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New Russian Law Permits Designated Persons to Litigate in Russia

  • Russia

    15-06-2020

    On 8 June 2020[1], the Russian President signed Federal Law No. 171-FZ “On Amendments to the Russian Arbitrazh Procedure Code to Protect the Rights of Individuals and Legal Entities in Connection with Restrictive Measures Introduced by a Foreign State, Association and/or Union of States and/or State (Interstate) Institution of a Foreign State or Association and/or Union of States” (the "Law"), which allows designated persons to submit contract-based disputes to the Russian arbitrazh courts.

    The Law, inter alia, introduces two new articles (248.1 and 248.2) to the Russian Arbitrazh Procedure Code (the "RAPC"), which are briefly discussed below.

    Application of the Law

    The Law is applicable to the following persons that have been blacklisted by a foreign state, association and/or union of states and/or state (interstate) institution of a foreign state or association and/or union of states ("Foreign Sanctions"):

       | Russian individuals and legal entities that have been subjected to Foreign Sanctions

       | foreign legal entities that have been subjected to Foreign Sanctions, which are in turn based on the ones adopted against Russian individuals and legal entities

    Exclusive jurisdiction of Russian courts[2]

    The Law expands the list of disputes that fall within exclusive jurisdiction of Russian arbitrazh courts. This now includes disputes ("Sanctions-Related Disputes"):

       | where one of the parties is subjected to Foreign Sanctions

       | between Russian and foreign persons if the claim arises from the Foreign Sanctions imposed on the Russian individuals and legal entities

    Russian arbitrazh courts have exclusive jurisdiction in Sanctions-Related Disputes, where:

       | foreign court or arbitral proceedings ("Foreign Court") are not provided for by agreement between the parties or an international treaty, to which Russia is a party  

       | an agreement between the parties, which provides for proceedings in a Foreign Court, is not enforceable due to one of the parties being subjected to Foreign Sanctions if these hinder its access to justice

    Russian procedural law generally specifies that no judgement (or award) issued by a Foreign Court will be recognized and enforced in Russia in violation of the rules on exclusive jurisdiction of Russian courts (Article 244(1)(3) of the RAPC).

    However, the Law clarifies that failure to respect exclusive jurisdiction of Russian courts does not prevent recognition and enforcement of a Foreign Court's judgement (or award) in a Sanctions-Related Dispute if the party did not object to the proceedings in the Foreign Court, including the case where it did not present a petition to a Russian arbitrazh court for an injunction ordering the defendant to halt pending or threatened proceedings in the Foreign Court.

    Resolution of Sanctions-Related Disputes in Russia and Anti-Suit Injunction

    Designated persons may file a petition to a local Russian arbitrazh court for resolution of a Sanctions-Related Dispute provided that no proceedings in a Foreign Court are underway, which have been instituted between the same parties, regarding the same matter and on the same grounds.

    They may also present a petition to the Russian arbitrazh court for an injunction ordering the defendant to halt pending or threatened proceedings in the Foreign Court (an "Injunction").

    In this case, the designated party is not obligated to prove that the Foreign Sanctions may affect the proceedings.

    For the Russian arbitrazh court to issue an Injunction, the claimant shall prove (Article 248.2(1), (2), (4)) that:

       | the Sanctions-Related Dispute has been or may be brought in the Foreign Court

       | the Russian arbitrazh court has exclusive jurisdiction over the Sanctions-Related Dispute

       | an agreement between the parties, which provides for proceedings in the Foreign Court, is not enforceable as a result of the Foreign Sanctions imposed

    If issued, the Injunction will apply to the actual defendant rather than the Foreign Court.

    A party that has filed for such Injunction may also claim damages from the defendant if the latter refuses to comply with the order of the Russian arbitrazh court. These shall not exceed the amount claimed by the defendant in the Foreign Court, in addition to the legal costs.

    The Law was promulgated on 8 June 2020[3], and will enter into force on 19 June 2020.

    * * *

    As the new legislative provisions have a number of deficiencies, we believe that there is a substantial risk of the Russian arbitrazh courts issuing downright contradictory judgements, which may for that matter fail to meet the claimant's objectives. Alternatively, these new rules may also be abused by malicious litigants in pursuit of avoiding liability for unlawful acts they have committed. This will inevitably affect not only the court practice and stability of Russian law, but also the Russian economy in general.

    Please be advised that this alert is not an exhaustive description of all the provisions adopted in the Law; it does not constitute a legal opinion on the issues discussed therein, and it does not and cannot replace legal advice you may require in a specific situation.

    Should you have any questions related to this alert, please reach out to the Eversheds Sutherand Moscow team.


    [1] See Bill No. 754380-7 On Amendments to the Russian Arbitrazh Procedure Code to Protect the Rights of Individuals and Legal Entities in Connection with Restrictive Measures Introduced by a Foreign State, Association and/or Union of States and/or State (Interstate) Institution of a Foreign State or Association and/or Union of States (10 June 2020), published on the page "State automated system for supporting legislative activity "Zakonotvorchestvo" on the official website of the State Duma, available at https://sozd.duma.gov.ru/bill/754380-7

    [2] The Law also introduces amendments to Article 27(6) of the RAPC

    [3] See Official Internet Portal of Legal Information (10 June 2020), available at http://publication.pravo.gov.ru/Document/View/0001202006080017

    This information is for guidance purposes only and should not be regarded as a substitute for taking legal advice. Please refer to the full terms and conditions on our website.

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