By President Putin’s signature on 8 June 2020, Russia has enacted a jarring new Law by which, as written, in a significant range of circumstances Russian individuals and companies (and foreign companies) that have been sanctioned under the US, EU (and other) anti-Russia sanctions programs may now: (i) insist that a contract-based dispute involving them be heard only in Russian arbitrazh court (that is, the state commercial court system); and (ii) apply to a Russian arbitrazh court for an injunction ordering the foreign claimant to halt a pending or threatened foreign litigation or arbitration regarding such dispute (and even for substantial penalty damages to be awarded by the Russian court against a claimant that refuses to do so).
The initial draft of this Law was introduced in Russia’s State Duma last July. It faced criticism from the Russian business community and certain governmental agencies, as to likely adverse effect on the investment climate. The draft then lay dormant for some time until an amended, somewhat less aggressive version was reintroduced in late May of this year, and promptly passed through both legislative houses to presidential enactment.
The Law accomplishes its aims by a set of amendments to the Arbitrazh Procedure Code (the APC – Russia’s main civil procedural law for litigation of commercial matters), mainly adding new articles 2481 and 2482.
While the Law per its literal terms could be interpreted and applied quite broadly so as to create real chaos in commercial contract dispute resolution involving Russia-sanctioned parties, the real extent of the problem will have to await actual argument and application in practice. As we see it, here are the essential points and some key open questions:
Exclusive Jurisdiction of Russian Arbitrazh Courts
Under APC new article 2481, a Russian court now has “exclusive jurisdiction” (unless otherwise provided by applicable treaty or contract) to consider the following:
In either of the above contexts a sanctioned party is entitled to
The above provisions are also to apply in cases where a contract clause referring disputes to a foreign court or foreign arbitral tribunal “cannot be performed” due to the application of foreign sanctions against a party involved in the dispute. (We suppose this is aimed essentially at cases such as where a sanctioned person is not permitted to enter the country or otherwise is materially hindered in participating – for example a sanctions obstacle to money transfers to pay lawyers or the court or arbitration fee, etc. This would mostly apply to SDNs. But it remains to be seen how broadly applicants will try to invoke it and the Russian courts will apply it – e.g., whether Russian courts will take all such pleas at face value or the sanctioned-party applicant would be expected to first try to exhaust the contract-mandated dispute remedy in the foreign tribunal.
The Law also states that these new rules cannot be invoked as grounds to deny enforcement of a foreign arbitral award or a foreign court judgment if the sanctioned party (i) was the claimant or (ii) did not object to the jurisdiction of the foreign forum (including by applying to a Russian court for an injunction against such foreign proceedings – see immediately below).
Anti-Suit Injunction Procedures and Remedies
Further and strikingly, APC new article 2482 allows a sanctioned party to apply to Russian court for issuance of an injunction barring the contract counterparty from initiating threatened or continuing already-initiating dispute proceedings in a foreign court or arbitral tribunal. This type of cross-border “anti-suit injunction” is a known but rather rarely used judicial tool in the Western world – given the obvious jurisdictional sensitivities and enforcement challenges; this is the first express authorization for such in Russian law.
The Law sets out detailed rules for making and supporting an application for such an injunction, and related procedural rules for the hearing of and appeal from the injunction if granted. Of note here: the applicant is to plead the circumstances confirming the Russian court’s exclusive competence to hear the dispute per the Law, including the circumstances (if any) confirming that the parties’ agreement to hear the dispute in a foreign forum cannot be performed by a party to the dispute. In other words, it appears that this Article 2482 authorization for granting an anti-suit injunction may well, at least in some (and perhaps in many) pleaded circumstances, undercut the supposed article 2481 “safe harbor” for treaty- and contract-based dispute resolution proceedings outside Russia.
Finally, the Law authorizes Russian courts that hear and grant such injunction applications to also award damages against the foreign party that has been enjoined, if that party does not obey the Russian court order to stop the foreign proceedings. The Law specifies that such sum awarded is not to exceed the amount claimed in the foreign tribunal plus the sanctioned party’s litigation costs.
We will be closely monitoring practice developments as they unfold under this new Law.
If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:US and EU Russia sanctions regime.)
 “On Amendments to the Arbitrazh Procedure Code of the Russian Federation in order to Protect the Rights of Individuals and Legal Entities in Connection with Restrictive Measures Introduced by a Foreign State, Association of States and/or Union and/or State (Interstate) Institution of a Foreign State or Association of States and/or Union” (the Law).