Russia – Upholding Arbitration Agreements.
Upholding arbitration agreements – Commercial Court grants final anti-suit injunctive relief in respect of Russian proceedings
Bayerische Landesbank & Anor -v- Ruschemalliance LLC [2024] EWHC 1822 (Comm)
In the latest spate of decisions involving final anti-suit injunctions in respect of Russian proceedings, the Commercial Court has handed down another decision granting final anti-suit injunctive relief in support of arbitration agreements governed by English law.
The Commercial Court’s decision comes off the heels of the Supreme Court’s swift oral decision in UniCredit Bank GmbH v RusChemAlliance LLC in April 2024 and provides a useful summary of the English courts’ approach towards upholding arbitration agreements.
Background
The disputes arose from various on demand bonds granted by the claimants Bayerische Landesbank (BL) and Landesbank Baden-Wurttemberg (LBBW), together the “Banks”, in favour of the defendant RusChemAlliance LLC (RCA).
The bonds were issued to guarantee the obligations of RCA’s contractual counterparties under a project for the construction of liquefied natural gas and gas processing plant facilities in Russia (Project). RCA’s contractual counterparties were German companies, Linde GmbH and Renaissance Heavy Industries LLC (Contractor). In addition to the Banks, other financial institutions, including UniCredit, Duetsche Bank and Commerzbank, also granted bonds under the Project.
The various bonds were governed by English law and contained arbitration agreements providing for disputes to be resolved by ICC arbitration in Paris.
Following Russia’s invasion of Ukraine in February 2022, the EU extended its existing sanctions and imposed new sanctions on Russia. Having sought clarification from the German Federal authorities as to whether it could continue to perform the Project contracts, the Contract was instructed that it could not. As a consequence, the Contractor halted performance of the contracts, citing EU sanctions as its reason for doing so. In September 2022 and April 2023, RCA terminated or purported to terminate the contracts alleging that the Contractor was in breach. Thereafter, RCA made demands for payments under the bonds which UniCredit rejected on the grounds that such payment was prohibited by EU sanctions.
However, in August 2023, RCA commenced proceedings in Russia claiming over €320 million under the bonds granted by the Banks. RCA also commenced proceedings in Russia claiming under the bonds granted by UniCredit, Deutsche Bank and Commerzbank.
The Banks, UniCredit, Duetsche Bank and Commerzbank accordingly turned to the English Commercial Court to protect their arbitral rights and separately applied for anti-suit injunctions (ASI) against RCA, all of which proceeded in parallel. The Banks’ ASI claims were materially identical to those advanced by UniCredit against RCA (UniCredit Proceedings), including a jurisdictional point that the English court had no jurisdiction because the arbitration agreements were not governed by English law or that England was not the proper forum for the claim.
After the Banks obtained interim ASIs, the Banks’ ASI claims were stayed by consent pending the Supreme Court’s judgment on RCA’s then-extant jurisdictional appeal in the UniCredit Proceedings. On 23 April 2024, the Supreme Court gave its brief oral decision dismissing RCA’s jurisdictional appeal. Shortly thereafter, RCA’s legal representatives in England came off the record in the Banks’ ASI claims.
Subsequently, in breach of the interim ASIs, RCA applied ex parte for and obtained freezing order relief against the Banks in the Russian proceedings. Consequently, the stay of the Banks’ ASI claims was lifted and the hearing of the claims was fixed to take place before the next hearing in Russia on 4 July as evidence was led to show that there was a real prospect that the Russian court would grant judgment on the merits against the Banks at that hearing or shortly thereafter.
The Commercial Court’s decision
Jurisdiction
Although RCA did not formally make an application challenging the jurisdiction of the English court in the Banks’ ASI claims, RCA had intimated an intention to do so prior to the Supreme Court’s dismissal of its jurisdictional appeal in the UniCredit Proceedings. The Court therefore dealt with the jurisdictional issue as that was the only argument which had any prospect of success which was available to RCA to resist the grant of ASI relief against the Banks.
The Court observed that any jurisdictional challenge “would be hopeless” in light of the Supreme Court’s decision in the UniCredit Proceedings given that the terms of the bonds issued by UniCredit and the Banks were materially identical, including in relation to the arbitration agreements.
