Russian courts demonstrate prudent approach to application of recent anti-sanctions legislation (Commercial Court of Sverdlovskiy Region)

Maxim Kulkov (Managing Partner), Olga Kokoz (Senior Associate), KK&P

The Commercial Court of Sverdlovskaya Region has refused to hold an arbitration agreement as unenforceable on the basis of recent anti-sanctions legislation. It is the first court to render a detailed analysis of the recent legislation, which vests Russian commercial courts with exclusive jurisdiction over disputes involving sanctioned Russian entities (see Legal update, Russian President signs law on exclusive jurisdiction of Russian commercial courts in disputes involving sanctioned Russian entities).

The court considered a claim that an arbitration agreement in favour of the SCC was incapable of being performed because of EU and US sanctions against the Russian buyer in a sales agreement. By the time of the court’s consideration, the Polish seller had already filed a claim with the SCC due to the buyer’s failure to pay.

The court disagreed that the arbitration agreement was unenforceable due to the anti-sanctions legislation.

The court found that the disputed contract, being a simple sale of tramway cars agreement, did not relate to the types of contract restricted by the EU sanctions.

The court also noted that sanctions only prevent the satisfaction of claims against EU persons where their default was a result of sanctions. However, here, the seller was the claimant and the buyer was in default.

The court also analysed who represented the buyer in the SCC arbitration and found that his right to representation at trial was not restricted, as he was able to hire both Russian and Polish representatives and experts. The court took into consideration the SCC’s confirmation that the buyer is not prevented from paying arbitration fees to the SCC. Moreover, the case materials contained evidence that the buyer had even managed to transfer payments to the seller.

The court disagreed that it was necessary to have regard to the US sanctions in this matter since they do not have any effect either in the place of arbitration (Stockholm) or in the EU.

In addition, the court rejected the buyer’s argument that sanctions affect the impartiality and independence of arbitrators.

Finally, the court considered that sanctions do not affect the ability of the parties’ representatives to travel to the place of arbitration and that, in any case, arbitration may be conducted online.

The court’s approach should be endorsed. It has demonstrated not an extremely protectionist position, as was expected by Russian arbitration community, but a well-reasoned and measured one. Hopefully, it will be supported upon the buyer’s appeal.

Case: Case No А60-62910/2018 (5 October 2020).

You can find the link to the full text of the article here.

Reproduced from Practical Law Arbitration with the permission of the publishers. For further information visit www.practicallaw.com or call 020 7542 6664.