In March 2023, we reported that Russian Courts have taken jurisdiction and issued injunctions targeting arbitration proceedings based on a Russian law enacted in 2020.
The latest instalment is an anti-arbitration injunction issued in favour of Avia Capital Services (a subsidiary of the Russian state-owned entity Rostec) in response to the ICC arbitration initiated by Airbus against Avia Capital in April this year.
This is yet another example of the increasing number of claims being brought before, and accepted by, the Russian Courts notwithstanding arbitration agreements in underlying contracts providing that claims must be exclusively submitted to arbitration.
Background
In June 2020 the Russian Federation enacted amendments to the Russian Arbitrazh (Commercial) Procedural Code (the “New Law”), which purported to establish, in certain circumstances involving the imposition of Restrictive Measures (i.e. sanctions), exclusive jurisdiction of the Russian State Courts, irrespective of pre-existing arbitration agreements (see here and here for more). According to the New Law, Russian State Courts may issue an anti-suit injunction, prohibiting the commencement or continuation of proceedings in foreign courts or arbitration. 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, if the respondent fails to comply.
New developments
Russian Courts have already issued several decisions accepting jurisdiction and issuing anti-arbitration injunctions against foreign arbitral proceedings.
The Commercial Court of Moscow has recently issued a further anti-arbitration injunction in the context of an ongoing dispute between Avia Capital Services and Airbus.
On 13 December 2022, Avia Capital brought a claim before the Commercial Court of Moscow for the recovery of $5.1 mln as unjustified enrichment. Airbus objected to Avia Capita’s claim on the basis that the claim ought to be submitted to arbitration pursuant to an arbitration clause contained in the memorandum of understanding between the parties. The latter required all disputes to be referred to an ICC arbitration tribunal seated in Paris.
On 12 April 2023 the Russian Court rejected Airbus’ objection and concluded it was competent to hear the dispute, despite the existence of an arbitration clause, on the following grounds:
- that the introduction of restrictive measures against Russian persons by foreign states, including the ban on bank transfers between Russian and foreign persons and the prohibition on provision of legal services by foreign companies, limited the rights of Russian citizens and companies, thereby creating an imbalance;
- that the existence of restrictive measures introduced against a Russian person gave rise to doubts as to whether a dispute with such designated person would be considered in a foreign jurisdiction fairly and impartially;
- that the existence of restrictive measures might create impediments to a designated person’s access to justice, such as being unable to instruct qualified lawyers and/or pay the arbitration fees; and
- as a result, there would be a clear violation of the principle of equity or public policy, such that the arbitration agreement would become unenforceable.
Following this ruling, in late April 2023, Airbus initiated arbitration proceedings in Paris under the ICC rules. In response, Avia Capital initiated further proceedings in the Russian Courts, this time seeking an anti-arbitration injunction to halt the arbitration proceedings.
Although the decision of the Russian Court has not yet been made public, the Russian Court website indicated that the application has been satisfied and that an anti-arbitration injunction was reportedly obtained following a hearing held on 29 May 2023.
Next steps and mitigating risks
As previously discussed, the increased number of claims in breach of arbitration agreements is one of the key risks of exiting from, and operating in, Russia.
There are a number of strategic decisions that affected parties may have to make, 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.
The optimal course of action will depend on a number of factors, including the existence of assets within or outside Russia that may be at risk, the applicable arbitration rules and laws of the seat and tools provided therein, the sums at stake, and the wider repercussions on a party’s business.
Thanks to Erin Thompson for her assistance with this article.
For further information, please contact:
Matthew Weiniger KC, Partner, Linklaters
matthew.weiniger@linklaters.com
