International arbitration and anti-suit injunctions

The recognition of forum conveniens and the importance of the discretion

This article was written by Federica Manenti, Associate at the Boies Schiller Flexner Italy.

Some days ago, the UK Supreme Court has dismissed the appeal filed by RUSCHEMALLIANCE LLC ("RCA") - a Russian company, a joint venture of Gazprom - against the anti-suit injunction issued by the Court of Appeal in favor of UniCredit Bank GmbH ("UniCredit"), upholding such injunction and thus ordering RCA to terminate the Russian proceedings brought - in defiance of the provisions of the arbitration clause agreed upon by the parties - against UniCredit.?

In a decisive stance, the Court of Appeals had recognized itself as an appropriate forum to issue an injunction, despite the fact that the parties had stipulated in the arbitration clause to devolve to the International Chamber of Commerce (ICC), based in Paris, all disputes that arose regarding the trade agreement entered into by the parties themselves.?

At the moment, we are waiting for the UK Supreme Court to publish the full text of the decision taken, yet we already anticipated at the outcome of the hearing on April 23, 2024. Notwithstanding, the impact of what was announced at the aforementioned hearing makes the decision of the UK Supreme Court extremely significant in that it legitimizes even in international arbitration disputes the identification of a forum conveniens - i.e., a more "convenient" forum - to which the decision of the dispute should be referred regardless of what is provided for in the arbitration clause.?

Among legal scholars, the constitution of such a forum responds, in fact, to the need to temper the rigidity of the physical power criterion provided for in common law systems (which attributes jurisdiction to a given state by virtue only of the physical presence of the defendant on the territory of that state). This criterion is an expression of an eminently discretionary power granted to the judge who has the jurisdictional power to consider itself competent to decide a dispute (forum conveniens) or, conversely, to suspend or refuse the exercise of its jurisdictional power, on the basis of an assessment of appropriateness of the choice made by the plaintiff (forum non conveniens).

Factual Background

In 2021, RCA entered into two Engineering Procurement and Construction contracts with Linde GmbH and Renaissance Heavy Industries LLC (German companies - "the Contracting Parties") for the construction of LNG (liquefied natural gas) and GPP (gas processing plants) facilities in the Russian port of Ust-Luga.

By entering into these contracts, on the one hand, RCA obligated itself to pay the Contracting Parties a total amount of approximately 10 billion euros, 20% of which was to be paid in advance (specifically, 2 billion euros to be promptly paid by RCA to Linde GmbH and Renaissance Heavy Industries LLC); on the other hand, Linde GmbH and Renaissance Heavy Industries LLC agreed to provide “demand bonds”, issued by - among others - UniCredit, Deutsche Bank and Commerzbank, as security for the fulfillment of their obligations.?

In detail, UniCredit has issued seven "demand bonds": four to guarantee the fulfillment of the obligations undertaken by the Contracting Parties; three to guarantee the reimbursement of the sums paid in advance by RCA in favor of the aforementioned Contracting Parties. The said "demand bonds" consist of documents bearing the same clauses: they establish English law as applicable and present a special arbitration clause, thus stipulating that any dispute arising between the parties would be decided according to the arbitration rules of the International Chamber of Commerce (ICC), based in Paris, and that the language of the arbitration procedure would be English.

The sanctions against Russia

The events under consideration occurred at the same time as Russia's invasion of Ukraine: as is well known, the EU reaction resulted in the extension of existing sanctions against Russia and Russian entities (both natural and legal persons) as well as their implementation; conversely, Russia's reaction resulted in the entry into force of amendments to the Code of Arbitration (Commercial) Procedure, which changed the previous legal framework to the extent that Russian courts were given exclusive jurisdiction over certain disputes concerning foreign sanctions ("the amendments"). Such events also impacted the existing contractual relationship between RCA and the Contracting Parties: despite the fact that the Russian company was not affected by EU or UK sanctions, the Contracting Parties, upon the express recommendation of the German Federal Office for Economic Affairs and Export Control, decided to discontinue the execution of the signed contracts.

The legal proceedings

On September 23, 2022, RCA, faced with substantial breaches of contractual obligations that had occurred on the part of the Contracting Parties, decided to terminate (or purported to terminate) the first contract and similarly acted on April 7, 2023, with respect to the second contract.

