Eldwick Law

Tag: Arbitration

  • Court Grants Anti-Suit Injunction To Stop Sanctioned Entities Bringing Russian Proceedings

    Court Grants Anti-Suit Injunction To Stop Sanctioned Entities Bringing Russian Proceedings

    In 2020, the Russian legislative body made amendments to the Russian Arbitrazh (Commercial) Procedural Code (APC) to establish the exclusive jurisdiction of Russian Arbitrazh Courts in cases involving individuals and entities subject to sanctions. According to the newly introduced Article 248.1 of the APC, Russian courts would exercise exclusive jurisdiction over disputes involving sanctioned individuals and entities; unless there exists an agreement between the parties stating otherwise. The exclusive jurisdiction of Russian courts under Article 248.1(4) is triggered if:

    • The dispute resolution clause states that a dispute must be resolved in an overseas court or through arbitration.
    • The clause becomes inoperative due to sanctions against a party, creating obstacles to access to justice for that party.

    If proceedings are either pending or about to commence in a foreign court or arbitration, the sanctioned individual has the option to petition the Russian court to issue an anti-suit injunction against the opposing party, as outlined in Article 248.2 of the APC.

    In the recent case of Renaissance Securities (Cyprus) Ltd v Chlodwig Enterprises Ltd & Others [2023] EWHC 2816 (Comm), the English High Court granted an anti-suit injunction (ASI) and an anti-anti-suit injunction (AASI) to a company for the purposes of preventing the defendants in the case, who were subject to UK and US sanctions, from bringing proceedings in Russia under Article 248 of the APC.

    Background to the decision

    Renaissance Securities (Cyprus) Limited (RenSec), an investment services company, executed Investment Services Agreements (ISAs) with the defendants, who included companies under the control of a Russian person designated as a sanctioned person by OFSI in the UK as well as a person subject to US OFAC sanctions. These companies were designated as holding assets for trusts benefiting sanctioned persons. In the case of a dispute, the ISAs, subject to English law, stipulated for LCIA arbitration with a seat in London.

    RenSec managed substantial sums and securities for each defendant. When the defendants requested the transfer of assets held by RenSec, blocked due to sanctions, to Russian bank accounts, RenSec declined, citing potential breaches of US, EU, and/or UK sanctions. In response, the defendants threatened legal action in the ‘appropriate forum.’

    Shortly thereafter, RenSec discovered that the defendants had initiated proceedings in the Russian courts, seeking damages equivalent to its blocked assets in Russia. Subsequently, RenSec applied for an ASI and an AASI in the English Court.

    The application was conducted without notifying the defendants and in private, as there was a genuine concern that the defendants might seek their own ASI and/or AASI if informed. Such actions, along with potential publicity, would undermine the purpose of the application.

    What are the legal principles (England and Wales) regarding anti-suit injunctions?

    By issuing proceedings in a foreign court in situations where an Arbitration Agreement provides for arbitration to be conducted in England and Wales, the defendants were in breach of contract, and English courts can therefore grant an ASI preventing a party from bringing a claim in another jurisdiction. In The Angelic Grace [1995] 1 Lloyd’s Rep 87, Lord Millet robustly stated (at page 96):

    “There is no good reason for diffidence in granting an injunction to restrain foreign proceedings on the clear and simple ground that the defendant has promised not to bring them.”

    An AASI is designed to guarantee that actions taken by an applicant to safeguard and uphold its contractual rights, including the implementation of an ASI, are not made ineffective or futile by pre-emptive measures or counteractions taken by the respondent. The principles governing the issuance of an AASI closely mirror those applied to an ASI. In cases where foreign proceedings have been brought despite a clear Arbitration Agreement, the courts in England and Wales have granted an AASI to force the respondent to bring any commenced proceedings to a halt.

    What did the High Court decide in Renaissance Securities?

    After examining the evidence, Mrs Justice Dias ruled that the Russian proceedings were brought in “flagrant” breach of the Arbitration Agreement. Furthermore, this was a deliberate choice on the part of the defendants as they were under no legal obligation to bring proceedings under Article 248 of the APC. It was therefore just and convenient for the Court to grant the ASI because if the application in Russia was allowed to carry on, a ruling in the defendants favour could allow them to bypass the sanctions regime by obtaining judgment in Russia and then enforcing it against RenSec’s assets which were currently frozen in that jurisdiction.

    In addition, Mrs Justice Dias observed that:

    “…evidence is that the Russian courts are unlikely to consider foreign sanctions a legitimate excuse for RenSec’s failure to comply with the Defendants’ instructions. Indeed, this is entirely plausible given that the rationale for the introduction of Article 248 in the first place seems to have been to permit Russian entities to bypass the effects of sanctions. Accordingly, RenSec is unlikely to be able to rely on the imposition of sanctions as a defence to the Defendants’ claims in Russia, whereas this is a matter which an LCIA tribunal would no doubt at least take into account in considering whether RenSec was in breach of contract or not.”

