Court Of Appeal Grants Anti-Suit Injunction In First Of Three RusChemAlliance LLC Cases

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Court Of Appeal Grants Anti-Suit Injunction In First Of Three RusChemAlliance LLC Cases

Author: Courtney Wilbor

Key Contact: Aisha Wardell

On 2 February 2024, the Court of Appeal handed down judgment in the case of Unicredit Bank GmbH v RusChemAlliance LLC [2024] EWCA Civ 64, which concerned the English court’s powers to grant an anti-suit injunction (“ASI”) to prevent the continuation of proceedings in Russia and, if so, whether the English court should grant such an injunction so to order those proceedings end immediately.

Background

RusChemAlliance LLC (“RCA”) entered into two contracts for the construction of plant facilities in Russia with German companies, Linde GmbH and Renaissance Heavy Industries LLC (“the Contractor”) in 2021 for a sum of €10 billion, to be paid in installments.

The contracts allowed the Contractor to provide on-demand bonds guaranteeing the performance of its obligations, seven of which were provided by Unicredit Bank GmbH (“Unicredit”), a German bank. Four of these bonds were to guarantee the performance of the Contractor’s contractual obligations; the other three were to secure the repayment of the advance payments (totaling €2 billion) which had been made by RCA.

The following two aspects of the bonds are central to the dispute:

  1. The bond and all non-contractual or other obligations arising out of or in connection with it are to be construed under and governed by English law.
  2. In the event of a dispute between the parties about the validity, interpretation or performance of a bond that cannot be resolved amicably shall be settled under the rules of arbitration of the International Chamber of Commerce (“ICC”) and the place of arbitration shall be Paris.

As a consequence of Russia’s invasion of Ukraine in February 2022, the European Union (“EU”) both extended its existing sanctions and imposed further sanctions on Russia and listed Russian entities and individuals. After obtaining confirmation from the German Federal Office for Economic Affairs and Export Control that the Contractor could not continue to perform the contracts, the Contractor halted its performance.

Following this, RCA terminated or purported to terminate both contracts on the basis that the Contractor had materially breached its obligations and requested that the Contractor return the advance payments RCA had made, as well as seeking compensation for the damage caused by the breach. Unicredit advanced the position that it was not possible to return such payments pursuant to the EU sanctions, which RCA disputes is a valid ground for refusal of repayment.

Procedural Background

In August 2023, RCA commenced proceedings against Unicredit in the Arbitrazh Court, claiming payment of €443,767,755.29 (the value of the bonds, plus interest) on the basis that the EU sanctions referenced by Unicredit contravene Russian policy and, as such, do not provide a ground for non-repayment. Further, RCA claim that the arbitration clause in the bonds is unenforceable under Russian law. There have been a number of subsequent hearings following this to date, with RCA ultimately contesting jurisdiction on the aforementioned basis.

In asserting that the arbitration agreement was unenforceable, RCA relied on Article 248 of the Russian Arbitration Procedural Code, the key elements being:

  • Exclusive jurisdiction is granted to Russian Arbitrazh Courts in the event of a dispute between Russian and foreign persons arising from foreign sanctions
  • Russian individuals affected by foreign sanctions are permitted to apply to a Russian Arbitrazh Court for an ASI to prevent the other party commencing or continuing proceedings before a foreign court or international arbitration tribunal located outside of Russia
  • Any agreement providing for arbitration outside of Russia is deemed inoperable
  • Russian Arbitrazh Courts are permitted to punish a breach of an ASI granted to prohibit proceedings before a foreign court or international arbitration tribunal.

In the first instance, the High Court held that the English court did not have jurisdiction and that the arbitration agreement was governed by French law as the seat of arbitration. As such, it was held that the English court is not the appropriate forum.

Judgment

Allowing the appeal, the Court of Appeal held that the English court did in fact have jurisdiction, and granted an ASI ordering RCA to terminate the Russian proceedings on the following bases.

The Court clarified that Unicredit were required to satisfy three requirements:

  1. There is a serious issue to be tried on the merits of the case;
  2. There is a good arguable case that the claim falls within one of the relevant jurisdictional gateways; and
  3. England and Wales is the proper place in which to bring the claim.

The Court first considered the application of the general principle in Enka v Chubb, where it was held that, where there is an express choice of governing law of the contract, the parties are typically taken to have adopted the same law to govern the arbitration agreement, despite the election of a foreign seat.

In doing so, Males LJ held that although this principle may be displaced if a clear rule of law of the seat states that the arbitration agreement is also to be governed as by that country’s laws, as the law governing the arbitration agreement was to depend on the “parties’ common intention”, this did not constitute a clear principle of French law and the exception was not satisfied.

Then, in determining whether England and Wales is the proper forum for the claim, the court acknowledged that “without the protection of an anti-suit injunction from the English court, which is the only court available and able to grant such an injunction, there would be nothing to stop RCA from applying to the Russian court for an injunction to prevent Unicredit from pursuing any arbitration.” As such, it was held that England was the proper forum as it facilitated substantial justice.

Commentary

This case is one of three cases against RCA on materially identical facts, this being the first to grant a final ASI; opening the door to the possibility of obtaining ASIs from English courts where the arbitration clause provides for a foreign seat.

Looking ahead, the impact of the draft Arbitration Bill 2024 may prove significant to the success of future cases given its provision for the default law of the arbitration agreement to be the law of the seat. Care should therefore be taken when negotiating contracts to ensure that the law of an arbitration agreement is explicitly stated.

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