Eldwick Law

Tag: Arbitration

  • Anti-Suit Injunction Against Russian Court Proceedings Upheld In Hong Kong Court

    Anti-Suit Injunction Against Russian Court Proceedings Upheld In Hong Kong Court

    Linde GMBH v. Ruschemalliance LLC [2023] HKCFI 2409

    In this article we will discuss the impact of Russian sanctions on commerce and trade, particularly situations where there is an Arbitration Agreement between the parties.

    Anti-Suit and Anti-Anti-Suit Injunctions in UK Law

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

    Shortly before the Renaissance Securities decision, the Hong Kong Court of First Instance maintained an anti-suit injunction to prevent legal proceedings initiated in Russia that violated an Arbitration Agreement based in Hong Kong. Notably, the Court dismissed assertions that Russian jurisdiction laws should dissuade this decision, underscoring its commitment to honouring the agreement between the parties.

    EU Sanctions and Contractual Obligations

    Due to EU sanctions, Linde GMBH (‘Linde’), a German contractor, temporarily halted its obligations under an engineering, procurement, and construction contract aimed at building a gas processing complex (the ‘Contract’) with Russian owner Ruschemalliance LLC (‘RCA’). The Contract, governed by English law, included an Arbitration Agreement explicitly subject to Hong Kong law and specifying HKIAC arbitration seated in Hong Kong.

    In response, RCA terminated the Contract, alleging Linde’s independent actions constituted a significant breach. RCA then initiated proceedings in Russia under Article 248.1 of the Russian Arbitration Procedural Code (‘Article 248.1’), which, as was explained our previous article, claims to establish exclusive jurisdiction over disputes involving Russian-sanctioned entities.

    Concurrently, Linde initiated a HKIAC arbitration and subsequently secured an anti-suit injunction (‘ASI’) from the Hong Kong court in support of arbitration, preventing RCA from pursuing the Russian legal action. RCA attempted to lift the ASI by applying to the Hong Kong court.

    The Hong Kong Court’s Decision: Upholding the Arbitration Agreement

    The Hon. Madam Justice Mimmie Chan rejected RCA’s application and upheld the ASI. She confirmed that there was a fundamental principle that unless there were powerful reasons to the contrary, when it comes to proceedings designed to breach an agreement to arbitrate, the Court will use its discretion to restrain such proceedings via granting an injunction.

    RCA relied on Article 248.1 to argue that granting the ASI was not just and convenient because:

    1. Article 248.1 meant the Russian courts had exclusive jurisdiction; and
    2. Under Russian law, the Arbitration Agreement in the Contract was invalid, and any award would therefore be unenforceable.

    The Hon. Madam Justice Mimmie Chan rejected argument (a), stating that Article 248.1 only applies if the application of foreign sanctions created access to justice obstacles for a party in the dispute. In this case, RCA had a means of accessing justice through the Arbitration Agreement.

    Furthermore, EU sanctions did not apply in Hong Kong, and RCA had access to excellent lawyers there. Case law had established that provided an Arbitration Agreement is valid and can be applied under the law chosen by the parties and stated in the agreement (in this case Hong Kong), the fact that a foreign court has jurisdiction under its own law did not prevent granting an ASI. In addition, the Contract had been entered into whilst EU sanctions were in force, therefore, terms had been drafted to cater to their potential impact.

    Regarding point (b), the Hong Kong court concluded that the Arbitration Agreement was valid and Article 248.1 did not apply in this case. And even if EU sanctions prevented an Arbitration Award being enforced in the EU, it could be enforced in other jurisdictions.

    Implications of Anti-Suit Injunctions in International Trade and Sanctions

    The Hong Kong court’s ruling and the decision in Renaissance Securities is important for companies aiming to withdraw or vary Russia-related contracts that include arbitration clauses due to the impact of US, EU, and UN sanctions.

    These entities are increasingly confronting Russian legal actions based on Article 248.1. In these cases, obtaining an Anti-Suit Injunction (ASI) from relevant courts is sometimes the best option and one that is becoming increasingly popular.

    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, 27 December 2023. This article does not constitute legal advice. For further information, please contact our London office.

  • Will the New Fixed Costs Regime push parties away from litigation to arbitration?

