The Supreme Court of the Russian Federation on Dealing with Foreign Individuals and Entities in the Context of Counter-Sanctions

The Supreme Court of the Russian Federation has approved the review of case law on the application of Russian counter-sanctions.

The court has reaffirmed a strict approach: transactions aimed at circumventing settlement procedures and counter-sanctions procedures may be declared invalid following a claim by interested parties and the public prosecutor. This risk applies not only to new transactions concluded in circumvention of special economic measures, but also to those concluded previously:

• The court may review its decision if it finds that a party to the proceedings attempted to circumvent the special economic measures;
• The legislation contains a provision allowing the court, on its own initiative, to apply the consequences of a void transaction, if this is necessary to protect the public interest. Compliance with special economic measures falls within the scope of ‘public interest’.

Transactions involving real estate and assets (Clause 1):

If the seller is controlled from an ‘unfriendly’ country, permission from a government commission is required. Without it, the transaction is void.

Establishment of foreign control over a strategic enterprise (Clause 2):

A transaction whereby a foreign investor acquires control over a strategic enterprise without the approval of the government commission is void.

Payments via special Type ‘C’ and Type ‘O’ accounts (Clauses 3, 4):

Payments via special Type ‘C’ and Type ‘O’ accounts are mandatory. Transfers of funds bypassing these special accounts may be deemed invalid. The artificial splitting of payments to circumvent the monthly limit of RUB 10 million is considered a circumvention of the law.

Assignment of rights (cession) (Clauses 5, 7):

The assignment of a debt by a foreign creditor to Russian entities in order to receive funds in circumvention of special accounts is deemed invalid. The court may, on its own initiative, review the assignment agreement, regardless of the parties’ arguments.

Newly discovered circumstances (Clause 8):

The court may review a resolution on the basis of new facts, if revealed that the parties to the proceedings have breached the legislation on special economic measures. The public prosecutor is entitled to intervene in the case at any stage of the proceedings, even if he was not initially involved.

Settlement agreement (Clause 9):

If a settlement agreement is intended to circumvent special economic measures, it will not be approved by the court. If a settlement agreement provides for the payment of funds into the account of a Russian representative of a foreign company instead of transferring the funds to special accounts, the court will not approve it.

Foreign holder of exclusive rights (Clause 11):

If a foreign holder of exclusive rights confirms that they have duly fulfilled their obligations under contracts with Russian counterparties and continue to carry out activities in Russia, the special procedure for fulfilling obligations (for example, conducting settlements via Type ‘O’ account) will not apply.

Liability of Russian banks and brokers (Clauses 13, 14):

A broker shall be exempt from liability for failure to execute a client’s instructions regarding the disposal of securities issued by foreign issuers if such failure is caused by the imposition of sanctions against a Russian stock exchange which the broker was unable to prevent.

Similarly, the payer’s bank shall not be liable for the non-execution of a payment order if the payment from the intermediary bank was blocked due to the imposition of sanctions of which the payer’s bank could not have been aware.

Jurisdiction of Russian courts (Clause 17):

If a dispute arises as a result of sanctions or if one of the parties faces obstacles to access to justice, such a dispute shall fall within the jurisdiction of Russian arbitration courts, notwithstanding the existence of an arbitration clause in the contract.

The actual place of fulfilment of contractual obligations (Clause 18):

When determining jurisdiction over disputes involving a foreign element, the courts will look to the actual place of fulfilment of contractual obligations. If contractual obligations are actually performed in Russia, disputes arising from it will be handled by the Russian courts, even if the law of another country has been chosen.

Recognition and enforcement of arbitral awards in Russia (Clauses 19, 20):

Where a dispute has been handled by an arbitral tribunal of an ‘unfriendly’ state, the court must, prior to its enforcement within Russia, examine the award to determine whether it contravenes the public policy of the Russian Federation. A lack of impartiality on the part of arbitrators from ‘unfriendly’ states is presumed.  

If an arbitral tribunal has rendered an award in favour of a person from an ‘unfriendly’ state, a Russian court is entitled to refuse to issue a writ of execution if the enforcement of such an award would contravene the special settlement procedure.