Russian courts disregard arbitration clauses in favour of Russia-friendly/­neutral forums

Western companies contracting with Russian parties should not feel safe relying on arbitration clauses in favour of Russia-friendly or neutral forums.

In a number of recent cases Russian courts have disregarded arbitration clauses in favour of the Hong Kong International Arbitration Centre (HKIAC) and the Singapore International Arbitration Centre (SIAC).

On 1 December 2023, in the case of VTB Bank PJSC v VTB Bank (Europe) SE (No. А56-84760/2023) the Arbitrazh Court of Saint Petersburg and Leningrad Region recognized as unenforceable due to anti-Russian sanctions the HKIAC arbitration clause with the seat in Hong Kong. Furthermore, on 5 December 2023, in a parallel case between the same parties (No. А56-103943/2023) the same Russian court upon VTB Bank PJSC’s application granted permanent anti-arbitration and anti-anti-suit injunctions and prohibited VTB Bank (Europe) SE from continuing the HKIAC arbitration proceedings under a threat of a court penalty in the amount of EUR 112.6mln.

This was done despite the fact that by the Order of the Hong Kong High Court dated 27 October 2023 VTB Bank PJSC was restrained from pursuing the proceedings in Russia.

In the case of Rosneft v BP Oil International (No. А40-197598/2023) on 29 November 2023 the Arbitrazh Court of Moscow granted anti-arbitration injunctions and prohibited BP Oil from continuing arbitration under the SIAC rules.

Previously, in June 2023, in the case of Ruschemalliance v Linde (case No. А56-129797/2022) the Arbitrazh Court of Saint Petersburg also recognized unenforceable the HKIAC arbitration clause because the anti-Russian sanctions allegedly create obstacles for Russian parties’ access to justice in Hong Kong. In February 2023, in the case of Sberbank v Glencore Energy UK (case No. А40-237252/2022) the Arbitrazh Court of Moscow recognized unenforceable the SIAC arbitration clause.

Starting from February 2022, Russian courts have readily ignored as allegedly unenforceable arbitration and prorogation clauses in favour of Western arbitration institutions and courts. Therefore, as the last remaining dispute settlement resort and an acceptable compromise for both the Western and Russian parties, arbitration clauses in favour of Russia-friendly/neutral forums have been widely used, in particular in numerous Russia-exit deals.

This year, the HKIAC and the SIAC have been reported to be among top three most popular arbitration institutions for Russia-related disputes. Both the HKIAC and the SIAC are recognized by the Russian Ministry of Justice as permanent arbitral institutions authorized to administer international arbitration proceedings. Even though Singapore is formally included by the Russian authorities in the list of “unfriendly” countries, the SIAC is treated by Russian companies and legal practitioners as a neutral forum.

The above new cases show that Western companies contracting with Russian parties should not feel safe relying on arbitration clauses in favour of even Russia-friendly or neutral forums. Therefore, additional collaterals and risks mitigation measures need to be considered.