Russia’s Undermining of International Arbitration: A Pattern of Subversion

By Joseph E. Samuels

Over the last few years, Russia has engaged in undermining the international arbitration system.  This pattern culminated in a landmark ruling by the Supreme Court of the Russian Federation on July 26, 2024, effectively restricting the enforcement of international arbitration awards against Russian parties when rendered by arbitrators from “unfriendly” states.[1]  The path to this decision began with Russia’s 2020 amendments to its Arbitrazh (Commercial) Procedure Code.[2]  The addition of Article 248 allows the courts to assume jurisdiction over disputes covered by an arbitration agreement,[3] where the agreement becomes unenforceable due to “obstacles in access to justice”.[4]

Initially, Russian courts adopted a narrow interpretation of these amendments,[5] requiring applicants to prove that sanctions actually impaired their ability to access justice in the contractually agreed forum.[6]  However, subsequent cases saw a broader interpretation, allowing Russian parties affected by sanctions to walk away[7] from agreed forums based on the mere assertion of impaired access to justice.[8]  This shift led Russian courts to begin expressing doubts about the impartiality and fairness of proceedings in jurisdictions that had imposed sanctions on Russia.[9]  The courts concluded that the rights of the sanctioned individual or entity could only be championed in Russia itself.[10]  Because of this, courts in Russia began to disregard already settled arbitral awards from foreign seated courts.

Several cases illustrate this pattern:

1. Linde v. RusChemAlliance: The case of Linde v. RusChemAlliance represents a significant development in Russia's approach to international arbitration agreements.  The dispute centered on a contract between RusChemAlliance (RCA), a Russian company,[11] and Linde GmbH, a German construction company[12], for an LNG plant in Russia.  Despite the contract stipulating HKIAC arbitration in Hong Kong [13] with hearings in Stockholm[14], the Arbitrazh Court of Saint Petersburg and Leningrad Region assumed jurisdiction over the dispute.[15]  The court deemed this necessary because while Hong Kong does not have sanctions on Russia, its legal system is based on England and RCA had legal representation from Stockholm.  The court's decision to resolve the dispute on merits, awarding substantial damages to RCA, is currently under appeal.  Additionally, RCA initiated separate proceedings seeking an anti-suit injunction against Linde regarding the pending HKIAC arbitration and related proceedings in Hong Kong.  The Russian court partially granted this application, issuing an anti-suit injunction but declining to award the requested €1.5 billion in compensation.[16]

2. RusChemAlliance v. UniCredit Bank: This case demonstrated how Russian entities could leverage the new provisions to pursue disputes in Russian courts, even when existing arbitration agreements specified otherwise.[17]

3. C. Thywissen GmbH v NS Bread Products: In 2020-2021, the German buyer-initiated London-seated arbitration against the Russian seller for breach of contract.  The tribunal, comprising arbitrators from Ukraine, the UK, and Denmark, rendered an award against the Russian party in November 2022.  When the German buyer sought enforcement in Russian courts, the Supreme Court ultimately rejected it on public policy grounds, citing two key reasons: presumed bias of arbitrators from "unfriendly countries" and potential difficulties for the Russian party in securing legal representation due to sanctions.[18]

These cases show a willingness on behalf of the Russian courts to exploit the Public Policy Exception of the New York Convention.[19]  Under the exception, recognition, and enforcement of an award may be ignored if enforcement would “be contrary to the public policy of that country.”[20]  Russia’s mercantilist approach to arbitration, taking near-extreme measures to protect their own, will necessitate those who wish to do business with Russian entities, to exercise caution “when selecting arbitrators or agreeing on the method of their appointment and bear in mind that the list of “unfriendly” countries may vary over time.”[21]

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[1] Alvaro J. Peralta et al., The United States’ non-disputing party practice, Kluwer Arb. Blog (Aug. 27, 2024), https://arbitrationblog.kluwerarbitration.com/2024/08/27/the-united-states-non-disputing-party-practice/ [https://perma.cc/LWZ3-3A3A].

[2] Federal Law No. 171-ФЗ of June 8, 2020, On Introducing Changes to the Arbitration Procedure Code of the Russian Federation (Protected) for the Protection of Rights of Individual and Legal Personalities State (Interstate) Institution of Foreign State or State Association and (or) Union.

