UK Supreme Court Upholds Anti-Suit Injunction

Why should you be concerned with English Anti-Suits (no Harvey or Mike here), French arbitration and Russian proceedings? Join Chiraag Shah and Robin Bachmann on our recent arbitration episode, as they discuss the English Supreme Court’s decision in the recent Unicredit v RCA case, and what this may spell for things to come…  

Transcript

[00:00:00] Intro: Welcome to MoFo Perspectives, a podcast by Morrison Foerster, where we share the perspectives of our clients, colleagues, subject matter experts, and lawyers.

[00:00:14] Chiraag: So Robin, English anti-suits, French arbitration, Russian proceeding, what is all the fuss about?

[00:00:20] Robin: Well, in the recent UniCredit and RCA decision, the Supreme Court addressed all of these issues, or rather, we hope it will in its judgment, which is still pending. This case is one of a number of anti-suit proceedings which has been brought before the English courts in the last two years.

[00:00:34] Essentially, these cases arise in matters involving a Russian counterparty, often impacted by sanctions, where Russian court proceedings are brought in contravention of arbitration agreements in existing contractual arrangements, and where the other party seeks the assistance of the English court to enforce that arbitration agreement.

[00:00:51] In June 2020, amendments were made to the Russian Arbitration Act, which gave Russian courts exclusive jurisdiction over disputes involving sanctioned Russian entities, even where a dispute resolution agreement provided otherwise, if that agreement became incapable of being performed due to those sanctions.

[00:01:07] Fast forward some 18 months or so, and this amendment became all the more relevant due to the broad ranging sanctions imposed on Russian entities and individuals following Russia’s invasion of Ukraine. As the performance of more and more contracts fell afoul of sanctions regimes and parallel disputes became the norm, the Russian party would commence proceedings before the Russian courts, and the non-Russian party would seek relief under the contractual dispute provisions, often providing for a European seated arbitration or court process.

[00:01:34] Chiraag: The ability of English courts to award anti-suit injunctions to restrain foreign proceedings in breach of an arbitration agreement is well recognised. And there is a long line of cases affirming this. Where the seat of arbitration is in England, this has been a relatively straightforward remedy to obtain from the English courts, as long as the substantive tests are met.

[00:01:51] But what happens where the seat of arbitration is not in England? There is already a line of jurisprudence. And some may say a healthy debate about what law governs an arbitration agreement. Is it the law of the seat, as is the position under French law, or the law of the contract, which is the leaning in England following the Supreme Court decision in Enka and Chubb?

[00:02:11] This becomes significant in the context of a French seated arbitration because an antecedent injunction is arguably not available under French law.

[00:02:19] Robin: This all came to a head in the UniCredit and RusChem Alliance case, RusChem Alliance often being referred to as RCA for short. In brief background on the case itself, RCA contracted with some German contractors for the construction of LNG infrastructure in Russia.

[00:02:35] UniCredit then issued performance bonds in favour of RCA in relation to the project. The bonds were governed by English law, and any disputes were to be resolved by ICC arbitration seated in Paris. Following imposition of sanctions, the German contractors failed to perform under the agreements and RCA sought to call the performance bonds.

[00:02:52] UniCredit ultimately declined to pay out on the bonds citing sanctions. RCA subsequently brought Russian court proceedings against UniCredit for breach of the bonds despite the arbitration agreement citing relevant Russian legislation. RCA’s claim under the bonds is for over 440 million Euros. UniCredit sought an anti-suit injunction from the English courts to restrain the Russian proceedings and refer the parties to arbitration as per the agreements. UniCredit then relied on the decision in Eigenschap, which created a strong presumption that the parties intended the governing law of the contract to apply to the arbitration agreement, even if that arbitration agreement identified a different jurisdiction for the seat of arbitration.

[00:03:33] Other parties have been successful in obtaining such injunctions on the back of English governing law clauses, where the seat of arbitration is France, in part because anti-suit injunctions are not available from the French courts, and so this relief was uniquely available from the English courts. The High Court, in first instance, rejected the anti-suit injunction application.

[00:03:53] This was a departure from other cases where an injunction was ordered. UniCredit therefore appealed. The Court of Appeal then allowed the injunction, placing this case more in line with other similar cases, and RCA appealed that Court of Appeal decision to the Supreme Court. The Supreme Court then heard the case on an expedited basis on the 17th and 18th of April 2024.

[00:04:16] The Supreme Court denied the appeal and allowed the injunction to stand. Although a recent judgment is still pending.

[00:04:22] Chiraag: Apart from the fact that this will be the first Supreme Court decision on this point, the case throws up a number of interesting issues. As a first matter, there is an open question as to what the Russian court will now do.

[00:04:33] The Russian court previously rejected UniCredit’s challenge and jurisdiction, which was based on the arbitration agreement in the bonds. The Russian court was therefore in a position to proceed and hear RCA’s substantive claim. In Russia on the merits, however, in a somewhat unusual turn of events the Russian court then stated substantive proceedings pending the outcome of UniCredit’s anti suit injunction application before the English courts. This was stated to be for reasons of comity and the English court has repeatedly expressed his gratitude to the Russian court for that stay.

[00:05:04] Robin: So now how does the Russian court react? One would assume that if it already stayed the proceedings pending the outcome in England, then the Supreme Court decision will have some bearing on how the court will proceed. But now that the anti‑suit is confirmed, will the Russian court actually suspend its proceedings and disregard its own assumed jurisdiction under the Arbitration Act?

[00:05:23] Or will some other reason for continuing with the substantive merits be relied upon in order to continue with the proceedings? And if so, what happens to the principles of comity?

[00:05:32] Chiraag: I’ll be holding my breath, and I suspect so will a lot of others to see how this plays out. But in the meantime, a second consideration is the interaction between this decision, ENCA, and the proposed amendments to the English Arbitration Act, which bill is now before Parliament.

[00:05:47] If passed in its current state, the new English Arbitration Act will reverse the position in ENCA. And provide specifically that the default position is that the law of the seat will govern arbitration agreements unless something to the contrary is set out in the agreement where the English courts have relied on an English governing law clause applied to the arbitration agreement as the basis for seizing jurisdiction to issue anti-suit injunctions.

[00:06:11] Which has been the approach following ANCA. Will this then now result in a sea change in the approach? Or will the Supreme Court in UniCredit try and anticipate this issue in its judgment? Which appears to be the direction that the Court of Appeal looked to be heading towards when it held that an anti-suit could be granted as long as the French court would not regard an English anti-suit injunction to be an interference with its own jurisdiction.

[00:06:34] Robin: It will also be interesting to see how decisions such as this one, when read in conjunction with changes to the Arbitration Act, will impact anti-suit relief in other common law jurisdictions which rely on the Anka decision. So what’s the big takeaway?

[00:06:47] The lack of settled law in this area makes it all the more important that parties seek specialist advice on their disputes clauses and always include provisions regarding the law governing the arbitration agreement more specifically.

[00:06:58] Chiraag: Morrison Foerster attorneys have extensive experience of drafting and negotiating bespoke dispute resolution clauses which take into account the nuances of cross border transactions as well as sanctions related disputes and anti-suit injunctions.

[00:07:10] Please get in touch if you have any queries.

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