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Application of Article 248.1 of the Code of Arbitration Procedure by analogy

14 декабря 2022
Due to the sanctions imposed against Russia and the complexities involved (payment of arbitration fees, hiring of lawyers), Russians are trying to circumvent arbitration clauses from contracts with their counterparties and litigate disputes in Russian courts.

Commercial Bank Loko-Bank (Russia) filed a claim against Fitch Ratings CIS LTD (UK) in the Moscow City Arbitration Court (case no. A40-121362/2022) seeking to invalidate the arbitration clause and to recover £25,541.91 in monetary damages.

A remuneration agreement was concluded between Loko-Bank and Fitch ratings CIS, under which Fitch ratings CIS undertook, at Loko-Bank's request, to prepare and provide public and private ratings for both the bank itself and the securities issued by it, and Loko-Bank undertook to pay Fitch ratings CIS remuneration for the ratings provided. 
Fitch Ratings CIS informed Loko-Bank by a letter dated 01.04.2022 to withdraw all previously provided ratings and terminated the agreement due to the imposition of EU sanctions against Russia and its banks.

Loko-Bank, in view of its refusal to continue providing services, sent a claim to Fitch ratings CIS for a refund in the amount of £25,541.91 of the unreturned advance payment. 

During the hearing of case no. A40-121362/2022 in ACGM:
  • Loko-Bank argued that the arbitration clause was not in accordance with public policy and was also unenforceable given the sanctions imposed by the EU, the US and the UK on Russia (including the disconnection of Russia from SWIFT);
  • Fitch Ratings CIS objected, noting the presence of an arbitration clause in the agreement and the applicable law - the law of England and Wales (Clause 5 Part 1 Article 148 of the APC RF).
In order to resolve the dispute, the Arbitration Court applied by analogy of law article 248.1 of the APC RF (despite the fact that no sanctions were imposed on Loko-Bank) and ruled that the arbitration clause was invalid and the dispute must be heard by a Russian arbitration court.

Article 248.1 of the APC provides that disputes involving persons subject to restrictive measures and disputes based on restrictive measures fall within the exclusive competence of Russian arbitration courts.

The Court also noted that, in view of article 1211 of the Russian Civil Code, the parties had not established the applicable law in resolving the invalidity of any part of the contract, including the provision containing the arbitration clause. Consequently, Russian law should apply to the question of declaring an arbitration clause invalid, given the close connection with the territory of the Russian Federation, including in terms of its performance by both parties.

This decision by the ACGM thus establishes a precedent according to which arbitration agreements with a place of arbitration in unfriendly countries and in the absence of personal sanctions may be invalidated.

Nadmitov, Ivanov & Partners law firm provides services in representation of clients in Russian arbitration courts and courts of general jurisdiction of all levels, foreign courts and international commercial arbitrations in complex commercial and corporate disputes, tax cases and bankruptcy cases.

Email: info@nplaw.ru
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