On 18 September 2024, the UK Supreme Court issued a pivotal judgment in UniCredit Bank GmbH v RusChemAlliance LLC [2024] UKSC 30, clarifying the role of English courts in enforcing arbitration agreements in international contracts.

The judgment revolved on the application of anti-suit injunctions against foreign proceedings that violate arbitration agreements governed by English law, despite the involvement of foreign sanctions and foreign jurisdiction.

Case Overview

• The dispute arose from construction contracts signed in 2021 between RusChemAlliance LLC (“RusChem”), a Russian entity, and German contractors for the construction of liquefied natural gas facilities in Russia.
• The agreements, totaling approximately €10 billion, included performance bonds issued by UniCredit Bank GmbH (“UniCredit”), a German financial institution. The contracts stipulated that all disputes would be resolved through arbitration in Paris, governed by International Chamber of Commerce (ICC) rules, with English law governing the contract.
• Following the imposition of European Union sanctions on Russia in 2022 due to the conflict in Ukraine, the German contractors ceased performance, and RusChem terminated the contracts.
• When the contractors refused to return advance payments, RusChem sought compensation from UniCredit under the performance bonds. However, UniCredit declined payment, citing EU sanctions as a prohibitive measure.

Russian Proceedings and Breach of Arbitration Agreement

• In August 2023, RusChem initiated legal proceedings in Russia, seeking €448 million under the bonds. The Russian court accepted jurisdiction under domestic laws (Article 248.1 of the Arbitrazh Procedural Code) granting exclusive competence over disputes involving foreign sanctions. This included overriding the arbitration agreement that provided for dispute resolution in Paris.
• In response, UniCredit sought an anti-suit injunction from the English courts to prevent RusChem from continuing with the Russian litigation, arguing that the Russian proceedings breached the arbitration agreement.

Sanctions and Jurisdiction: The Supreme Court’s Reasoning

• The central issue before the UK Supreme Court was whether English courts had the jurisdiction to enforce the arbitration agreement and issue an anti-suit injunction despite the arbitration seat being in Paris and the involvement of EU sanctions.
• The Court unanimously ruled that the English courts were the appropriate forum to resolve the dispute.

Key aspects of the Court’s reasoning included:

1. English Law Governs the Arbitration Agreement: Although the arbitration proceedings were set to take place in Paris, the Supreme Court confirmed that the governing law of the arbitration agreement was English law, as specified in the performance bonds. This finding was crucial because it meant that English courts had the authority to enforce the arbitration clause, even though the arbitration itself was seated in Paris. The decision follows the general principle established in Enka v Chubb [2020] UKSC 38, which holds that a choice of governing law for a contract typically extends to the arbitration clause unless expressly stated otherwise.
2. Sanctions and Jurisdiction: A significant factor in the Court’s decision was the impact of sanctions. RusChem argued that the sanctions imposed by the EU made the arbitration agreement ineffective and justified the Russian court’s intervention. However, the UK Supreme Court rejected this reasoning, stating that the sanctions did not nullify the arbitration agreement or the choice of English law governing the contract. The Court emphasized that sanctions, while restrictive, do not automatically invalidate contractual obligations, including arbitration agreements.
3. Anti-Suit Injunction Against Russian Proceedings: The Court granted the anti-suit injunction on the basis that RusChem’s proceedings in Russia were a clear breach of the arbitration agreement. Importantly, the Court noted that the power to enforce the arbitration agreement and prevent one party from breaching it did not exclusively belong to the French courts as the seat of arbitration. Rather, it was appropriate for the English courts to issue an anti-suit injunction because the arbitration agreement was governed by English law, and neither the French courts nor the arbitral tribunal could provide an effective remedy for the breach.
4. Contractual Commitment and Enforcement: The Supreme Court reinforced the importance of upholding contractual commitments, especially in international arbitration agreements. It held that enforcing the agreement to arbitrate was not merely a supervisory function that belonged to the courts of the arbitration seat (Paris), but also to the English courts, which had jurisdiction over the governing law of the contract. This allowed the English courts to act to protect the integrity of the arbitration agreement, even if the arbitral seat was in a foreign jurisdiction.

Implications

The ruling has far-reaching implications for international arbitration, particularly in contexts where foreign sanctions are involved. It reinforces the idea that sanctions, while impactful, do not necessarily extinguish contractual obligations or prevent parties from seeking arbitration. Additionally, it confirms that English courts will uphold the sanctity of arbitration agreements, especially when they are governed by English law, even if the seat of arbitration is outside the jurisdiction.