Magomed Gasanov
ALRUD Law Firm, Moscow
mgasanov@alrud.com

Polina Perova
ALRUD Law Firm, Moscow
pperova@alrud.com

Current state of Russian sanctions litigation

Nowadays, more and more foreign companies are facing critical problems with litigation in Russia, especially against ‘unfriendly’ parties, ie, parties domiciled in countries/connected with countries that have imposed sanctions on Russia or have joined them. Most of these problems arise from the ‘sanctions’ articles of the Russian Commercial Procedure Code (the CPC), which give preferences to Russian parties if they are sanctioned and/or the dispute involves sanctions. We refer to Articles 248.1 and 248.2 CPC (the ‘sanctions articles’) which are applied in disputes concerning sanctions (the ‘Russian sanctions litigation’).

Article 248.1 of CPC establishes the exclusive jurisdiction of Russian courts over disputes (1) involving Russian sanctioned entities and/or (2) related to sanctions. Exclusive jurisdiction may be established even if there is a valid forum selection agreement between the parties. The Supreme Court, in the landmark case Uraltransmash v Pesa,^[1] held that the sanctioned company should be presumed to have difficulties in accessing justice abroad, unless proven otherwise. There are very limited cases where the presumption has been rebutted.

Article 248.2 of CPC provides for the possibility of obtaining an anti-suit injunction (the ASI) prohibiting a counterparty from bringing a lawsuit with a foreign court or arbitration and/or continuing foreign proceedings already commenced. Courts usually tend to uphold such applications and impose severe fines (astreinte) for the violation of the injunction. The assets of the foreign company in Russia may be seized. There are examples of the issuance of the ASI by the Russian courts against such arbitration centres as the London Court of International Arbitration (LCIA), the Vienna International Arbitration Centre (VIAC), Stockholm Chamber of Commerce (SCC), the International Chamber of Commerce (ICC) and others.

It sounds like there is no way out for foreign ‘unfriendly’ companies in Russian sanctions litigation, but is it true?

Foreign ASI in Russian courts: how does it work?

The first formal step is to challenge the jurisdiction of the Russian court before the first submission on the merits establishing that the access to justice is effective under the forum selection clause. However, it will almost never have any effect on Russian sanctions litigation: the Russian court will most likely find itself competent to consider a case, even in not very straightforward situations. So, what to do next?

Experience shows that the effective strategy in jurisdiction disputes in Russian sanctions litigation cannot go without commencing anti-suit and anti-enforcement proceedings abroad. Foreign courts usually grant such claims in defence of forum selection agreements, for example, in Renaissance Securities (Cyprus) Ltd v Chlodwig Enterprises Ltd & Others[2] and in Linde GmbH and Another v Ruschemalliance LLC.^[3]

The foreign defendant should follow a few strategies to properly navigate the Russian sanctions dispute:

• The sooner the better: the foreign defendant should apply for the ASI in a timely manner, meaning at an early stage of the proceedings. The best scenario is to obtain at least a preliminary injunction before the jurisdiction challenge is considered by the Russian court.
• Know your clause: the choice of court or the arbitration agreement should be evaluated from the perspective of whether it is possible to obtain the ASI and, if so, which court would have jurisdiction.
• Battle of experts: a foreign court may be interested in the current stage of the Russian sanctions case and how the sanctions rules of the CPC work in Russian sanctions litigation. This is where the experts are of great importance. The experts could provide contradictory opinions, as it was, for example, in the case of Barclays Bank PLC v VEB.RF.^[4]

Foreign ASI in stock: is the jurisdiction battle won?

Foreign anti-suit and anti-enforcement injunctions typically contain severe penalties for non-compliance, which can be treated as contempt of court. A range of sanctions can be imposed on the violator, including fines, seizure of assets, or even imprisonment of a company’s top managers.

Even taking this into account, if the defendant in Russian sanctions litigation obtains the ASI, everything may not seem bright.

Useless threat

Provided that the Russian plaintiff does not find the foreign ASI to be a threat, then such an injunction will not prevent it from continuing Russian sanctions litigation. This may be the case if the Russian company’s managers do not travel abroad and/or its international business activities are quite limited or even missing.

This may also result in the Russian company violating the foreign ASI by applying for an anti-anti-suit injunction under Article 248.2 CPC, which may result in significant court fines. The latter may be essential for the Russian assets of the foreign defendant if any.

For example, in Unicredit Bank GmbH v Ruschemalliance LLC, Unicredit had to apply for revocation of the anti-suit after the Russian anti-anti-suit injunction had been issued.^[5]

‘Discretion’ of the Russian court

The foreign anti-suit is issued against the Russian plaintiff, not against the Russian court. So potentially the Russian court may continue to consider the case on the merits regardless of the Russian plaintiff’s compliance with the ASI and withdrawal of claim.

In a recent case, the court of appeal reversed the trial court’s decision where the plaintiff withdrew its claims based on the ASI awarded against it. The court of appeal reasoned that the trial court had failed to consider whether the plaintiff's intent to withdraw the claim had been voluntary.^[6]

What are the current trends in Russian sanctions litigation?

Based on the above and our experience, the following tendencies can be observed:

To be continued: proceedings after waiver of claims

Since the will to discontinue the case to comply with the foreign ASI is not voluntary, the Russian court is not bound by it, so the court is entitled to continue the case. This creates a kind of possibility for the Russian plaintiffs to formally request the withdrawal of the lawsuit to comply with the ASI, but the Russian court will not accept such a withdrawal, and the consideration of the case will continue.

The question is whether further consideration of the claim can be considered a violation of the ASI by the foreign court. We assume that the answer could be no, if the Russian plaintiff formally uses all possible means to discontinue the case.

Enforcement of ‘sanction judgements’ against Russian subsidiaries

Another issue arises where a defendant does not obtain an anti-suit injunction, or the Russian plaintiff does not consider it to be a threat, so the Russian court could issue the judgment under sanctions dispute, which would be difficult to enforce abroad. The Russian plaintiffs recently have found a way to enforce the Russian judgment – by making Russian subsidiaries of foreign defendants jointly and severally liable and thus seizing the assets of Russian subsidiaries in Russia (so-called ‘reverse piercing of the corporate veil’). The reason for the joint liability is the joint action and inaction as a group, according to which if the foreign defendant does not fulfil its obligations due to sanctions, its Russian subsidiary should do so instead.

In this regard, the Russian Supreme Court should soon provide an assessment of the legitimacy of the concept of ‘reverse piercing of the corporate veil’ in one of the first cases in which it has been applied – PJSC Sovcombank v Citibank NA and JSC KB Citibank.^[7]

Changes in sanction regulations

It is difficult to assess how potential changes in the sanctions regime and even lifting of certain sanctions (if it happens) will affect the Russian sanctions litigation. It is highly likely that some Russian companies will continue to pursue litigation based on general references to sanctions, as well as sanctions as the basis of the dispute, thus invoking the argument of automatic difficulties in accessing justice abroad.

At issue is the effect of such conduct on forum selection agreements: will Russian plaintiffs be deemed to have withdrawn the forum selection clause for all future claims under the contract?

In conclusion, the Russian sanctions articles remain a powerful tool for Russian companies to bring a lawsuit with a Russian court, disregarding forum selection clauses. Current trends are unfriendly to foreign companies. However, foreign anti-suit and anti-enforcement injunctions can be an effective countermeasure that can help steer the dispute to a proper forum. Provided that such injunctions do not pose a threat to the Russian party, a broader approach may be considered, such as initiating proceedings abroad with applications for freezing orders, seeking declaratory relief, negotiating settlement options, and so on.