JSC Baltiysky Zavod has applied to a Russian court to hold a Finnish company (FinCo, Supplier) liable for breach of obligations under a supply contract concluded in 2020. In 2022, FinCo unilaterally repudiated the contract, while failing to return the advance payment and ignoring the claim for payment under the advance payment refund guarantees.
The Russian court initially dismissed the case due to the existence of an arbitration clause in the contract providing for the parties to resolve disputes by arbitration before the Finnish Chamber of Commerce. However, this decision was subsequently overturned[1] with reference to Article 248.1 of the Arbitration procedure code of the Russian Federation on the exclusive competence of Russian courts in disputes involving persons subject to restrictive measures. The Court stated that the mere fact that sanctions had been imposed on a Russian person involved in a dispute subject to international commercial arbitration outside the territory of the Russian Federation was presumed to be sufficient to conclude that such person's access to justice was restricted, and therefore the claim was subject to the jurisdiction of the Russian courts.
FinCo argued that it could not satisfy the claim for payment under the guarantee because it was subject to European Union sanctions. Since Finnish law was applicable to the contract, the court analysed the provisions of EU Sanctions Regulations Nos. 833/2014 and 269/2014, also taking into account the legal opinion provided by a Finnish law firm, and agreed with the Finnish Supplier's arguments, dismissing[2] the Russian company's claim entirely. Moreover, the enforcer added that it was for the Russian company to prove that the satisfaction of its claims was not prohibited by the EU Regulations.
The Court of Appeal, however, overturned this decision and issued a new judgment[3] upholding the Russian company's claims. The appeal pointed out that in this case the rule on termination of the obligation by impossibility of performance could not be applied, since the EU sanctions could be subject to review and revocation. It was also noted that the plaintiff did not bear the burden of proving the enforceability of the judicial act in Finland, and taking into account the possibility of alienation of the sued receivables, the judicial act to award money could be considered enforceable. Moreover, the circumstances related to the restriction of the fulfilment of the obligation due to the restrictive measures taken by the EU concern the stage of execution of the judicial act, but cannot in themselves be a ground for refusal to satisfy the claims. Finally, a refusal to satisfy the plaintiff's claims would effectively deprive it of the opportunity to restore its infringed right in the future.
[1] Decision of the Arbitration Court of the North-Western District No. F07-16366/2023 of November 16, 2023 in case No. A56-82244/2022
[2] Decision of the Arbitration Court of St. Petersburg and the Leningrad Region of February 13, 2024 in case No. A56-82244/2022
[3] Ruling of the Thirteenth Arbitration Court of Appeal of July 19, 2024 in case No. A56-82244/2022
The Russian court initially dismissed the case due to the existence of an arbitration clause in the contract providing for the parties to resolve disputes by arbitration before the Finnish Chamber of Commerce. However, this decision was subsequently overturned[1] with reference to Article 248.1 of the Arbitration procedure code of the Russian Federation on the exclusive competence of Russian courts in disputes involving persons subject to restrictive measures. The Court stated that the mere fact that sanctions had been imposed on a Russian person involved in a dispute subject to international commercial arbitration outside the territory of the Russian Federation was presumed to be sufficient to conclude that such person's access to justice was restricted, and therefore the claim was subject to the jurisdiction of the Russian courts.
FinCo argued that it could not satisfy the claim for payment under the guarantee because it was subject to European Union sanctions. Since Finnish law was applicable to the contract, the court analysed the provisions of EU Sanctions Regulations Nos. 833/2014 and 269/2014, also taking into account the legal opinion provided by a Finnish law firm, and agreed with the Finnish Supplier's arguments, dismissing[2] the Russian company's claim entirely. Moreover, the enforcer added that it was for the Russian company to prove that the satisfaction of its claims was not prohibited by the EU Regulations.
The Court of Appeal, however, overturned this decision and issued a new judgment[3] upholding the Russian company's claims. The appeal pointed out that in this case the rule on termination of the obligation by impossibility of performance could not be applied, since the EU sanctions could be subject to review and revocation. It was also noted that the plaintiff did not bear the burden of proving the enforceability of the judicial act in Finland, and taking into account the possibility of alienation of the sued receivables, the judicial act to award money could be considered enforceable. Moreover, the circumstances related to the restriction of the fulfilment of the obligation due to the restrictive measures taken by the EU concern the stage of execution of the judicial act, but cannot in themselves be a ground for refusal to satisfy the claims. Finally, a refusal to satisfy the plaintiff's claims would effectively deprive it of the opportunity to restore its infringed right in the future.
[1] Decision of the Arbitration Court of the North-Western District No. F07-16366/2023 of November 16, 2023 in case No. A56-82244/2022
[2] Decision of the Arbitration Court of St. Petersburg and the Leningrad Region of February 13, 2024 in case No. A56-82244/2022
[3] Ruling of the Thirteenth Arbitration Court of Appeal of July 19, 2024 in case No. A56-82244/2022