In our International Arbitration Review of 2023, we covered three related cases involving the same defendant, RusChem, concerning the power of the English court to grant anti-suit injunctions (ASIs) in support of foreign-seated arbitrations. As we predicted in that review, those decisions were not the court's final word on the topic. In this article, we review the Supreme Court's recent unanimous decision in UniCredit Bank GmbH v RusChemAlliance LLC and what it means for the drafting and interpretation of arbitration agreements.

Background to the case of UniCredit Bank GmbH v RusChemAlliance LLC

In 2021, RusChem contracted with German companies for the construction of gas plants in Russia. Performance of the contractors' obligations was guaranteed by bonds issued by various banks, including UniCredit. The bonds are governed by English law and disputes arising under them were to be settled by arbitration under the rules of the International Chamber of Commerce in Paris.

Following Russia's invasion of Ukraine the EU imposed sanctions on Russia and certain Russian entities. While these did not include RusChem, the contractors concluded, nonetheless, that they could not continue to perform the contracts. RusChem terminated the contracts and requested the return of advance payments. Following non-payment, RusChem called for payment under the bonds from UniCredit. UniCredit refused, also citing sanctions.

In August 2023, RusChem commenced proceedings against UniCredit in Russia. It relied on a Russian law introduced in 2020 which confers exclusive jurisdiction on Russian Courts over disputes between Russian and foreign persons arising from foreign sanctions.

The same month in England, UniCredit sought, and the court granted, an ASI (anti-suit injunction) to restrain RusChem from continuing the Russian proceedings in breach of the parties' arbitration agreement. The following month, the English Commercial Court refused a final ASI. On appeal in February 2024, the Court of Appeal overturned the Commercial Court's decision and granted UniCredit a final ASI. RusChem appealed.

In April 2024, the Supreme Court gave its decision – that RusChem's appeal was dismissed, and the ASI granted by the Court of Appeal would remain in force.

The Supreme Court's detailed decision was handed down in September 2024.

The sole issue in the appeal to the Supreme Court was whether the English court had jurisdiction over UniCredit's claim, focusing on two issues: (a) whether the arbitration agreements in the bonds are governed by English law; and (b) whether England & Wales is the proper place in which to bring the claim.

Governing law of the arbitration agreement

The bonds contained a governing law clause, specifying that they were governed by English law. But under the principle of separability of an arbitration agreement (for more information see Back to Basics: what to consider when choosing and using arbitration agreements) it is possible for an arbitration agreement to be governed by a different law than the rest of the contract in which it appears. RusChem argued that in this case the arbitration agreements were governed by the law of France (Paris being the place the parties had chosen as the seat of arbitration) and that the English court did not have jurisdiction to grant the ASI.

To determine which law governed the arbitration agreement, the Supreme Court returned to its decision in Enka v Chubb – a lengthy decision comprising three separate judgments. Although the Supreme Court was split in Enka, the ratio of that decision was that a choice of law for an agreement should generally also apply to an arbitration agreement within it.

Exception, or the rule?

RusChem argued though that this case fell within one of the potential exceptions outlined by the court in Enka:

  1. where the parties have chosen a seat of arbitration; and
  2. the law of that seat provides that an arbitration agreement will also be governed by that country's law; then
  3. the court should take that into account when determining what system of law the parties intended to govern the arbitration agreement.

Since the evidence was that French law provides that arbitration agreements in French-seated arbitrations will be governed by French law, RusChem contended the English Court had no jurisdiction to grant an ASI.

The Supreme Court was not persuaded by RusChem's argument and, in fact, gave a direction that what it had said in paragraph 170(vi)(a) of Enka should be disregarded. It concluded that even where the law of the seat provides that a choice of seat imports a choice of law for the arbitration agreement, that should not displace the general rule in Enka –and so the parties' choice of English law to govern the contract should also extend to the arbitration agreement.

Is England the proper place even though it is not the seat?

The court went on to consider whether England was the proper place for UniCredit to seek an ASI, even though it was not the chosen seat of arbitration; and whether the English court should grant an ASI where the arbitration is seated in another jurisdiction.

