On 12 August 2020, we wrote about three important judicial decisions of the courts in England and Singapore relating to the enforcement of arbitration agreements over claims arising under insolvency laws.
On 23 September 2020, the English High Court delivered a new decision which re-affirms that claims arising out of insolvencies must be arbitrated where an arbitration clause is broad enough in its wording to cover such claims. The new decision was given by Mr Justice Foxton in Riverrock Securities Limited v. International Bank of St Petersburg (Joint Stock Company).1
What happened in Riverrock?
The facts in the Riverrock case were similar to the facts in the case of Nori Holding Limited v. Public Joint Stock Co Bank Otkritie Financial Corporation.2
Between 31 January and 3 July 2018, Riverrock Securities Limited (Riverrock) and International Bank of St Petersburg (Joint Stock Company) (IBSP) entered into nine substantially similar contracts for the sale by Riverrock to IBSP of securities in the form of nine corresponding credit linked notes issued by UBS AG. Each contract and its corresponding credit linked note was governed by English law.
IBSP was a large retail bank incorporated in Russia. In October 2018, the Central Bank of Russia placed IBSP into administration and revoked its banking licence based on various alleged failures to comply with Russian banking law. IBSP was subsequently declared insolvent in September 2019 and the Russian State Corporation Deposit Insurance Agency (DIA) was appointed as IBSP’s official receiver in bankruptcy.
In October 2019, IBSP commenced legal proceedings before the arbitrazh court in the city of St Petersburg (Russian Court) seeking, inter alia, the invalidation of IBSP’s contracts with Riverrock on the basis that the contracts and the credit linked notes formed part of a scheme intended to siphon off IBSP’s assets (the Russian Proceedings).
Riverrock applied to the English High Court for an anti-suit injunction under section 37 of the Senior Courts Act 1981. The application was for an order restraining IBSP from pursuing the Russian Proceedings on the basis that all the relevant contracts contained arbitration agreements providing that “Any dispute under the Agreement or in connection with it shall be referred to and finally resolved by arbitration under the LCIA Rules, which Rules are deemed to be incorporated by reference into this clause” (the Arbitration Agreements).
IBSP resisted Riverrock’s application, arguing that:
(a) the English court lacked jurisdiction to determine Riverrock’s application for an anti-suit injunction because Russia was the natural and appropriate forum to determine Riverrock’s application;
(b) the Russian Proceedings were being pursued by the DIA (rather than by IBSP) and did not therefore fall within the scope of the Arbitration Agreements;
(c) as a matter of construction, the claims in the Russian Proceedings did not fall within the scope of the Arbitration Agreements;
(d) the claims in the Russian Proceedings were not arbitrable as a matter of law or public policy;
(e) there were strong reasons not to grant anti-suit injunctive relief to restrain the Russian Proceedings; and
(f) it was not just and convenient for an interim anti-suit injunction to be granted.
What did the High Court decide and why?
Jurisdiction to determine the application
The High Court granted the interim anti-suit injunction against IBSP. The judge dismissed IBSP’s argument that Russia was the natural and appropriate forum to determine Riverrock’s application for an anti-suit injunction as “hopeless”. Applying the Court of Appeal’s approach in Enka v. Chubb3, the judge held that the English court, as the court of the agreed seat of arbitration, was necessarily an appropriate court to grant an anti-suit injunction and questions of forum non conveniens did not arise. The High Court went further and held that English law was the proper law of the Arbitration Agreements and the issues of arbitrability which arose were matters of English law as the law of the Arbitration Agreements and the seat. The English court was therefore clearly better placed than the Russian Court to determine the scope of the Arbitration Agreements and the arbitrability of the claims.
The claims in the Russian Proceedings were within the scope of the Arbitration Agreements
The High Court held that the claims in the Russian Proceedings fell within the scope of the Arbitration Agreements notwithstanding that they were brought by the DIA rather than IBSP. The judge arrived at this conclusion having regard to, inter alia, the language of the Russian Bankruptcy Law, which suggests that claims under article 61.2 (which provides for the avoidance of transactions entered into within one year of the date of bankruptcy at an unequal consideration) are claims of the relevant company rather than the office-holder.
The judge derived support for his conclusion from the Singapore Court of Appeal’s decision in Larsen Oil 4 where the Singapore Court of Appeal assumed that claims by a liquidator to set aside a transaction as at an undervalue were to be treated as having been made by a party to an arbitration agreement (albeit that in Larsen Oil, the Court of Appeal ultimately decided that such claims fell outside the scope of the particular arbitration agreement).
The judge also concluded that, as a matter of substance, the claims in the Russian Proceedings were contractual in nature and fell within the scope of the Arbitration Agreements. IBSP’s ability (or otherwise) to advance such claims in LCIA arbitrations was the consequence of the parties’ agreement to arbitrate and was not relevant to the issue of whether those claims fell within the scope of the Arbitration Agreements.
In considering whether a claim fell within the scope of an arbitration agreement and was arbitrable under English law, the English court has to consider the ingredients of the claim under its applicable law. The classification of the claim for such purposes was, however, a matter to be determined by the English court by considering its substance from an English law perspective. Therefore, as in Nori Holding, the judge considered that the issue of whether a dispute falls within an arbitration agreement requires an examination of the substance of the dispute, rather than the particular legal vehicle through which the dispute is being advanced before the foreign court.
The High Court affirmed the conclusion expressed by the judge in Nori Holding that unlike the position under Singapore law (as expressed in the Singapore Court of Appeal’s decision in Larsen Oil), there is no presumption under English law that an arbitration agreement does not extend to claims which only arise on a company’s insolvency. English law adopts a generous approach to the construction of arbitration agreements, which leaves little scope for implied limitations of this nature. The Arbitration Agreements were themselves worded in expansive terms.