We have previously commented on the benefits of ASIs and their use post-Brexit.

The English court routinely grants ASIs to hold parties to their English seated arbitration agreements. But uncertainty remains as to the extent to which ASIs can be obtained in support of arbitrations seated in other jurisdictions.

Background

The decisions, Deutsche Bank AG v RusChemAlliance LLC [2023] EWCA Civ 1144; Commerzbank AG v RusChemAlliance LLC [2023] EWHC 2510 (Comm); and G v R [2023] EWHC 2365 (Comm), all relate to the construction of a liquefied natural gas plant in Russia by a German construction company, Linde GmbH (Linde). Three banks, Deutsche Bank (DB), Commerzbank and UniCredit issued advance payment guarantees (the Guarantees) on behalf of Linde to RusChemAlliance (RCA) to guarantee advance payments made by RCA to Linde. Following the Russian invasion of Ukraine and imposition of financial sanctions, Linde ceased work. RCA terminated its contract with Linde and sought recovery of the advance payments it had made, including by making demands under the Guarantees. The banks declined to pay on the basis this was prohibited by sanctions.

In each instance, the relevant Guarantee contained an arbitration agreement referring disputes to ICC arbitration seated in Paris, with no express provision regarding the governing law of the arbitration agreement. Each Guarantee was otherwise governed by English law. However, RCA issued proceedings against each bank in Russia, in breach of the arbitration agreements.

The banks each sought an ASI from the English courts to restrain RCA from pursuing its cases in Russia. DB and Commerzbank were ultimately successful in their applications (with DB taking its case to the Court of Appeal). But although UniCredit’s application was successful at the initial without notice hearing, it was declined on the return date at which RCA was represented. Uncertainty thus remains as to the availability of ASIs to support foreign-seated arbitrations.

Deutsche Bank at first instance

At first instance in Deutsche Bank¹, the English court refused to grant an ASI. DB had sought the ASI in England as no such relief is available from the French court, and the relevant Guarantee was governed by English law.

The judge, Bright J, was satisfied that English law was the governing law of the arbitration agreement. This was an application of the principle set down by the Supreme Court decision in Enka v Chubb.² According to that case, there is a rebuttable presumption that where a contract contains an arbitration agreement that does not specify a governing law, the arbitration agreement will be governed by the same law as the wider contract. In this case, that was English law. Bright J did not identify any provision of French law requiring it to govern an arbitration agreement providing for a French seat, which would rebut the presumption in Enka.

However, Bright J refused to grant an interim ASI, primarily on the basis that, given the French law evidence before him, he understood that the French court held a philosophical objection to the concept of an ASI.

Deutsche Bank in the Court of Appeal

The Deutsche Bank decision was overturned on appeal. The Court of Appeal (CoA) had the benefit of considerably more expert evidence of French law than was available at first instance. This evidence convinced the CoA that whilst there is no ability to grant an ASI under French law, the French court does not hold any fundamental objection to an ASI in these circumstances.

The CoA otherwise endorsed Bright J’s conclusions. Amongst these, it confirmed that court’s power to grant an ASI in support of an arbitration agreement is derived from section 37 of the Senior Court Act 1981, rather than section 44 of the Arbitration Act 1996 (Arbitration Act).

This distinction has the practical consequence that the claimant will have to prove to the court that England is the proper place in which to bring its claim. That is because an applicant must seek permission to serve out of the jurisdiction under the English Civil Procedure Rules (CPR) r.6.36 and 6.37, rather than CPR r.62.5 (which would be relevant for a s.44 1996 Act claim or an ASI where the seat of the arbitration is in England).

To obtain such permission, the ASI applicant must show:

• a serious issue to be tried on the merits;
• a good arguable case that the claim falls within one of the relevant gateways for service out of the jurisdiction; and
• that England is the proper place in which to bring the claim.

Thus, the requirement on the applicant to show that England is the proper forum is engaged.

In Deutsche Bank, the CoA was satisfied that the first two limbs of the test for permission to serve out could be established without difficulty.  It was clear there was a serious issue to be tried on the merits in the substantive dispute. And there was a good arguable case that the claim fell within a relevant gateway because the substantive claim relates to the Guarantee, which is governed by English law.³

The third limb, the proper place test, required more careful consideration. The CoA noted that it might appear that the proper place in which to bring an application for an ASI would be France (as seat of the arbitration) and so not England.

