THE AUTHORS:
Ruggero Chicco, Associate at Squire Patton Boggs
Thulasy Packianathan, Trainee Solicitor at Squire Patton Boggs
Should the English courts grant relief in favour of arbitrations seated overseas? In Deutsche Bank v Ruschemalliance, the Court of Appeal granted an anti-suit injunction (“ASI”) in favour of a Paris-seated arbitration. In doing so, it disagreed with the High Court, which had concluded in SQD v QYP that London was not the proper forum to claim such relief.
Background
The dispute arose out of a contract between RusChemAlliance LLC (the “Defendant”) and Linde GmbH (“Linde”) for the construction of an LNG plant in Russia. The Defendant’s advance payments under the contract were the subject of guarantees, one of which was granted in favour of the Defendant by Deutsche Bank AG (the “Claimant”) for up to €230 million. The guarantee was governed by English law and provided for ICC arbitration in Paris.
Following Russia’s invasion of Ukraine, the European Union imposed sanctions against Russia, which resulted in Linde suspending its work under the contract. The Defendant claimed back the advance payments it had made under the contract, but Linde refused to make the payment. The Defendant also claimed the entire sum of the guarantee from the Claimant, who refused to make payment under the guarantee because of the sanctions imposed by the EU.
The Defendant commenced proceedings in the Russian courts, despite the arbitration agreement in the guarantee, claiming that it had become unenforceable as a result of the sanctions. Shortly thereafter, the Claimant commenced an ICC arbitration seated in Paris pursuant to the arbitration agreement in the guarantee.
The High Court’s Judgment
The Claimant applied to the Commercial Court for an ASI to restrain the Defendant from pursuing the proceedings in Russia in breach of the arbitration agreement.
Mr. Justice Bright, judge of the Commercial Court,determined that the arbitration agreement contained in the guarantee was governed by English law, applying the Supreme Court’s judgments in Enka v Chubb and Kabab-Ji v Kout Food Group. He considered that, had the arbitral seat been in England, he would have been very likely to grant the ASI. The critical question was, therefore, the effect of the arbitral seat being in Paris on that position.
The Court noted that, following the Supreme Court’s judgment in Ust-Kamenogorsk, an ASI would be granted under section 37(1) of the Senior Courts Act 1981 (“SCA 1981”) in circumstances where a party commenced court proceedings in breach of an arbitration agreement, save for exceptional circumstances.
However, he also noted that all of the cases he was aware of where an ASI had been granted in support of arbitration were cases in which the seat of arbitration was England. The Court considered that, while it is possible in principle to claim an injunction in support of a foreign arbitration under s.37(1) SCA 1981, English courts should be cautious in exercising their discretion to grant such relief. In fact, as the parties had selected Paris as the seat of arbitration, the French courts would be the natural forum to seek that relief.
Therefore, Mr. Justice Bright considered it relevant to determine whether the Claimant would be able to obtain an ASI in the French courts. On the expert evidence available, it appeared that it was impossible for the Claimant to obtain an ASI from those courts, as ASIs are not an available remedy in France. Further, and crucially for the judge’s decision, the expert evidence suggested that an ASI granted by the English courts in this case would not be enforced by the French courts.
Accordingly, the Court reasoned that:
- First, the fact that the arbitration agreement was subject to English law was not a sufficient reason to issue the relief. While the English courts have an interest in securing the performance of contracts that are subject to English law, England must be the proper forum for the claim. This principle is reflected in the fact that there are exceptional circumstances where an ASI should not be granted even though proceedings are commenced in breach of an arbitration agreement.
- Second, the fact that an ASI could not be obtained from the French courts did not make the English courts the proper forum for the claim. As the parties chose Paris as the seat of the arbitration, they must be taken to have known that French courts do not issue ASIs. Granting the ASI would be inconsistent with the approach of the French courts, which would create a risk of conflicting decisions.
