Since posting the chronology of the jurisdictional battle between Russia and the European Union triggered by Russia’s war on Ukraine on December 5, 2024[1], the European Union has further adjusted its sanctions regime against Russia.
On December 16, 2024, the Council of the European Union passed the 15th sanctions package by adopting Council Regulation (EU) 2024/3192.[2] The regulation amended Regulation (EU) No 833/2014. Inter alia, a new Art. 11c was added to Regulation (EU) No 833/2014. According to this new provision,
- no injunction, order, relief, judgment or other court decision pursuant to or derived from Article 248 of the Russian Arbitrazh Procedure Code (APC) or equivalent Russian legislation shall be recognized, given effect or enforced in a Member State and
- no request for assistance during an investigation or other criminal proceedings, and no punishment or other sanction pursuant to the Russian Criminal Code based on an alleged violation of an injunction, order, relief, judgment or other court decision pursuant or derived from Article 248 APC or equivalent Russian legislation shall be recognized, given effect or enforced in a Member State.
As a short reminder, Art. 248.1 APC provides for the exclusive jurisdiction of the Russian state commercial courts (“arbitrazh courts”) for disputes with sanctioned persons or for disputes in connection with sanctions imposed by foreign states, state associations and/or trade unions as well as institutions of foreign states. Article 248.2 APC prohibits to initiate or continue foreign proceedings against persons on whom restrictive measures have been imposed and authorizes the arbitrazh courts to issue anti-suit injunctions prohibiting the initiation or continuation of court or arbitral proceedings outside Russia. In case of a violation of such an anti-suit injunction, the arbitrazh courts may impose a fine of up to the amount sought by the other party in the foreign proceedings.
According to Recital 8, the primary goal of the new Art. 11c Regulation (EU) No 833/2014 is to prevent that Russian parties can enforce such anti-suit injunctions or fines in a Member State:
“Russian courts have issued decisions based on Article 248 of the Arbitration Procedure Code of the Russian Federation that prohibit the initiation or continuation of proceedings in foreign courts or tribunals on the part of European companies against Russian companies (anti-suit injunctions) and have issued, inter alia, disproportionately high financial penalties in cases of failure to comply. The Union considers that the manner in which Russian courts issue such anti-suit injunctions and fines is in clear violation of established international principles and long-standing practices in the resolution of international business disputes.”
However, the wording of Art. 11c Regulation (EU) No 833/2014 is broader. As Recital 8 shows, the EU wants to make it impossible for a Russian party to benefit in any form from proceedings under Art. 248 ACP in the European Union:
“In order to prevent efforts by claimants to enforce such anti-suit injunctions or fines, or any other court decision based on Article 248 or equivalent Russian legislation, Decision (CFSP) 2024/3187 introduces a prohibition on the recognition or enforcement in the Union of injunctions, orders, judgments or other court decisions pursuant to or in relation to Article 248 of the Arbitration Procedure Code of the Russian Federation or equivalent Russian legislation.”
The broad wording includes judgements on the merits rendered after adversarial proceedings between a sanctioned Russian party and its opponent from the EU regardless of whether the EU party objected to the jurisdiction of the Russian court or participated in the proceedings without complaint.
The reason is obvious: Judgments on the merits by a Russian arbitrazh court will not apply the EU sanctions provisions. The recognition and enforcement of such decisions would therefore undermine the sanctions regime.
One might ask whether Art. 11c Regulation (EU) No 833/2014, shielding EU companies against the recognition and enforcement of anti-suit injunctions and other decisions of the Russian arbitrazh courts, was necessary.
First, to begin with, Russian judgments in civil or commercial matters are at least in Germany not enforceable for lack of reciprocity.[3]
Second, the recognition of a Russian judgment based on Art. 248 ACP is excluded because the arbitrazh court lacks jurisdiction.[4]
All Member States of the EU allow jurisdiction agreements in civil and commercial matters. Art. 248 ACP ignores such agreements and creates the exclusive jurisdiction of the Russian arbitrazh courts. From the perspective of the EU Member States, there is no legal basis for overriding effective jurisdiction agreements and providing for the exclusive jurisdiction of the arbitrazh courts, especially when the goal of such action is to avoid the application of EU sanctions to the case. Judgements of the arbitrazh courts contrary to jurisdiction agreements between the parties to the dispute are thus not recognizable and enforceable for lack of jurisdiction.
The same applies to arbitration agreements. Art. II (1) of the New York Convention on the Recognition and Enforcement of Arbitral Awards (of which the Russian Federation is a party) requires that “each Contracting State shall recognize an agreement in writing under which the parties undertake to submit to arbitration all or any differences which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not, concerning a subject matter capable of settlement by arbitration.” In accordance with Art. II (3) New York Convention, the courts of a Contracting State seized of an action in a matter in respect of which the parties have concluded an arbitration agreement must refer the parties to arbitration at the request of one party, unless these courts find that the said agreement is null and void, inoperative or incapable of being performed.
Art. 248 APC clearly breaches these international obligations of the Russian Federation. The reason put forward by Russia does not justify the measure. Russia argues that Art. 248 APC is necessary to protect the right to access to justice for Russian parties. Allegedly, the sanctions violate the procedural rule of law and create the risk that Russian parties will not receive the same level of protection as their opponents in a non-Russian forum. For the Russian Federation, this makes jurisdiction or arbitration agreements providing for litigation or arbitration outside Russia inoperative.
