Introduction
Dispute resolution clauses
Most commercial contracts today, from simple lease agreements to complex shareholder contracts have a “dispute resolution” clause. While complexity differs, the basic intent is to designate a particular forum with “exclusive jurisdiction” and/or mechanism (such as arbitration) which the parties must follow in case of disputes.
When the dispute resolution clause provides for arbitration, the designated “seat” of arbitration akin to an exclusive jurisdiction clause provides the courts of the seat with supervisory jurisdiction over the arbitration proceedings.
The contract also usually specifies the “governing law” of the contract which will be applicable to the parties’ substantive rights and may even separately specify the governing law of the arbitration agreement.
When parties have agreed on a particular forum to resolve disputes, courts should enforce such agreement. The Supreme Court of India (SC) has held that Indian courts will not be a party to breach of such agreement and will relegate the parties to the appropriate contractually agreed jurisdiction.
Anti-suit injunctions
But what if a party flouts their agreement and pursues a dispute in a different jurisdiction? How will the courts enforce compliance?
One of the effective mechanisms followed by the court to enforce compliance with the parties’ chosen jurisdiction is by grant of an anti-suit injunction (ASI). Ordinarily, the court of the contractually agreed jurisdiction would grant an ASI restraining the flouting party from proceeding in the non-contractual forum.
For e.g. in Enercon (India) Ltd. v. Enercon GmbH , the SC upheld an ASI granted by the District Court in Daman to restrain proceedings in England since the contractually agreed seat of the arbitration was in India.
The recent judgment coming from the UK Supreme Court (UKSC) in UniCredit Bank GmbH v. RusChemAlliance LLC has gone a step further and pushed the envelope on grant of ASIs.
The UniCredit case
UniCredit, a German bank had issued certain bonds to a Russian company— RusChemAlliance. The bonds were issued by UniCredit to RusChem guaranteeing obligations of two German companies to construct gas processing plants in Russia. The bonds were expressly stated to be governed by English law and that any dispute was to be referred to Paris seated arbitration.
In the wake of the Russia-Ukraine war, the German companies defaulted on their construction obligations due to European Union sanctions. RusChem terminated their contract with the construction companies and demanded payment from UniCredit under the bonds, on which disputes ensued.
RusChem commenced proceedings against UniCredit in Russia based on Russian national law. UniCredit’s application to the Russian court to dispute jurisdiction on the ground that the parties had agreed to Paris seated arbitration was dismissed.
UniCredit then approached the English courts seeking an ASI to restrain the Russian proceedings by RusChem. While the English High Court refused to grant an ASI, the Court of Appeal found the English court to have jurisdiction and granted a final injunction ordering RusChem to discontinue English proceedings. RusChem appealed to the UKSC.
The UKSC judgment
In the judgment given on 18-9-2024 , the UKSC (Lord Leggatt with whom the other Justices agreed) dismissed RusChem’s appeal and upheld grant of the ASI requiring RusChem to discontinue proceedings in Russia. The UKSC found that English courts have the jurisdiction to grant such ASI because:
(i) Even though the seat of arbitration was Paris, the governing law of the arbitration agreements in the bonds was English law. Thus, the “contract gateway” under English law applied to give English court jurisdiction ; and
(ii) Proper place to bring the ASI claim was English courts since:
(a) substantial connection with England as contractual rights (under the bond) sought to be enforced were English law governed.
(b) pacta sunt servanda demanded English courts to enforce the parties’ contractual bargain. An English court may not be the most appropriate court to grant relief but the parties should be held to their contractual bargain by any court before whom they have been or can properly be brought.
(c) the ASI was not an encroachment of the French courts’ supervisory “seat” function, but an equitable relief granted by the English court. A similar effective remedy was not available with the French courts (which do not have power to grant ASIs) or the Arbitral Tribunal (which would not have the same coercive force).
(d) Further, given that England, Russia and France were all parties to the New York Convention, English courts could grant the ASI relief which was consistent with the policy of the convention to uphold arbitration agreements and would thus not violate comity.
