Russian Supreme Court has confirmed that Russian countersanctions do not prevent the enforcement of arbitral awards in favour of “unfriendly” creditors

In 2022, the Russian Government established the List of Foreign States and Territories Committing Unfriendly Actions against Russia, Russian entities and individuals (“Unfriendly Jurisdictions”). The Russian countersanctions in force impose a special order for fulfilling certain obligations towards creditors from such jurisdictions (e.g., arising from some financial, corporate and IP relationships).

Russian debtors have recently begun to use a public policy defence based on an alleged violation of Russian countersanctions in the court proceedings on enforcement of even Russian arbitral awards in favour of an “unfriendly” creditor, including in cases where the disputed relationships are not formally subject to the countersanctions.

Hereby we summarized the Russian courts’ approach towards such a defence and analysed the ways to enhance the prospects of enforcement for so-called “unfriendly” creditors in general.

Russian Supreme Court has held that enforcement in favour of an “unfriendly” creditor does not in itself violate a Russian public order

****1.1**** Since 2022, the cases started to emerge where Russian courts agreed with the defendants’ broad argumentation that the mere fact of the award creditor’s registration in an “unfriendly” jurisdiction is sufficient to conclude that enforcement would violate Russian countersanctions as a Russian “temporary public order”1.

****1.2**** Nevertheless, the Russian Supreme Court has already twice upheld an opposite approach in the Hyperion case on enforcement of an ICAC2 award in favour of a Swedish company3. According to the Supreme Court, Russian countersanctions: ****(i)**** do not discharge the debtor from the obligations and, therefore, ****(ii)**** do not prevent the issuance of a writ of execution for an “unfriendly” creditor; ****(iii)**** these regulations should be taken into account only in the process of the actual enforcement. This is a rare example of pro-arbitration approach demonstrated by the Russian courts.

****1.3**** This position of the Supreme Court was applied by the lower courts in the Universal and Certhon cases on enforcement of ICAC awards in favour of the English and the Dutch companies accordingly4.

How to enhance the chances of enforcement for an “unfriendly” creditor?

****2.1**** Nevertheless, one should bear in mind that the above-mentioned positive approach developed in the cases on enforcement of Russian arbitral awards, namely ICAC awards issued by Russian arbitrators.

****2.2**** In the meantime, recent trends show that after 2022, the enforcement prospects of foreign awards issued in the arbitration centre located in an “unfriendly” jurisdiction by “unfriendly” arbitrators in favour of an “unfriendly” creditor are significantly lower (e.g., notorious Thywissen case)5. In the period from 2022 to date, we are aware of only a few such awards that have been enforced in Russia6, while in most cases Russian courts refuse to enforce such foreign awards7.

****2.3**** Thus, for successful enforcement of an arbitral award in Russia in favour of an “unfriendly” creditor nowadays, it is better to reduce the number of the “unfriendly” elements in advance by choosing a Russian or neutral arbitral centre and seat of arbitration, Russian or neutral arbitrators to avoid any suspicion of bias (if possible).

****2.4**** One can question whether choosing a Russian arbitral centre is reasonable should the enforcement take place outside Russia. However, awards of such well-known Russian arbitration centres as ICAC, Russian Arbitration Centre or Arbitration Centre at the RSPP were enforced, for example, in Canada, United Kingdom, Italy, the Czech Republic, Lithuania, Turkey, Mongolia, Uzbekistan, including after 2022.

See e.g., Cases No. А32-47144/2022, No. А43-27728/2024 (based on the cassation court resolution). International Commercial Arbitration Court at the Chamber of Commerce and Industry of the Russian Federation (ICAC at the RF CCI; Russian abbreviation: MKAS) is an independent permanent arbitration institution located in Moscow, Russia. It is one of the oldest leading arbitration institutions in Russia. Case No. А07-32862/2022. Please kindly note that this position has been expressed in the Supreme Court’s Rulings on the refusal to refer cassations appeals to the Judicial Chamber on Economic Disputes, which are not formally binding on lower Russian courts. Cases No. А14-13590/2022 and No. А32-25587/2024 accordingly. Case No. А45-19015/2023. Cases No. А24-283/2024 and No. А40-89532/2024. See also Cases No. А41-2687/2023, No. А60-24839/2024, No. А32-47144/2022.