    Will the New Fixed Costs Regime push parties away from litigation to arbitration?

    What is the Fixed Costs Regime? 

    The fixed recoverable costs (FRC) regime sets the amount of legal costs that the winning party can claim back from the losing party in civil litigation. 

    In proceedings today, it is not uncommon for costs to amount to nearly the same or exceed any sum awarded by a court. The purpose of the regime is to give parties certainty about the maximum amount that the losing party will have to contribute to the winning party’s costs. 

    The New Fixed Costs Regime October 2023

    Previously, under the Civil Procedure Rules (CPR), the FCR regime only applied to road traffic accident cases with up to £10,000 in damages. For all other cases, the amount recoverable depended on what the winner’s lawyers charge and whether the court deemed those charges to be reasonable and proportionate, considering the value and complexity of the case. 

    However, since the implementation of the new regime under CPR 45 and PD 45, which came into effect on 1 October 2023, the regime is now extended to all types of civil proceedings valued at less than £100,000 allocated to the fast and intermediate tracks, that are issued on or after 1 October 2023. 

    There are exceptions to this general rule including: 

    • particularly complex cases allocated to the multi-track;
    • if a party is protected by CPR r.45.1(6);
    • personal injury claims where the cause of action accrues before 1 October 2023; and
    • residential housing claims (although this may change with new legislation in 2025). 

    Effect of the New Fixed Costs Regime

    Under the new regime, the maximum costs the losing party will be liable to pay will be fixed at the rates set in the tables at PD 45 of the CPR. 

    In determining these rates, the court will assign the case to a complexity band, labelled 1 to 4 in ascending order of complexity. The more complex the case, the higher the band it will be assigned to, and the greater the fixed costs applicable to the case. 

    In deciding the band into which the dispute falls, consideration will be had for the nature of the claim, the amount in dispute, the legal complexity, the number of parties, and the expected duration of the hearing. 

    There are also certain cases in which the new FCR regime is applied but costs greater than the FRC can be awarded such as where vulnerable parties or witnesses have resulted in additional work leading to costs 20% above the FRC. 

    How Does The New Fixed Costs Regime Affect Disputes? 

    At first blush, the new regime may appear to be a welcome change to litigants as it provides an additional degree of certainty as regards adverse costs. 

    However, it is important to remember that only the recoverable costs are fixed, not what lawyers charge for representing a party in the proceedings. Any shortfall between the recoverable costs and the amount charged by lawyers remains the winner’s liability. 

    This liability will also be greater as the introduction of complexity bands potentially creates and additional procedural step for which parties will have to determine their applicable band and make representations if their assigned band is disputed. 

    Arbitration Agreements to agree on costs liabilities 

    Since the introduction of the new FCR regime, parties are seeking alternative methods to resolve their dispute which allows them to keep in control of their costs. 

    Unsurprisingly, parties are turning towards arbitration as a method that is more cost-effective and allows the parties to agree terms on costs liabilities. 

    To ensure arbitration is available when a dispute arises, parties need to enter into an Arbitration Agreement. 

    International businesses across the world are including arbitration agreements as boilerplate clauses in all their standard contracts. However, there are still many who don’t and end up incurring significant costs when a dispute ultimately arises. 

    As such, the best approach parties can take to maintain control over their costs is to draft a clear arbitration clause into their contract. 

    An effective Arbitration Agreement should be in writing and include the following non-exhaustive provisions: 

    • The seat of the arbitration 
    • The governing law 
    • The nature of the dispute under the agreement 
    • The inarbitrability of specific agreements under the chosen law and elected by the parties 
    • Whether the arbitration is to be ad hoc or institutional
    • The number of arbitrators in the tribunal 
    • The language of the proceedings
    • Specifying any opt-out provisions. 

    The decisions a business makes on each of these points will have consequences on future arbitrations, so it is essential that expert advice is sought. A poorly drafted, unclear Arbitration Agreement will only result in additional delay and costs. 

    At Eldwick Law, our expert lawyers can assist in drafting an Arbitration Agreement that suits your business needs and will draw upon their experience in arbitration proceedings to mitigate potential issues arising in the future. 

    For more information on how Eldwick Law can assist you, or to arrange a consultation, please contact our London office.

    Contact Us

  • 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.

    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.