Analysis of some consequences of protecting the right to justice in disputes related to sanctioned transactions

Bezborodov Alexander Yur'evich Postgraduate student; Law Institute; P. Lumumba Peoples' Friendship University of Russia Lawyer; Alexander Yuryevich Bezborodov Law Office 107113, Russia, Moscow, Pesochny lane, 3, sq. 137 bezborodov.alexander@gmail.com

Background of the issue:

Exclusive jurisdiction over disputes between a Russian or foreign person and another Russian or foreign person, if the basis for such disputes are restrictive measures imposed by a foreign state, a state association and (or) a union and (or) a state (interstate) institution of a foreign state or a state association and (or) a union in respect of citizens of the Russian Federation and It was established by the Federal Law of the Russian Federation No. 171-FZ dated June 08, 2020. "On Amendments to the Arbitration Procedure Code of the Russian Federation in order to protect the rights of Individuals and Legal Entities in connection with Restrictive Measures imposed by a Foreign State, State association and (or) union and (or) state (interstate) institution of a foreign state or state association and (or) union." During the period of validity of Article 248.1 of the Arbitration Procedural Code of the Russian Federation (hereinafter: Its interpretation has overcome a serious evolution, from the application of the provisions under study exclusively to persons included in the sanctions lists to any persons affected by the sanctions restrictions of foreign states^[1].

The purpose of Article 248.1 of the APC RF is to ensure the constitutional right of the Russian side to judicial protection^[2]. When considering an application, the Commercial Court analyzes the possibility of ensuring a fair trial involving the applicant in a foreign jurisdiction, and only if there are grounds to believe that the applicant will be deprived of judicial protection to the extent that any other person can expect, the court may decide to impose an appropriate injunction^[3]. Of course, law enforcement practice may differ from the basic content of Article 248.1 of the APC RF and the ideas incorporated into the norm in individual cases, however, an analysis of the adopted judicial acts will establish that each adopted prohibition is based on the court's opinion that it is impossible to comply with guarantees of fair trial for the applicant^[4].

June 26, 2024 The European Commission has adopted amendments to Regulation (EC) 833/2014, setting out article 11 (a) of the Regulation as follows:

"Any person referred to in point (c) or (d) of Article 13 shall be entitled to recover, in judicial proceedings before the competent courts of the Member State, any damages, including legal costs, incurred by that person as a consequence of claims lodged with courts in third countries by persons, entities and bodies referred to in point (a), (b) or (c) of Article 11(1), in connection with any contract or transaction the performance of which has been affected, directly or indirectly, in whole or in part, by the measures imposed under this Regulation, provided that the person concerned does not have effective access to the remedies under the relevant jurisdiction". / "Any person referred to in paragraph (c) or (d) of Article 13 is entitled to judicial compensation in the competent courts of a Member State for any damages, including legal costs incurred by that person as a result of claims filed in the courts of third countries by persons, organizations and bodies referred to in paragraph (a), (b) or (c) of article 11 (1), in connection with any contract or transaction, the performance of which has been directly or indirectly, in whole or in part affected by measures imposed in accordance with these regulations, provided that the person concerned does not have effective access to legal remedies within the relevant jurisdiction".

It is assumed that the introduction of this provision should lead to the following legal consequences. If a Russian person has applied for judicial protection outside the European Union, then the defendant, a citizen of an EU Member State or a legal entity incorporated in the EU, is entitled to damages and compensation for court costs in connection with the consideration of the case in a jurisdiction outside the EU, subject to the fulfillment of the prerequisites specified in Article 11 (a). In the framework of this work, we are certainly interested in the possibility of a defendant from an EU member state claiming damages if a Russian person, contrary to an arbitration or settlement clause, based on Article 248.1 of the APC of the Russian Federation, filed a claim with a Russian state court^[5].

Separate legal positions of application of Article 248.1 of the APC of the Russian Federation^[6]

Let us consider some cases on the application of the provisions of Article 248.1 of the APC of the Russian Federation in which the Supreme Court of the Russian Federation has formulated a number of legal positions on certain conditions for the application of Article 248.1 of the APC of the Russian Federation.

Of particular interest is the case of NS BANK JSC against PJSC Lukoil Oil Company No. A40-214726/2023, according to which, in the Ruling dated November 28, 2024 The Supreme Court of the Russian Federation stated the following.

