REUTERS | Maxim Shemetov

Russian sanctions and anti-suits: a new legal torpedo?

On 9 December 2021, the Supreme Court of Russia issued a ruling in the case of JSC Uraltransmash v PESA (the decision) on the interpretation of legislative amendments made to the Russian Arbitrazh (Commercial) Procedure Code (the amendments). These provide for exclusive jurisdiction of Russian state courts over certain disputes involving sanctioned persons and disputes arising from imposition of sanctions notwithstanding a contradictory jurisdiction or arbitration clause, and the right to seek anti-suit injunctions that allows a sanctioned person to preclude the other party from starting or continuing foreign court or arbitration proceedings.

In its decision, the Supreme Court confirmed that the mere fact that sanctions had been imposed is deemed sufficient to create a perception that the sanctioned entity would not have access to justice. For example, that it would not be treated equally, fairly, or impartially in arbitration proceedings seated in a country which had imposed sanctions. The Russian courts would therefore have exclusive jurisdiction over such disputes (unless otherwise agreed by both parties) and a party would be entitled to seek an anti-suit injunction to enforce this position. It should also be noted that there have been recent attempts to codify the effect of the decision into Russian legislation, but there is no visibility on when such legislation may come into force.

The decision is now all the more relevant, given the extremely wide-ranging and unprecedented sanctions regimes that have been imposed on Russian entities and individuals following the crisis in Ukraine. Notably, these sanctions have also been imposed by several countries which previously had no, or only limited, sanctions on Russian entities, individuals, such as Switzerland, the UK and Japan. Furthermore, the broad scope of sanctions imposed by the EU would capture a number of popular arbitration seats such as Paris (ICC) and Sweden (SCC).

It is already apparent, from the fallout following the crisis and the sanctions regimes, that many contracts with Russian entities, including in the energy, mining, extraction and financial sectors, have been impacted and it is certainly likely that potentially significant disputes will arise from these contracts in the future. Many of these contracts will contain non-Russian seated arbitration clauses. Given the broad powers conferred on the Russian courts by the amendments as affirmed by the decision, a key question for arbitral tribunals will be how to navigate this issue, including any anti suit injunctions that may be obtained from the Russian courts.

It is well established that arbitral tribunals can determine their own jurisdiction under the kompetenz-kompetenz doctrine. Despite this latitude, the tribunal will have to consider carefully what practical ramifications may arise from confirming jurisdiction (on the basis of the arbitration agreement) and proceeding with an arbitration in the face of a Russian anti-arbitration injunction. Some analogy could be drawn with the approach taken by tribunals following the Court of Justice of the European Union (ECJ) decision in the Achmea case. The ECJ decision declared all intra-EU bilateral investment treaty (BIT) arbitration clauses incompatible with EU law. This created a potentially significant barrier to establishing the jurisdiction of an arbitral tribunal arising out of an intra-EU BIT (and later, those arising out of the Energy Charter Treaty (ECT) following the ECJ decision in Komstroy). Both Achmea and Komstroy determined that the relevant arbitration provisions in the treaties were incompatible with EU law.

However, notwithstanding the Achmea and Komstroy decisions, arbitral tribunals have continued to confirm their jurisdiction and proceeded to hear arbitrations and deliver awards based on intra-EU BIT and ECT claims. In doing so, tribunals have found that their jurisdiction (under a treaty) is not impacted by the EU law position, albeit that the international law element of such claims can be distinguished from purely commercial arbitrations.

While the application of the principles adopted by tribunals when analysing the impact of Achmea may be somewhat instructive, it should be noted that the issues created by the decision are somewhat different. First, there is the obvious concern around breaching a court order (irrespective of whether a tribunal considers that it still has unfettered jurisdiction under the relevant arbitration agreement). Second, the Achmea decision and EU law’s interaction with intra-EU BITs is distinct from the extraterritorial application of what can be described as an anti-arbitration domestic law. A further complication could arise where the non-Russian party seeks an anti-suit injunction of its own from the courts of the relevant seat of arbitration. Finally, and with one eye on the end game, tribunals (and parties for that matter) will be aware of the additional difficulties that may arise with respect to the enforcement of any award within Russia, particularly where, for the time being at least, any assets outside Russia may already be frozen or encumbered as a result of the sanctions regimes.

It is still early days to see how all these issues will manifest themselves, and what stance tribunals (and national courts for that matter) may take, but for the present at least, it appears that the threat of a Russian legal torpedo is now very real.

 

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