It held that it was clear that the express English choice of law in the bonds extended to the arbitration agreements contained in the bonds such that they too were governed by English law. This was consistent with the Court of Appeal’s decision in the UniCredit proceedings and the latter’s application of the Supreme Court’s decision in Enka -v- Chubb [2020] 1 WLR 4117.
The Commercial Court also held that England was the proper forum for the Banks’ ASI claims, just as it was found to be the proper forum for the equivalent claims in the UniCredit proceedings. In its analysis of this issue, the Court had regard to the essential question as to where the Banks’ ASI claims could be suitably tried in the interests of all the parties and the ends of justice. In that regard, the Court considered that England was the natural forum for such claims because ASI was not an available remedy in France, which was the seat of the arbitration.
While it was certainly possible that an ICC arbitration tribunal in Paris could make an award requiring RCA to refrain from or terminate the Russian proceedings, the Court considered this to be an “unrealistic and illusory” option as there was a real risk that the Russian court would grant judgment on RCA’s claims imminently and long before any arbitral award could be obtained by the Banks. Furthermore, such an argument would be “abusive” and “unconscionable” as it would entail RCA denying the jurisdiction of the arbitral tribunal in France and pursuing the Russian proceedings whilst at the same time suggesting that the arbitration in France was the appropriate forum for the Banks to seek injunctive relief.
Merits
The Court was of the view that the merits of the Banks’ claims for ASIs were clearly in their favour. In circumstances where proceedings are brought in breach of an arbitration agreement, the court will generally grant an ASI unless there are strong reasons not to do so, and it is irrelevant as to whether or not an arbitration had already been commenced or was in contemplation.
The Court held that RCA’s pursuit of the Russian proceedings was an “obvious breach” of the arbitration agreements. RCA’s statements of claim in the Russian proceedings brought a claim under the bonds and expressly sought recovery under the bonds. It was also noted that the freezing orders obtained by RCA in the Russian proceedings constituted further breaches of the arbitration agreements.
By contrast, the Court was of the view that there was no strong reason to refuse an ASI in the circumstances. The Court considered that RCA would not have been able to discharge the burden of showing strong reasons in circumstances where the Court of Appeal in the UniCredit Proceedings rejected the three matters relied upon by RCA as constituting strong reasons as to why a final ASI should not be granted in those proceedings.
Nevertheless, the Court went on to deal with additional arguments identified by the Banks as potential arguments which RCA could put forward as reasons to refuse final ASI relief:
- First, the fact that LBBW had commenced arbitration against RCA, but BL did not, was an irrelevant point.
- Second, any challenge to the jurisdiction of the ICC arbitral tribunal in the arbitration commenced by LBBW, on the basis of Russian public policy law, would be misplaced. This is because whether or not the arbitration agreements can or should be enforced is to be determined by English law, which, under English conflicts of law rules, governs the arbitration agreements. Under English law, there is a strong presumption in favour of upholding arbitration agreements and no considerations of public policy arise which would render the arbitration agreements invalid, inoperable, or otherwise unenforceable.
- Third, any difficulty in enforcing an ASI order is not a strong reason to refuse the grant of an ASI. On the contrary, the court was of the view that final ASI relief would likely help maximise the protection afforded to the Banks.
- Fourth, the Court did not consider there to be any concerns regarding comity. It is trite law that in a contractual ASI case, issues of comity play little to no relevance in the court’s determination. Indeed, in the Court’s view, as Russia is a contracting state to the New York Convention, comity required the Russian courts to uphold the arbitration agreements and stay the Russian proceedings in line with Russian’s obligations under the New York Convention, and failing to do so would be a breach of Russia’s obligations under the New York Convention.
- There had been no appreciable delay on the Banks’ part in seeking ASI relief.
Just and convenient
The Court dealt with the just and convenient requirement briefly. It was plainly clear in the circumstances that it was just and convenient to grant an order of final ASI relief.
Comment
The Commercial Court’s decision reflects the pro-arbitration stance in English law and the importance of the English courts as an available forum to obtain urgent injunctive relief in support of arbitration agreements governed by English law.
The decision demonstrates that the English courts will not hesitate to grant final mandatory anti-suit injunctive relief in a clear breach of an arbitration agreement, regardless of whether the arbitration proceedings are seated in England or elsewhere.
For further information, please contact:
Iain Sharp, Partner, Hill Dickinson
iain.sharp@hilldickinson.com
