis that “the question whether the parties have agreed on a choice of law to govern the arbitration agreements in the bonds [wa]s to be determined, as it was in Kabab-Ji, by applying the principles identified in Enka.” ([30].)
Case Comment
The implications of the Court’s approach to the question of governing law will be of interest to practitioners. On the one hand, as far as the Court’s judgment speaks to application of the Enka principles, it may soon become academic given the impending passage of the Arbitration Bill. On the other hand, the Court’s suggestion (at [28]) that the concept of “express” agreement under the proposed reform might be broad enough to “not by itself alter the law as stated in Enka” perhaps suggests a willingness on the Court’s part to continue to apply the spirit, if not the letter, of Enka after the Bill is enacted. This is because while express agreement as to the governing law of the main contract will no longer be enough in and of itself to constitute agreement as to the governing law of an arbitration clause therein, a court might find such agreement to constitute “express” agreement when coupled with other factors. The court could then use this as a basis to apply the law of the main contract to the arbitration clause.
Perhaps even more fundamentally, the Court’s disapproval of [170(vi)(a)] of Enka removes some of the thrust of the Law Commission’s principal argument for reform – namely, that the law as stated in Enka is “complex and unpredictable” (Law Commission, Review of the Arbitration Act 1996: Final report and Bill (Law Com No 413), 5 September 2023, [12.20]) This is because it removes a source of such complexity and unpredictability, thereby leaving the presumption of the implied choice of law more intact. However, other arguments for reforming the Enka approach survive the Court’s judgment in RusChem. These include a desire to “see more arbitration agreements governed by the law of England and Wales, when those arbitrations are also seated here” (Law Com No 413, [12.72]). Moreover, with the Arbitration Bill now making its way through Parliament, the jettisoning of [170(vi)(a)] of Enka is perhaps too little, too late on the Court’s part.
Nonetheless, whatever changes may be made to this area of law in the near future, the key takeaway remains that parties should always aim to specify the governing law of any arbitration clause they include in their contracts, to ensure that they avoid later disappointment in court.
With respect to the proper place issue, the Court’s judgment has been applauded for its pro-arbitration stance, specifically its flexibility in allowing an ASI in support of a foreign-seated arbitration – an issue on which the Arbitration Bill is silent.
However, the extension of the ASI regime to foreign-seated arbitration, while ground-breaking, is principled, in that it relies on the fact that English law was found to govern the parties’ arbitration agreements. This gave the English courts jurisdiction to enforce those agreements, through the granting of the ASI. This extension is as such limited: on the Court’s reasoning, there would be no basis for granting an ASI to enforce a non-England & Wales seated, non-English law governed arbitration agreement. From the perspective of a party sued in breach of such an agreement, they would not have had the protection they would have under the present scenario. This difference in protection means that the Court’s judgment creates another incentive for parties to specify English law as the governing law of their arbitration agreements.
Finally, while this was not strictly a case of forum shopping, RusChem goes to show just how valuable the English jurisdiction can be for supporting commercial arbitration around the world insofar as it is based on an agreement governed by English law. To expand upon Lord Denning’s analogy in The Atlantic Star (at [1973] 1 QB 364, 382), not only is England & Wales “a good place to shop in, both for the quality of the goods and the speed of the service”, but also for goods which aren’t sold elsewhere.
Partner
Paralegal