However, the CoA said that the relevant question is in fact for the English Court to “identify the forum in which the case can be suitably tried for the interests of all the parties and for the ends of justice.”

It is the policy of English law to hold parties to their contractual bargains and so an English Court will ordinarily grant an ASI to enforce an arbitration agreement unless there is good reason not to. The relief to ensure the arbitration agreement was upheld was available in England but not France. Hence the CoA deemed England the appropriate forum to hear a claim for an ASI in the interests of justice.

The CoA also granted DB an anti-enforcement injunction, restraining RCA from executing any judgment obtained from the Russian Court.

The Commerzbank decision

In Commerzbank, which was decided before the CoA’s judgment in Deutsche Bank, the High Court found that an interim ASI should be granted.

A different judge this time, Bryan J, found that the arbitration agreement was governed by English law, adopting the same reasoning as Bright J and the CoA in Deutsche Bank that the presumption from Enka v Chubb was applicable. Bryan J also reasoned that England was the appropriate place to bring the ASI claim because the English court is able to grant ASIs, whereas the French courts cannot. This also accords with the CoA decision in Deutsche Bank.

The first instance decision in Deutsche Bank was distinguished by the extent and quality of French law evidence before the court. Bryan J concluded that the more fulsome French law evidence before him demonstrated that the French court does not hold any philosophical objection to ASIs. On the contrary, the French court would welcome an ASI issued by the English court to safeguard an arbitration agreement. The seat of the arbitration being Paris did not amount to an exceptional circumstance against the grant of an ASI. This decision thus fits with the CoA’s later ruling in Deutsche Bank.

Uncertainty remains? – the UniCredit decision

The CoA’s decision in Deutsche Bank might appear to have clarified the English court’s ability to grant ASIs in support of arbitral proceedings seated in other jurisdictions.

However, in a subsequent judgment in G v R, the High Court refused to make final an interim ASI that had initially been granted on an ex parte application. This time the judge was Sir Nigel Teare, who distinguished the CoA’s ruling in Deutsche Bank on the basis that the appeal was heard ex parte and RCA therefore did not make submissions. By contrast, in the final ASI hearing in G v R, the High Court had the benefit of submissions from RCA.

Sir Nigel Teare found that:

• the presumption, following Enka v Chubb, that English law is the governing law of the arbitration agreement could be rebutted by the parties’ choice of France as the seat of the arbitration. It was common ground that the French court would regard the arbitration agreement as subject to French substantive rules applicable to international arbitration. The parties could therefore be fairly taken as intending that the arbitration would be governed by principles of French law; and
• in any event, even if the first conclusion were incorrect, the judge did not consider that England would be the proper forum in which to enforce an arbitration agreement that provided for arbitration in another jurisdiction. The judge concluded that, notwithstanding that ASIs are not available in France, substantial justice as between the parties could still be done there. For example, damages may be available in France for breach of the arbitration agreement.

The availability of ASIs in support of arbitrations in other jurisdictions therefore remains unclear, pending an appeal of G v R or further decisions in Deutsche Bank and Commerzbank.

The future

In its recent final report on the Arbitration Act, the Law Commission has made a proposal for the amendment of the Arbitration Act to reverse the rule in Enka v Chubb. If the proposal is made law, the governing law of an arbitration agreement will be (1) the law that the parties expressly agree applies to the arbitration agreement; or (2) in the absence of any express agreement, the law of the seat of the arbitration.

If this proposal is made law, ASIs may not be available in support of arbitrations seated in other jurisdictions unless the parties expressly agree that the arbitration agreement is subject to English law or they can show that their claim fits within one of the other gateways for service out of the jurisdiction.

Nevertheless, the English court has demonstrated that it is happy to issue ASIs where it can be satisfied that England is the proper forum in which to seek an ASI. This is a useful tool for parties to ensure that arbitration agreements are not undermined. It is also an important factor to consider when drafting arbitration agreements and selecting the seat and governing law of the arbitration agreement. If the law of a non-English seat means that an ASI to defend the arbitration agreement will be difficult or impossible to obtain, one solution would be to select English law as the law governing the arbitration agreement.

¹ SQD v QVP [2023] EWHC 2145 (Comm)

² Enka Insaat Ve Sanayi AS v OOO Insurance Company Chubb [2020] UKSC 38

³ There is a gateway in PD6B para 3.1(6)(c) specifically for claims in respect of contracts governed by English law.