Barclays Bank plc v VEB.RF [2024] EWHC 2981 (Comm)
Russian sanctions continue to cause commercial and trade disputes.
In November 2024, the Commercial Court was asked to make a declaration on an application made under section 32 of the Arbitration Act 1996. These applications are rare, which makes it worth setting out the details of what happened.
Background of the case
The Claimant, Barclays Bank entered into a currency swap agreement with the Defendant, VEB.RF, a Russian bank. The Arbitration Agreement stated that any disputes would be referred to the London Court of International Arbitration (LCIA) and, subject to certain provisions, the English Courts would have jurisdiction. In 2022, VEB.RF was made subject to UK, EU, and US sanctions, leading to Barclays ending the contract early. The premature termination meant that Barclays owed VEB.RF US$147.7 million. Barclays said it could not pay the sum due to the sanctions placed on VEB.RF.
VEB.RF brought proceedings against Barclays in a Russian Court. This was in breach of the Arbitration Agreement. In response, Barclays obtained an anti-suit and anti-injunctive relief through an English Court.
LCIA Arbitration proceedings were then begun by VEB.RF, who also deferred the Russian proceedings.
Jurisdiction Dispute
Barclays gave notice that it wanted the dispute to be heard in an English Court. VEB.RF objected.
To resolve the jurisdiction dispute, the Arbitrator gave permission for Barclays to apply to the Court under section 32 of the Arbitration Act 1996 for a declaration that the Arbitrator had no jurisdiction to hear the dispute. Section 32 cases are rare as in accordance with the general scheme of the Arbitration Act 1996, a Tribunal should determine its own jurisdiction.
Section 32 of the Arbitration Act 1996
Section 32 of the Arbitration Act 1996 allows the Court to make a declaration on the jurisdiction of the Tribunal provided:
- All parties to the proceedings agree in writing.
- The Tribunal gives permission.
- The Court is satisfied that:
- the determination of the question is likely to produce substantial savings in costs,
- the application was made without delay, and
- there is good reason why the matter should be decided by the Court.
The Court’s Decision
Looking at the whether a declaration by the Court would save costs, Judge Pelling KC reasoned that if he did not make a declaration regarding jurisdiction, there would almost certainly be a challenge to any award made under section 67 of the Arbitration Act 1996.
“It follows that the relevant comparison in this case is between the court determining the jurisdiction issue now or leaving it to the tribunal with the court becoming engaged with the jurisdiction issue only after a final award or at any rate an interim award determining jurisdiction. This is likely to generate significant wasted costs, as well as significant delay for the parties.”
If the application for a declaration regarding jurisdiction succeeded, Judge Pelling KC reasoned there would be significant savings in relation to costs.
The Court went on to accept that the second condition, namely that the application had been made as quickly as possible, had been satisfied.
Condition three was also satisfied, as there was clearly a good reason why the Court should decide on the jurisdiction question. The fact that a section 67 challenge would be almost guaranteed if the Arbitrator determined the question would not only create additional costs but also significant delays and uncertainty.
Practical Implications
Practical difficulties could also occur if the Arbitrator determined jurisdiction in favour VEB.RF, leaving Barclays exposed to the risk of enforcement in various jurisdictions while a section 67 challenge was pending. In addition, settling the jurisdiction dispute through the instant application would be consistent with a term in the parties’ Arbitration Agreement that they would resolve their disputes as a matter of exceptional urgency.
Final words
One of the takeaways from this case is the importance of a well-drafted Arbitration Agreement. Because the parties had made their intentions clear, for example, that issues will be resolved quickly, the presiding Judge could easily interpret their overall intentions.
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 the law at the time of writing, 14th December 2024. This article does not constitute legal advice. For further information, please contact our London office.
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