Supreme Court explains decision to uphold an anti-suit injunction in respect of foreign-seated arbitration

Background and earlier decisions

Further background to this matter and a detailed explanation of the High Court and Court of Appeal decisions is set out in our earlier article here.

In summary, the substantive dispute concerns performance bonds issued by UniCredit Bank GmbH (Unicredit) in favour of RusChem. The performance bonds were governed by English law and provided for disputes to be settled by ICC arbitration seated in Paris, although there was no express governing law of the arbitration agreement. When Ruschem terminated the underlying construction contract and called on the performance bonds, UniCredit refused to pay RusChem because of the EU sanctions regime. RusChem then commenced proceedings before the Russian Arbitrazh Court rather than under the arbitration agreement. In response, UniCredit applied to the English court for an ASI to restrain those Russian proceedings.

To establish the jurisdiction of the English court to grant the ASI, Unicredit first had to satisfy the court that one of the jurisdictional gateways in the Civil Procedure Rules applied so as to entitle it to serve the claim form on RusChem out of the jurisdiction. The gateway relied upon was that the contracts which Unicredit was seeking to enforce, i.e. the arbitration agreements in the performance bonds, were governed by English law. Second, Unicredit had to satisfy the court that England was the proper place in which to bring the claim for injunctive relief.

At first instance, the judge refused the application for a final ASI, finding that the arbitration agreements were governed by French, not English, law (meaning the relevant service gateway was not satisfied), and England was not the appropriate forum because a remedy of damages could be obtained in the arbitration.

The Court of Appeal disagreed on both issues, granting the ASI and finding that: (i) English law applied to the arbitration agreements; (ii) English law policy is to uphold the promise implicit in an arbitration agreement not to litigate; and (iii) the notion of justice in the arbitration was illusory because the Russian courts had ruled the arbitration agreement unenforceable and there was therefore no way to enforce any award for damages or other relief against RusChem in Russia.

Supreme Court decision

The issue on appeal before the Supreme Court was whether the English court had jurisdiction. To determine this, the Supreme Court had to decide whether (i) the arbitration agreements in the performance bonds were governed by English law and (ii) England was the proper place.

Governing law of the arbitration agreements

The Supreme Court held that English law governed the arbitration agreements. The Court considered its earlier decision in Enka v Chubb [2020] UKSC 38 in which it had analysed the principles determining what system of law governs an arbitration agreement where the law applicable to the underlying contract differs from the law of the seat. The Court emphasised and applied its earlier reasoning that, where the arbitration agreement is silent and the law governing the main contract and seat are different, the contract’s governing law should generally be construed as applying to the arbitration agreement. In this case, the English governing law clause in the bonds was widely drafted and there was nothing in the wording to except the arbitration clause from this choice, nor did the choice of Paris as the seat justify a different construction.

In challenging the jurisdiction of the English court, RusChem sought to argue that Enka (at para 170(iv)(a)) established an exception to the general rule that the governing law of the contract should also govern the arbitration agreement. This exception would apply if the law of the seat treats the arbitration agreement as governed by that country’s law if otherwise silent – if so, RusChem argued, it should be inferred that, by choosing such a seat, the parties intended the arbitration agreement to be governed by that seat’s law. In this case, Ruschem submitted that a French court would consider that the arbitration agreements would be governed by French law.

Lord Leggatt, in a unanimous judgment, rejected this argument. He emphasised that the language in para 170(iv)(a) of Enka was permissive rather than prescriptive and the parties should focus on the Court’s underlying reasoning. All that was actually decided in Enka was that a choice of an English seat does not support an inference that the parties are thereby choosing English law to govern the arbitration agreement. The suggestion that it might be possible, based on the content of the relevant curial law, to draw such an inference from a different choice of seat was obiter and was not explored. Lord Leggatt considered that a rule which treated the arbitration agreement as governed by whichever law the courts of the seat would regard as the law governing the arbitration agreement would be neither clear nor simple to apply. The consequence would be that, where parties have chosen a foreign seat for the arbitration, evidence of that country’s laws would be required to identify what law governs the arbitration agreement. Further, the Court’s role is to decide what the parties to the arbitration agreement intended when choosing a foreign seat – the principle advanced by RusChem is unlikely to reflect the intention of ordinary commercial parties.

Lord Leggatt concluded that, “what was said in para 170(vi)(a) should therefore in future be disregarded.” The fact that the courts of the seat would take a different view to the English court and regard their own law as the law governing the arbitration agreement was not a good reason to depart from the general rule in Enka.

Is England the proper place?