In response to this, RCA, on the one hand, sent Linde GmbH and Renaissance Heavy Industries LLC formal requests for the return of the sums paid as advances and compensation for the damages caused by their defaulting behavior; on the other hand, it requested UniCredit to enforce the demand bonds. UniCredit, however, refused their payment, claiming that it had received demands that did not comply with the formalities stipulated by the terms of the bonds and, a fortiori, arguing that it could not give effect to the adverse demands since they were about payments prohibited by EU sanctions (in particular, Articles 3b.2.b. and 11.1 of EU Regulation 833/2014).?

On August 5, 2023, RCA, in defiance of the provisions of the arbitration clause, brought before the Arbitration Court (Commercial) of St. Petersburg (Leningrad Region) – with jurisdiction over the case, under Article 248 Russian Code of Arbitration Procedure - a proceeding against UniCredit, claiming that the EU sanctions alleged by the latter as a justification for not returning the value of the demand bonds violated Russian public order and could not justify Unicredit's choice and, for this reason, also requesting that Unicredit be ordered to pay the full amount of EUR 443,767,755.29 (as the value of the demand bonds plus accrued interest).

On August 14, 2023, the Arbitration Court in St. Petersburg acknowledged its jurisdiction, thus formally accepting the request filed by RCA, assigned a docket number to the case, and set September 27, 2023, as the hearing date for the exam of the preliminary and substantive law questions.

Faced with the situation that originated in Russia, on August 22, 2023, UniCredit - in order to prevent the continuation of the proceedings introduced by RCA - brought an appeal before the High Court of England and Wales, in which it requested the issuance of a preliminary anti-suit injunction.?

On August 24, 2023, the aforementioned application, considered urgently and without notice to RCA, was granted; while the hearing on the merits phase was set for September 23, 2023. In Decision 2023 - EWHC 2365, the High Court of England and Wales decided not to issue a permanent anti-suit injunction, but, in the face of the pendency of the Russian merits proceedings (with a hearing scheduled for September 27, 2023), did not deem it appropriate to revoke the preliminary injunction (issued on August 24, 2023). Therefore, such interim measure has continued to be in effect and inhibited the action brought in Russia by RCA, waiting for the Court of Appeals to take a position on the requested injunctive relief.

With regard to the Russian proceedings, it is important to note that the Arbitration (Commercial) Court in St. Petersburg found itself with jurisdiction to decide the dispute under Article 248.1 of the Code of Arbitration Procedure of the Russian Federation, as it did not consider the arbitration agreement agreed upon by the parties to be valid and enforceable. Nevertheless, being aware of the pending proceedings in the UK courts, it still deemed it appropriate to stay the proceedings until February 14, 2024, pending a decision on the request for granting a permanent anti-suit injunction by the Court of Appeal.

On Feb. 2, 2024, the Court of Appeal issued the decision "2024 - EWCA Civ 64" in which, adhering to the reasons put forward by UniCredit, it recognized the jurisdiction of the English Courts and thus granted a permanent anti-suit injunction ordering RCA to terminate the Russian proceedings.?

Against this decision, RCA appealed to the UK Supreme Court.

The decision of the UK Supreme Court

At the outcome of the hearing held on April 23, 2024, the UK Supreme Court dismissed the appeal filed by RCA and upheld the decision and thus the permanent anti-suit injunction issued by the Court of Appeal.?

Although, as of today, the full text of the decision rendered by the UK Supreme Court has not yet been published, it seems possible to say that the UK Supreme Court has fully endorsed the reconstruction and normative interpretation offered by the Court of Appeal, thus recognizing the jurisdiction of the English courts to decide disputes arising between parties who have - expressly or implicitly - decided to apply English law to the contract and arbitration agreement (regardless of what the law of the seat of arbitration is), and legitimizing the aforementioned courts to also issue anti-suit injunctions.?

Key takeaways

Specifically, in fact, the Court of Appeal - considering RCA's nature as a foreign subject, with no domicile or presence in England and Wales - retracing precedents decided by the same court, came to affirm its jurisdiction to decide the dispute in the face of the presence, in the case under consideration, of the following elements:?

(i) a serious matter for judgment;?

