After all initiatives for drastic countermeasures to respond to the US/EU sanctions (criminal liability for sanctions compliance, comprehensive import restrictions, liability for cross-border transfer of information relevant for sanctions) ground to a halt for one year, the legislator has now resumed the proposal to establish the jurisdiction of Russian courts over disputes with listed persons.
To this end, on 8 June 2020 far-reaching changes to the Russian Arbitrazh (Commercial) Procedural Code were adopted which will enter into force on 19 June 2020:
- There is a specific jurisdiction in Russia for any disputes with the participation of listed Russian persons as well as foreign legal entities which have been listed due to sanctions imposed on Russian persons. This specific jurisdiction also applies to disputes between Russian or foreign persons which have their basis in sanctions against Russian persons. It is yet unclear whether this regulation will cover not only personal but also sectoral sanctions.
- The above disputes now fall into the exclusive competence of the Russian commercial courts, provided that the parties have not entered into an agreement referring the dispute to a foreign court or international commercial arbitral tribunal located outside of Russia. However, this agreement shall not apply in cases where it cannot be enforced because sanctions imposed on any party to the proceedings establish “obstacles in the access to justice”. These undefined terms may be potentially interpreted broadly in practice.
- As a result, in many cases listed Russian and foreign persons (as well as parties in disputes having their basis in sanctions against Russian persons) will be able to choose whether to use a Russian commercial court or to comply with the agreement on jurisdiction/arbitration clause and to initiate proceedings at the agreed foreign court/arbitral tribunal or to accept such proceedings, as the case may be. In the latter cases, the resulting decisions of the foreign court or arbitral tribunal can be recognized and enforced in Russia.
- To enforce the new rules on specific jurisdiction in Russia, the protected listed persons may apply to the commercial court for an injunction prohibiting the counterparty from initiating or continuing proceedings before a foreign court or arbitral tribunal. To ensure that the injunction will be complied with, the Russian court may order the counterparty to pay a penalty to the protected listed person in case of non-compliance with the injunction. The amount of the penalty will be determined upon the court’s discretion but may not exceed the amount of the claim brought or to be brought by the counterparty before a foreign court or arbitral tribunal.
Over the last few years, Russian courts have developed case law which complicates the implementation of the US/EU sanctions in Russia. Due to the legislative changes, foreign companies may be faced with this court practice more often when trying to enforce claims against listed persons or rights under sanctions clauses. This applies in particular where the foreign company owns assets in Russia, or the court decision or arbitral award would have to be enforced there. It is therefore even more important to draft sanctions clauses carefully on a case-by-case basis taking into account applicable Russian court practice.
By Hannes Lubitzsch, Associated Partner, and Viktor Gerbutov, Associated Partner, Noerr