A party trapped in a Russian court by anti-sanctions legislation, denied its contractual right to arbitrate, has relied successfully upon the English law of the underlying contract to apply for an anti-suit injunction (ASI) in England.  

In the case of UniCredit Bank GmbH v RusChemAlliance LLC [2024] UKSC 30, the Supreme Court has reinforced the test for determining the governing law of the arbitration agreement as set out in Enka v Chubb [2020] UKSC 38, and demonstrated the English court’s willingness to intervene to ensure compliance with arbitration agreements even where the arbitration is seated abroad.  

Although a helpful reminder of the current position under English law, its relevance may however be short-lived if the Arbitration Bill is passed in its current form.

Background

The dispute arose from contracts between a Russian company, RusChemAlliance (RCA), and two German companies for the construction of LNG and gas processing plants. Advance payments were secured by bonds issued by UniCredit, governed by English law, with disputes to be resolved by ICC arbitration seated in Paris.  After the Russian invasion of Ukraine in 2022, the German contractors halted work citing EU sanctions. RCA terminated the contracts and sought the return of the advance payments. The contractors claimed they could not return the funds due to sanctions, prompting RCA to demand payment from UniCredit under the bonds, which UniCredit refused on the same grounds. RCA initiated proceedings in the Russian courts, relying on local legislation that allows Russian courts to assume exclusive jurisdiction over disputes involving sanctions notwithstanding the presence of an agreed arbitration clause.

UniCredit sought an ASI from the English Commercial Court to stop RCA from continuing the Russian proceedings. The Commercial Court declined jurisdiction but the Court of Appeal overturned this in January 2024, granting the ASI. RCA appealed to the UK Supreme Court, who had to consider two issues: (a) the governing law of the arbitration agreement, and (b) whether England was the proper place to seek relief.

Decision

To establish jurisdiction, UniCredit argued that the arbitration agreement was governed by English law. This was on the basis that, as there was no separate choice of law governing the arbitration agreement, the law governing the main contract (English law) should apply, following the principles in Enka. RCA sought to argue that this case fell within the exception in that judgment, which stated that the arbitration agreement will be governed by the law of the seat (French law) where the law of the seat would treat an arbitration agreement as subject to that law. This argument was dismissed following expert evidence of French law, and the Supreme Court upheld the general principle in the Enka judgment that, in the absence of a separate choice, the arbitration agreement would be governed by the same law as the rest of the contract.  

UniCredit also had to establish that England is the proper place in which to bring the claim. Having surveyed the caselaw, the Supreme Court dismissed RCA’s argument that by choosing Paris as the seat of the arbitration, the parties had chosen to be subject to the jurisdiction of the French courts and not the English courts. This was, among various other reasons, because it was found that neither the French courts nor French arbitration proceedings were a forum in which UniCredit could obtain an effective remedy for RCA’s breach of the arbitration agreements, as the French courts could not grant ASIs. The Supreme Court considered that as the parties had contractually agreed to arbitration, it was necessary for the court to intervene (where the French courts would not be able to) to hold the parties to their contractual bargain.    

Comment

The decision in Enka sought to ensure clarity and consistency in cross-border disputes but left some room for interpretation in cases involving foreign seats. The UK Supreme Court in UniCredit confirmed that an express choice of governing law generally applies to the arbitration agreement, unless clearly indicated otherwise, even if the arbitration seat is in a different jurisdiction. The ruling emphasises party autonomy in cross-border contracts, rejecting arguments that a foreign seat automatically implies that the arbitration agreement is governed by the law of the seat. Further, it made clear that conflicting foreign laws (in this case the Russian law seeking to claim jurisdiction over the dispute) do not affect the validity of the arbitration agreement under English law.

The court’s willingness to grant an ASI even when a foreign seat is selected is also a positive sign of the English court’s dedication to enforcing such agreements, and a reminder of the powerful tools that the English courts possess to support arbitration, which may not always be available in other jurisdictions.  

The UniCredit judgment may, however, have limited practical impact in light of the Arbitration Bill 2024, which is likely to be enacted during 2025. The Bill proposes a default rule that the law governing the arbitration agreement will be the law of the seat, unless explicitly stated otherwise – a significant shift from the “main contract” approach in Enka and UniCredit. The Law Commission recommended this change, finding the principles in Enka to be “complex and unpredictable”. Had this rule been in effect during UniCredit, the English courts would likely have lacked jurisdiction, as UniCredit would not have met the governing law test.    

Bearing this in mind, this case serves as a reminder that the governing law question remains an important one and, as ever, parties should consider incorporating provisions into their contracts to ensure that their choice is clear. In particular, in addition to specifying the governing law of the contract in the usual way, parties should also include a provision for the governing law of their arbitration agreement, particularly if they wish to take advantage of particular tools available in certain jurisdictions, as this will help avoid an expensive court battle in the future.

Ioannis Alexopoulos and Neil Newing are partners at Signature Litigation LLP, specialising in international arbitration. Sam Hudson, an associate at the firm, also contributed to the article.