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) enters 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.