Claims filed in Russian Courts in breach of arbitration agreements

Summary 

A number of Russian parties have recently filed (or threatened to file) claims in the Russian Courts, notwithstanding arbitration agreements in the underlying contracts providing that claims must be exclusively submitted to arbitration. These claims have been made possible by previously enacted Russian legislation. The Russian Courts are already issuing judgments taking jurisdiction and issuing anti-suit injunctions targeting foreign arbitration proceedings.

International parties who had contractual relationships with Russian parties which have been terminated or suspended following Russia’s invasion of Ukraine are at risk of these tactics. In particular, they face the risk of Russian judgments being enforced against any assets they may have been unable to extract from Russia to date, as well as attempts to enforce any resulting Russian Court judgments outside of Russia. 

Background  

As previously reported, in June 2020 Russia introduced amendments to the Russian Arbitrazh (Commercial) Procedure Code. Subject to certain criteria, the New Law purports to establish exclusive jurisdiction of the Russian State Courts, irrespective of pre-existing arbitration agreements, over:

• disputes involving Russian individuals and Russian and foreign companies which are subject to restrictive measures introduced by foreign public authorities (“Restricted Parties”); and
• disputes relating to the imposition of restrictive measures against Russian entities and individuals (together with disputes involving Restricted Parties, “Sanctioned Disputes”).

The New Law also provides that a Restricted Party may apply to a Russian State Court for a prohibition on commencement or continuation of proceedings in a foreign court or in foreign arbitration, namely an “anti-suit injunction”. If any such prohibition is breached, the Russian Courts may also award compensation for the amount claimed in foreign proceedings, as well as for legal and other costs incurred as a result.

Important developments 

Since the enactment of the New Law, Russian parties have submitted a number of claims to the Russian Courts seeking to circumvent pre-existing arbitration agreements which require parties to submit their claims exclusively to arbitration. The Russian Courts are proving supportive of this tactic. By way of example only, on 1 March 2023, a Russian Commercial Court issued an injunction against First National Petroleum (“FNP”) ordering FNP to discontinue arbitration proceedings brought by FNP against Russia’s Tyumenneftegaz (“TNG”). The Court also held that TNG would be entitled to compensation in the amount of US$148 million, if FNP did not comply with the foregoing injunction.

Mitigating risk

Given the increasing number of claims being threatened and/or brought before the Russian Courts, parties that may be exposed to such claims should promptly assess how to mitigate their risk. 

There are a number of options available to affected parties. The optimal course of action will depend on a number of factors, including the existence of assets within or outside Russia which may be at risk, the applicable arbitration rules and laws of the seat and the tools provided therein, the sums at stake, and of course the wider repercussions on a party’s business. 

Affected parties may soon be required to make strategic calls, including whether to participate in potential Russian Court proceedings, whether to pre-emptively (or defensively) commence arbitration proceedings, whether to seek anti-suit injunctions from national courts and/or arbitral tribunals and whether to utilise expedited procedure and/or emergency arbitrator provisions, where available. These various options are, in many respects, complementary and can potentially be co-ordinated and used in succession, depending on the status of the proceedings and particular assets at risk.