The Supreme Court clarified the test that should be applied in deciding whether to exercise jurisdiction over a foreign defendant to grant an ASI where England was not the seat of the arbitration. Both parties had assumed that the test of forum non conveniens as elaborated in in Spiliada applied, i.e. that the English courts should not exercise jurisdiction if there is another forum more suitable for the interests of the parties and the ends of justice. The Court held this was not correct. Spiliada was concerned with a situation where the defendant asserts there is another more appropriate forum and no forum for resolving the dispute had been contractually agreed; in this case, the parties had contractually agreed to arbitrate. This is not a case where the Court is concerned with whether England is the forum conveniens but only with whether to enforce the parties’ agreement. The appropriate starting point was therefore 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. Lord Leggatt stated:

“Service out of the jurisdiction should in principle be permitted unless, in the opinion of the court, the fact that the seat of the arbitration is or is likely to be outside England and Wales makes it inappropriate on the facts of the case to exercise the court's jurisdiction to grant relief aimed at enforcing the arbitration agreement or supporting the arbitral process. This test should be applied consistently with the principle discussed above: that a strong reason needs to be shown as to why in the particular circumstances the court ought not to exercise its jurisdiction to restrain a breach of the parties' contractual bargain.”

Applying this approach to the case, the fact that the parties had chosen Paris as the seat was not in itself a “strong reason” why Court should not uphold the parties’ bargain to arbitrate by granting the ASI.

RusChem argued that England was not the proper place on two grounds. The first was that the parties had chosen to be subject to the supervisory jurisdiction of the French courts, and therefore the French courts should determine whether there had been a breach of the arbitration agreement and the appropriate relief. The Supreme Court rejected this argument on the basis that, in English law, the source of the court's power to grant ASIs is its general equitable jurisdiction under s. 37 of the Senior Courts Act 1981, not its jurisdiction to grant interim measures in support of arbitration proceedings under the Arbitration Act 1996. The court’s power to grant injunctive relief does not derive from or require supervisory jurisdiction; it can be exercised by courts other than the courts of the seat. The evidence before the Supreme Court established that, in any event, the French courts would not have jurisdiction over RusChem. However, even if the French Courts had jurisdiction, that would not make it inappropriate for an English Court to grant an ASI.

The second of RusChem’s arguments was that the proper place to seek an ASI was in an arbitration commenced under the bonds. The Supreme Court again dismissed this argument. Any order by an arbitrator would have no coercive power. Whilst the order would create a contractual obligation on RusChem not to bring proceedings against UniCredit in the Russian courts, RusChem was already under such an obligation by reason of the arbitration agreement but this did not deter it from doing so. The undisputed evidence of French law was that the French courts would have no power to enforce the order, nor would such an order be enforceable in Russia. Though the Court did not decide whether the Court of Appeal was right to characterise RusChem’s argument as abusive, the Supreme Court noted that it was “unattractive” for RusChem to seek to run this argument while at the same time contending in the Russian proceedings that the arbitration agreements were invalid and unenforceable.

Key takeaways

1. This decision is clear authority that the English courts can grant ASIs in support of foreign arbitrations. Where either the seat or the governing law of the arbitration is English law, the English courts will strive to hold parties to their contractual bargain to arbitrate the dispute.
2. Parties should remember that the issues arising in this case can be avoided if they specify a law to govern the arbitration agreement, particularly where the seat and main contract laws differ. Although many of the model clauses promulgated by the main arbitration institutions do not provide for this, it can easily and should always be included in an arbitration clause.
3. Although eagerly awaited, the consequences of this decision may be limited. First, the Arbitration Bill 2024 currently progressing through the UK Parliament will change the default position established by this and Enka. In future, absent an express choice, an arbitration agreement will be governed by the law of the seat, not the law of the contract. On the facts of this case, French law would apply to the arbitration agreements and the English courts would not have jurisdiction. Clause 1 of the Arbitration Bill introduces a new section 6A to the Arbitration Act 1996 as follows:

   “6A Law applicable to arbitration agreement

   (1) The law applicable to an arbitration agreement is—
   (a) the law that the parties expressly agree applies to the arbitration 
   agreement, or 
   (b) where no such agreement is made, the law of the seat of the 
   arbitration in question

   (2) For the purposes of subsection (1), agreement between the parties that a particular law applies to an agreement of which the arbitration agreement forms a part does not constitute express agreement that that law also applies to the arbitration agreement.”

   It remains to be seen what will amount to an “express agreement” regarding the governing law; presumably the scope of the governing law provision will still have some influence on the issue. Importantly, this change will have retrospective effect, applying to all arbitration agreements, whenever entered into, unless already the subject of proceedings. It should be noted that the latest version of the Arbitration Bill now includes a carve out for investment treaty arbitration provisions from Clause 1.

   the law that the parties expressly agree applies to the arbitrationagreement, orwhere no such agreement is made, the law of the seat of the arbitration in question.

4. In terms of practical consequences, the English courts’ ability and willingness to grant an ASI is welcome but perhaps unlikely to deter parties such as RusChem from pursuing claims in the Russian courts in breach of arbitration agreements, or the Russian courts from determining those claims in accordance with Russian law. Nonetheless, the risk of committal proceedings if a party refuses to comply may have some deterrent effect and an English court ASI will prevent enforcement of a Russian court judgment against assets in England and may frustrate attempts to enforce in other jurisdictions.