THE AUTHOR:
Shelal Lodhi Rajput, Associate at Tuli & Co.
Introductory
Ubiquitous consequences of wars are evident in all aspects of the society, extending from local communities to the global order, and reshaping everything it touches. Law, too, is profoundly affected by the turmoil of war/conflicts, with the ongoing Russia-Ukraine War having redefined legal principles/frameworks both nationally and internationally, particularly for commercial parties operating in such landscape. The case in point is the recent decision of the Supreme Court of the United Kingdom’s (“UKSC”) in UniCredit v. RusChemAlliance, Judgment of the Supreme Court of the United Kingdom [2024] UKSC 30, 18 September 2024 (“UniCredit Case”). It underscores the primacy of arbitration agreements, particularly in complex international disputes affected by geopolitical hardships and the aspect of Anti-Suit Injunctions (“ASI”).
Background & Context: From Construction Contracts to Sanctions Disputes
A dispute arose between UniCredit Bank (“Respondent”) and RusChemAlliance (“Appellant”) from contracts for the construction of liquefied natural gas and gas processing plants in Russia. As a part of its agreement, UniCredit issued demand bonds, which were governed by English law and in case of disputes, if any, it would be resolved by arbitration seated in Paris under the International Chamber of Commerce (ICC) Arbitration Rules (2021). Unfortunately, the Russia Ukraine war prompted EU sanctions against Russia in 2022- hardly a conducive background. While Appellant was not a primary party on the EU sanctions list, however, contractors invoked EU sanctions as their reason not being able to execute their obligations to Appellant, thus leading to termination of contract due to sanctions and demands for advance payments.
A jurisdictional dispute arose when Appellant approached the Russian Court seeking recourse from it by invoking the exclusive jurisdiction provided under Article 248.1 of the Russian Arbitrazh Procedural Code. This Russian legislation effectively departs from the concept of arbitration agreements, evidently overriding it-in circumstances in which foreign sanctions are imposed on goods and commercial endeavours drawn from certain nations. Considering the ongoing developments, Respondent forthwith sought an ASI from the English courts restraining the Appellant from pursuing its claims in Russia and enforcing the agreed arbitration process in Paris to resolve the dispute.
Jurisdictional Challenges and Issues
The English Court at first instance dismissed the application to grant the relief of ASI, ruling that arbitration agreements were governed by French law since the seat of arbitration is in Paris. The High Court Judge further ruled that injunctive relief of damage claim could still be pursued in arbitration and thus England was not an appropriate forum for such injunctive relief. Nevertheless, the Court of Appeal had this judgment overturned with the grant of the ASI. The Court of Appeal held that the arbitration agreements were governed by English law which meant the English courts had jurisdiction to issue the ASI. The Appellate court also held that Appellant’s pursuing litigation in Russia, after agreeing to arbitrate in Paris, was in manifest breach of the arbitration agreement in the contract.
The UKSC in its final ruling affirmed the judgment of the Court of Appeal. The judgment of the UKSC hinged on two crucial issues:
- the applicable law of the arbitration agreement and
- whether the English court is a proper forum to grant the relief of ASI.
Analytical Perspective
The Governing Law of Arbitration Agreements
In instant case, the governing law of the arbitration agreements was a pivotal issue. This judgment reinforces the commitment of the court to uphold and enforce the arbitration agreements, as the UKSC unanimously ruled to provide the relief of ASI. The central issue the court had to determine was whether the English courts had jurisdiction over the claim for an injunction by Respondent, given that the arbitration was seated in Paris. For this purpose, the court found the arbitration agreement to be governed by English law, based on the choice of law clause contained in the bonds. Thus, granting the ASI relief, the Court once again reminded of the will and need for arbitration agreements between parties along with their intent to resolve dispute.
The ruling heavily draws on the principles laid down in Enka v. Chubb Russia and Chubb Europe, Judgment of the United Kingdom Supreme Court [2020] UKSC 38, 9 October 2020 and Kabab-Ji v. KFG, Judgment of the Supreme Court of the United Kingdom [2021] UKSC 48, 27 October 2021 examining the relationship between the law governing the contract and the arbitration agreement. The UKSC in instant case applied those principles to reiterate that the choice of English law to govern the bonds extended to the arbitration agreement itself, notwithstanding the fact that the arbitration was seated in Paris. The court rejected Appellant’s argument that French law, being the lex arbitri, had to apply to the arbitration agreement and held that such an interpretation would run contrary to the clear contractual intentions between the parties.
England as the Proper Forum for ASI
Another major issue identified by the UKSC was whether a court in England was the appropriate forum to grant relief of ASI. Traditional wisdom dictates that courts look at the determination of a more appropriate forum to resolve the dispute via the doctrine of forum non conveniens. In arbitration agreements, the Court held that the focus should be on the enforcement of the parties’ contractual agreement to arbitrate rather than on deciding the most convenient forum for the resolution of the dispute.
