Sanctions Update: Amendment to Russian Arbitration Procedure Code

Sanctions Update: Amendment to Russian Arbitration Procedure Code

On June 10, 2020, the Russian government passed amendments to the Russian Arbitration Procedure Code (“APC”), which took effect on June 19, 2020. These amendments are significant because they could impact dispute resolution with Russian persons and entities subject to foreign sanctions.
More specifically, the recent APC amendments provide that disputes involving Russian entities and persons subject to US or other sanctions (“sanctioned persons”) are subject to the jurisdiction of the Russian commercial court (or Arbitrazh).
In practice, this means that sanctioned persons can now submit disputes to the Russian commercial court, or seek an injunction prohibiting proceedings in foreign courts or arbitrations, regardless of contractual language regarding dispute resolution. These amendments are based on the Russian perspective that resolution mechanisms in a foreign court or arbitration institution are not fair and should not be enforceable because sanctioned persons do not have access to justice in such venues.

Who/what do the amendments cover?

  • Disputes involving a Russian person or a Russian entity or a non-Russian entity that is subject to sanctions directed at Russia by a non-Russian authority (e.g., the US, the EU). Note that this is written broadly to apply to a wide variety of disputes, including disputes not centered on the relevant foreign sanctions.
  • Disputes where the grounds of the dispute are foreign sanctions against a sanctioned person.

What do the amendments provide?

  • Sanctioned persons or entities can refer disputes in a foreign court or foreign arbitration court
    to the Russian Arbitrazh court before any proceedings have commenced.
  • If proceedings have commenced, the sanctioned person can apply to the Russian Arbitrazh
    court for an injunction to stop the proceedings. If the injunction is granted and the non-sanctioned party proceeds despite the injunction, the Russian Arbitrazh court can award damages to the sanctioned party equal to the amount claimed under the blocked proceedings plus the legal fees of the sanctioned person.
  • Sanctioned parties persons are free to subject themselves to the jurisdiction of a foreign court
    or arbitration proceedings.

Are there any exceptions?

  • If the sanctioned person does not object to proceedings in a foreign court or arbitration court, the results of that foreign proceeding will not be blocked from recognition and enforcement in Russia.
  • The Hong Kong International Arbitration Centre and the Vienna International Arbitral Centre are
    considered foreign arbitral institutions under the recent APC amendments, despite previous approval by Russia for these entities to administer certain Russian corporate disputes.

If you have any questions regarding US sanctions or related legal matters, please contact Sequoia Legal.

 

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