Litigation and arbitration with Russian counterparty
The Russian Arbitrazh Procedure Code establishes exclusive competence of Russian courts in disputes involving persons subject to Russia related sanctions
On 19 June this year the new provisions of the Arbitrazh Procedural Code of the Russian Federation (APC)[1] came into force. Such provisions are adopted in order to protect the rights of individuals and legal entities in connection with Russia related sanctions introduced by a foreign state, state associations or unions.
The new law establishes the exclusive competence of Russian courts in disputes involving persons in respect of whom restrictive measures (sanctions) have been imposed. In particular, the new article 248.1 APC provides that following cases fall within the exclusive competence of Russian courts:
– disputes involving persons subject to Russia related sanctions;
– disputes arising out of or in connection with Russia related sanctions.
The exclusive competence of Russian courts extends to disputes in respect of which there is no international treaty or forum selection agreement of the parties.
One of the most controversial provisions of the new law consists in the possibility to apply such provisions also when the parties are bound by a forum selection agreement or arbitration agreement establishing respectively the competence of a foreign court or international commercial arbitration outside the territory of Russia, but such agreement is unenforceable due to the application of Russia related sanctions against one of the parties to the dispute. It is easy to notice that unenforceability is an extremely broad concept, so the relevant provision of the new law could potentially give rise to misconduct.
The amendments described above do not affect the recognition and enforcement in Russia of decisions of foreign courts or foreign arbitral awards made upon the claim of a sanctioned person, or if such person has not objected to the hearing of the dispute by a foreign court or international commercial arbitration seated outside of Russia.
The new article 248.2 APC provides for the possibility to apply to Russian court for prohibition order to commence or pursue the proceeding in foreign court or arbitration outside Russian territory, if it is proved that the proceeding is or will be initiated. In addition, the Russian arbitrazh court has a power to award a compensation to be paid by a person against whom a prohibition order has been issued, in case of failure to comply with the order.
It should be noted that the application in practice of these new provisions of Russian law cannot but encounter a number of difficulties, to start with those related to the enforcement of judgments issued by Russian courts in accordance with new articles 248.1 and 248.1 APC in the territory of foreign states.
In any case, the amendments described above should be taken into account by economic operators entering into legal relations with Russian companies and individuals subject to Russia related sanctions. The significance of new provisions of the APC is particularly important considering the fact that one of the grounds for refusing of the recognition and enforcement of foreign court decisions and foreign arbitral awards in the Russian Federation is the violation of the exclusive competence of Russian courts.
[1] In Russia this code regulates the proceedings before the arbitrazh court, which is competent in disputes relating to business and other economic activities.