Barclays Bank Plc v VEB.RF

An arbitration agreement is not frustrated merely because sanctions make arbitration more difficult, costly or procedurally burdensome. The question is whether performance has become radically different from the parties’ contemplated bargain, assessed by reference to the contract, its context, the parties’ objectively ascertainable allocation of risk and the supervening event.

Where the parties had expressly anticipated sanctions and amended their agreement without altering the arbitration clause, the clause remained binding. An anti-suit injunction should generally be granted unless the respondent establishes strong reasons to refuse relief. Delay is assessed principally by its effect on the progress, resources and integrity of the foreign proceedings, balanced against the importance of enforcing the forum agreement.

Barclays and VEB were parties to an ISDA Master Agreement governed by English law and containing an LCIA arbitration clause. A 2019 amendment addressed the possibility that VEB might become subject to sanctions, but did not amend the dispute resolution clause.

Following VEB’s designation under UK, EU and US sanctions, Barclays terminated the transactions and did not make the agreed final payment. VEB commenced proceedings in the Arbitrazh Court of the City of Moscow. On 5 February 2024, HHJ Pelling KC granted Barclays an interim anti-suit and anti-enforcement injunction.

On the return date, VEB sought discharge of the order, arguing that sanctions had frustrated or rendered inoperative the arbitration agreement and that Barclays had delayed unjustifiably. The court considered whether either ground constituted a strong reason not to enforce the arbitration clause.

1. Outcome. The interim anti-suit and anti-enforcement injunction was made permanent. Neither objection constituted a strong reason not to hold VEB to the LCIA arbitration clause.
2. Frustration. Applying the approach described in National Carriers v Panalpina Ltd [1981] 1 AC 675, the relevant question was whether the sanctions made performance radically different from the original bargain. The analysis required consideration of the contract, its matrix, the parties’ objectively ascertainable knowledge, expectations, assumptions and allocation of risk, the supervening event and the parties’ calculations as to future performance.
3. The reduced pool of lawyers, slower payments, additional compliance procedures and possible use of remote hearings amounted to more onerous performance. They did not establish a denial of access to justice, a practical impediment of sufficient degree, or frustration.
4. The 2019 Amendment was an independent reason for rejecting frustration. The parties had anticipated sanctions and could have amended the arbitration clause but did not do so. Objectively construed, the clause was intended to remain binding despite the more onerous consequences of sanctions.
5. Delay. Delay is principally assessed by its effect on the progress of the foreign proceedings and any waste of the foreign court’s time or resources. Barclays’ eight-month delay was not wholly justified, but the Russian proceedings had involved only limited procedural activity and had not reached an advanced stage. The delay therefore had not materially increased interference with the Russian court process or caused material waste.
6. The court also attached weight to the wider context: VEB had commenced proceedings in breach of the arbitration agreement to avoid the effect of UK sanctions. The injunction was therefore necessary to uphold the contractual forum and the sanctions regime forming part of English law.

The judgment followed an interim order granted by HHJ Pelling KC on 5 February 2024. The present court confirmed and made that order permanent.