The UKSC dismissed RusChemAlliance's appeal, holding that arbitration agreements in bonds governed by English law entitled UniCredit to an anti-suit injunction restraining Russian court proceedings brought in breach of those agreements, even though the agreed seat of arbitration was Paris, not England.
Background
RusChemAlliance LLC (‘RusChem’), a Russian company, entered into construction contracts with German contractors for liquefied natural gas plants in Russia, worth approximately €10 billion. Performance was guaranteed by seven demand bonds issued by UniCredit Bank GmbH (‘UniCredit’), a German bank. Each bond contained a governing law clause (clause 11) providing that the bond was governed by English law and an arbitration clause (clause 12) providing that disputes would be settled by ICC arbitration in Paris.
Following Russia’s invasion of Ukraine in February 2022, the EU imposed sanctions on Russia. The Contractor ceased performance and could not return advance payments of around €2 billion, citing EU sanctions. RusChem demanded payment under the bonds from UniCredit, which refused on the basis that payment was prohibited by EU sanctions, specifically article 11 of Council Regulation (EU) No 833/2014.
In August 2023, RusChem commenced proceedings against UniCredit in the Arbitrazh Court in St Petersburg, relying on article 248.1 of the Russian Arbitrazh Procedural Code, which confers exclusive jurisdiction on Russian courts over disputes arising from foreign sanctions and treats arbitration agreements providing for arbitration outside Russia as inoperable. UniCredit brought proceedings in the English Commercial Court seeking an anti-suit injunction to restrain RusChem from continuing the Russian proceedings in breach of the arbitration agreements.
The Issue(s)
The sole issue before the Supreme Court was whether the English court had jurisdiction over UniCredit’s claim, which turned on two sub-issues:
The Governing Law Issue
Whether the arbitration agreements in the bonds were governed by English law (so that the claim fell within the ‘contract gateway’ under CPR Practice Direction 6B, para 3.1(6)(c)).
The Proper Place Issue
Whether England and Wales was the proper place in which to bring the claim, as required by CPR 6.37(3).
The Parties’ Key Arguments
RusChem’s Arguments
RusChem argued that the choice of English law in clause 11 did not extend to the arbitration agreement in clause 12, and that the parties had impliedly chosen French law to govern the arbitration agreements by choosing Paris as the seat. RusChem relied on paragraph 170(vi)(a) of the majority judgment in Enka Insaat ve Sanayi AS v OOO Insurance Company Chubb [2020] UKSC 38, arguing that French law—specifically the ‘substantive rules of international arbitration’—would treat the arbitration agreements as governed by French law, and that this should be the governing law wherever the question was examined. On the proper place issue, RusChem contended that France was the proper forum or, alternatively, that arbitration under clause 12 was the appropriate mechanism.
UniCredit’s Arguments
UniCredit argued that the governing law clause in clause 11 applied to all clauses of the bonds, including the arbitration clause, consistent with the principles in Enka and Kabab-Ji SAL v Kout Food Group [2021] UKSC 48. On the proper place issue, UniCredit argued that the English court had jurisdiction and should exercise it, given that the arbitration agreements were governed by English law, the French courts could not grant equivalent relief, and arbitration proceedings would be wholly ineffectual.
The Court’s Reasoning
Governing Law
Lord Leggatt, delivering the unanimous judgment, applied the principles established in Enka and affirmed in Kabab-Ji. The court held that a choice of governing law for the contract as a whole should generally be construed as applying to an arbitration agreement within that contract, and that the choice of a different country as the seat of arbitration does not displace this.
“The term ‘this Bond’ in clause 11 is reasonably understood to mean the whole bond including clause 12 (the arbitration clause). There is nothing in the wording of the bonds which excepts clause 12 from the choice of English law as the governing law.”
