Russia's first anti-suit injunction case

The Russian courts have resolved the first ever anti-suit injunction case in Russia (No. А60-36897/2020) based on the recent amendments to the Russian Arbitrazh (Commercial) Procedure Code (“APC”) (“Anti-Suit case”). The Anti-Suit case has now been considered at all levels of the Russian arbitrazh (commercial) courts. On 28 May 2021, a judge of the Supreme Court of Russia upheld the court judgments of lower instances and refused to refer the dispute to the consideration of the panel of judges in the Supreme Court of Russia.

Linklaters Moscow advised and represented Pojazdy Szynowe PESA Bydgoszcz SA (“PESA”), the largest Polish manufacturer of railway vehicles, in the Anti-Suit case and in a number of related disputes in the Russian courts.

In the Anti-Suit case, the Russian courts unanimously dismissed the anti-suit application against PESA and resolved the case in PESA’s favor.

New law introducing anti-suit injunctions

New amendments to the APC entered into force in June 2020 (“New Law”). The wording of the New Law is largely unclear and does not provide guidance as to the exact scope and conditions of its application.

On its face, the New Law provides for the exclusive jurisdiction of Russian state courts over:

• disputes involving Russian individuals and Russian and foreign companies[1] (“Restricted Parties”) which are subject to “restrictive measures” (“Restrictive Measures”) introduced by foreign public authorities (“Foreign States”); and

• disputes relating to the imposition of Restrictive Measures against Russian entities and individuals (“Sanctioned Disputes”),

unless otherwise provided in an international treaty or an agreement between parties submitting disputes to the jurisdiction of foreign courts or “international commercial arbitration outside Russia” (“foreign arbitration”).

The New Law further provides that a Restricted Party may apply to a Russian state court for a prohibition on commencement or continuation of proceedings at a foreign court or arbitration (anti-suit injunction).

If the subject of the anti-suit injunction fails to comply with it, the Restricted Party may obtain a judgment from a Russian court for the recovery from the non-complying party of compensation up to the amount of the claim brought in the foreign proceedings and for related legal costs.

Since the enactment of the New Law, there has been debate in the legal community around its impact on arbitration clauses and on foreign litigation and arbitration proceedings with Restricted Parties. Many questions in relation to the applicability of the New Law have now been clarified in the Anti-Suit case.

Background of the Anti-Suit case

In 2013, PESA concluded a supply contract with UralTransMash (“UTM”), a 99% subsidiary of UralVagonZavod, under which PESA supplied trams. However, UTM failed to pay the full amount for the trams. In 2018, PESA filed a claim with the Arbitration Institute of the Stockholm Chamber of Commerce (“SCC”) based on the arbitration clause in the supply contract.

UTM reacted by filing against PESA a number of civil claims with Russian state courts. In particular, in July 2020, UTM filed an anti-suit (anti-arbitration) application under the New Law (case No. А60-36897/2020, the Anti-Suit case). In that case, UTM asked the Russian courts to prohibit PESA from continuing the SCC arbitration and to recover EUR 56 064 881,10 from PESA if such anti-suit injunction (if granted) was not complied with by PESA.

Legal reasoning in the Anti-Suit case

UTM asked the Russian courts to grant an anti-suit injunction based on the mere fact that UTM was under Restrictive Measures introduced by Foreign States which allegedly impeded its rights to a fair trial in the SCC arbitration.

PESA’s position was that the mere fact of being under Restrictive Measures should not mean that the Restricted Party could not exercise its rights in full in foreign arbitration.

The Russian courts agreed with PESA and held that Article 248.1 of the APC establishes exclusive jurisdiction of Russian courts over the Sanctioned Disputes in two cases:

• in the absence of the parties’ agreement to refer disputes to a foreign court or arbitration;

• if there is such an agreement but it is non-operative (unenforceable) due to Restrictive Measures that create obstacles to access to justice.

PESA successfully demonstrated to the Russian courts that there were no such obstacles and UTM fully exercised its rights in the SCC arbitration. In particular, UTM as a party to the arbitration:

• had actively participated in the SCC arbitration for more than two years;

• was represented not only by prominent Russian lawyers but also by well-known Polish law firms and lawyers;

• engaged not only Polish lawyers to protect its interests in the SCC arbitration but also Polish economists;

• appointed a well-known arbitrator;

• submitted a lot of voluminous procedural documents and made arguments under Polish law;

• submitted a counterclaim which was accepted to the tribunal’s consideration;

• received legal services under both Russian and Polish law despite alleged problems with transferring funds to foreign representatives or to the SCC in the EU.

The Russian courts agreed with all of the above and on this basis concluded that UTM fully exercised its rights in the SCC arbitration.

Outcome of the Anti-Suit case

In the Anti-Suit case, the Russian courts refused to recognise the parties’ agreement to refer the dispute to the SCC arbitration as non-operative and to grant an anti-suit injunction based on the mere fact that the applicant was under Restrictive Measures given that it had failed to establish that such Restrictive Measures created obstacles to its access to justice. The decisions in the Anti-Suit case are likely to provide some clarity going forward as this interpretation may well be adopted by Russian courts in other cases too.

[1]    Non-Russian companies qualify as Restricted Parties if they became subject to Restrictive Measures as a result of Restrictive Measures imposed on Russian entities and individuals.