UniCredit Bank GmbH v RusChemAlliance LLC
DMC/Arbn/24/04
England
UniCredit Bank GmbH v RusChemAlliance LLC
United Kingdom Supreme Court: Lords Reed, Sales, Leggatt, Burrows, and Lady Rose: [2024] UKSC 30: 18 September 2024
Judgment Available on BAILII @ https://www.bailii.org/uk/cases/UKSC/2024/30.html
Alexander Gunning KC and Alexander Brown (instructed by Enyo Law LLP) for RusChemAlliance (Appellant-Beneficiary)
Stephen Houseman KC, Jonathan Harris KC (Hon) and Stuart Cribb (instructed by Latham & Watkins (London) LLP) for UniCredit (Respondent-Guarantor)
JURISDICTION: ANTI-SUIT INJUNCTION: GUARANTEE BONDS TO BE CONSTRUED UNDER AND GOVERNED BY ENGLISH LAW: DISPUTES UNDER GUARANTEE BONDS TO BE SETTLED UNDER ICC RULES OF ARBITRATION IN PARIS WITH ENGLISH LANGUAGE TO APPLY TO THE ARBITRATION PROCEEDINGS: RUSSIAN BENEFICIARY COMMENCED PROCEEDINGS IN RUSSIA AGAINST GERMAN GUARANTOR CONTRARY TO TERMS OF GUARANTEE BONDS: WHETHER GUARANTOR ENTITLED TO ENGLISH COURT ORDER FOR BENEFICIARY TO CEASE RUSSIAN COURT PROCEEDINGS
Summary
By unanimous decision, the UK Supreme Court, in dismissing the Beneficiary’s appeal from the Court of Appeal’s order, held that the Guarantor was entitled to an English court order against the Beneficiary to cease court proceedings in Russia wrongfully pursued against the Guarantor contrary to the arbitration agreement applicable to the guarantee bonds, being the contracts in question, for any dispute in relation to the bonds to be resolved by arbitration in Paris subject to the ICC Rules of Arbitration.
Case note contributed by Jim Leighton, LLM (Maritime Law), LLB (Hons), BSc (Hons), Solicitor Advocate of England & Wales, IMI Registered Mediator, LMAA Supporting Member and Deputy Editor of DMC’s CaseNotes
Background
RusChemAlliance LLC (“Beneficiary”), a Russian company, entered into two contracts with German companies (“Contractor”) for the construction of liquified natural gas and gas processing plants in Russia. Under the construction contracts, the Beneficiary agreed to pay, in stages, approximately EUR10 billion, including advance payments of around EUR2 billion.
The performance of the Contractor’s obligations was guaranteed by seven bonds payable on demand to the Beneficiary. The bonds were issued by UniCredit Bank GmbH (“Guarantor”), a German bank, to the Beneficiary for that purpose. The Guarantor made the advance payments due to the Contractor under the construction contracts.
The contracts contained in the bonds provided for each bond to be construed under and governed by English law (in clause 11 – fn.1) and that all disputes related to the bonds were to be settled by arbitration in Paris under the International Chamber of Commerce (“ICC”) Rules of Arbitration, with the proceedings to be conducted in the English language (in clause 12 – fn.2).
As a result of sanctions imposed by the European Union (“EU”) on Russia and on designated Russian legal entitles and individuals, following Russian’s invasion of Ukraine in February 2022, the Contractor declared that it could not continue to perform the construction contracts. As a result, the Beneficiary terminated the construction contracts and requested the return of the advance payments, which the Contractor refused to do, again giving the EU sanctions as the reason.
Thereafter, the Beneficiary made demands on the Guarantor for payment under the bonds. The Guarantor also refused to pay on the ground that payment was prohibited by the EU sanctions, under article 11 of Council Regulation (EU) No. 833/2014 of 31 July 2014, concerning restrictive measures against Russia.
As a result, the Beneficiary pursued Russian court proceedings, relying on article 248.1 of the Russian Arbitrazh Procedural Code (“APC”), introduced in 2020. The effect of the APC, among others things, was to confer exclusive jurisdiction on the Russian Arbitrazh Courts over disputes between Russian and foreign persons arising from foreign sanctions, to make foreign arbitration agreements inoperable, and to enable affected Russian persons to obtain anti-suit relief against proceedings in foreign courts and international arbitration tribunals.
