Facts

In 2021, RusChemAlliance LLC (RusChem), a Russian company, contracted with two German companies (the Companies) to construct gas processing plants in Russia. Under the contracts, RusChem was required to pay the Companies €10 billion in stages, with payments in advance of around €2 billion. RusChem made the advance payments to the Companies. The obligation of the Companies was guaranteed by on-demand bonds. Some of these bonds were issued by UniCredit Bank GmbH (UniCredit). The bond contracts were expressly governed by English law, but any dispute was to be referred to arbitration in Paris.

Subsequently, the Companies informed RusChem that they could not continue to perform the contracts because of EU sanctions on Russia resulting from the Russian invasion of Ukraine. RusChem terminated the contracts and requested the return of the advance payments, which the Companies refused to make on the basis that EU sanctions prevented them from repaying the sums. RusChem then demanded payment from UniCredit under the bonds, who also refused for the same reason.

Russian proceedings

RusChem brought proceedings against UniCredit in Russia to recover payment under the bonds. It did so on the basis of article 248.¹ of the Arbitrazh Procedural Code which, among other things, conferred exclusive jurisdiction on the Russian Arbitrazh Court over disputes between Russian and foreign persons arising from foreign sanctions and to treat an agreement to arbitrate such disputes as inoperable.

UniCredit applied to dismiss RusChem’s claim on the ground that the parties had agreed to arbitrate in Paris. While UniCredit’s application was refused, the Russian proceedings were adjourned pending the outcome of the proceedings in the English High Court.

English High Court and Court of Appeal

The English courts’ power to grant anti-suit injunctions stems from section 37 of the Senior Courts Act. It is well known that the English courts will grant an anti-suit injunction to prevent a breach of an arbitration agreement if it is satisfied that there is a binding arbitration agreement that governs the subject matter of the dispute unless there is a strong reason not to do so.

The question at issue in UniCredit was not whether it was entitled to an anti-suit injunction per se, but the more nuanced issue of whether the English courts had jurisdiction to hear UniCredit’s claim for an anti-suit injunction.

In order to establish the jurisdiction of the English courts, UniCredit needed to demonstrate that:

1. there was a serious issue to be tried on the merits (which was not contested);
2. there was a good arguable case that the claim fell within one of the relevant gateways. In this instance, UniCredit relied on the gateway set out in paragraph 3.1(6)(c) of Practice Direction 6B – namely, that the claim was in respect of a contract governed by English law; and
3. England and Wales was the proper place in which to bring the claim.

RusChem disputed the English High Court’s jurisdiction, and was successful at first instance where the English High Court found that it did not have jurisdiction for two reasons:

1. the arbitration agreement was governed by French law, being the law of the seat of the arbitration (such that the claim did not fall within paragraph 3.1(6)(c) of Practice Direction 6B); and
2. the English High Court was not the appropriate forum, because UniCredit could obtain substantial justice in the arbitration in France.

The Court of Appeal reversed the decision. It held that the English High Court did have jurisdiction over UniCredit’s claim because:

1. applying the test in Enka, the Court of Appeal held that the law governing the contract between the parties was also the governing law of the arbitration agreement; and
2. England and Wales was the proper place in which to bring the claim. In particular, the Court of Appeal held that the English High Court was the only court available and able to grant an injunction, without which it was highly unlikely that the arbitration in Paris would be allowed to proceed.

The Supreme Court judgment

RusChem appealed to the Supreme Court on both jurisdictional issues arguing that (i) French law, not English law, was the governing law of the arbitration agreement; and (ii) England was not the proper place to bring the claim for an injunction.

The Supreme Court unanimously dismissed RusChem’s appeal.

Issue 1: Which law governed the arbitration agreement?

The leading English authority on determining the governing law of an arbitration agreement was the Supreme Court decision in Enka v Chubb. In short, the Supreme Court held in Enka that the law governing the contract will be either (i) the law chosen by the parties to govern it (such choice being either express or implied); or (ii) the system of law with which the arbitration agreement is most closely connected. The key principles arising out of Enka [at paragraph 170 of the judgment] insofar as they relate to this case are as follows:

1. Where the applicable law is not specified, the choice of law of the contract will generally apply to the arbitration agreement, which forms part of the contract.
2. The choice of a different country as the seat of the arbitration is not, without more, sufficient to negate the inference that the choice of law to govern the contract was intended to apply to the arbitration agreement.
3. In paragraph 170(iv) of the judgment in Enka the Supreme Court explained that two factors may indicate that the parties intended the law of the seat to govern the arbitration agreement. The relevant factor for the purpose of this case was that set out in paragraph 170(iv)(a): “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.”