Conclusion
The “Good Samaritan” ASI
It is an established English law principle that English courts will exercise their discretion (either by staying own proceedings or granting ASIs) to restrain proceedings in a non-contractual forum unless strong reasons are shown to sue in that forum. UniCredit pushes this envelope further. The UKSC judgment now provides precedent for English courts to exercise a broader discretion to grant ASI even when:
(i) neither of the parties are English (UniCredit was German and RusChemAlliance Russian); and
(ii) exclusive jurisdiction under the contract (bonds) was not the UK (the chosen seat of arbitration was Paris).
UniCredit makes the English law position clear — pacta sunt servanda — English courts will not restrain themselves from exercising jurisdiction to grant an ASI to prevent breach of a clear contract on exclusive jurisdiction. Thus, English law post-UniCredit now stands for English courts exercising a “good samaritan” ASI by being zealous of exclusive jurisdiction — not only their own but in fact any exclusive jurisdiction, to protect the parties’ contractual choice.
This makes English law and courts an even more attractive governing law and jurisdiction respectively for commercial agreements between parties seeking to strictly enforce their contractual bargain.
The Indian approach to ASIs
Indian courts have been conservative in the grant of such ASIs. In Modi Entertainment Network v. WSG Cricket Pte. Ltd., the SC laid down principles required to be taken into consideration by any court while granting an ASI. These principles include, inter alia, the court being satisfied that the defendant, against whom ASI is sought, is amenable to personal jurisdiction of the court; if the injunction is declined, the ends of justice will be defeated and injustice will be perpetuated; and the principle of comity.
Following these principles, the Indian approach has been to exercise the power to grant ASI’s sparingly and in a cautious manner. In fact, ASIs have been refused by Indian courts when continuation of proceedings in the foreign court would not cause any “grave injustice” to the party seeking injunction. Thus, the Indian approach has maintained a high threshold for granting an ASI adopting more of a “negative test” — do not grant an ASI unless grave injustice caused in the other forum.
Key takeaways for India
The UniCredit judgment might influence and lead to an evolution of India’s approach to ASIs. The SC has noted that courts in India like in England are courts of both law and equity from which they derive the power to grant ASIs. The ASI jurisprudence laid down in India through Modi Entertainment was evolved more than 20 years ago taking into account leading English jurisprudence on this issue at the time.
As international contracts have become more usual since and English jurisprudence has turned a new leaf now, it is possible that Indian courts could be influenced to exercise their ASI discretion less frugally in order to strictly enforce the parties’ choice of jurisdiction. Development of this jurisprudence is also important to achieve India’s aims of being an international arbitration hub and making it an attractive dispute resolution jurisdiction.
Another influence of UniCredit could be on international commercial agreements where one party is Indian and the other international. Such contracts often adopt the (neutral and universally accepted) English law as the applicable governing law of the contract and arbitration agreement. If a party were to flout the jurisdiction clause and proceed in a non-contractual forum for disputes under such a contract, there is a gateway for the affected party to apply to English courts to grant an ASI.
While it would be more straightforward to get such an ASI in England if the contract provides for exclusive jurisdiction to be with English courts or for England seated arbitration, post-UniCredit, the affected party may be able get an ASI from an English court even when exclusive jurisdiction is with a non-English court and none of the parties are English. Parties entering into such English law governed contracts should thus be aware of the implications.
Further, there may be situations where an Indian court is called upon to apply English law, such as for disputes under an English law governed contract. Application of English law to such disputes will need to be pleaded before the Indian court like any other fact by the party seeking to rely on it. Such a party might plead their case based on UniCredit principles for the English law governed contract and Indian courts may be called upon to apply the principles to strictly uphold the exclusive jurisdiction clauses, by either staying their own proceedings (in favour of a non-Indian contractually chosen jurisdiction) or granting an ASI to restrain proceedings in a non-contractual forum.
*Advocate (India), Solicitor (England & Wales), BA LLB (Hons.). Author can be reached at <adv.ankit.handa@gmail.com>.
.
.
.
.
Arbitrazh Procedural Code (Russia), 2002, Art. 248 confers exclusive jurisdiction on Russian courts over disputes between Russian and foreign parties arising from sanctions and treats arbitration agreements providing for arbitration outside Russia as inoperable.
.
Civil Procedure Rules (England & Wales), 1997, R. 6.36 read with Practice Direction 6B (England & Wales), Para 3.1(6)(c).
citing .
.
.
.
.
.
.
.
.
The post appeared first on .