(ii) a good argument about the existence of a "jurisdictional gateway" where the main contract is governed by English law - thereby referring to the principle of law expressed in the decision rendered by the UK Supreme Court in Enka v Chubb [2020] UKSC 38. Through that principle, in fact, the UK Supreme Court has found that, absent the express indication of the law applicable to the arbitration agreement, the law chosen for the main contract is considered to be the law applicable to the arbitration agreement as well (regardless of the seat of the arbitration procedure chosen and identified in the same arbitration agreement and so of the corresponding law applicable therein). The determination of the applicable law according to this principle does not constitute an automatism: in fact, it may be waived if certain factors exist, including the possibility that the law in force in the country where the seat of the arbitration procedure has been elected provides for an ad hoc rule, such that the choice of the seat of arbitration also determines an implicit choice of the law applicable to the arbitration agreement.

In the case at hand, the Court of Appeal, after the appropriate examination and verification of French law (not only from a legislative or statutory point of view, but also from the case law one), found that there is no such rule in French law (on the other hand, there is a rule that provides for the application of the "common intention" of the parties - a different principle that is not comparable to the one under examination and that, for this reason, is not assimilable to what the Court of Appeal is requesting). Moreover, this conclusion was also shared in the decision rendered by the UK Supreme Court with regard to the Kabab-Ji case: where the same English court - faced with a case similar to the one under consideration: contract bearing English law and seat of arbitration in Paris - found that English law should apply.?

(iii) the election of the English courts as forum conveniens: the Court of Appeal was also called upon to decide whether the case could be properly tried "in the interests of all parties and for the purposes of justice" before the English courts. Concurring with the decision made at the outcome of Deutsche Bank v Ruschemalliance LLC [2023] EWCA Civ 1144, the Court of Appeal recognized its jurisdiction and issued the requested injunction, for two reasons: i. the French courts could not have granted an anti-suit injunction nor could it have acted effectively in the case; ii. although the French courts are unable to issue injunctions of similar nature, they fully recognize their effect.

Further valued by the Court of Appeal was the following: even if an ICC court had been able to grant UniCredit an anti-suit injunction, such a measure would likely have been inapplicable in Russia, given that the Russian court had already expressly acknowledged its jurisdiction and denied the applicability of the arbitration clause, under Article 248 of the Russian Code of Arbitration Procedure.

Thus, the Court of Appeal understood that: i. without the protection afforded by an anti-suit injunction issued by an English court, the parties would not have been able to proceed with arbitration and with the examination on the merits of the dispute in the manner provided for under the contract; ii. the absence of an anti-suit injunction would have only prejudiced UniCredit's position (there being a well-founded and obvious risk that the Russian court would proceed with the examination of the dispute on the merits as well, settling the case and thus offering RCA – in the event of UniCredit's losing the case of - the possibility of satisfaction on UniCredit's assets located in Russia).?

Conclusions

This decision represents a significant and innovative development of English procedural law in the international arbitration landscape:

• offers a new principle for determining the jurisdiction of English courts in case of a request for issuance of an anti-suit injunction. Indeed, the jurisdiction of the English courts to issue anti-suit injunctions is recognized whenever the parties in the arbitration agreement have elected the seat of arbitration in a foreign country but have also provided-expressly or implicitly-that English law applies to such an agreement (an approach, moreover, consistent with the principles expressed in the Arbitration Act of 1996, particularly in its Article 42);?
• recognizes the need for English courts to always conduct a pragmatic examination of the facts in order to understand whether, in the particular case, there is indeed an appropriate forum deputed to issue such injunctive relief. Thus is reaffirmed the importance of discretion - the subject of continuous jurisprudential elaboration - which must guide English courts in making a fair and equitable decision so as not to create unequal treatment between the parties or to place one of the two litigants at a disadvantage over the other.

However, as groundbreaking as this decision is and has a strong impact on many practical cases yet to be decided, it is worth mentioning that it could be quickly superseded and replaced by the provisions contained in the Arbitration Bill currently before the UK Parliament (Arbitration Bill 2024). Specifically, Arbitration Bill 2024 appears to contain a statutory provision opposite to the principle expressed by the UK Supreme Court, providing that arbitration agreements will be governed - by default - by the law of the place of arbitration envisaged by the parties. Assuming that the provision contained in the Arbitration Bill is applied to the case at hand, the arbitrated arbitration clause would be governed not by English law but by French law, thus marking the elimination of the "jurisdictional gateway" invoked by the Court of Appeal for forum conveniens.?

Therefore, should Arbitration Bill 2024 be passed in its current wording, it could limit the ability of the English judiciary to grant anti-suit injunctions and other injunctive remedies in international arbitration disputes.

We just have to wait for the next legislative and judicial developments in the UK to understand what will be the final fate of anti-suit injunctions in international arbitration.