English Law, Sanctions, and Two Courts: Key Takeaways from the UniCredit and RusChemAlliance Case
On 18 September 2024, the UK Supreme Court delivered a landmark judgement in UniCredit Bank GmbH v RusChemAlliance LLC, addressing key issues around enforcing arbitration agreements and the impact of sanctions on cross-border contracts.
The case focused on whether RusChemAlliance, a Russian company, could bypass an arbitration clause by pursuing the dispute in Russian courts, despite the contract specifying arbitration in Paris under English law.
The UK Supreme Court ruled that English law, as chosen in the contract, governs the arbitration clause, and affirmed that UK courts have the authority to issue an anti-suit injunction preventing RusChem from proceeding in Russia.
This briefing outlines the Court’s key findings and offers practical insights for companies engaged in cross-border agreements governed by English law, helping them navigate the risks of parallel proceedings.
Background
RusChem is a Russian company which in 2021 entered into two contracts with German companies for the construction of liquefied natural gas and gas processing plants in Russia, worth around EUR 10 billion, including advance payments of approximately EUR 2 billion.
The performance of the Contractor's obligations under these contracts was guaranteed by on-demand bonds, including those issued by the respondent, UniCredit, a German bank. The original arbitration agreements in the UniCredit bonds contracts provided for ICC arbitration with the seat in Paris, and the applicable law was English law.
Following the imposition of EU sanctions in 2022, the German contractors refused to perform the contracts with RusChem, citing the sanctions as the reason. RusChem then claimed a refund of the advance payments, but the contractors again refused to pay, again citing the sanctions.
Consequently, RusChem made a demand on the bonds to UniCredit Bank, which also refused to pay, citing the EU sanctions, particularly Article 11 of Council Regulation (EU) No 833/2014 of 31 July 2014.
Anti-suit injunction (ASI) proceedings
In these circumstances, on 5 August 2023, RusChem initiated proceedings against UniCredit before the Arbitrazh Court of St Petersburg and the Leningrad Region in Russia, claiming payment of €448 million under the bonds, invoking a well-known provision of Article 248.1 of the Arbitrazh Procedural Code (case file No A56-74595/2023, Russian proceedings).
As a countermeasure, UniCredit Bank applied to the UK courts (initially the Commercial Court in London) with an application to issue an anti-suit injunction to halt the Russian proceedings (English proceedings).
On 10 November 2023, the judge (Ms S.S. Saltykova) confirmed the exclusive jurisdiction of the Russian courts over this dispute, as the ICC arbitration agreement was found to be unenforceable. However, the judge stayed the Russian proceedings pending the outcome of the English proceedings (a decision which was appreciated by Lord Reed in the UK Supreme Court).
The outcome was finally reached on 24 April 2024, with the detailed judgment delivered on 18 September 2024. In short, the UK Supreme Court (presided over by Lord Reed, Lord Sales, Lord Leggatt, Lord Burrows, and Lady Rose) upheld the Court of Appeal's decision to grant an injunction prohibiting RusChem from continuing the Russian proceedings until further order of the court.
Why does it matter?
After reading a foreword, one might wonder: “Why on earth did the parties end up with parallel proceedings in the state courts of Russia and the United Kingdom over the same contract when they had clearly agreed on ICC arbitration in Paris?”
There is no simple answer to that, yet it occurs from time to time in practice.
One thing to remember is to be cautious when drafting contracts under English law, as they might provide grounds, in certain cases, for the jurisdiction of the UK courts (even if arbitration or other competent courts were agreed upon).
In some instances, when one party departs from the arbitration agreement for any reason and decides to pursue a claim in another forum, the other party may wish to prevent this. A solid method to do so is to apply to the UK court for an anti-suit injunction (of course, if the UK court is sufficiently relevant to your case). If granted, such an injunction might have far-reaching consequences for the parties, including implications for the potential enforcement of non-compliant judgments (issued in breach of the injunction) and traditional but serious consequences (such as contempt of court, etc.).
The UK Supreme Court made several important conclusions that are worth noting here:
- Applicable law: The court held that English law applies to the arbitration agreement, as it was the governing law of the underlying bond contracts framed in "wide terms", which is broad enough to encompass the arbitration agreement. While there may still be numerous opinions on this point, it is sufficient to note that the court carefully analysed the renowned conflict of law principles elucidated in Enka Insaat ve Sanayi AS v OOO Insurance Company Chubb [2020] UKSC 38, among others, and concluded that even though the choice of seat for ICC arbitration was Paris, this does not necessarily mean that French law applies to the arbitration agreement.
- Jurisdiction of the English court: The forum non conveniens test does not apply, as there was a contractually agreed forum — ICC arbitration in Paris. What was important was whether there was a substantial connection to England in this case. The UK Supreme Court said yes. The main reasons are that i) English law applied to the arbitration agreement and the underlying bonds, while RusChem itself actively contested this anti-suit injunction application in English courts, and ii) French courts do not issue anti-suit injunctions, making them an inappropriate forum for certain claims of UniCredit Bank.
Let us hope this case brings more clarity to the ongoing debates about jurisdictions and applicable laws.
Authors: Kamal Tserakhau, Struzhko Aliaksandr
Dear journalists, the use of materials from REVERA website in publications is possible only after our written permission.
For approval of materials please contact e-mail: i.antonova@revera.legal or Telegram: https://t.me/PR_revera