These concerns are unfounded. With Art. 5aa (3)(g) Regulation (EU) No 833/2014, the European Union took steps to ensure access to justice for sanctioned Russian parties in litigation or arbitration within the European Union. Transactions strictly necessary to ensure access to judicial, administrative, or arbitral proceedings in a Member State, and transactions for the recognition or enforcement of a judgment or arbitral award rendered in a Member State are exempt from the sanctions regime and do not constitute a direct or indirect engagement in a prohibited transaction if they are consistent with the objectives of the sanctions regime.[5] Lawyers may represent sanctioned Russian persons or entities in litigation or arbitration, arbitrators may participate in arbitral proceedings involving sanctioned parties and arbitral institutions may administer such arbitrations.
In truth, Art. 248 ACP is not concerned that a court or arbitral tribunal in the European Union chosen by the parties could treat the Russian party unfairly and deny access to justice, but that such court or tribunal must apply the sanctions imposed on Russia under international law. This, however, does not render jurisdiction or arbitration agreements inoperative.[6]
Third, a Member State may refuse to recognize and enforce a foreign judgment if the recognition and enforcement would be contrary to the public policy of that Member State.[7] If a Russian arbitrazh court, despite a valid jurisdiction or arbitration agreement, issues an anti-suit injunction against a non-Russian party and imposes a fine if the non-Russian party does not comply with injunction, the recognition and enforcement of such a fine would be contrary to the public policy of EU Member States and is thus excluded.
Thus, for the most part, Art. 11c Regulation (EU) No 833/2014 is declaratory in nature. It sends a clear message to Russian parties trying to escape sanctions and seeking protection from the arbitrazh courts that their efforts will not be successful in the EU.
However, in cases where an EU party does not object to the jurisdiction of an arbitrazh court based on Art. 248 ACP, participates in the proceedings and loses on the merits, Art. 11c Regulation (EU) No 833/2014 may have an independent and not merely declaratory function. Without Art. 11c Regulation (EU) No 833/2014, there was at least a risk that such a judgment could be recognized and enforced in those EU Member States which do not require reciprocity for the recognition of Russian judgments. The reason for this is that the unrepentant submission to the jurisdiction of a foreign court normally means a – tacit – recognition of the jurisdiction of this court. In subsequent enforcement proceedings, the recognizing party can no longer raise the objection of lack of jurisdiction. Due to Art. 11c Regulation (EU) No 833/2014, this general rule does not apply to judgments of the Russian arbitrazh courts based on Art. 248 ACP even if the judgement does not breach the European sanctions regime (or pretends not to do so).
In summary, Art. 11c Regulation (EU) No 833/2014 prohibits the recognition and enforcement of all decisions by a Russian arbitrazh court based on Art. 248.1 AZP regardless of whether the EU party participated in the proceedings or not and irrespective of whether the participating EU party filed an objection against the jurisdiction of the arbitrazh court or not.
[1] Juergen Mark, Chronology of the jurisdictional battle between Russia and the European Union caused by the war on Ukraine (https://www.globalarbitrationnews.com/2024/12/05/chronology-of-the-jurisdictional-battle-between-russia-and-the-european-union-caused-by-the-war-on-ukraine/).
[2] https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=OJ:L_202403192.
[3] Sec. 328 (1) No. 5 Code of Civil Procedure (ZPO) provides that the recognition of a foreign judgment shall be ruled out if reciprocity has not been granted (which is the case for Germany and Russia, cp. Gottwald, Münchener Kommentar zur ZPO, 6th edition, 2020, sec. 328, margin no. 156; district court Wiesbaden, judgment of March 3, 2017 – 14 O 3/16 -, IPRax 2018, 495). Other EU Member States do not require reciprocity.
[4] Cp. Sec. 328 (1) No. 1 German ZPO; Art. 64 of the Italian Law No. 218 of May 31, 1995; Art. 431 of the Dutch Code of Civil Procedure.
[5] Juergen Mark and Olena Oliinyk, Sanctions against Russia – How to ensure due process of sanctioned parties in court or arbitral proceedings while at the same time enforce the sanctions regime, https://www.globalarbitrationnews.com/2022/12/14/sanctions-against-russia-how-to-ensure-due-process-of-sanctioned-parties-in-court-or-arbitral-proceedings-while-at-the-same-time-enforce-the-sanctions-regime/#.
[6] Cp. Higher Regional Court Berlin, Order of June 1, 2023, 12 SchH 5/22, SchiedsVZ 2024, 218. The case related to a contractual dispute between a German and a Russian party. After the beginning of the war, the German party had terminated the contract to comply with the sanctions. The Russian party considered the termination to be invalid. The contract provided for VIAC arbitration in Vienna, but the Russian party sued the German party in Russia, seeking specific performance of the contract. In addition, it applied for an anti-suit-injunction against possible VIAC arbitration. The Higher Regional Court Berlin declared that VIAC arbitration was admissible “to the exclusion of state courts” and that the European sanctions did not render the arbitration agreement inoperable.
[7] See for example sec. 328 (1) No. 4 German ZPO.