Applying Enka, the Supreme Court held that the choice of Paris as the seat of arbitration did not imply that the arbitration agreement was governed by French law. The Supreme Court held that the correct interpretation of the bonds was straightforward. The bonds contained an English governing law clause which, in accordance with the general rule set out in Enka, properly construed, applied to all provisions of the bonds, including the arbitration agreement.

The Supreme Court rejected RusChem’s argument that, in accordance with the reasoning given at paragraph 170(iv)(a) of the judgment in Enka, by choosing Paris as the place of arbitration the parties must be taken to have known that, under the applicable law of France, the arbitration agreement in the bonds would be regarded by the French court as governed by French law. In particular, the Supreme Court held that it was unrealistic to suppose that when commercial parties choose a seat they would engage in the “elaborate process” of analysing how the law of the seat would answer the question of whether the law of the contract or the seat would prevail in the absence of an express choice of law clause governing the arbitration agreement.

It was desirable to have a clear and simple rule, and an approach that treated the arbitration agreement as governed by whichever law the court of the seat would regard as the governing law was not clear or simple. The Supreme Court therefore explained that what was stated in paragraph 170(iv)(a) of the judgment in Enka should be disregarded.

Issue 2: Is England and Wales the proper place to bring a claim for an ASI?

The Supreme Court rejected RusChem’s contention that UniCredit must show that the English courts are a more appropriate forum than any other forum in order to grant an ASI. That test did not apply where the parties had contractually agreed on a forum, which they had in this case by agreeing to refer any dispute to arbitration. The relevant question for the Supreme Court was whether it was appropriate for it to enforce the parties’ agreement.

The role of the courts of the seat (Paris) was to supervise the arbitration itself. However, no arbitration had yet been commenced and therefore it could not be said that an ASI seeking to enforce the parties’ agreement to arbitrate would encroach on that supervisory jurisdiction. Further, it was undisputed in this case that the French courts had no power to grant an ASI such that the French courts were not even an available forum in which to bring a claim.

Similarly, while an arbitrator could make an order directing a party to discontinue court proceedings, an arbitrator lacks the coercive powers of a court to enforce its orders. Such an order by an arbitrator would only give rise to a contractual obligation, which would be ineffective against RusChem because RusChem was already under such a contractual obligation under the arbitration agreement, and it did not deter them from commencing proceedings in Russia. It was further unattractive for RusChem to contend in the Russian proceedings that the arbitration agreements were invalid and unenforceable, while arguing in the English proceedings that arbitration was the proper place for UniCredit to obtain redress.

In circumstances where UniCredit was unable to obtain effective relief from the French courts or from the arbitral tribunal, the Court of Appeal’s conclusion that England and Wales was an appropriate place in which to bring the claim was held to be correct.

Perspectives from Singapore

The Singapore courts have also recently grappled with issues similar to those considered by the Supreme Court in RusChem. Like the English courts, the Singapore courts have been quick to hold parties to their agreements to arbitrate.

Law governing the arbitration agreement

The position adopted by the Singapore courts to determine the law governing arbitration agreements is not dissimilar to the English courts. In Anupam Mittal v. Westbridge Ventures II Investment Holdings [2023] SGCA 1, the Singapore Court of Appeal affirmed a three-stage test to determine the proper law of an arbitration:

1. whether the parties expressly chose the proper law of the arbitration agreement;
2. in the absence of an express choice, whether the parties made an implied choice of the proper law of the arbitration agreement, the starting point for determining the implied choice of law being the law of the contract; and
3. if neither an express choice nor an implied choice can be discerned, what is the system of law with which the arbitration agreement has its closest and most real connection?

Similar to the English law position in Enka, the governing law of the main contract is a strong indicator of the governing law of the arbitration agreement unless there are clear indications to the contrary. The choice of a seat that is different from the governing law of the underlying contract would not in itself be sufficient to displace that starting point. The starting point should only be displaced if the consequences of choosing the governing law of the underlying contract as the governing law of the arbitration agreement would negate the arbitration agreement even though the parties have themselves evinced a clear intention to arbitrate their disputes. 

On the facts of Anupam Mittal, the Singapore Court of Appeal held that there were sufficient indications to negate the implication that Indian law (i.e., the governing law of the underlying contract) was intended to govern the arbitration agreement as that implication would frustrate the parties’ clear intention to arbitrate all their disputes. Since the arbitration was seated in Singapore, Singapore law was found to be the law that had the most real and substantial connection with the arbitration agreement, and therefore the law of the arbitration agreement.

Jurisdiction to issue ASIs

Like the English courts, the Singapore courts have been willing to issue ASIs in support of arbitration where the dispute falls within the scope of the arbitration agreement.¹ It however remains to be seen if the Singapore courts would go as far as the Supreme Court in RusChem, in issuing ASIs in support of foreign seated arbitrations where the governing law of the arbitration agreement is the only link to Singapore.

In the recent case of Gate Gourmet Korea Co, Ltd and others v. Asiana Airlines, Inc [2024] 3 SLR 199, the Singapore International Commercial Court (SICC) confirmed that the jurisdiction to grant ASIs is to be exercised when the ‘ends of justice’ require it. The jurisdiction must, however, be exercised with caution since an ASI indirectly affects the foreign court.

As highlighted in Gate Gourmet, five factors have to be considered when deciding whether to grant an ASI, namely (i) whether the defendant is amenable to the jurisdiction of the Singapore courts; (ii) whether Singapore is the natural forum to resolve the dispute between the parties; (iii) whether the foreign proceedings would be vexatious or oppressive to the plaintiff if allowed to continue; (iv) whether the ASI would cause any injustice to the defendant by depriving the defendant of legitimate juridical advantages sought in the foreign proceedings; and (v) whether the institution of foreign proceedings was or would be in breach of any agreement between the parties.

Although these factors are to be considered in the round, a breach of an agreement has been regarded as a separate basis on which an ASI may be granted and one that is distinct from vexatious or oppressive conduct. Where an arbitration agreement is involved, it would suffice to show a breach of such an agreement, and anti-suit relief would ordinarily be granted unless there are strong reasons not to, without any need to prove unconscionable conduct, provided that relief is sought without undue delay and without unconscionable conduct by the applicant.

As regards to comity considerations, the SICC held in Gate Gourmet that the longer the delay and the more advanced the foreign court proceedings become, the stronger the considerations of comity would be. The extent to which the delay has allowed the foreign proceedings to progress is also important.

Commentary

The Supreme Court’s decision in RusChem demonstrates the strong willingness of the courts in England and Wales to hold parties to their agreement to arbitrate. This willingness extends to foreign seated arbitrations, where the only link to England and Wales is the governing law of the arbitration agreements, particularly where neither the law of the seat nor the arbitral tribunal can offer effective relief. This case acts as a reminder to parties that they can seek the assistance of the courts of England and Wales to force their contractual counterparty to arbitrate.

The Supreme Court did not consider there to be any breach of comity regarding the French courts because the French courts were not seized of the matter and the grant of an anti-suit injunction would not produce a clash with any exercise of jurisdiction by the French courts (which were unable to issue an anti-suit injunction in support of the arbitration in any event). With respect to the Russian courts, article 248.1 of the Arbitrazh Procedural Code prevented the Russian courts from complying with its obligation under article II(3) of the New York Convention to decline jurisdiction. In view of this, it was found that there could be no violation of comity with the Russian courts in issuing an injunction preventing RusChem from invoking the jurisdiction of the Russian courts, when the Russian courts were under an obligation to decline jurisdiction.

The Supreme Court’s clarification of the test set out in paragraph 170 of the judgment in Enka regarding the determination of the proper law of the arbitration agreement is also a welcome development. The exception to paragraph 170(iv)(a) allowed parties to exploit provisions of the law of the seat that were unlikely to have been considered by commercial parties when agreeing to arbitrate in order to frustrate the arbitral process. The Supreme Court’s decision removes this ability and emphasises a straightforward test for determining the law applicable to the arbitration agreement.

The approach under English law is aligned with the approach in other pro-arbitration common law jurisdictions, such as Singapore. It will be interesting to see if the Singapore courts are prepared to follow the English approach in RusChem and issue ASIs in support of foreign seated arbitrations.

1. COSCO Shipping Specialized Carriers Company Ltd v. PT OKI Pulp & Paper Mills and others [2024] SGHC 92.

In-depth 2024-215