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Tag: Economic Sanctions

  • Court Of Appeal Revokes ASI In Ongoing UniCredit Case

    Court Of Appeal Revokes ASI In Ongoing UniCredit Case

    The recent Supreme Court decision in UniCredit Bank GmbH v RusChemAlliance LLC [2024] UKSC 30 is just one of many cases related to Russian sanctions winding their way through the English courts. In this case, a final anti-suit injunction (ASI) was granted to prohibit RusChemAlliance LLC from bringing legal proceedings in Russia. This was despite the fact that the agreed arbitration seat was in Paris.

    The case is still ongoing, as you will see below.

    Background to the decision

    RusChemAlliance (RCA) is a Russian company and UniCredit is a German bank with assets in Russia. RCA entered into contracts with a third party (the contractor) to build gas processing plants in Russia. Under the contracts, RCA was obliged to pay the contractor approximately €10 billion, with €2 billion in advance. The advance was duly paid.

    UniCredit issued seven on-demand bonds in favour of RCA to a total value of approximately €420 million, four of which were to guarantee the performance of the contract and three of which were to secure repayment of the advance payments.

    Each bond contained a clause stating:

    “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”.

    The bond clauses also stated that any disputes must be resolved by an ICC arbitration seated in Paris.

    Following EU sanctions being imposed on Russia, the contractor informed RCA that it was now unable to perform the contracts and would not return any of the €2 billion advance. RCA was not designated under or otherwise subject to EU or UK sanctions.

    RCA brought proceedings against UniCredit in the Russian courts seeking recovery of €448 million under the bonds. UniCredit issued a claim in England and Wales, alleging that the proceedings commenced by RCA in Russia breached the Arbitration Agreements contained in the bonds. It sought, among other things, an ASI to stop the Russian court proceedings. The High Court initially granted UniCredit an interim injunction on an ex parte (without notice) basis. But following a trial, the High Court ruled that because the arbitration seat was in Paris, it did not have jurisdiction, and England was not the right place to bring a claim. The Court of Appeal allowed UniCredit’s appeal and granted an ASI.

    RCA appealed to the Supreme Court.

    Supreme Court’s decision in UniCredit Bank GmbH v RusChemAlliance LLC

    The Supreme Court upheld the Court of Appeal’s decision, stating that the Arbitration Agreements were governed by English law and England was the proper place to bring a claim for an ASI.

    In giving the judgment, Lord Leggatt (with whom Lord Reed, Lord Sales, Lord Burrows, and Lady Rose agreed), considered the case in Enka Insaat ve Sanayi AS v OOO Insurance Company Chubb [2020] UKSC 38; [2020] 1 WLR 4117 (Enka). The central issue on that appeal was which system of law governs an Arbitration Agreement when the law applicable to the contract containing it differs from the law of the seat of the arbitration?

    He then went on to comment that it was rare for an Arbitration Agreement to separately specify a governing law; however, it was common for the cross-border commercial contracts to do so. Where a contract includes an Arbitration Agreement, it makes sense to interpret that the governing law of the latter is the same as the former, given that the Arbitration Agreement forms part of the overall commercial contract. The decision in Enka confirmed this to be so, even if the parties chose a seat of arbitration with a different law code from the contract’s governing law.

    Regarding whether an English court was the right forum to bring the claim, Lord Leggatt referred to Spiliada Maritime Corp v Cansulex Ltd [1987] 1 AC 460), the leading case on this issue which states that the English Court should not exercise jurisdiction if there is “some other available forum, having competent jurisdiction, which is the appropriate forum for the trial of the action, i.e. in which the case may be tried more suitably for the interests of all the parties and the ends of justice”.

    This principle is known as forum non conveniens. Where the Court’s permission is required to serve out of the jurisdiction, the Claimant must satisfy the court that England is the appropriate forum.

    Lord Leggatt confirmed that the object of the test in Spiliada is to ensure the case is heard in the most appropriate forum. Under Rule 6.36 of the Civil Procedure Rules (CPR), the Claimant may serve a claim form on a Defendant out of the jurisdiction with the Court’s permission if any of the grounds (commonly known as gateways) set out in para 3.1 of Practice Direction 6B applies. The gateway relied on by UniCredit is the contract gateway, as per para 3.1(6)(c) of Practice Direction 6B which applies where a claim is made in respect of a contract which is governed by the law of England and Wales.

    Regarding whether an English court was the appropriate institution to decide such an issue, Lord Leggat concluded that because UniCredit could rely on the contract gateway, there was a sufficient connection to England to justify intervention by the English courts to enforce the Arbitration Agreement.

    Given that the Arbitration Agreements between the parties were governed by English law and the English Court was an appropriate place to bring the claim, it naturally followed that the ASI should be granted.

    On 25th February, the Arbitration Act 2025 (the 2025 Act) received its Royal Assent. The 2025 Act introduces a new section 6A to the 1996 Act, which provides that an Arbitration Agreement will be governed by the law expressly agreed by the parties to apply. If there is no terms regarding the governing law contained in the Arbitration Agreement, the Agreement will be governed by the law of the seat of the arbitration. Therefore, if UniCredit was decided after 25th February 2025, the Arbitration Agreement would be governed by French law because Paris was the seat of arbitration.

    Why did the case go back to the Court of Appeal in 2025?

    In response to UniCredit obtaining an ASI, RSC obtained an anti-anti-suit (AAS) injunction from the Arbitrazh Court in Russia under the much publicised Article 248 of Russia’s Arbitrazh Code. This prohibited UniCredit from pursuing arbitration or court proceedings outside Russia and imposing a €250 million penalty. In addition, UniCredit was required to take every step possible to cancel the effects of the ASI it had been granted.

    The Court of Appeal had to decide whether it had the power to revoke or vary the ASI. It ruled that the English Courts had jurisdiction over UniCredit’s application and revoked the ASI as it could see no public policy considerations against doing so.

    The decision by UniCredit to apply to have the ASI revoked demonstrates that by imposing harsh financial penalties, Russian Courts have the power to undermine decisions by the Courts of England and Wales and other jurisdictions. With more sanctions being imposed and more contracts being caught up in them, this case illustrates the complexity and high stakes involved in such situations.

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

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

  • 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.