On 18 September 2024, the UK Supreme Court gave its hotly anticipated reasoning in UniCredit Bank GmbH v RusChemAlliance LLC. The background of the dispute is well-known and set out in our previous article.

The Supreme Court’s Decision and Reasoning

In its unanimous judgment, delivered by Lord Leggatt, the Supreme Court dismissed RCA’s appeal, confirming that the English courts had jurisdiction to issue an anti-suit injunction.

The decision revolved around two key issues: whether the arbitration agreements were governed by English law (the “governing law issue“) and whether England was the proper forum to enforce UniCredit’s claim (the “proper place issue“).

1. The Governing Law Issue

At the core of the Supreme Court’s analysis was the question of whether the arbitration agreements within the bonds, despite specifying Paris as the seat of arbitration, were governed by English law.

The Court upheld the Court of Appeal’s finding that they were governed by English law. This conclusion was based on the “Enka principles”, established by the UK Supreme Court in Enka Insaat ve Sanayi AS v OOO Insurance Company Chubb [2020] UKSC 38, which provides guidance on determining the governing law of arbitration agreements.

• English Law Governs the Entire Contract, Including the Arbitration Clause: The Supreme Court ruled that the choice of English law as the governing law in the bonds was broad enough to cover the entire contract, including the arbitration clause. Clause 11 of the bonds specifically stated that the bonds, along with all “non-contractual or other obligations arising out of or in connection with it“, would be governed by English law. The Court held that the arbitration agreement formed part of the overall contract and that there was no language or indication that the parties intended for the arbitration clause to be governed by a different law.
• Choice of a Paris Seat and the Death of the Enka Carve-Out: RCA had argued that the choice of Paris as the seat of arbitration implied that French law governed the arbitration agreement. The Court rejected this argument, following the reasoning set out in Enka, which states that a choice of seat does not necessarily imply that the arbitration agreement is governed by the law of the seat. In fact, when discussing Enka in the present decision, the Supreme Court went further and held that what “was actually decided in Enka was therefore that a choice of seat for an arbitration in England and Wales does not support an inference that the parties are thereby choosing the law of England and Wales to govern the arbitration agreement. The suggestion that it might be possible, based on the content of the relevant curial law, to draw such an inference from a different choice of seat and curial law was obiter and was not explored”.

Having considered Carpatsky Petroleum Corpn v PJSC Ukrnafta [2020] EWHC 769 (Comm); [2020] Bus LR 1284, the Supreme Court concluded that ”what was said in para 170(vi)(a) [of Enka] should therefore in future be disregarded”. Even where the law of the seat contains a provision such as section 48 of the Swedish Arbitration Act,[1] no inference can properly be drawn from a choice of seat that the arbitration agreement was intended to be governed by the law of the seat which is capable of displacing the general principles outlined in para 170(iv) and (v) of the judgment in Enka.

In effectively re-writing Enka in its new decision, the Supreme Court put the last nail in the coffin in the Enka carve-out.[2]

The Supreme Court explained that it is desirable to have a clear and simple rule and an approach which treats the arbitration agreement as governed by whichever law the courts of the seat would regard as the law which governs it would be neither clear nor simple. It would have the consequence that, in every case where the parties have chosen a foreign seat for the arbitration, evidence of that country’s law would have to be obtained in order to know what law governs the arbitration agreement. This is not an approach which it would be reasonable to suppose that the contracting parties intended.

2. The Proper Place Issue

The second issue addressed by the Supreme Court was whether England was the proper place to bring UniCredit’s claim for an anti-suit injunction. RCA had argued that the English courts were not the appropriate forum.

• Forum Non Conveniens Does Not Apply: Although both parties in the proceedings had advanced their case assuming the forum non conveniens test from Spiliada Maritime Corpn v Cansulex Ltd [1987] 1 AC 460, 476 applied, the Supreme Court ruled that this test was in fact not applicable. The issue before the Court was not about which forum was the best place for resolving the underlying dispute between the parties. There was already a contractually agreed forum, arbitration in Paris. The Spilada approach did not apply where the parties have contractually agreed on a forum, as they have here by agreeing to refer any dispute to arbitration. The case was about enforcing a contractual arbitration agreement, and the principle of enforcing the parties’ contractual bargain took precedence.
• Importance of Upholding Arbitration Agreements: The Court emphasised that enforcing arbitration agreements is a matter of contractual obligation, not convenience. The parties had agreed to resolve their disputes through arbitration in Paris, and this agreement should be respected. In this regard, the Court referred to Aggeliki Charis Cia Maritima SA v Pagnan SpA (The Angelic Grace) [1995] 1 Lloyd’s Rep 87. Courts should not hesitate to grant anti-suit injunctions to restrain a party from breaching an arbitration agreement, particularly when the dispute concerns enforcing a contractual right.
• French Courts Cannot Issue Anti-Suit Injunctions: The Supreme Court also noted that the French courts have no power to grant anti-suit injunctions, and in any event would not have jurisdiction to determine a claim of any kind brought by UniCredit complaining of a breach by RCA of the arbitration agreements in the bonds. In any event, even if the French courts were an available forum, there is no reason which can be said to make it inappropriate for an English court to restrain a breach of the arbitration agreements by granting an injunction.
• Substantial Justice Cannot Be Obtained Through Arbitration: The Supreme Court ruled that substantial justice could not be obtained through arbitration proceedings. The Supreme Court explained that: ”any award or order made by an arbitrator has no coercive force. It is not backed by the powers available to a court to enforce performance of its orders, which include sanctions for contempt of court. An order made by an arbitrator creates only a contractual obligation.” RCA was already under a contractual obligation not to bring proceedings against UniCredit in the Russian courts. That obligation had not deterred it from doing so. Accordingly, the Supreme Court concluded that ”neither the French courts nor arbitration proceedings are a forum in which UniCredit could obtain any, or any effective, remedy for RusChem’s breach”.
• Substantial Connection to England: While Paris was the seat of arbitration, the Supreme Court ruled that, there was a substantial connection with England and Wales in the fact that the contractual rights which UniCredit is asking the court to enforce are rights governed by English law. Furthermore, RCA had submitted to the jurisdiction of the English courts by contesting the anti-suit injunction, further solidifying the appropriateness of England as the forum for deciding this issue.
• International Comity: The Court also addressed concerns regarding international comity, which refers to the respect that courts in one jurisdiction have for the laws and judicial decisions of another jurisdiction. While the Russian courts had assumed jurisdiction under Russian law, the Supreme Court made clear that this did not alter the English courts’ obligation to enforce the parties’ agreement under English law.

The Supreme Court concluded that the English courts were the proper forum to hear UniCredit’s claim for an anti-suit injunction. The Court granted the injunction, requiring RCA to discontinue the Russian proceedings, ensuring that the arbitration clause was enforced.

The reform to the Arbitration Act 1996

• The practical effect of the decision and its interpretation of Enka is likely to be limited in time. The bill to reform the Arbitration Act 1996 is currently before Parliament and will change the law so that, absent clear indications to the contrary, it should be inferred that the law of the seat is the law governing the arbitration agreement.
• Had this applied to the matter, the conclusion would have been that the English Courts did not have had jurisdiction, UniCredit’s case failing the governing law hurdle.

Boris Telyatnikov, Evgeniya Rubinina, Amy Spencer, Jonas Habert, Liam Baum and Ali Murad acted for RCA in the English proceedings instructing Alex Gunning KC and Alex Brown of One Essex Court. Sa’ad Hossain KC of One Essex Court was instructed for the Court of Appeal hearing.

If you would like to discuss the contents of this article further, please contact Boris Telyatnikov or Evgeniya Rubinina.

[1] ”Where an arbitration agreement has an international connection, the agreement shall be governed by the law agreed upon by the parties. Where the parties have not reached such an agreement, the arbitration agreement shall be governed by the law of the country in which, by virtue of the agreement, the proceedings have taken place and shall take place.”

[2] Paragraph 170(vi)(a)) of Enka: ”Additional factors which may, however, negate such an inference and may in some cases imply that the arbitration agreement was intended to be governed by the law of the seat are: (a) any provision of the law of the seat which indicates that, where an arbitration is subject to that law, the arbitration agreement will also be treated as governed by that country’s law.”