Arbitration Clauses and the Importance of Specifying the Law Which Governs the Arbitration Agreement: UniCredit Bank GmbH v. RusChemAlliance LLC [2024] EWCA Civ 64

Morrison & Foerster LLP

Morrison & Foerster LLP

The recent English Court of Appeal (CoA) decision in UniCredit v. RusChemAlliance has further highlighted the importance of specifying what law should govern an arbitration agreement, rather than an assumption that this would be the law of the seat of arbitration or the governing law of the substantive contract. There have been a number of recent cases which have highlighted a divergence of approach between the position that the law of the seat governs the arbitration agreement (e.g., under French law) and the position that the governing law of the substantive contract also governs (in the absence of any contrary indication) the arbitration agreement (i.e., the English law position). The English law position was only relatively recently settled by the Supreme Court and as this case demonstrates, older contracts are unlikely to expressly specify the law which governs the arbitration agreement. Given that precedents or master agreements may also not have been amended to take into account recent developments, parties drafting arbitration agreements into cross-border agreements should remain mindful of these recent changes in the law.

In Unicredit, the CoA had to consider whether to grant a final anti-suit injunction in respect of a Paris-seated arbitration where the contract was subject to English law. The underlying dispute related to performance bonds provided by UniCredit in respect of contracts in which RusChemAlliance was the beneficiary of the bonds. Following Russia’s invasion of Ukraine, the underlying contract was terminated and RusChemAlliance sought to call the performance bonds. The performance bonds were subject to English law, and any dispute arising out of or in connection with them was to be finally settled by way of ICC arbitration – but the bonds did not specify which law governed the arbitration clause. UniCredit declined to pay out on the bonds citing EU sanctions restrictions. RusChemAlliance initiated proceedings before the Russian courts (in contravention of the ICC arbitration clause), relying on Russian legislation giving the Russian courts jurisdiction over disputes relating to parties impacted by Western sanctions against Russian parties (see our previous commentary on the Russian legislation).

UniCredit subsequently applied to the English courts for an antisuit injunction against RusChemAlliance, restraining it from continuing with the Russian court proceedings on the basis that the bonds were subject to a valid arbitration clause. UniCredit relied on the Supreme Court decision in Enka v. Chubb that the law which governs the contract also governs the arbitration agreement (in this case, English law) as sufficient nexus to trigger the English court’s jurisdiction to issue the injunction.

The High Court denied the application on the grounds that this case fell within one of the exceptions in Enka, namely that the law of the chosen seat (i.e., French law) provides that the arbitration agreement itself will be governed by the law of the seat and so the English court did not have jurisdiction to grant an antisuit. UniCredit appealed.

The CoA allowed the appeal and granted the antisuit injunction, on the grounds that this case did not fall within the exceptions in Enka. The parties’ common intention was to apply English law to the terms of the agreement, and there was no indication that in this case the parties had intended for French law to apply to the arbitration agreement by virtue of their choice of Paris as the seat of arbitration. Substantially more evidence of the parties’ intention to select a different law for the arbitration agreement by selecting a particular seat would be required to displace the presumption under English law that the choice of English law would also govern the arbitration agreement. A further consideration for the CofA was that an antisuit injunction was not an available remedy under French law.

The divergence between English and French law on the law applicable to arbitration agreements has resulted in substantial commentary in the arbitration and academic communities. The extensive regime of sanctions against Russian parties have only brought these issues further to the fore as those seeking to restrain Russian proceedings (brought in defiance of arbitration or forum selection agreements) seek the best possible remedies. The English courts’ powers to issue antisuit injunctions have made England a popular choice for parties seeking such relief, and the decision in Enka has provided an additional avenue for parties to English law-governed governed (but otherwise foreign-seated arbitration agreements) to seek relief from the English courts.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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