25/04/2024

Upholding the sanctions regime: Commercial Court demands withdrawal of Russian proceedings lodged in breach of English law arbitration agreements

Paul Lowenstein KC and Andrew Dinsmore appeared for the claimant in Renaissance Securities (Cyprus) Limited v Chlodwig Enterprises Limited and five others, where the claimant succeeded on an on-notice return date in obtaining (i) an interim mandatory anti-suit injunction to compel the withdrawal of six sets of Russian proceedings brought in breach of English-law arbitration agreements allocating jurisdiction to LCIA arbitrations seated in London, and (ii) continuation of a prohibitory anti-suit injunction (ASI) and an anti-anti-suit injunction (AASI) to prevent the continuation of the Russian proceedings and to stop the English defendants from seeking any counter-measures (such as anti-suit orders) in the Russian courts. (The hearing was not attended by the defendants.)

Paul and Andrew first appeared, with Alexandros Demetriades, ex parte, in early November 2023 when Mrs Justice Dias granted a prohibitory ASI and AASI: [2023] EWHC 2816 (Comm). Between the ex parte hearing and the full return date, Andrew and Alex resisted a satellite attack on the penal notice and service provisions of the ex parte injunction: [2023] EWHC 3160 (Comm).

Background

The underlying facts are that the claimant provided financial services to the defendants under contracts that contained (i) English-law choice of law clauses and (ii) arbitration agreements allocating jurisdiction to LCIA arbitrations seated in London.

Under these agreements, the claimant held assets which became frozen by international sanctions. The defendants asked for the return of those assets, but the sanctions stopped the claimant from doing so. Instead of commencing arbitrations against the claimant in the LCIA, the defendants each sued the claimant in separate court actions in Russia.

In the Russian courts, the defendants invoked article 248 of the Commercial Procedural Code of the Russian Federation (CPC), which was introduced in 2020 to purportedly confer the exclusive jurisdiction of Russian state commercial courts over disputes involving sanctioned persons, so allowing such persons (i) to ignore foreign-seated arbitration agreements and (ii), instead, to sue in Russia. Article 248 CPC further empowers the Russian commercial courts to grant orders equivalent to ASIs to stop the non-sanctioned party from initiating or continuing proceedings in a non-Russian court or arbitral tribunal.

The cumulative effect of these provisions is purportedly to allow a sanctioned entity to obtain judgment in Russia – protected by anti-suit order – that might then be enforced against the non-sanctioned party’s assets in Russia, thereby circumventing both the arbitration agreements and the international sanctions regime.

Decision

The interim mandatory anti-suit injunction made in Renaissance Securities required that the six defendants each withdraw their Russian proceedings, and is therefore crucial to upholding the international sanctions regime.

Mr Justice Henshaw had no hesitation in concluding that the Russian proceedings were brought and pursued in breach of the arbitration agreements, and that the evidence dictated that interim mandatory relief was appropriate, (i) since the prohibitory ASI and AASI alone were insufficient and (ii) notwithstanding that the effect of withdrawal would mean that similar Russian proceedings could not later be commenced (the LCIA was available). The court also prospectively dispensed with personal service for the purposes of CPR rule 81.4 after considering evidence that individuals who may be the subject of future contempt proceedings could later seek to avoid personal service of the order.

The order was made on 23 April 2024. Henshaw J gave headline reasons ex tempore, with full reasons to follow. The judgment will be posted here as soon as available.

This judgment forms part of a high-profile series of applications for ASI and/or AASI relief in the context of actions started in Russia under article 248 CPC in breach of international arbitration agreements, with UniCredit Bank GmbH v RusChemAlliance LLC [2024] EWCA Civ 64 recently going to the Supreme Court on the issue of jurisdiction, where the arbitration agreement was seated in Paris.

Paul and Andrew were instructed by Yuri Botiuk and James Collins of CANDEY.