In response, the Guarantor sought injunctive and declaratory remedies, in the Commercial Court (“CC”) in London, against the Beneficiary for its breach of the arbitration agreement in the bonds. With the CC having held that it lacked jurisdiction to grant the remedies sought, the Guarantor appealed to the Court of Appeal (“CA”), which held that the English courts had jurisdiction over the claim because (a) the arbitration agreements in the bonds were governed by English law, and (b) England was the proper place in which to bring the claim. The CA accordingly granted a final injunction against the Beneficiary.
Thereafter, the UK Supreme Court (“SC”) granted permission for the Beneficiary to appeal the decision of the CA on the issue of jurisdiction to grant relief.
Judgment
Lord Leggatt delivered the unanimous judgment of the SC, which, in dismissing the Beneficiary’s appeal, upheld the order of the CA – that the Beneficiary was to cease the court proceedings commenced in Russia against the Guarantor – for the reasons explained below.
The SC identified that the outcome of the sole jurisdictional issue in dispute depended on whether the CA was right to decide that (a) the arbitration agreements in the bond contracts were governed by English law (“Governing Law Issue”) and (b) England was the proper place in which to bring the claim for the relief sought (“Proper Place Issue”).
Governing Law Issue
The sole ground the Guarantor relied on was paragraph 3.1(6)(c) of Practice Direction 6B to the Civil Procedure Rules (“CPR”), known as the “contract gateway”, which applies where a claim is made in respect of a contract which is governed by the law of England. If that paragraph applied, then a claimant was entitled to serve a claim form on a defendant out of the jurisdiction, with the permission of the English court, under rule 6.36 of the CPR.
While the bonds were expressly governed by English law, it was possible in principle for an arbitration agreement itself to be governed by a different system of law from the rest of the contract. On that basis, the Beneficiary argued that the arbitration agreement in clause 12 of the bonds was governed by the law of the place in which the parties had chosen to arbitrate, i.e. French law.
To the contrary, the Guarantor submitted that the arbitration agreements were governed by English law because the choice of English law in clause 11 as the governing law applied equally to clause 12 (the arbitration clause), as well as to all of the other clauses of the contract.
On that basis, the SC considered that the only relevant question was whether the arbitration agreement in clause 12 of the bonds was governed by English law.
The SC noted that the outcome of its own judgment in Enka v Chubb (fn.3) was that (1) a choice of law to govern a contract should generally be construed as applying to an arbitration agreement set out (or incorporated by reference) in a clause of the contract, and (2) that this was so even where the parties had chosen a place with a different system of law as the seat of the arbitration.
The SC also noted that the outcome of its own judgment in Kabab-Ji v Kout (fn.4), where the contract also contained a typical governing law clause and a clause providing for resolution of disputes under the ICC Rules of Arbitration in Paris, was that the effect of such clauses was absolutely clear, with there being no good reason to infer that the parties intended to except the arbitration agreement clause from the choice of English law to govern all their contract terms.
Accordingly, the SC held that, in applying the above principles, the answer to the question was just as clear in this case as it was in Kabab-Ji v Kout. Clause 11 in the bonds had been framed in particularly wide terms and covered not only the bond itself but also “all non-contractual or other obligations arising out of or in connection with it”. As such, even if the arbitration agreement in clause 12 were regarded as separate, they were “obligations arising … in connection with” the bond. Further, there was nothing in the wording of the bonds which excepted clause 12 from the choice of English governing law. Further, as held in Enka v Chubb, the choice of a different country for the seat of the arbitration did not justify reading “this Bond” as excluding the arbitration agreement.
Accordingly, the SC held that the arbitration agreement in clause 12 of the bond contracts was also governed by English law.
Proper Place Issue
The SC noted that establishing that a claim falls within a “gateway” did not by itself suffice to obtain permission to serve the claim form on a defendant out of the jurisdiction. The claim must have a real prospect of success, which the SC also noted was not in dispute in the present case. However, rule 6.37(3) of the CPR provides that the English “court will not give permission unless satisfied that England … is the proper place in which to bring the claim”.
The SC noted that this question commonly arose when a claimant wished to bring a substantive claim for relief in the English courts and the defendant asserted that there was another available forum which was more appropriate for the trial of the action. However, where the parties had agreed a forum for dispute resolution, it was not relevant to evaluate whether a forum other than the English courts was more appropriate for the trial of the action. Where the contractually agreed forum was arbitration, the policy of securing compliance with the parties’ contractual bargain was reinforced by the strong international policy of giving effect to agreements to arbitrate.