    Given that the evidence showed it was likely that the defendants would try and obtain ASIs in the Russian courts in breach of the English court’s exclusive jurisdiction over any arbitration proceedings, Mrs Justice Dias granted an AASI to prevent the defendants from taking any such action.

    Concluding comments

    Due to the ASI and AASI being granted, the defendants will have no choice but to terminate any Russian proceedings under Article 248 of the APC. Failing to do so means that they risk contempt of court in England and Wales. This case illustrates that where an Arbitration Agreement is in place, an ASI and AASI provides a tactical tool for ensuring the terms of the agreement are upheld and can prevent sanctioned entities from circumventing the agreement via Article 248. In addition, Mrs Justice Dias’s decisions shows that the English High Court will grant an ASI and AASI to protect the interests of a non-sanctioned party who has assets in Russia which are vulnerable to enforcement of a Russian judgment granted in favour of a sanctioned entity.

    To discuss any points raised in this article, please call us on +44 (0) 203972 8469 or email us at mail@eldwicklaw.com.

    Note: The points in this article reflect sanctions in place at the time of writing, 30 November 2023. This article does not constitute legal advice. For further information, please contact our London office.

  • The Use of Injunctions in Support of Arbitration Proceedings

    The Use of Injunctions in Support of Arbitration Proceedings

    In these situations, our commercial arbitration team can advise on and facilitate the application for such relief, ensuring that the parties’ interests are protected throughout the arbitration process.

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    The Source of the Court’s Powers

    Section 44 of the Arbitration Act 1996 gives the Court wide powers to make orders for the preservation of assets and evidence in an arbitration, including the useful and important power to grant interim injunctions.  However, the Court will only exercise its powers to the extent that the arbitral tribunal or institution has no such power or is unable for the time being, to act effectively. 

    The Court will therefore adopt a cautious approach, bearing in mind the purpose of section 44 which the Court of Appeal in Cetelem S.A. v Robust Holdings Limited held was to “assist the arbitral process in cases of urgency before there is an arbitration on foot” with Court’s having to “take great care not to usurp the arbitral process…”. 

    Arbitrations with a Foreign Seat

    With parties to arbitrations often having a presence in multiple jurisdictions, the question which often arises is whether a Court in England and Wales can grant an injunction in arbitrations abroad? Helpfully, section 44 applies even if the seat of the arbitration is outside England, Wales or Northern Ireland, or even if no seat has been determined.  

    However, the Court may refuse to act in these circumstances when it considers it inappropriate to do so.  For example, if there are significant differences between the provisions of the curial law and English law; or if there is an insufficient link between the defendant and this jurisdiction, such as residency or assets within England and Wales. 

    What are the requirements for an injunction in support of arbitration proceedings?

    In order to get over the first hurdle of jurisdiction, you must demonstrate that the arbitral tribunal, or any arbitral institution, has no power or is unable for the time being to act effectively. The two main ways in which this threshold is met, is either:

    • By establishing that the tribunal will have no power to grant the order you are applying for. This is particularly the case in applications for freezing injunctions, where the applicant is looking to freeze a respondent’s assets in this jurisdiction backed by a penal notice – a useful deterrent in proceedings with elements of fraud or dishonesty; and/or
    • By establishing that a tribunal is not yet constituted and is therefore unable to act. However, in circumstances where you have yet to commence an arbitration, you will have to be able to demonstrate a clear intention to do so, which will often require the provision of a Court undertaking. 

    Once you have established that the Court has jurisdiction, the usual common law principles apply. The touchstone for injunctive relief is whether there is a serious issue to be tried and that the balance of convenience favours the relief sought (i.e., whether the inconvenience of any damage which could be suffered by the applicant outweighs that of the respondent).  The main injunction sought in arbitration proceedings are freezing injunctions, where the Court will consider urgency and whether there is a real risk that the respondent may dissipate its assets before the enforcement of any arbitral award. 

    Key Considerations

    If you are thinking of using section 44 to support your arbitration proceedings, the balance the Court will draw between its power to grant injunction relief and the risk of displacing the arbitration tribunal should always be borne in mind. 

    Although the Court may approach section 44 applications with caution, injunction applications are a useful tool for interim protection particularly in arbitrations where you have discovered that a respondent is dissipating its assets in this jurisdiction making any enforcement of an award futile. 

    Eldwick Law has recently successfully obtained a freezing injunction in arbitration proceedings before the German Arbitration Institute (DIS). If you would like to discuss any of the points raised in this article, please contact our litigation team below.