UK Supreme Court Issues Reasoned Judgment in Groundbreaking Anti-Suit Injunction Case

In April, the UK Supreme Court issued a decision upholding the anti-suit injunction issued by the English courts to restrain a Gazprom entity, RusChemAlliance LLC (RCA), from bringing legal proceedings in Russia to recover EUR 448 in breach of the parties’ arbitration agreements. Today’s judgment explains the reasons for that decision.

This is the first reported case in which the English courts have issued an anti-suit injunction in support of an arbitration agreement with a foreign seat, and is important both as a legal precedent and in the context of the Russian courts’ recent reliance on Article 248.1 of Russia’s Arbitrazh Procedure Code (APC) to assume jurisdiction over disputes subject to foreign arbitration clauses.

Charles Claypoole, Litigation & Trial partner at Latham & Watkins in London commented, “This remedy may prove particularly important given the recent practice of Russian parties to abandon their prior commitments to resolve disputes by international arbitration in non-Russian jurisdictional for a by choosing to litigate in Russia.”

The geopolitical context: Article 248.1 of the APC

In 2020, following the initial wave of Western sanctions following Russia’s illegal annexation of Crimea, Article 248 of the APC was amended to introduce a new provision (Article 248.1) providing that the Russian commercial courts could assume exclusive jurisdiction over disputes involving a sanctioned person or otherwise arising from sanctions imposed on Russian entities or individuals. The Russian courts have adopted an expansive interpretation of this provision, assuming jurisdiction over disputes related to sanctions even where the Russian counterparty itself has not been designated as a sanctioned person, and without the Russian party needing to demonstrate that it has been denied access to justice in the agreed jurisdictional forum.

Since 2022, further sanctions have been imposed, which has resulted in numerous commercial disputes between Western companies and their Russian counterparties in respect of business relations impacted by sanctions. The Russian courts have assumed exclusive jurisdiction over many of these disputes, with the result that Russia has effectively walked away from its obligations under the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention), in particular by the Russian courts’ failure to recognize international arbitration agreements.

The recent decision in UniCredit v RCA should be seen in that context. Following a dispute between Linde, a German contractor, and RCA related to the construction of liquefied natural gas and gas processing plants in the Russian Federation, which was rooted in restrictions under EU sanctions, RCA called on a series of bonds provided by UniCredit along with a number of other German banks.  The bonds were all governed by English law and contained ICC Paris arbitration clauses. However, RCA decided to ignore the arbitration clauses that it had previously committed to (at a time when the EU had already imposed sanctions targeting Russia’s energy sector) and chose instead to sue the German banks before the Russian courts.

Faced with this situation, UniCredit applied to the English courts for relief, requesting that they issue an anti-suit injunction to hold RCA to its English law-governed bargain to submit any disputes under the bonds to ICC arbitration in Paris.

The reasoning of the UK Supreme Court

The judgment of the Supreme Court deals separately with jurisdictional gateway, i.e., the basis on which the English courts may assume jurisdiction, and the question of whether the English court is the proper place to grant anti-suit injunctive relief to enforce an arbitral bargain which specifies a foreign seated arbitration. 

Gateway: The gateway issue concerned the governing law of the arbitration agreement contained in each of the bonds in circumstances where the bonds were expressly governed by English law and the arbitral seat was stated to be Paris. The Supreme Court agreed with the Court of Appeal that this constituted a choice of English law to govern the separable arbitration agreement. Following and clarifying the guidance contained in the previous Supreme Court judgment in Enka v. Chubb [2020] 1 WLR 4117 at [170], the Supreme Court accordingly found that there was no scope for the choice of seat to influence the governing law of the arbitration agreement.

Proper Place: The Supreme Court confirmed that the grant of anti-suit injunctive relief is not an aspect of the court’s supervisory/curial jurisdiction and is not a “supervisory function” in respect of an existing or prospective arbitral process. Rather, the Supreme Court confirmed that it is part of the general law of the forum, enshrined in s.37 of the Senior Courts Act 1981, which provides that promises may be enforced by coercive remedy. The fact that England was not the curial court accordingly did not preclude the existence or exercise of such injunctive jurisdiction.

The Supreme Court observed that there may be no single forum that can properly exercise jurisdiction over a party preventing it from breaking its contract to arbitrate. The Supreme Court determined that there was a substantial connection with England and Wales, because UniCredit was seeking to enforce English law contractual rights, and so the English courts were entitled to grant the relief requested by UniCredit. The Supreme Court also held that the starting point of the English courts is that parties should be held to their contractual bargain, particularly given the strong international policy of giving effect to the New York Convention, and that it would require a strong reason to convince an English court not to exercise its jurisdiction to restrain a breach of an arbitration agreement.

Observations

The reasoning of the Supreme Court will undoubtedly give rise to intense interest, particularly in the context of the proposed changes to the English Arbitration Act 1996 by the Law Commission. 

However, one key takeaway is that the decision demonstrates the utility of selecting English law as the governing law in international commercial and financial agreements, and the willingness of the English courts to order relief when faced with parties and court decisions hostile to the principles reflected in the New York Convention. This is particularly important where other jurisdictions — notably civil law jurisdictions such as Paris, which was the chosen arbitral seat in this case — may be unable to do so. 

The Latham team was led by partner Charles Claypoole and senior associate Alex Cox, instructing Stephen Houseman KC, Jonathan Harris KC, and Stuart Cribb.