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On 19 June 2020, a new Russian Law (Federal Law No. 171-FZ dated 8 June 2020, known as the “Lugovoy Law,” named after its author) entered into force, introducing a number of changes into the Russian Arbitrazh Procedural Code. Most important, Russian state commercial courts (also called “arbitrazh” courts) will now have exclusive jurisdiction over disputes directly or indirectly involving those sanctioned entities that fall within the scope of Russian legislation (“Disputes”). Disputes also include disputes between foreign businesses if these sanctions are a cause of their dispute.

Except exclusive jurisdiction, key provisions of the new Law are:

  • Parties may still agree to resolve their Disputes outside of Russia, but Russian courts will have jurisdiction over such disputes if one of the parties cannot get access to justice because of sanctions.
  • If a party is sued or about to be sued in a foreign court or arbitration proceeding in breach of the new Russian law (for example, if the parties had no enforceable agreement to settle Disputes in Russia), this party may request an anti-suit injunctive order from a Russian court. Any party breaching such anti-suit injunction may be fined by the Russian court for the full amount of the claim plus the opponent’s legal costs.

Conclusions and recommendations​

Clearly, the new law may affect a lot of business deals involving Russia directly and even indirectly. To mitigate the risks connected with the new law, we recommend the following steps:

  • Review the dispute resolution mechanism in your contracts with Russian counterparties, and make changes to these contracts where necessary (for example, change the agreed arbitration venue to one that is sanctions-neutral).
  • Double-check the ownership structure and ultimate Russian beneficiaries your Russia-related business partners (i) to determine their status vis-à-vis foreign sanctions, and (ii) to understand whether your deals with these Russian business partners may potentially be affected by the new law.
Author

Alexander Bychkov is the co-head of the Firm’s CIS Tax Practice Group and the head of the CIS International Trade and Customs group, which includes professionals working in the Moscow, St. Petersburg, Kyiv and Almaty offices. In addition, he is a member of the Firm’s Pharmaceuticals & Healthcare group. Since 2006 Alexander has been consistently recognized as one of the leading professionals in the tax field within Russia and across the CIS. His practice is recognized by Chambers and International Tax Review. Alexander focuses his practice on advising local and multinational clients on tax, customs, currency, and general commercial matters, with a particular emphasis on Russian direct and indirect tax advice, distribution structuring, customs regulatory matters, product valuation and classification, international trade compliance, import and export control requirements and sanctions, WTO and anti-dumping issues, and tax/customs dispute resolution (including representation of clients in related criminal investigations). Alexander can be reached at [email protected] and + 7 495 787 2715.

Author

Vladimir Efremov is a partner in the Moscow office of Baker McKenzie. Vladimir focuses his practice on international trade issues, sanctions and export control, the World Trade Organization, domestic and cross-border, direct and indirect taxation, Foreign Corrupt Practices Act and compliance audits, product liability and data security issues. He also has extensive experience in the areas of customs and currency regulations, tax planning and tax-efficient structuring of Russian distribution models, advising on strategy regarding entry into the Russian market, and transactions in and outside of Russia. Vladimir also led a number of projects on localization of foreign products and technologies and compliance with "Made in Russia" criteria. Vladimir can be reached at [email protected] and + 7 495 787 0715.

Author

Edward Bekeschenko is a partner in Baker McKenzie's Moscow office. He is ranked as a leading lawyer in dispute resolution by Chambers and Legal 500. Prior to joining the Firm in 2001, Mr. Bekeschenko headed the legal department of a major Russian metallurgical company and was vice president of a Belarusian law firm. Edward focuses his practice on litigation, international arbitration and compliance. He also advises on various IT- and telecom-related matters as well as anti-monopoly regulation. Edward can be reached at [email protected] and + 7 495 787 2717.

Author

Anton Maltsev is a partner in Baker McKenzie’s Dispute Resolution Practice Group in Moscow. Prior to joining the Firm in 2005, Mr. Maltsev worked for three years as a lawyer at Amur Machinery and Services, a Caterpillar dealership in the Russian Far East. Anton focuses on dispute resolution and general commercial and corporate law issues. He has significant experience in corporate and general commercial disputes, administrative/regulatory litigation and bankruptcy. Anton can be reached at [email protected] and + 7 495 787 9764.