The UniCredit/RusChemAlliance dispute continues: pragmatism prevails

UniCredit – the background

In 2021, Russian company RusChemAlliance LLC ("RCA") entered into two contracts (worth around €10 billion) with German contractors for the construction of liquefied natural gas and gas processing facilities in Russia. The contracts were payable in stages with €2 billion paid up front. The contractors' performance was guaranteed by seven bonds payable on demand and issued by UniCredit Bank GmbH ("UniCredit"). Each bond was governed by English law and provided for ICC arbitration with a Paris seat.

The Russian invasion of Ukraine in early 2022 led to the extension of existing and imposition of new sanctions on Russia, designated Russian entities and individuals by the EU. Whilst the sanctions did not capture RCA, the contractors concluded they could not perform the contracts as a result. This in turn led to RCA terminating the contracts and seeking repayment of the sums already advanced. When the contractors refused to pay, RCA made demands under the UniCredit bonds. UniCredit cited sanctions as the reason for non payment.

Rather than initiating ICC arbitration (despite the arbitration clause in the bonds), RCA challenged the non payment by issuing proceedings against UniCredit in the Arbitrazh Court in St Petersburgh. The claim relied on the provisions of the Arbitrazh Procedural Code - specifically article 248.1 (which gives exclusive jurisdiction to Russian Arbitrazh Courts over disputes between Russian and foreign persons arising from foreign sanctions and also enables the courts to treat an agreement for arbitration of a dispute outside Russia as inoperable). The code also enables Russian persons affected by foreign sanctions to apply to the Russian Arbitrage Courts for an ASI to prevent the initiation of proceedings before a foreign court or arbitration tribunal outside Russia. 

The Russian courts formally accepted RCA's claim in 2023, and proceeded to fix a date for the substantive trial of the claim, relying on the Arbitrazh Procedural Code to conclude that the dispute fell within the competence of the Arbirazh Courts and that the arbitration agreements in the bonds were unenforceable. 

In turn, UniCredit issued a claim in England along with an application for an interim ASI to restrain the continuation of the proceedings in Russia. Jurisdiction challenges followed in England culminating in an appeal to the UKSC to determine whether the English court had jurisdiction to issue an ASI, a point which required the UKSC to consider whether the COA was right to decide that the arbitration agreements contained in the bonds were governed by English law and whether England was the "proper place" in which to bring an application for an ASI.

What is the Governing Law of the Arbitration Agreement?

In commenting on the governing law of the arbitration agreements in the bonds, the UKSC affirmed its decision in Enka Insaat ve Sanayi AS v OOO Insurance Company Chubb [2020] UKSC 38 & Kabab-Ji SAL v Kout Food Group [2021] UKSC 48, reiterating that an arbitration agreement is governed by the law the parties have agreed will govern it or, in the absence of any agreement, the law of the country with which the arbitration agreement is most closely connected. Whether parties have in fact agreed a choice of law is a matter of construction of both the arbitration agreement clause and the contract within which it sits. The usual interpretation is that the choice of law governing the contract is generally construed as applying to the arbitration agreement even when the parties have chosen a seat in a different jurisdiction. If, there is no choice of law but there is a chosen seat of arbitration, the law of the seat will be the law governing the arbitration agreement even if that differs from the law applicable to the parties' substantive contractual obligations. Whilst RCA asserted French law ought to govern the arbitration agreement (as Paris was the elected seat) the UKSC did not depart from its previous decisions commenting that it was "not obvious" how a "reasonable reader of the bonds" could reach such an interpretation given that the bonds contained a clear governing law clause with nothing to suggest that the arbitration clause was to be excluded. The parties had, the UKSC found, agreed that the arbitration agreements in the bonds were governed by English law no matter that the agreed seat of arbitration would be Paris.

This position is in stark contrast to the change set out in the Arbitration Act 2025 which received royal assent on 24 February. Whilst the main provisions are not yet in force, the Act includes a default rule that an arbitration agreement is governed by the law of the seat, unless the parties expressly agree otherwise In the absence of express agreement the Act is clear that the governing law of the main contract will not dictate the law of the arbitration agreement. It is therefore all the more important that parties are very clear of their intentions when finalising the terms of an arbitration clause and that the governing law of the arbitration agreement is expressly specified in the arbitration clause.

Where is the "Proper Place" for the ASI application to be heard?

The UKSC provided additional commentary on the issue of "proper place". CPR 6.37(3) provides that permission to serve a claim form out of the jurisdiction can only be granted if the court is satisfied that England and Wales is the "proper place in which to bring the claim". The Court rejected arguments that the test of forum non conveniens as set out in the Spiliada case applied² here noting that Spiliada was designed to deal with a situation where a claimant wanted to bring a substantive claim in the English courts but the defendant asserts that another forum is more appropriate for the trial and additionally, no forum has been contractually agreed. Here, neither RCA or UniCredit had suggested that English courts should be the forum for the substantive dispute and the parties had contractually agreed to arbitration. It was unnecessary for the court to consider whether another forum was more appropriate. The fact that the agreed seat was in Paris made no difference.