Therefore, Mr. Justice Brightdismissed the application on the basis that England was not the proper forum for the claim and that the English courts should not grant the ASI sought by the Claimant.
The Court of Appeal’s Judgment
The Court of Appeal disagreed and allowed the Claimant’s appeal against Mr. Justice Bright’s judgment. The relevant ground of appeal was that “the Court should not have held that the application was contrary to any French public policy.”
The Claimant adduced fresh expert evidence to the effect that, while French courts do not grant ASIs themselves, they will recognise an ASI granted in support of an arbitration agreement if it was not contrary to international public policy, was issued by a foreign court with sufficient links to the case and was not acquired through fraud. The expert evidence stated that the links between the present dispute and the English courts were sufficient for that purpose.
The Court held that Mr. Justice Bright was mistaken in deciding that, had he granted the ASI, there would have been a risk of conflicting decisions with the French courts. It, therefore, turned to consider whether England was the proper place for the Claimant to bring its claim.
The Court of Appeal noted that it would be natural to regard the grant of an ASI to restrain proceedings brought in breach of an arbitration agreement as intimately connected with the arbitration. However, this point did not necessarily mean that, if the seat of the arbitration was overseas, England could not be the proper place for the claim.
The test was, instead, to “identify the forum in which the case [could] be suitably tried for the interests of all the parties and for the ends of justice.” In this case, English law regarded “the ends of justice” as enforcing the obligation of parties to an arbitration agreement governed by English law not to litigate the relevant dispute elsewhere.
Since ASIs cannot be obtained from the French courts for that purpose, the Court determined that England was the proper forum to claim the ASI, as “the real choice was not between two competing forums, but between the English court entertaining the claim and the claim not being brought at all.” An important factor in this decision was the Court’s finding that the French courts would not be hostile to the English courts granting an ASI.
Comment
The different conclusions reached by the High Court and the Court of Appeal were based on the conflicting evidence before them concerning whether the French courts would recognise an ASI granted by the English courts. However, the High Court has recently taken an opposing view in G v R on the question of whether England is the proper forum to claim an ASI in support of an arbitration seated overseas.
As in Deutsche Bank, the contract in G v R was governed by English law and provided for ICC arbitration in Paris. Similarly, the claimant sought an ASI from the English courts to restrain the defendant from breaching the arbitration agreement.
Sir Nigel Teare (sitting as a High Court judge) considered that, on the assumption that the arbitration agreement was governed by English law, this would not be a particularly cogent connecting factor in favour of England being the proper forum for the claim.
The Court noted that the English courts were not the courts with supervisory jurisdiction over the arbitration. By selecting Paris as the seat of the arbitration, the parties had chosen the French courts to fulfil that function. Therefore, the Court had to proceed with caution before concluding that England was the proper forum to claim the ASI.
Sir Nigel Teare did not agree that the fact that an ASI would not be available in the French courts meant that England was the only forum where substantial justice could be done. He noted that, for example, the French courts would grant damages for breach of the arbitration agreement as an alternative remedy. In reaching this decision, the judge found that the Court of Appeal’s reasoning in Deutsche Bank was of limited assistance as it concerned an ex parte appeal.
The contrast between the reasoning of the High Court and that of the Court of Appeal confirms that there is still considerable uncertainty in circumstances where the governing law of the contract and the seat of the arbitration are not aligned. It remains to be seen how readily, and in what contexts, the English courts will embrace their power to grant ASIs in support of arbitration seated overseas.
*For the avoidance of doubt, the statements in this article are only of a descriptive nature and do not express any opinion on the correctness or incorrectness of any of the decisions or arguments described herein. The views expressed are those of the authors and do not necessarily reflect the views or positions of any entities they represent.
ABOUT THE AUTHORS:
Ruggero Chicco is an Associate in the Litigation Practice Group of Squire Patton Boggs.
Thulasy Packianathan is a Trainee Solicitor, who is currently seated in Squire Patton Boggs’ International Dispute Resolution Practice Group.
