The parties to a foreign economic contract, when structuring contractual relations, quite often include a condition in the contract to refer disputes to a foreign court (prorogation agreement) or international commercial arbitration (arbitration agreement) located outside the territory of the Russian Federation, or enter into a separate agreement regarding this issue.

However, the economic sanctions imposed by the European Union, the United States and a number of other countries against the Russian Federation, Russian legal entities and individuals have a significant impact on their ability to comply with an agreement on referring disputes to the jurisdiction of a foreign court or international commercial arbitration.

In particular, Russian entities cannot pay the arbitration fee and the services of a foreign lawyer in connection with the refusal of foreign banks to make payments due to the sanctioned status of the payer, to ensure the participation of Russian parties in arbitration proceedings (representative, witness, expert, etc.)  due to visa restrictions, to exercise the right to choose an arbitrator in connection with refusals of arbitrators to accept the appointment. Under such circumstances, the fulfillment of the arbitration or prorogation agreement becomes impossible. In addition, the Russian party has reasonable doubts that the relevant dispute will be considered on the territory of a foreign state in compliance with the warranty of a fair trial.

In the current situation, Russian legal entities and individuals may transfer the resolution of disputes arising from a foreign economic contract to Russian jurisdiction, despite the existence of an arbitration or prorogation agreement establishing a different jurisdiction.

The provisions of Part 4, Article 248.1 of the Arbitration Procedure Code of the Russian Federation establishes that the  exclusive competence  of Russian arbitration courts includes disputes that, in accordance with the agreement of the parties, are subject to consideration by a foreign court or international commercial arbitration located outside the territory of the Russian Federation, but this agreement is unenforceable due to the application of restrictive measures by a foreign public-law entity in relation to one of the persons participating in the dispute, thus creating obstacles for such a person in access to justice.

When applying this rule, an important issue is the need to prove the existence of obstacles to the use of remedies in a foreign jurisdiction. According to the position of the Supreme Court of the Russian Federation, there is no need for mandatory proving the impact of restrictive measures on the possibility of executing an arbitration clause,  the application of restrictive measures in itself already creates obstacles for the Russian party in access to justice, therefore, in order to transfer the dispute under the jurisdiction of Russian arbitration courts, its unilateral will, expressed in a procedural form is enough. [1]

This conclusion, in particular, is confirmed by the wording used by the legislator in Clause 4, Part 2, Article 248.2 of the Arbitration Procedure Code of the Russian Federation, according to which the circumstances confirming the impossibility of executing the arbitration clause are indicated by the applicant, if any. Such a wording of this rule, in the opinion of the Supreme Court of the Russian Federation, emphasizes the optionality of proving these circumstances.

Explaining this legal position, the Supreme Court of the Russian Federation pointed out that the introduction by foreign states of restrictive measures (bans and personal sanctions) against Russian entities affects their rights at least reputationally and thereby knowingly puts them in an unequal position with other persons. In such circumstances, doubts are quite justified that a dispute involving a person located in a state that has applied restrictive measures will be considered on the territory of a foreign state that has also applied restrictive measures, in compliance with the warranties of a fair trial, including those relating to the impartiality of the court, which constitutes one of the elements for access to justice.  [2]

The given position of the Supreme Court of the Russian Federation has been widely used in judicial arbitration practice. [3]

Separate proof of the presence of restrictive measures on the part of a foreign state in relation to a Russian entity is also not necessary, since the introduction of sanctions against the Russian Federation, Russian legal entities and individuals by foreign states, as a rule, is recognized by the courts as a well-known fact. [4]

The exclusivity of the competence of Russian arbitration courts in disputes involving Russian persons subject to sanctions is also manifested in the fact that these persons have the right to apply to the arbitration court of the constituent entity of the Russian Federation at their location or place of residence with an application for an anti-suit injunction with regard to disputes with their participation in a foreign court, international commercial arbitration located outside the territory of the Russian Federation. [5] At the same time, the applicant must provide evidence confirming the intention of the foreign person to initiate proceedings in a foreign court, international commercial arbitration, located outside the territory of the Russian Federation, or the fact of the commencement of proceedings in a foreign court, international commercial arbitration, including claims, demands, lawsuits and other documents. [6]

In the event that a foreign person fails to comply with the anti-suit injunction, the Russian arbitration court, at the request of the applicant, is entitled to award a court penalty in its favor, the amount of which is limited to the amount of claims filed in a foreign jurisdiction. [7]

According to the position of the Supreme Court of the Russian Federation, the anti-suit injunction is possible only until a final arbitral award is made, since a ban for a claimant to take certain actions is of a preventive nature, relevant and effective only until such actions are taken. After they have been committed, the imposition of an injunction loses the possibility of execution, does not provide the applicant with judicial protection and, as a result, loses any meaning. This conclusion also applies to the award of a court penalty in case of non-execution of an injunction. [8]

Thus, the above rules of arbitration procedural legislation ensure the exercise of the right to a fair trial by Russian legal entities and individuals who are sanctioned by unfriendly foreign states, providing these persons with the opportunity to transfer the resolution of disputes involving them from foreign courts or international commercial arbitrations located abroad to the Russian jurisdiction.

[1] Ruling of the Judicial Panel for Economic Disputes of the Supreme Court of the Russian Federation No. 309-ЭС21-6955(1-3) dated December 09, 2021 in case No. А60-36897/2020, Ruling of the Judicial Panel for Economic Disputes of the Supreme Court of the Russian Federation No. 309-ЭС21-6955 dated September 21, 2021 in case No. A60-36897/2020, Ruling of the Supreme Court of the Russian Federation No. 305-ЭС22-11060 dated June 17, 2022 in case No. A40-155367/2020.

[2] Ibid.

[3] Ruling of the Arbitration Court of the Moscow District No. Ф05-28710/2022 dated November 17, 2022 in case No. A40-98907/2022, Ruling of the Arbitration Court of the Far Eastern District No. Ф03-6497/2022 dated December 26, 2022 in case No. A73-15265/2022, Ruling of the Ninth Arbitration Court of Appeal No. 09АП-31182/2022 dated June 16, 2022 in case No. А40-132383/2021, Ruling of the Thirteenth Arbitration Court of Appeal No. 13АП-22034/2021 dated December 30, 2021 in case No. А56-57238/2020.

[4] Ruling of the Arbitration Court of the Far Eastern District No. Ф03-6497/2022 dated December 26, 2022 in case No. А73-15265/2022, Ruling of the Ninth Arbitration Court of Appeal No. 09АП-25617/2020 dated September 18, 2020 in case No. А40-270967/2019, Ruling of the Tenth Arbitration Court of Appeal No. 10АП-6921/2020 dated June 11, 2020 in case No. A41-90431/2019.

[5] Part 1, Article 248.2 of the Arbitration Procedure Code of the Russian Federation.

[6] Clause 1, Part 4, Article 248.2 of the Arbitration Procedure Code of the Russian Federation.

[7] Part 10, Article 248.2 of the Arbitration Procedure Code of the Russian Federation.

[8] Ruling of the Judicial Panel for Economic Disputes of the Supreme Court of the Russian Federation No. 309-ЭС21-6955(1-3) dated December 09, 2021 in case No. A60-36897/2020.

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