The UKSC referred to the importance of the international policy to give effect to agreements to arbitrate (relying on the New York Convention³) and also to s9 of the Arbitration Act which requires courts to stay proceedings brought in breach of an arbitration agreement: there is no discretion if that agreement is valid. The court was clear that an obligation not to litigate disputes where a valid arbitration agreement is in place does not extend to court proceedings which are brought to uphold that arbitration agreement - the UKSC noted that UNCITRAL Model Law on Arbitration is clear on this issue and commented "that a strong reason needs to be shown as to why in the particular circumstances the court ought not to exercise its jurisdiction to restrain a breach of the parties’ contractual bargain."

Whilst RCA contended that as Paris was the agreed seat of the arbitration, it was for the French courts to determine if there had been a breach of the arbitration agreements and if so what relief was appropriate, the UKSC disagreed. The French court's curial jurisdiction did not mean they had sole responsibility for supervising the arbitration. The role of the of the seat of the arbitration is to supervise the arbitration itself – that court is not however the only court which can prevent a party from breaking the contract to arbitrate in the first place. The fact, therefore, that the parties chose to be subject to the supervisory jurisdiction of the French courts if an arbitration was initiated was not itself a reason why an English court could not uphold the parties’ agreement by restraining a breach of the arbitration agreement. It was also relevant that French courts had no power to order an ASI and also had no jurisdiction over RCA in any event. Aside from the arbitral seat being in Paris, there was no link between the parties or the subject matter of their dispute and France (RCA was not established in France, the bonds were not performed in France nor was France the place where any relief sought would be implemented). 

RCA also argued against the ordering of an ASI on the basis that UniCredit could obtain substantive justice through arbitration proceedings. This argument was dismissed – whilst the ICC rules did enable arbitrators to issue interim measures, it was unlikely that any order made by an arbitrator (which would create only a contractual obligation) would have coercive effect. It would not be backed by the powers available to a court to enforce performance of its orders - sanctions for contempt of court, for example. RCA had already effectively ignored its previous contractual obligation not to bring proceedings against UniCredit in the Russian courts and there was no reason to think that RCA would abide by a further contractual obligation.

The Decision to Discharge the ASI ((UniCredit Bank GmbH v RusChemAlliance LLC [2025] EWCA Civ 99 (11 February 2025).)

Since the granting of a final ASI by the UKSC, further steps were taken by RCA in Russia which have resulted in a significant turn around by the English COA - varying the ASI by removing the injunctive element. 

Notwithstanding that RCA submitted it would be bound by the final injunctive relief following the UKSC decision last year, RCA sought and obtained another ruling from the Russian Arbitrazh Court prohibiting UniCredit from initiating or continuing any arbitration or court proceedings against RCA apart from in the Russian courts and requiring it to "take all measures within its control" to cancel the English ASI. Failure to comply with these orders would result in the imposition of a fine on UniCredit of €250 million. Consequently UniCredit applied to English courts seeking the discharge of the final ASI. 

Whilst clearly reluctant to vary the ASI, the COA concluded that the inherent jurisdiction of the court (under CPR 3.1(7)) provided it with the discretionary power to do so. It is notable that in making its decision the COA revoked only the injunctive parts of the decision leaving in place the declaratory elements regarding the jurisdiction of the English court.

The key conclusions of the COA were:

• UniCredit had not been coerced into making the application for removal of the ASI. All ASIs are by nature coercive remedies wherever they are granted - whilst the Russian court ruling applied commercial pressure to UniCredit to make the application in England (and in that sense some coercion was in play), UniCredit was a major bank, capable of making its own decisions. In making this application its board must have decided it was in its own commercial interests to do so and as such it was entitled to tell the English court it no longer wanted the ASI. 
• There was no suggestion that direct pressure was being applied by the Russian court on the English courts;
• That whilst the New York Convention (Article II(3)) requires courts of contracting states to respect a valid agreement to arbitrate, parties are able to waive the right to arbitrate, and UniCredit was in effect doing just that. The COA however reiterated that it was not "in any way departing from…."the strong international policy of giving effect to agreements to arbitrate disputes"" but noted that the Russian court ruling was not contrary to Russia's obligations under the New York Convention.
• There was no violation of UK sanctions in removing the ASI.
• Whilst the COA noted its disapproval of the approach of RCA in ignoring the orders of the UKSC (acting in contempt of the English court) jurisdictional contests often involve one party starting or pursuing proceedings in another jurisdiction in breach of an order of the first jurisdiction. RCA was in a factually better position than UniCredit as its assets were not within the jurisdiction of the English court – UniCredit by contrast did have assets in Russia.
• It would be unjust and unfair to force UniCredit to risk "massive penalties" in Russia by not granting UniCredit's application for removal of the ASI.

Whilst the UKSC's decision in UniCredit demonstrates that English courts will not easily allow parties to circumvent contractual agreements they have made and also illustrates circumstances where an ASI may be sought from an English court where the arbitral seat is in another jurisdiction, the very recent decision of the COA removing the ASI serves to remind that the English courts will adopt a pragmatic application of the facts in cases where jurisdiction is at issue. The extent to which this sets a precedent for a party seeking to circumvent arbitration agreements, or whether this turns on the particular facts of this case we wait and see.

[1] https://supremecourt.uk/uploads/uksc_2024_0015_judgment_117c893794.pdf

[2] Spiliada Maritime Corpn v Cansulex Ltd [1987] 1 AC 460, 476

[3] 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards