Barclays Bank PLC -v- VEB.RF [2024] EWHC 2981 (Comm)
In a sanctions-related dispute, the Court has agreed with an LCIA arbitrator that a challenge to his jurisdiction should be decided by the Court rather than the arbitrator. This was because whichever party lost the jurisdictional issue before the arbitrator was likely to challenge the arbitrator’s decision before the Court. It would, therefore, save time and costs if the arbitrator was bypassed in this regard and the Court decided the jurisdictional issue.
The background facts
The claimant, a UK-based bank, and the defendant, a Russian registered bank, entered into a currency swaps transactions agreement on the 1992 ISDA Master Agreement Form (Agreement), with a schedule of bespoke specified terms.
Clause 5(k) of the schedule was a jurisdiction and arbitration agreement and provided in relevant part as follows:
“(1) Subject to (2) and (3) below, any dispute arising out of, or in connection with, this Agreement, including any question regarding the existence, scope, validity of termination of this Agreement (‘dispute’) or subsection (b), jurisdiction, shall be referred to and finally resolved under the rules of the London Court of International Arbitration at the LCIA, which rules are deemed to be incorporated by reference into this subsection…
“2. Notwithstanding the above paragraph 1 [the claimant] may by notice in writing require that all disputes or any specific dispute be heard by a court of law. Any notice must be given within 14 days of service on [the claimant] of a request for arbitration. If [the claimant] does so require, the dispute to which the notice refers will be determined in accordance with paragraph 3 below.
“3. (a) Subject to (1) and (2) above, the courts of England shall have exclusive jurisdiction to settle any dispute; (b) the parties agree that the courts of England are the most appropriate and convenient courts to settle disputes and accordingly that no party will argue to the contrary; (c) notwithstanding subparagraph (a) above, nothing in this subsection (b) jurisdiction shall prevent [the claimant] from taking proceedings in any other court. With jurisdiction to the extent allowed by law [the claimant] may take concurrent proceedings in any number of jurisdictions.”
In 2019, the parties varied the terms of the Agreement so that the sanctioning of the defendant would be a termination event. During February 2022, the defendant became a sanctioned entity under UK, EU and US sanctions regimes. In March 2022, the claimant gave notice of early termination of the Agreement and, as a result, became obliged to pay the defendant US$147,770,000. The claimant did not dispute that this amount was due to the defendant but contended that it was unlawful for it to make payment to the sanctioned defendant.
Initially, the defendant commenced proceedings in the Arbitrazh Court of Moscow in breach of the LCIA agreement but, after the claimant obtained final anti-suit and anti-enforcement injunctions from the English Court, the defendant applied to the Moscow Court to suspend the proceedings and commenced LCIA arbitration proceedings in a bid to obtain payment from the claimant.
The claimant gave notice pursuant to clause 5(k)(2) to have the dispute heard in the English Court and requesting the defendant to withdraw the arbitration proceedings. The defendant declined to do so and rejected the claimant’s request to consent to an application made under s.32(1) of the Arbitration Act 1996 (the Act) to the Court for a declaration that the LCIA arbitral tribunal had no jurisdiction to hear the dispute between the parties. S.32 of the Act 1996 takes effect as a derogation from s.30 of the Act 1996, which permits the arbitral tribunal to decide on its own jurisdiction.
Where there is no written consent from all the parties for the Court to decide jurisdiction, the tribunal can, pursuant to s.32(2)(b), give permission for the Court to do so. In this case, the arbitrator decided he should give such permission on the basis, among other things, that if the tribunal decided the jurisdictional issue, whichever side lost was likely to bring a s.67 jurisdictional challenge before the Court. Therefore, a substantial saving in time and costs was likely to result from a determination by the Court under s.32.
The Commercial Court decision
The Court agreed with the arbitrator that if it determined the jurisdictional issue, this would save substantial time and costs because a s.67 challenge was highly likely given:
- the sums in issue;
- the issues in dispute in relation to jurisdiction;
- the importance the claimant placed on its asymmetric rights under the jurisdiction and arbitration agreement; and
- the importance the defendant apparently placed on the dispute being resolved by the arbitrator rather than by the Court.
The Court highlighted that if the arbitrator decided on his jurisdiction and his award was appealed, there would be a de novo hearing before the Court with each party entitled to deploy new arguments and new evidence. A s.67 challenge would be an expensive and time-consuming exercise.
Furthermore, while there was always a chance that a s.67 application would be made where there was a jurisdictional challenge, the s.32(2) mechanism severely restricted the number of cases that came before the Court because the requirement that the tribunal must give permission acted as a very practical primary filter.
The Court concluded that disposing of the jurisdiction issue now provided finality, eliminated substantial additional costs and the risk of costly and time-consuming issues on enforcement. It also reflected the parties’ agreement that their dispute had to be resolved as a matter of exceptional urgency, given that it would take about one year from the publication of a jurisdictional award for a s.67 challenge to come before the Court.
Comment
This is a useful illustration of how and when the English Court will exercise its discretionary powers in support of arbitration. In this instance, there was good reason for the Court to decide the jurisdictional issue, rather than the arbitrator.
