At present numerous European companies (hereinafter the European Companies) are being sued by Russian companies affected by sanctions (hereinafter the Russian Companies) in Russian state courts, despite the existence of Arbitration clauses or choiceof-courts clauses in contracts stipulating a place of arbitration or litigation outside Russia. In most cases the Russian courts reject the objections of European Companies and find themselves competent to hear the claim of the Russian Company, stating that sanctions might prevent the Russian Company from receiving a fair trial abroad. In such cases Russian state courts apply Article 248.1 of the Russian Code of Commercial Procedure (hereinafter the Russian Code) and override the choice-of-court and Arbitration clauses stipulated in contracts. Further details regarding this judicial Approach can be found in our latest Arbitration Digest and in our recent Article on the subject.
If the European Company starts its own arbitration or litigation against the Russian Company outside of Russia, the Russian court may issue an order (anti-suit or antiarbitration injunction) demanding that the European Company cease these proceedings. Disobeying such injunctions can lead to significant fines, which often equal to the total value of the claim.
Choosing whether to follow these Russian injunctions and to take part in the Litigation in a Russian state court or to fight such injunctions with counter-injunctions outside Russia is a strategic decision which demands risk assessment. Along with other issues such as insurance, management liability, and compliance, such an assessment should take into consideration the location of assets. Not only assets belonging to the European Company itself might be at stake, but also those of all other companies of the Group. Given the current approach of Russian state courts, the Russian Company may demand that the European Company and/or the Russian subsidiaries of the Group (if any) and/or the parent company of the European Company and/or the parent Company of Russian subsidiaries be held “jointly liable” for any alleged debts, even if These legal entities never signed the initial contract and were not involved in its performance. You can find a detailed explanation of the Russian Supreme Court’s position on Group liability in one of our Newsletters.
In the roadmap we analyse the risks and legal remedies available to the European Company if the Russian Company initiates litigation against the European Company in Russia, as well as the possible steps to take if the European Company initiates Proceedings against the Russian Company outside Russia.
