Anti-suit injunction issued by English court to halt Russian proceedings

In February, the Court of Appeal granted UniCredit’s application for an anti-suit injunction (ASI) against RCA after first determining that the English courts had jurisdiction to hear the claims and were the appropriate forum to determine the application – despite agreements between UniCredit and RCA making provision for their disputes to be resolved via an arbitration seated in France.

The Court of Appeal’s ruling was appealed before the UK Supreme Court, where hearings took place on 17 and 18 April.

The underlying case involves a dispute over money relating to a major energy infrastructure project.

In 2021, RCA engaged German contractors to perform two contracts relating to the construction of gas processing plants in Russia. RCA made advance payments worth €2 billion to the contractors, and in return the contractors provided security in respect of the return of those advance payments and performance of their contractual obligations. That security was provided in the form of bonds issued by UniCredit.

After the EU strengthened its Russian sanctions package in the aftermath of Russia’s invasion of Ukraine in February 2022, the German contractors informed RCA that the sanctions meant they were no longer able to perform the contracts. This spurred RCA to seek recovery of funds under the bonds. UniCredit cited the effect of EU sanctions as prohibiting payment of the funds to RCA under those bonds, even though RCA itself was not designated as a sanctions target.

RCA initiated proceedings before the Arbitrazh Court of St Petersburg and the Leningrad Region in Russia seeking to force UniCredit to pay out. In response, UniCredit applied to the English courts for an ASI – a court order that courts in England and Wales have qualified powers to issue, which would have the practical effect in this case of prohibiting RCA from pursuing its case before the Russian courts.

UniCredit’s position is that RCA is bound, under the terms of the bond contracts, to seek to resolve any disputes pertaining to those bonds via ICC arbitration seated in Paris under English law, and that English law was the governing law of the arbitration agreement. No arbitration proceedings have yet been initiated in the case.

For its part, under article 248 of the Russian Arbitrazh Procedural Code, the Arbitrazh Court of St Petersburg and the Leningrad Region considered that it has exclusive jurisdiction to hear RCA’s claims on the bonds and that the arbitration agreements provided for under those bond contracts. Article 248 confers exclusive jurisdiction on the Russian Arbitrazh courts over disputes between Russian and foreign persons arising from foreign sanctions; enables Russian persons affected by foreign sanctions to apply to a Russian Arbitrazh court for an anti-suit injunction prohibiting the other party from initiating or continuing proceedings before a foreign court or international arbitration tribunal located outside Russia; treats an agreement providing for arbitration outside Russia as inoperable; and enables a Russian Arbitrazh court to punish a breach of an anti-suit injunction granted to prohibit proceedings before a foreign court or international arbitration tribunal.

While it has claimed jurisdiction, and although it is not obliged to under Russian law, the Arbitrazh Court of St Petersburg and the Leningrad Region halted progress of the case to allow for the issues raised before the English courts to be resolved first.

UniCredit’s application for an ASI against RCA in the English courts was initially rejected by the High Court. It ruled that the English courts could not issue an ASI in respect of the Russian proceedings because it found that the arbitration agreement was governed by French, the law of the seat of the arbitration, not English law; and substantial justice could be obtained in this case via ICC arbitration in France.

However, the Court of Appeal disagreed. It considered that the relevant criteria for determining whether the English courts could claim jurisdiction to determine UniCredit’s ASI application were satisfied.

One of the criteria to be satisfied was there had to be a good arguable case that UniCredit’s claim fell within one of the relevant jurisdictional ‘gateways’ provided for in England and Wales for linking the dispute to the jurisdiction. In this regard, the court considered that there was sufficient evidence available to not only establish whether there was a ‘good arguable case’ but to rule definitively on the point.

In considering the issue, the Court of Appeal examined the governing law of UniCredit and RCA’s arbitration agreement through the lens of the case of Enka v Chubb.

In the Enka v Chubb case, the Supreme Court established that, under English law, the law applicable to the arbitration agreement will be either the law chosen by the parties to govern it or, in the absence of such a choice, the system of law with which the arbitration agreement is most closely connected. The Supreme Court set out a series of principles that expand on the default position, which provide guidance on circumstances where the position is nuanced – including where the parties’ choice of the seat of arbitration differs from the choice of law for governing the contract, as was the case with the UniCredit and RCA arbitration agreement.

The Court of Appeal said that the parties’ choice of a particular seat of arbitration in order to secure “a neutral forum” for resolving their dispute is not enough on its own to “displace the general rule that a choice of law for the main contract carries with it a choice of law for the arbitration agreement”. While the wish to make provision for a “neutral forum” can reinforce the argument that the law of an arbitration agreement should be the law of the seat of arbitration in other cases, the Court of Appeal considered that the factors in which that scenario arises were not present in the case of UniCredit and RCA. It concluded that the arbitration agreement in the bonds was, in fact, governed by English law.

Having established the governing law of the arbitration agreement was English law, the Court of Appeal still had to determine that the English courts were “the proper place” for UniCredit to bring its claim.

In pushing back against the notion that the English courts were the appropriate forum, RCA argued that substantial justice could be obtained in an ICC arbitration in Paris. UniCredit claimed RCA’s position was abusive in that respect since it had, the court summarised, “established exclusive jurisdiction of the Russian court on the basis that the arbitration agreement is unenforceable and inoperable”.

UniCredit further argued that there was at least a real risk that substantial justice could not be obtained if the claims were held in France, on the basis that any award of damages it could obtain in France would not be a sufficient remedy in the case; that such an award would not be enforceable in Russia; and that because an ASI could not be issued by the French courts, one was needed from the English courts to address the risk of RCA obtaining an ASI from the Russian courts to prevent UniCredit from pursuing an arbitration.

In considering those arguments, the Court of Appeal reflected on the fact that the High Court had already considered evidence on these points in a dispute between Deutsche Bank and RCA. Like UniCredit, Deutsche Bank had also issued bonds to RCA in relation to the contracts RCA had entered into with the German contractors over gas processing plant projects. The Court of Appeal said the facts of the Deutsche Bank v RCA case were “almost identical” to those of the UniCredit v RCA case – although differences in the Deutsche Bank case included that its application was for an interim, not final, ASI, and that the application had been determined on a ‘without notice’ basis, meaning without RCA having had the opportunity to make representations to the court.

The Court of Appeal concluded that the English courts were the appropriate forum for hearing UniCredit’s claims.

Having considered the jurisdictional issues and ‘appropriate forum’ question, the Court of Appeal went on to determine that it was “necessary” to grant UniCredit an ASI requiring RCA to terminate the proceedings it had commenced in Russia. The Court of Appeal said that by initiating and pursuing the Russian proceedings, RCA was in breach of its agreement to arbitrate. The Court of Appeal rejected RCA’s bid to delay the effect of the ASI until after the conclusion of any appeal or application for permission to appeal to the Supreme Court. The Supreme Court has now dismissed RCA’s appeal against the Court of Appeal’s judgment.

“This is another court judgment granting an ASI, which is an indication that the English court is willing and prepared to apply a firm grip over numerous Russian proceedings issued under article 248 of the Russian Arbitrazh Procedural Code in breach of arbitration agreements,” said Slava Tretyak of Pinsent Masons.

“Whilst English law appears to be best practise, setting England and Wales apart as a well-established place to hold or at least govern such arbitrations, we will likely see more ASI-related cases as Russian counterparties continue to opt for the much more ‘friendly’ dispute resolution option offered by article 248 and other so-called ‘anti-sanctions laws’,” added Helen Garforth, also of Pinsent Masons.