Amendments to the russian commercial procedure code: establishing the exclusive jurisdiction of Russian State commercial courts over disputes involving sanctioned persons

On 8 June 2020, the Russian President signed Federal Law No. 171-FZ “On amending the Russian Commercial Procedure Code in order to protect the rights of individuals and legal entities in connection with restrictive measures introduced by a foreign state, an association and/or union of states, and/or governmental (transnational) institution of a foreign state or association and/or union of states”.

The Russian Commercial Procedure Code (the “Commercial Procedure Code”) has been supplemented with two new articles:

• article 248¹, which establishes the exclusive jurisdiction of Russian state commercial courts over disputes involving persons against whom restrictive measures have been introduced, and
• article 248², which entitles the above persons to apply to a state commercial court seeking to prevent court proceedings from being initiated or continued in a foreign court or in international commercial arbitration.

What disputes will be resolved in Russia

In accordance with the new article 248.1 of the Commercial Procedure Code, the following categories of cases are reserved for state commercial courts in Russia:

1) disputes involving persons against whom restrictive measures are taken.

Restrictive measures can be introduced by a foreign state, an association and/or union of states, and/or a governmental (transnational) institution of a foreign state or association and/or union of states.

2) disputes between a Russian or a foreign person and another Russian or foreign legal entity if restrictive measures introduced against Russian nationals or legal entities constitute the ground for such disputes.

Read literally, the above article provides for the exclusive jurisdiction of Russian state commercial courts, including with respect to disputes between two foreign legal entities. This provision is viewed as a controversial one as it virtually compels foreign persons to settle their disputes in Russian courts. If a defendant under such dispute has assets in Russia on which execution can be levied in pursuance of a judgment issued in respect of it, and if the dispute is still to be resolved by a foreign court or arbitration in a foreign state, recognition and enforcement of the relevant judgment can be refused in Russia owing to the exclusive jurisdiction of Russian courts to resolve the dispute under article 244(1)(3) of the Commercial Procedure Code.

The stipulation in article 248.1(1)(1) of the Commercial Procedure Code should be noted separately. It states that the above categories of disputes are reserved for the exclusive jurisdiction of Russian commercial courts unless an international treaty of Russia provides or the parties have agreed otherwise, where such treaty or agreement requires that disputes involving such parties fall within the jurisdiction of foreign courts or international commercial arbitration outside Russia.

In other words, the exclusive jurisdiction of Russian commercial courts applies to disputes to which no international treaty or agreement of the parties applies where a competent court is directly determined.

However, article 248.1(4) of the Commercial Procedure Code states that a Russian commercial court can settle a dispute also in cases when the agreement of the parties regarding their disputes to be referred to a foreign court or international commercial arbitration is unenforceable owing to restrictive measures being applied to either party to the dispute, which creates an obstacle for such party to have access to justice.

It appears that for the purpose of applying the above provision only objective obstacles must be taken into account, such as it being impossible to attend the court hearing owing to a prohibition on entering the country where such hearing is held. The wording of the above provision, however, allows also for a broad interpretation, in addition covering subjective obstacles and doubts as to the impartiality of a foreign court or international commercial arbitration.

Who are the persons that are subject to restrictive measures

1. Russian nationals and legal entities against which restrictive measures have been introduced.

Please note that the amendments under review have been introduced to the Commercial Procedure Code, which regulates court proceedings in state commercial courts. It is a general rule that disputes involving individuals (with the exception of certain categories of disputes) are resolved by courts of general jurisdiction. It is unclear, though, whether the amendments to the Commercial Procedure Code should also be viewed as changing the rules for the demarcation of the jurisdiction of courts in Russia. Given the absence of similar amendments to the Civil Procedure Code, a different interpretation virtually deprives individuals who are Russian nationals of the mechanisms to have their rights and interests protected where such mechanisms are granted by amendments to the Commercial Procedure Code.

2. Foreign legal entities against which restrictive measures have been applied and where the grounds for applying such restrictive measures are the restrictive measures introduced against Russian nationals and legal entities.

A prohibition on initiating and continuing court proceedings outside Russia

By the new provisions of article 248² of the Commercial Procedure Code, persons who are potentially parties to disputes specified in 248¹ of the Commercial Procedure Code are granted the right to apply to a Russian state commercial court requesting that the court proceedings initiated in foreign courts or international commercial arbitration outside Russia be prohibited, or, if there is evidence that proceedings will be initiated, requesting a prohibition on such initiation.

Apart from the standard information required to prepare a statement for the court, a claimant under a prohibition case is required to present the following:

• information about the claims that have been or can be presented in a foreign court or in international commercial arbitration,
• information about the place of residence or address of a person with respect to whom a prohibition needs to be established,
• information regarding the circumstances triggering the exclusive jurisdiction of Russian commercial courts over the dispute (including, where appropriate, it being impossible to enforce the agreement of the parties referring the dispute to the jurisdiction of a foreign court or international commercial arbitration outside Russia).

The above information should be supported with documents.

After it reviews the statement, the court issues a ruling which can be challenged under a cassation procedure in the cassation court of the circuit within a month of the date of its issuing (similarly to an application to have foreign court judgments and foreign arbitration awards recognised and enforced).

When it considers an application requesting a prohibition on the initiation or continuance of court proceedings in a foreign court or in international commercial arbitration, the court may, at the request of the claimant, award to the latter the amount of money not exceeding the amount of the claims lodged by the person against whom a prohibition has been issued if the latter fails to follow the court order.

What to think about and what to do

The amendments to the Commercial Procedure Code are aimed at protecting individuals and legal entities included in foreign specially designated nationals and blocked persons lists. It is presumed that the new provisions in the Commercial Procedure Code will help to avoid situations when a person against whom foreign restrictive measures have been introduced is deprived of the right to a defence.

Yet, these amendments will not always have beneficial effects for Russian persons included in foreign SDN lists. For instance, when such provisions are used for the above persons to file lawsuits (in Russian courts) against foreign persons, this will mostly likely result in it being impossible to enforce the relevant judgment in the foreign state.

Moreover, not all wordings of the amendments are clear. Therefore, questions may arise when these are applied in practice on the part of both the party whose rights and interests the amendments are meant to protect and its potential opponents. Further, the question remains of the jurisdiction of state commercial courts over disputes involving individuals who are Russian nationals and the conflict with courts of general jurisdiction in this respect.

Moreover, although the lawmaker establishes exclusive jurisdiction of Russian state commercial courts over the resolution of disputes involving persons subject to sanctions and those associated with restrictive measures (which implies that disputes should be always resolved by Russian state commercial courts), it offers an opportunity to refer a dispute to the jurisdiction of a foreign court or international commercial arbitration by an international treaty or agreement of the parties. The above agreement, however, may subsequently be held to be unenforceable, which will create obstacles to a person's access to justice.

The above amendments are relevant not only in light of determining the competent forum to resolve disputes, but also from the perspective of the subsequent recognition and enforcement in Russia of judgments of foreign courts and foreign arbitral awards. The reason is that a violation of exclusive jurisdiction of Russian courts over the settlement of a dispute constitutes a ground for refusing recognition and enforcement of the above judgments and awards (article 244(1)(3) of the Commercial Procedure Code).

Our assistance

Pepeliaev Group's lawyers offer you integrated legal support under court proceedings in commercial courts of all levels, foreign state courts, arbitral tribunals and international commercial arbitration, including proceedings involving the recognition and enforcement of judgments. We are ready to advise you on any issues arising in connection with foreign restrictive measures being applied to your company or a contracting party.