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The UK Supreme Court (UKSC) has ruled, in the UniCredit case, on the power of the English courts to issue an anti-suit injunction (ASI) in support of a foreign-seated arbitration. Although its decision is generally, within the limits of the court’s jurisdictional boundaries, supportive of the practice, the ruling impacts on the UKSC’s ruling in Enka, and also highlights broader issues concerning the interplay between the law of a contract, and the law of the seat of arbitration where they do not “match”.
The background to this application has been dealt with in earlier posts on ArbitrationLinks. In brief, it concerned performance bonds issued by UniCredit to RusChemAlliance (RCA) expressed to be governed by English law, and subject to arbitration (ICC Rules) seated in Paris. When UniCredit refused to pay (citing sanctions), RCA commenced proceedings in Russia pursuant to Article 248 of the Russian Arbitrazh Procedural Code. In response, UniCredit applied for an ASI from the English courts; a novel move given that France is the seat of arbitration - but motivated by the lack of an ASI power in the French courts.
The main issues in the English courts concerned key jurisdictional issues. In particular, as to whether the arbitration agreement was governed by English law - so as to provide a gateway for service out/personal jurisdiction under PD6B 3.1 6(c). And whether England was the “proper place" to hear the application (CPR 6.37(3)) despite the foreign seat. The Court of Appeal upheld UniCredit’s application earlier this year. In April, the UKSC announced it was dismissing RCA’s appeal. On 18 September, it handed down its reasons for doing so (see [2024] UKSC 30). In summary:
The UKSC agreed that the arbitration agreement was governed by English law. This conclusion was reached by applying the common law principles on applicable law of an arbitration agreement set down in its Enka decision (and applied in Kabab-Ji in the context of New York Convention enforcement proceedings). In particular, that the English courts will usually interpret a generally worded governing law clause in a contract as extending to all of it (including an arbitration agreement therein).
However, in doing so, the UKSC applied an important narrowing to one aspect of that approach. In Enka, the UKSC indicated it may be subject to contextual factors that might displace such a conclusion; one being where the law of the seat contained a provision that a choice of that seat will also lead the arbitration agreement to be governed by that law. In UniCredit this led to argument as to whether French law contained such a rule.
Here, in reaching its conclusion, the UKSC chose to jettison that limb of its interpretative approach from Enka. It said that, on proper analysis and for a number of reasons (including that Carpatsky, from which the limb was derived, was wrongly reasoned), it was not appropriate to draw any inference about the parties' choice from what the seat might regard the applicable law to be. [31-60].
The short answer was, therefore, that English law applied because, in the eyes of the UKSC, the parties, in their general governing law clause (which did not otherwise address the arbitration agreement), had chosen that to be so. Any interpretative approach that might try to reconcile a different approach at the seat was abandoned.
The UKSC pointed out that the correct question to be asked was not, on general principles, what the most appropriate forum (forum non conveniens) was [66-75]. The arbitration context made it different; for example the New York Convention formed a strong international policy of giving effect to arbitration agreements, and the relevant states (England, Russia and France) were all party to it (so comity was of little significance) [68-70,79-80]. The situation therefore called for an approach focussed on upholding the parties’ bargain not to litigate [75].
That being established, the UKSC addressed the issue of whether it should exercise its discretion to grant an ASI. The starting point was the principle expressed in section 2(3) of the Arbitration Act 1996, such that exercise of any personal jurisdiction should in principle be permitted unless the foreign seat means it is inappropriate to do so [92]. In the UKSC’s view, it was not inappropriate since support of arbitration proceedings by way of enforcing the promise to arbitrate was different from more specific supervisory functions reserved to the courts of the seat [96-100]. Furthermore, in the circumstances of the case, amongst other things, the French courts had no power to act [101-110,112].
Comment and conclusions
The UKSC’s judgment is notable in providing authoritative reasoning, for the first time, on the English court’s ability to grant an ASI in favour of foreign-seated arbitrations. For similar Russia-related disputes (such as in the related Commerzbank and Deutsche Bank cases), there is now clear guidance as to the approach the English courts will take to ASI relief as a remedy to breach of arbitration agreements with a foreign seat.
More generally, whilst UniCredit is, broadly, supportive of that practice, what is its relevance, when negotiating an arbitration agreement, to any future availability of ASI relief from the English court?
That depends. Clearly, things will be more straightforward if England is chosen as the seat. Where English ASI relief might be a material consideration, that remains the simplest course.
Beyond that, where the seat is elsewhere, things can get more hypothetical. Parties may, for example, have already chosen a seat of arbitration which grants ASIs and has greater geographic relevance. And, for jurisdictional and practical reasons, it is only if the main contract is also governed by English law, that one can really contemplate engaging the English courts on this. But, where, given all that, access to the English ASI jurisdiction remains desirable to support a foreign seat, a prudent course of action to support it would be, if possible and workable at the seat, to specifically designate English law as the applicable law of the arbitration agreement in its drafting. Not only does this remove any doubt, but planned reforms to the Arbitration Act 1996 are likely to mean that, without this, an English court may be driven to a different conclusion on governing law, as a basis for personal jurisdiction, than the UKSC in UniCredit.
Finally, a more general observation on arbitration agreements where the law chosen to apply to a main contract, and the law of the seat do not “match”. Broadly speaking, if the parties have not specifically designated which one of the two is applicable to the arbitration agreement, then there is room for debate as to which one of the two applies. One of the features of recent English cases, such as UniCredit and Kabab-Ji, is that they illustrate how arguments about this, and different outcomes, can arise in jurisdictions other than the seat (with, under the common law, a potentially harder edge given the interpretative changes made to Enka in UniCredit).
In other words, including a specific designation may help increase certainty, in the determination of issues concerning the validity and scope of the arbitration agreement, not just at the seat, but where they are relevant to matters (such as recognition and enforcement of awards) decided before other courts. Where England is the seat and there is a “mismatch” situation, parties commonly do this (and should continue to do so), so the essential drafting point may not be new. It may not, however, be one which has become as commonplace in other seats - especially if they take a more “certain” approach to the issue themselves. But, even in such cases, these international fact patterns illustrate a further reason to consider the inclusion, if possible, of such drafting (it will, of course, be necessary to ensure the clause is properly drafted and works as intended under the law to be applied).23 September 2024
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