The Court clarified in this regard that the existence of the arbitration agreement shifted the inquiry from a forum non conveniens analysis to one of contract enforcement. The Court highlighted the strong international policy that there is a compelling need to enforce arbitration agreements, and such is enshrined in the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958) (“New-York Convention”) that binds courts to respect agreements to arbitrate. Accordingly, a factor that Paris was the seat of arbitration could not, in itself, be a “strong reason” for denying the jurisdiction of the courts of England to order the grant of the ASI.
The UKSC while analysing whether England as proper forum to grant ASI dismissed the use of the Spiliada test for forum non conveniens, that is otherwise more readily available to apply in cases where no forum has been contractually agreed. In crux, the UKSC was of the view that, in an arbitration setting, the Court should focus on upholding the parties’ agreement to arbitrate rather than on trying to determine the most available forum for resolving the dispute.
ASI: A Double-Edged Sword?
The victory of the UKSC in granting the relief of ASI is simultaneously a loss in as much as arbitration is involved, for the controversy in ASI is likely to reveal itself before the international jurisprudence. ASI are by their very nature chafing to jurisdictions because these create a scenario where foreign courts are prevented from exercising the legitimate jurisdiction that they have over disputes.
In this respect, the ASI has been able to restrain the Russian courts from entertaining the dispute to the extent that it gives cause to question balance between enforcing arbitration agreements and giving respect to the authority of foreign legal systems. In resolving all these concerns, the UKSC held that the ASI was not a blow on the sovereignty of Russia but was necessary to enforce the binding contractual agreement entered between the parties. The judgment recognized the delicate balancing exercise involved in issuing ASI while at the same time being alive to the need for appropriate respect towards foreign legal systems and the integrity of arbitration processes to be maintained.
ASIs are effective tools for enforcing arbitration agreements but raise important questions about the judiciary’s role in overseeing arbitration boundaries. These issues are likely to be central to arbitration law as international commercial disputes become more complex, particularly amid geopolitical tensions. In this case, the UKSC faced a complexity pertaining to respect Russian court sovereignty and upholding the arbitration agreement. Although Article 248.1 gave Russian court’s jurisdiction, the parties had agreed to arbitrate in Paris. The decision reflects a broader international trend of supporting arbitration agreements despite attempts to bypass them through national courts.
The Implications of the UniCredit Decision
The judgment affirms that courts in England will robustly uphold the arbitration agreements, even if the seat of arbitration lies outside England. Now, with this decision, it is clear to parties involved in cross-border commercial contracts that arbitration agreements will be enforced and attempts to undermine the process through national litigation will be fought in the courts. This decision serves as guiding authority while drafting arbitration clauses. The parties must specifically make a stipulation regarding the governing law of the arbitration agreement especially when the seat of arbitration is different from the law governing the main contract.
The UniCredit case is a stark reminder of the primacy of arbitration agreements in international dispute resolution. In providing relief of ASI and uphold the enforcement of the arbitration agreement, the UKSC confirmed once again how important it was for parties’ autonomy and the sanctity of contracts to be respected. To that extent, the decision underlines once again the role of courts as facilitators rather than interferers in the arbitral process in arbitration procedure in toto. It brings out the obligation to comply with arbitration agreements despite geopolitical tensions and contradictions between national laws.
Conclusion: Road Ahead
In all and all, the decision reinforces the principle enshrined under the New York Convention that the courts of contracting states are obligated to refer disputes to arbitration when a valid arbitration agreement exists. By granting the relief of ASI and affirming English law as the governing law of the arbitration agreement, the UKSC has provided much-needed clarity on the relationship between governing law, arbitration seats, and the jurisdiction of courts to grant injunctive relief.
To Keep an Eye: Notably, the Arbitration Bill presently before Parliament is to reverse the effect of instant judgment together with the rule created in Enka. The new law will provides that in the absence of a clear choice made by the parties, the arbitration agreement should be governed by the lex arbitri. However, this legislative change, though it cannot have a retroactive effect upon the decision of UniCredit, will have an impact on future cases and may result in conflicting decisions where the seat of arbitration is outside England.
ABOUT THE AUTHOR
Shelal Lodhi Rajput is an Associate at Tuli & Co. in the Dispute Resolution Team in New Delhi. He is a recent graduate from Symbiosis Law School, Pune, holding a BBA LL. B (Hons) with distinction, including a certificate of merit, and was awarded a gold medal for being the batch topper.
*The views and opinions expressed by authors are theirs and do not necessarily reflect those of their organizations, employers, or Daily Jus, Jus Mundi, or Jus Connect.