[3] Unfriendly States: Seeking Protection Against Russia’s Attempt to Assert Exclusive Jurisdiction Over Foreign Disputes, Covington & Burling LLP (May 13, 2024), https://www.cov.com/en/news-and-insights/insights/2024/05/unfriendly-states-seeking-protection-against-russias-attempt-to-assert-exclusive-jurisdiction-over-foreign-disputes [https://perma.cc/6L35-WXSU].

[4] Peter Goldsmith et al., Arbitration Agreements with Russian Parties—Growing Risks for Foreign Litigants, Debevoise & Plimpton (May 1, 2024), https://www.debevoise.com/insights/publications/2024/05/arbitration-agreements-with-russian-parties [https://perma.cc/7XLH-XH3T].

[5] Id.

[6] Id.

[7] Evgeniya Rubinina et al., Russian Sanctions Law Bares Its Teeth: The Russian Supreme Court Allows Sanctioned Russian Parties To Walk Away From Arbitration Agreements, Kluwer Arb. Blog (Jan. 22, 2022), https://arbitrationblog.kluwerarbitration.com/2022/01/22/russian-sanctions-law-bares-its-teeth-the-russian-supreme-court-allows-sanctioned-russian-parties-to-walk-away-from-arbitration-agreements/ [https://perma.cc/6SGJ-9MH9].

[8] Goldsmith, supra note 4.

[9] Vasilisa Strizh et al., Russia Limits Enforcement of International Arbitration Awards Rendered by “Unfriendly” Arbitrators, Morgan Lewis & Brockius LLP (2024), https://www.lexology.com/library/detail.aspx?g=0b6dc9aa-066b-4d34-8888-ec41d738c945 [https://perma.cc/P3ZE-AVUD].

[10] Id.

[11] Russia’s RusChemAlliance sues five European banks over aborted gas project, Reuters (Sept. 17, 2024), https://www.reuters.com/business/energy/russias-ruschemalliance-sues-five-european-banks-over-aborted-gas-project-2024-09-17/ [https://perma.cc/37DK-W83Q].

[12] Linde is a leading global industrial gases and engineering company, LINDE, https://www.linde.com/about-us#:~:text=Carl%20Linde%20founds%20the%20Gesellschaft,is%20established%20in%20the%20U.S [https://perma.cc/M6J9-C68A] (last visited Oct. 29, 2024).

[13] Linde PLC v. Ruschemalliance LLC, Decision of the Court of First Instance of the High Court of Hong Kong, [2023] HKCFI 2409 (Sept. 27, 2023), Jus Mundi, https://jusmundi.com/en/document/decision/en-linde-gmbh-and-linde-plc-v-ruschemalliance-llc-decision-of-the-court-of-first-instance-of-the-high-court-of-hong-kong-2023-hkcfi-2409-wednesday-27th-september-2023 [https://perma.cc/UY2N-GLSJ].

[14] Id.

[15] Id.

[16] Goldsmith, supra note 4.

[17] Supreme Court Upholds Anti-Suit Injunction in RusChemAlliance, Simmons & Simmons (Apr. 29, 2024),

https://www.simmons-simmons.com/en/publications/cluqqltpl004itzegnj1kaj62/supreme-court-to-decide-on-anti-suit-injunctions [https://perma.cc/F6U9-FEZ4].

[18] Tim Dlugosch, et al., Russian Supreme Court denies enforcement of award based on the allegedly unfriendly nationalities of arbitrators, Gen. Couns. News, http://generalcounselnews.com/category/international/?n=/post/contentViewerEmbed.aspx?fid=90824967-d853-4ed1-a45e-3e9e634a9000&header=0&cg=GCNInternationalTrade [https://perma.cc/TG2A-L2V7] (last visited Nov. 27, 2024).

[19] Id.

[20] Article V(2)(b), NEW YORK CONVENTION GUIDE 1958, https://newyorkconvention1958.org/index.php?lvl=cmspage&pageid=10&menu=626&opac_view=1 [https://perma.cc/59RH-39B8].

[21] Dlugosch et al., supra note 18.