My Word Is My Bond: Russian Energy Company Must Arbitrate Against German Bank in Paris

On 18 September 2024, the U.K. Supreme Court handed down judgment in UniCredit Bank GmbH (Respondent) v. RusChemAlliance LLC (Appellant) [2024] UKSC 30, explaining its decision on 23 April 2024 that RusChemAlliance (RCA) must discontinue Russian litigation it had commenced seeking recovery under on-demand bonds issued by UniCredit Bank GmbH (UniCredit).

In January 2024, RCA sought permission to appeal to the Supreme Court a decision of the English Court of Appeal that held that RCA had breached an agreement to arbitrate and should be enjoined to terminate Russian proceedings. Specifically, the Court of Appeal ruled that the English court has jurisdiction to grant an anti-suit injunction to restrain the pursuit of the Russian proceedings when the parties’ contract is governed by English law but provides for arbitration in Paris in accordance with the rules of the International Chamber of Commerce.

That issue arose because RCA, a Russian company, was pursuing a claim for payment before the Arbitrazh Court of St. Petersburg and the Leningrad Region under the bonds issued by UniCredit, a German bank with assets in Russia, notwithstanding that each of the bonds contains an arbitration clause. RCA was pursuing the Russian proceedings contending that the agreement to arbitrate is unenforceable under Russian law. RCA had been successful at first instance with the English High Court declaring that it had no jurisdiction to hear UniCredit’s claim on the grounds that the arbitration agreements were governed by French law, and that in any event England was not the proper place for the claim.

Background

RCA entered into contracts with a third party for the construction of gas processing plants in Russia. Under the contracts, RCA was obliged to pay the contractor approximately 10 billion euros. The contractor was entitled to advance payments of 2 billion euros, which RCA made.

UniCredit issued the bonds to a total value of approximately 420 million euros, four of which were to guarantee the performance of the contract and three of which were to secure repayment of the advance payments. The bonds each included a clause stating that: "This Bond and all non-contractual or other obligations arising out of or in connection with it shall be construed under and governed by English law." They also included a clause stipulating that disputes are to be resolved by an International Chamber of Commerce arbitration seated in Paris.

The contractor subsequently wrote to RCA to say that it could not continue to perform the contracts because of EU sanctions imposed after Russia's invasion of Ukraine. The contractor also said it could not return the advance payments. (RCA itself is not designated under or otherwise subject to EU or U.K. sanctions.)

By way of response to the position adopted by the contractor, RCA brought proceedings against UniCredit in the Russian courts seeking recovery of 448 million euros under the bonds. UniCredit then issued a claim in England and Wales alleging that the proceedings commenced by RCA in Russia were in breach of the arbitration agreements in the bonds and sought among other things an anti-suit injunction requiring RCA to discontinue the Russian proceedings.

The Supreme Court’s Decision

The Supreme Court dismissed RCA’s appeal, confirming that the English courts had jurisdiction to issue an anti-suit injunction.

The Court considered: (1) whether the agreements to arbitrate were governed by English law (the Governing Law issue); and (2) whether England was the proper forum for UniCredit to advance its claim for an anti-suit injunction (the Proper Forum issue).

The Governing Law Issue

The Supreme Court held that despite Paris being the seat of the arbitration stipulated by the bonds, the agreements to arbitrate were governed by English law. Considering the principles it had established in Enka Insaat ve Sanayi AS v. OOO Insurance Company Chubb [2020] UKSC 38 (the Enka Principles), the Supreme Court held 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. The agreement to arbitrate formed part of the contract and there was nothing in the contract that indicated that the parties intended for the arbitration clause to be governed by a different system of law; and
• the fact that the parties had chosen Paris as the seat of the arbitration did not necessarily imply that the agreement to arbitrate was governed by the law of the seat. Indeed, no inference could properly be drawn from the choice of Paris as seat that the arbitration agreement was intended to be governed by French law.

The Proper Forum Issue

The Supreme Court held that England and Wales was the proper forum for UniCredit’s claim to be determined, relying inter alia on the following reasoning and findings:

• Forum Non Conveniens principles were not relevant and did not apply in this context. The Court was not concerned with identifying the “best” available place to resolve the dispute between the parties. There was already a contractually agreed forum, and that agreement rendered nugatory any consideration of the relative merits of potential forums. The parties should be held to their dispute resolution bargain which was ICC arbitration in Paris;
• Courts should not hesitate to grant anti-suit injunctions in defence of arbitration, particularly when the underlying dispute concerns enforcing a contractual right;
• French courts have no power to grant anti-suit injunctions and in any event would not have jurisdiction to determine UniCredit’s claim for RCA’s breach of the terms of the bonds;
• Neither the French courts, which lacked jurisdiction, nor any arbitrators, who lacked coercive force, could grant UniCredit any, or any effective, remedy for RCA’s breach; and
• The fact that the rights UniCredit was seeking to enforce were English law governed, and RCA had submitted to the jurisdiction in contesting UniCredit’s claims evidenced a substantial connection with England and Wales. 

For the above reasons, the Supreme Court dismissed RCA’s appeal and held that the Court of Appeal was entitled to make the order that it did granting final relief to UniCredit, which included a mandatory injunction requiring RCA to discontinue its Russian proceedings. It remains to be seen whether RCA complies with the Supreme Court’s ruling and discontinues its Russian claim. What is clear, however, is that we have not seen the last of RCA being involved in litigation with European banks. On 17 September 2024, Reuters Moscow reported that RCA had filed new claims against five European banks that stopped financing the construction of a gas project in Russia after the imposition of sanctions. The claims, all filed with the Arbitrazh Court of St. Petersburg and the Leningrad Region on 16 September, were addressed to Italian bank, UniCredit SpA, and German lenders Deutsche Bank, Commerzbank, Bayerische Landesbank and Landesbank BadenWurttemberg.