UK Supreme Court Confirms the Role of English Courts as the World’s Arbitral Policemen
On 18 September 2024, the UK Supreme Court finally gave the reasons for its unanimous judgment (Lord Leggatt, with whom Lord Reed, Lord Sales, Lord Burrows and Lady Rose agreed), announced on 23 April 2024, in UniCredit Bank GmbH v RusChemAlliance LLC [2024] UKSC 30. It upheld the judgment of the Court of Appeal ([2024] EWCA Civ 64), which had granted an anti-suit injunction to enforce an English law-governed arbitration agreement with a Paris seat against a Russian party.
This judgment marks the culmination of a flurry of litigation focused on enforcing arbitration agreements with foreign seats, contained in bank guarantees governed by English law, against Russian parties who had invoked Article 248.1 of the Russian Arbitrazh Procedural Code, which purports to confer exclusive jurisdiction on Russian courts over disputes arising from the imposition of sanctions on Russian persons, even when such disputes are subject to foreign arbitration agreements or foreign exclusive forum agreements.
Issues
English courts have the power to grant anti-suit injunctions under section 37(1) of the Senior Courts Act 1981 ‘in all cases in which it appears to the court to be just and convenient to do so’. However, for a court to grant an anti-suit injunction against a party, it must have jurisdiction. The claimant in Unicredit relied on the jurisdictional gateway in Practice Direction 6B para 3.1(6)(c), namely where a claim is made in respect of a contract governed by English law. The Supreme Court had to address two questions: (1) whether the arbitration agreement was governed by English law and (2) if so, whether England was the proper place to bring the claim.
Law Applicable to the Arbitration Agreement
The Supreme Court first focused on the law applicable to the arbitration agreement. Remarkably, this is the third time in four years that the UK’s highest judicial authority has dealt with this issue (see Enka Insaat ve Sanayi AS v OOO Insurance Company Chubb [2020] UKSC 38 and Kabab-Ji SAL v Kout Food Group [2021] UKSC 48). The court’s decision in Unicredit was straightforward: the choice-of-law clause in the guarantee (‘This Bond and all non-contractual or other obligations arising out of or in connection with it shall be construed under and governed by English law.’) was broad enough to amount to an express choice of law for the arbitration clause contained therein ([31]).
Jurisdictional Discretion
The court then proceeded to address the issue of jurisdictional discretion. It resolved this issue in the affirmative, relying on the principle of pacta sunt servanda ([66]) and ‘the strong international policy of giving effect to agreements to arbitrate disputes’ ([68]). The court further noted that ‘when the obligation to refer the dispute to arbitration is the subject of international agreement among the states concerned, considerations of comity have little, if any, role to play’ ([79]), that Russia was bound by Article II(3) of the New York Convention, that evidence of French law confirmed French courts would have no objection to the grant of an anti-suit injunction in England ([80]) and that there was ‘a substantial connection with England and Wales in the fact that the contractual rights which UniCredit is asking the court to enforce are rights governed by English law’ ([83]). Finally, the court found that French courts were not an available forum, as they lacked jurisdiction to grant a remedy for the defendant’s breach of the arbitration agreement ([104]) and that any anti-suit injunction granted by a prospective arbitral tribunal would be ineffective ([108]-[109]).
Discussion
There are six points worth emphasising.
As readers of this blog may be aware (see the EAPIL online symposium on the law governing arbitration agreements), the Law Commission has suggested that the law concerning the determination of the law applicable to arbitration agreements in Enka is ‘complex and unpredictable’ and proposed a statutory choice-of-law rule for arbitration agreements. The Arbitration Bill, which includes a choice-of-law rule designed to implement the Law Commission’s proposal, is currently before Parliament. The Supreme Court clarified in Unicredit that the arbitration agreements in Enka and Kabab-Ji were governed by English law not based on implied choice, but on the basis of express choice, as the choice-of-law clauses in the container contracts were sufficiently broad to cover the arbitration clauses. However, unusually, the Supreme Court in Unicredit also noted that a part of its judgment in Enka was incorrect and stated that the Enka judgment should be read without this part ([59]). The part in question is paragraph 170(vi)(a), where the court stated that a factor potentially negating an inference of implied choice – and potentially implying that the arbitration agreement was intended to be governed by the law of the seat – was ‘any provision of the law of the seat which indicates that, where an arbitration is subject to that law, the arbitration agreement will also be treated as governed by that country’s law’. This had given rise to the question of whether English courts should apply ‘substantive rules of international arbitration’, which French courts apply to arbitration agreements, whenever the parties agree on a French seat. Since paragraph 170(vi)(a) created a lot of uncertainty, the Supreme Court removed it.
Interestingly, the Supreme Court commented on the proposed statutory choice-of-law rule for arbitration agreements in the Arbitration Bill, which reads:
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.
The first paragraph of clause 6A aims to depart from Enka by eliminating implied choice from the process of determining the law applicable to arbitration agreements. However, the Supreme Court clarified that the arbitration agreement in Enka was governed by English law based on express choice. As a result, ‘[d]epending on what the word “expressly” is taken to add to the word “agree”, this would not by itself alter the law as stated in Enka’ ([28]). Whether the second paragraph of clause 6A will suffice to change the outcome in cases like Enka or Kabab-Ji remains to be seen.
One reason the Supreme Court found that England was the proper place to bring the claim was that ‘a substantial connection with England’ existed because the contractual rights UniCredit sought to enforce were governed by English law ([83]). That substantial connection was established by the fact that the arbitration agreement was governed by English law. Based on the facts, this appears to be the only link with England and this aspect of the Supreme Court’s reasoning is not particularly convincing.
If the only link with England was that the arbitration agreement was governed by English law, the question arises under what circumstances will an English court refuse to enforce an English law-governed arbitration agreement with a foreign seat. The Supreme Court provided a few examples: where a party argues that the arbitral tribunal lacks jurisdiction ([98]) and where the court of the seat ‘is already, or is likely to be, seized of the matter, [or] where the exercise by the English court of its power to grant an anti-suit injunction would or might produce a clash with any exercise of jurisdiction by the [court of the seat] so as to give rise to any issue of comity’ ([101]). Given the confirmation of the broad powers of English courts to enforce English law-governed arbitration agreements, it is likely that this point will generate disputes in the future.
Are these powers of English courts limited to the enforcement of English law-governed arbitration agreements? The Supreme Court’s judgment makes it clear that this is not the case. English courts have jurisdiction over a defendant in various circumstances. If a defendant over which an English court has jurisdiction breaches an arbitration agreement, it is potentially subject to an English anti-suit injunction, regardless of the arbitral seat. The principles of pacta sunt servanda and ‘the strong international policy of giving effect to agreements to arbitrate disputes’, combined with the fact that ‘considerations of comity have little, if any, role to play’, support the exercise of jurisdiction to enforce such agreement, provided there is no evidence that the courts of the seat object to this.
Finally, although the Supreme Court found support for its decision in the fact that French court were not an available forum and that any anti-suit injunction granted by a prospective arbitral tribunal would be ineffective, it did not assess whether an English anti-suit injunction would be any more effective. The seizure in Russia of hundreds of millions of euros belonging to UniCredit, as well as Deutsche Bank and Commerzbank, for the non-payment of guarantees less than a month after the Supreme Court announced its judgment suggests that this may not be the case. The EUR463m seized from UniCredit represents only 4.5 per cent of its assets in Russia and the remainder is at risk due to new court cases in Russia over guarantee payments. This may be one of the reasons why UniCredit has filed an application to the General Court of the European Union to obtain definitive legal clarification of its obligations under EU sanctions.