The court rejected RusChem’s reliance on paragraph 170(vi)(a) of Enka, which had suggested that a provision of the law of the seat treating the arbitration agreement as governed by that country’s law might in some cases negate the inference that the contractual choice of law applied. Lord Leggatt subjected the reasoning in Carpatsky Petroleum Corpn v PJSC Ukrnafta [2020] EWHC 769 (Comm), which underpinned this proposition, to close scrutiny and concluded it was flawed:
“Having now been required to scrutinise the reasoning in Carpatsky closely, I conclude that it does not stand up on analysis. For the reasons given, even where the law of the seat contains a provision such as section 48 of the Swedish Arbitration Act, no inference can properly be drawn from a choice of seat that the arbitration agreement was intended to be governed by the law of the seat which is capable of displacing the general principles outlined in para 170(iv) and (v) of the judgment in Enka. What was said in para 170(vi)(a) should therefore in future be disregarded.”
The court also declined to revisit the Enka principles more generally, noting that draft legislation before Parliament (following the Law Commission’s recommendations) made it inappropriate to do so at this time.
Proper Place
On the proper place issue, the court held that the Spiliada forum non conveniens test was inapposite in the context of enforcing contractual arbitration agreements. Lord Leggatt reasoned that where parties have contractually agreed to arbitrate, the starting point is pacta sunt servanda, not a comparative evaluation of competing fora:
“I do not consider that the test is apt for this purpose. That is because I do not think it right to accept that there is only one court (at most) which can properly exercise jurisdiction over a party for the purpose of preventing that party from breaking its contract to arbitrate a dispute, so that the English court should automatically decline to grant relief unless satisfied that it is clearly the most suitable tribunal to do so.”
The court formulated the proper test as follows: service out of the jurisdiction should in principle be permitted unless the fact that the seat of the arbitration is outside England and Wales makes it inappropriate on the facts to exercise jurisdiction. This was to be applied consistently with the principle that a strong reason must be shown as to why the court ought not to restrain breach of the contractual bargain.
On the facts, the French courts were not an available forum: they could not grant anti-suit injunctions, and they would have no jurisdiction over RusChem. The court also rejected the suggestion that arbitration was an adequate alternative, since arbitral orders lack coercive force and would be unenforceable in both France and Russia:
“The more fundamental reason why substantial justice could not be obtained through arbitration proceedings is that any award or order made by an arbitrator has no coercive force. It is not backed by the powers available to a court to enforce performance of its orders, which include sanctions for contempt of court.”
The court also noted the international policy underpinning the New York Convention and confirmed there was no issue of comity, given that Russia is a party to that Convention and its own legislation prevented compliance with its obligations thereunder.
Practical Significance
This decision is of considerable importance in international commercial arbitration and private international law. It firmly reaffirms the Enka/Kabab-Ji principle that a contractual choice of governing law extends to arbitration clauses within the contract, and expressly overrules the obiter suggestion in Enka paragraph 170(vi)(a) that provisions of the law of the seat might displace this inference. The decision in Carpatsky on implied choice of law is disapproved.
The judgment also breaks new ground on the jurisdictional test for anti-suit injunctions in support of foreign-seated arbitrations. The court departed from the conventional Spiliada forum non conveniens analysis, establishing instead a presumption in favour of the English court exercising jurisdiction, rebuttable only if the foreign seat makes intervention inappropriate. This significantly expands the reach of the English courts to enforce arbitration agreements even where England is not the seat.
The case arises in the specific context of Russian counter-sanctions legislation and demonstrates the English courts’ willingness to act as a bulwark against attempts to circumvent contractual arbitration agreements through unilateral national legislation, while respecting the framework of the New York Convention.
Verdict: The appeal was dismissed. The Court of Appeal’s order granting UniCredit a final anti-suit injunction, including a mandatory injunction requiring RusChemAlliance to discontinue its Russian court proceedings, was upheld and left undisturbed.
Source: UniCredit Bank GmbH v RusChemAlliance LLC [2024] UKSC 30