Again, referring back to Enka, the court said: "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". Therefore, it need not be the only sensible place the claim could be brought.

The fact that the parties had chosen Paris as the seat of arbitration – and so would be subject to the supervisory jurisdiction of the French courts in relation to any future arbitration – was not itself a reason why an English court cannot or should not uphold the parties' bargain by restraining a breach of the arbitration agreement.

While the Supreme Court recognised there could be circumstances where it would be inappropriate to exercise its jurisdiction to grant an ASI in support of a foreign-seated arbitration, a party would need to show a strong reason why the English court should not act to restrain a breach of the parties' agreement to arbitrate.

On the facts of this case, the evidence was that neither the French courts nor arbitration proceedings themselves were a forum in which UniCredit could obtain any, or any effective, remedy for RusChem's breach (and threatened further breach) of the arbitration agreements. The fact that Paris would be the seat of any future arbitration was not a good reason for the English court to refrain from upholding the parties' bargain by issuing an ASI.

A rule which is clear and simple to apply

As the court commented in this case, it is relatively rare for parties to specify separately the law that governs their arbitration agreement, as distinct from the law that governs the substantive agreement in which it sits. There is also no clear international consensus on whether, in the absence of a clear choice, the law of the arbitration agreement should follow the parties' choice of law, or their choice of seat – different jurisdictions have taken each approach. While the Enka decision sought to provide flexible guidance on this issue in England & Wales, it has been criticised as complex and unpredictable in its application. The fact that the Supreme Court has now closed one of the exceptions in Enka with this decision might be seen as a tacit acknowledgement that it led to uncertainty. This decision goes some way to creating a rule that is clearer and simpler to apply and so, for now (as a matter of English law):

  • If the parties do not specify the law to govern their arbitration agreement, it will follow the governing law of the contract (even if they have chosen a different seat).
  • If the parties have chosen a seat but no governing law at all, then the law of the arbitration agreement will follow the seat.

Too much credit?

In its judgment, the court recognised that the technical legal arguments at the heart of this debate are arguably at odds with what even the most sophisticated parties and lawyers in fact consider when drafting arbitration agreements. RusChem's argument, it said, was that in choosing Paris as a seat, the parties knew how French law treated the governing law of an arbitration agreement; and intended that the arbitration agreement would be governed by French law – including in disputes in other jurisdictions.

That argument, they said: "attributes to commercial parties and their legal advisers when they are choosing a place of arbitration a degree of legal foresight which goes beyond what it may in practice be realistic to expect."

"…the putative intention attributed to the contracting parties involves an elaborate process of ratiocination that no one transacting business, or commercial lawyer for that matter, would realistically engage in — or could sensibly be expected to engage in — when agreeing on a place as the seat for the arbitration."

It is undoubtedly true that most dispute resolution provisions – drafted when the parties are getting on, not falling out – do not receive this level of attention. Commercial parties should, nonetheless, consider specifying the governing law of their arbitration agreement for certainty, and to minimise the risk of satellite litigation.

Impact of the Arbitration Bill

As a final note, following a Law Commission review, an Arbitration Bill is now before Parliament to amend the Arbitration Act 1996. Among other things, that Bill proposes to end the uncertainty caused by Enka by providing that the law applicable to an arbitration agreement is: (a) the law that the parties expressly choose; or (b) in the absence of choice, the law of the seat. It goes on to clarify that an express choice of law for the substantive agreement does not constitute a choice of law for the arbitration agreement. Should the Bill be enacted in this form, it would therefore fundamentally alter the analysis in Enka and this decision.

What does this mean for my arbitration agreement?

  • Where either the seat of arbitration or law of the arbitration agreement is English, English courts are keen to enforce the parties' agreement by granting ASIs.
  • Parties should consider specifying the law applicable to their arbitration agreement (as well as their substantive contract) to avoid uncertainty and satellite litigation.
  • In the absence of an express choice of law to govern the arbitration agreement, English courts will follow the governing law of the contract – though that position may change if the Arbitration Bill passes in its current form.

For more information, or for assistance drafting effective dispute resolution provisions, please contact Gordon Bell or another member of our International Arbitration team.