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Market Snapshot: Sanctions-Related Amendments in Russian Commercial Procedure

Market Snapshot: Sanctions-Related Amendments in Russian Commercial Procedure

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As of June 19, 2020, Russian arbitrazh (commercial) courts have exclusive jurisdiction to hear certain cases related to “anti-Russian” sanctions. Affected legal entities and individuals may also apply for anti-suit injunctions in an attempt to prevent counterparties from pursuing claims abroad. Recent cases show that these new entitlements are not as favorable as once thought.

Exclusive Jurisdiction

Russian commercial courts were granted exclusive jurisdiction over two categories of cases. The first are those that involve either a sanctioned Russian individual/entity or a foreign entity subjected to anti-Russian sanctions (primarily entities controlled by sanctioned Russian individuals/entities via either majority shareholding or an executive position, as provided by both EU and US sanctions). The second are those with subject matter related to sanctions. Hypothetically, this may include claims due to defaults caused by sanctions or challenges to the validity of transactions.

Remarkably, exclusive jurisdiction rules may not apply if the parties already have an enforceable clause for dispute resolution outside Russia. If there is a case pending abroad that concerns the same subject matter, Russian courts have no jurisdiction to try claims, but they do have jurisdiction to consider an application for anti-suit injunctions.

However, where a dispute resolution clause that gives jurisdiction to a foreign forum (either a state court or an arbitral tribunal) becomes unenforceable because of anti-Russian sanctions, and that restricts the “access to justice” of the affected party, the rules on exclusive jurisdiction remain applicable.

Where exclusive jurisdiction is established, parties affected by sanctions may have their claims heard in a Russian commercial court, apply for an anti-suit injunction, or argue against the enforcement of foreign judgments or arbitral awards based on the exclusive jurisdiction vested in the commercial courts. However, foreign judgments and arbitral awards will be enforceable if the affected party does not challenge the jurisdiction of the foreign forum or does not seek an anti-suit injunction in Russia.

Anti-Suit Injunctions

Legal entities and individuals may now apply for anti-suit injunctions. Injunctions will be granted under two conditions: First, there must be a case pending or proposed against the applicant abroad (hypothetically, evidenced by a pre-trial letter of claim), and second, the Russian commercial courts must have exclusive jurisdiction to hear the case. Where an anti-suit injunction is breached, the applicant may seek an order to pay compensation up to the amount that could be awarded by a foreign court or arbitral tribunal, plus attorneys’ fees (resembling l’astreinte, adopted to Russian law). This may require that the defendant’s assets be located in Russia for the injunction to be effective. If the breaching party has no presence in Russia, issuing an injunction may take several months due to notification requirements set by international treaties.

Recent Cases

Commercial courts have so far heard only a few cases involving claims for exclusive jurisdiction, and none involving anti-suit injunctions. In case No. A40-107039/2019, Russia Today (Russia) sued Barclays Bank (England) to restore maintenance of its bank account, which had been frozen in compliance with EU sanctions against RT’s CEO. The court of cassation rejected RT’s reference to the Russian court’s exclusive jurisdiction, as it was raised after the dispute had been settled by the court of the first instance and as RT was not directly sanctioned by the EU. In case No. A60-62910/2018, Uralvagonzavod (Russia) sued Pesa Bydgoszcz SA (Poland) to declare the clause providing for arbitration at the Arbitration Institute of the Stockholm Chamber of Commerce (Sweden) unenforceable. The court rejected the claim, holding that UVZ experienced no restriction of “access to justice” due to sanctions. First, it was actively participating in the arbitration, hiring attorneys, and paying arbitration fees. Second, the court rejected UVZ’s reference to the “no-claims” provision in the EU’s sanctions, as it protects only parties from the EU who default due to sanctions, whereby in arbitration the claim was raised against Russian UVZ under a contract for sale of trolley cars (unrelated to sanctions).

Therefore, it is evident that the new rules are not applied as easily as once thought by the legal community.

By Anastasia Cheredova, Head of Special Projects, Vegas Lex

This Article was originally published in Issue 7.11 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

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