The enforceability of arbitration clauses in favour of Russia-friendly and neutral forums remains uncertain in Russia

Last year in the cases of VTB Bank v VTB Bank (Europe) (no. А56-84760/2023) and Ruschemalliance v Linde (no. А56-129797/2022) Russian courts disregarded arbitration clauses in favour of the Hong Kong International Arbitration Centre (HKIAC) because Western sanctions allegedly create obstacles for the relevant Russian claimants to arbitrate in Hong Kong. This was done based on the Russian counter-sanctions legislation conferring upon Russian courts exclusive jurisdiction over sanctions-related disputes where agreed arbitration clauses cannot be performed as a result of the sanctions. This Russian counter-sanctions legislation has been extensively applied by Russian courts. In particular, it was held that the mere fact that Western sanctions apply to a Russian person affects that person’s reputation in the territory of the foreign country applying the Western sanctions so that they will not receive a fair trial in the territory of that country, including in arbitration.

A new case of Moria v Stecker Limited (judgment of the Arbitrazh Court of the Primorsky Kray dated 9 September 2024, case no. А51-7534/2024), continues and even extends this unfortunate trend. In this case the Russian claimant Moria brought a claim before a Russian court against the Irish respondent Stecker Limited (controlled by Russian sanctioned persons) regarding the amendment of a bareboat charter agreement for a vessel and for recognition of Moria’s ownership rights over that vessel. The bareboat charter agreement was governed by English law and contained an HKIAC arbitration clause. The Russian court declared the HKIAC arbitration clause non-enforceable, with a reference to the fact that the assets of Stecker Limited (the defendant) were blocked as a result of the EU sanctions. The Russian court concluded that since the sanctions applicable to Stecker Limited affect the rights of Moria, Moria can also be considered a person to whom the Western sanctions apply. Therefore, according to the Russian court, Moria is affected by Western sanctions at least reputationally and on that basis there are doubts that it will receive a fair trial before the HKIAC. This case is a notable extension of Russian courts’ exclusive jurisdiction in sanctions-related cases since neither Moria itself was a sanctioned person, nor was the performance to Moria as such restricted by the sanctions (the sanctions only blocked the assets of Stecker Limited).

In comparison, in another recent case, Transmasters v HONRISE SHIPPING CO (ruling of the Arbitrazh Court of Saint Petersburg dated 5 May 2024, case no. А56-9971/2024), the Russian court enforced an arbitration clause in favour of Hong Kong arbitration under the terms of the Hong Kong Maritime Arbitration Group. The Russian court, while declaring itself not competent for the case, stressed that China is not an unfriendly country to Russia, has not imposed any sanctions or other restrictions on the claimant and the Russian Federation and there is no reason to believe that the claimant will be deprived of the opportunity to defend its rights in the Hong Kong arbitration.

Similar uncertainty remains regarding the arbitration clauses of the Singapore International Arbitration Centre (SIAC) as well: in the case of Levina v TikTok Rus (Resolution of the Ninth Arbitrazh Appeal Court dated 26 July 2024, case no. А40-298848/2022) the SIAC arbitration clause was enforced, whereas in the case of Rosneft v Trafigura Pte (Judgment of the Arbitrazh Court of Moscow dated 12 April 2024, case no. А40-22586/23-83-160) the enforcement was denied.

To summarize: the enforceability of arbitration clauses in favour of Russia-friendly and neutral forums remains highly uncertain in Russia and Western companies should be prepared for a tough trial to prove their enforceability in Russia.