The SC noted that the question which arose here was whether it made any – and, if so, what – difference to the test which the English court should apply, in deciding whether to exercise jurisdiction over a foreign defendant to grant anti-suit relief, that the seat of the arbitration was not within England.
The SC considered that it was not right to accept that there could only be one court (at most) which could properly exercise jurisdiction over a party for the purpose of preventing that party from breaking its contract to arbitrate a dispute. That meant that the English courts should automatically decline to grant relief unless they were also satisfied that they were clearly the most suitable tribunal to do so. As such, the SC considered that the appropriate starting-point was that “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” (fn.5).
The SC noted, in the present case, that there was a substantial connection with England because the contractual rights which the Guarantor sought the court’s assistance to enforce were rights governed by English law.
The question to be asked was whether bringing a claim for an injunction in the English courts was compatible with the arbitration agreement. The SC thought it was clearly compatible, because to decide otherwise would defeat the purpose of the arbitration agreement, contrary to the obligation on courts of contracting states under article II(3) of the New York Arbitration Convention. Further, granting such interim measures of protection was also compatible with article 9 of the UNCITRAL Model Law on International Arbitration.
Accordingly, the SC did not consider that the wording of rule 6.37(3) of the CPR precluded the English courts from taking such an approach, against the background of a presumption which treats the English courts as a proper place in which to bring a claim for an anti-suit injunction, unless the fact that the arbitration had a foreign seat made it inappropriate to do so.
In the latter regard, when the question was whether the English courts could and should exercise their coercive power to enforce valid and enforceable arbitration agreements under English law, that was not a supervisory function which ought to be left to the court of the seat.
The fact that, in relation to any arbitration that might in future be brought, the parties had chosen to be subject to the supervisory jurisdiction of the French courts, was not itself a reason why an English court could not or should not uphold the parties' bargain by restraining a breach of the arbitration agreement. This was the more so when there was no possibility of the French courts becoming seized of the matter: the French courts (a) had no power to grant anti-suit injunctions, (b) would not have jurisdiction to determine a claim of any kind brought by the Guarantor complaining of a breach by the Beneficiary of the arbitration agreements in the bond contracts, and (c) would have no power to enforce any order made by any arbitral tribunal directing the Beneficiary not to pursue, or to discontinue, the court proceedings in Russia.
Accordingly, the SC held that England was the proper place in which to bring the Guarantor’s claim for the injunctive relief sought.
Comment
This judgment is to be celebrated for affirming the English courts to be a key ally for those who choose to resolve their disputes by arbitration, where there exists a sufficient connection with England to justify the English courts intervening to aid enforcing the arbitration agreement.
The English courts cannot come to the aid of all those who find their arbitration agreements violated, although there is, for now, clearly a great deal of flexibility when the arbitration agreement is governed by English law.
However, it would be a great pity if, as the SC noted, the post-Kabab-Ji and post-Enka recommendation of the Law Commission, to amend the Arbitration Act 1996 so that the arbitration agreement is governed by the law of the seat unless the parties expressly agree otherwise, were to be given effect, because it could undermine the ability of the English courts to assist as they have done in this case.
The writer is hopeful that Parliament will, then dealing with the relevant clause in the Arbitration Bill before it, see the wisdom in facilitating, rather than hindering, the English courts to continue to be the leading jurisdiction for championing the enforcement of international arbitration agreements.
Should, however, Parliament pass the Bill as presently drafted, it is possible to ensure that English law is also applicable to an arbitration agreement in or incorporated into a main contract by including an express clause along the following lines: “English law shall apply to and govern this contract, including its arbitration agreement clause”.
Footnote 1: “11. This Bond and all non-contractual or other obligations arising out of or in connection with it shall be construed under and governed by English law.”
Footnote 2: “12. In case of dispute arising between the parties about the validity, interpretation or performance of the Bond, the parties shall cooperate with diligence and in good faith, to attempt to find an amicable solution. All disputes arising out of or in connection with the bond (which cannot be resolved amicably) shall be finally settled under the Rules of Arbitration of the International Chamber of Commerce (ICC) by one or more arbitrators appointed, in accordance with the said ICC's Rules. The place of arbitration shall be Paris and the language to be used in the arbitral proceedings shall be English.”
Footnote 3: [2020] UKSC 38, [2020] 1 WLR 4117
Footnote 4: [2021] UKSC 48, [2021] Bus LR 1717
Foonote 5: citing with approval the Court of Appeal in Enka v Chubb [2020] EWCA Civ 574, [2020] Bus LR 1668 at [57], per Popplewell LJ