"When considering a claim of a person arising from a legal relationship complicated by a foreign element, it is necessary each time to establish whether there is a legally prescribed basis for accepting a case by a Russian arbitration court, taking into account the need to ensure the person's right to judicial protection in a real way.

From the systematic interpretation of the above legal norms, it follows that the provisions of Articles 248.1 and 248.2 of the Code of Administrative Procedure of the Russian Federation have been introduced into procedural legislation in order to ensure the constitutional right of Russian and legal entities to judicial protection in cases where the restoration of violated rights in a foreign jurisdiction is impossible or becomes significantly difficult.

In the event that the reason for the dispute was the introduction of restrictive measures by the State in which it was planned to be considered, then the impartiality of the arbitrators (judges) in the legal assessment of the basis of the disputed legal relationship cannot but raise reasonable doubts. A deliberate statement of the legality (legality) of the introduction of restrictive measures may affect the resolution of the dispute on the merits, which does not meet the criteria of independence, impartiality of the court, as well as the principles of equality of the parties and the adversarial process.

Unreasonable conditions, from the point of view of financial, time, reputational and other costs, which a person must fulfill in order to initiate, continue or complete the proceedings, contradict the very essence of the constitutional right to judicial protection and put the person in a deliberately unfavorable position."

It is also necessary to pay attention to the Ruling of the Supreme Court of the Russian Federation dated July 26, 2024 in case No. A45-19015/2023 on the application of S. Tuvisen GmbH to JSC "Novosibirsk Khleboprodukt", in which the Supreme Court formulated a refutable presumption of the lack of impartiality of arbitrators or judges from unfriendly countries (the list of unfriendly countries is established by Order of the Government of the Russian Federation No. 430 dated March 05, 2022 G.):

"The introduction of restrictive measures by foreign states against the Russian Federation, motivated by political motives, cannot but create doubts that the relevant dispute will be considered on the territory of a foreign state in compliance with guarantees of a fair trial, including those related to the impartiality of the court, which is one of the elements of accessibility of justice.

The European Court of Human Rights has repeatedly pointed out that the impartiality of the court, in an objective sense, implies the existence of sufficient guarantees to exclude any doubt that the judge does not have any interest or personal prejudice when considering a case. If there are circumstances that tell an outside objective observer that the judge may not be able to consider the case with complete impartiality, his objective impartiality is questioned, even if the judge's subjective attitude is impeccable. According to the subjective criterion, the personal impartiality of a judge is presumed, while there is no evidence to the contrary (judgment of the Grand Chamber of the European Court in the case of Kuprianu v. Cyprus dated 15.12.2005, complaint No. 73797/01; judgment of the European Court in the case of Revtyuk v. the Russian Federation dated 09.01.2018, complaint No. 31796/10).

Citizens of Ukraine, Great Britain, and Denmark were appointed as arbitrators to consider this dispute. Meanwhile, Decrees of the President of the Russian Federation dated 02/28/2022 No. 79 "On the application of special Economic Measures in connection with the Unfriendly Actions of the United States of America and Foreign States and International Organizations that have Joined them" and No. 95 dated 03/05/2022 "On the Temporary Procedure for Fulfilling Obligations to Certain Foreign Creditors" (subject to the Decree of the Government of the Russian Federation dated 03/05/2022 No. 430) these countries are recognized as unfriendly countries with the aim of harming the Russian Federation, Russian legal entities and individuals. The lack of impartiality and objectivity in the consideration of this case in the FOSFA Arbitration by such a composition of judges is presumed, as long as there is no evidence to the contrary."

As we can see, both judicial acts contain statements that the imposition of sanctions against the Russian Federation cannot but raise doubts about the impartiality of courts located in unfriendly states, as well as doubts about the impartiality of arbitrators and judges, citizens of an unfriendly state.

When considering issues of the impartiality of arbitrators, it is customary to focus on the Rules of the Chamber of Commerce and Industry of the Russian Federation (Approved by Order of the President of the Chamber of Commerce and Industry of the Russian Federation No. 39 dated August 27, 2010) and the IBA Guidelines on Conflicts of Interest in International Arbitration (Adopted by resolution of the IBA Council on Thursday October 23, 2014). Citizenship is considered as a ground that prevents the acceptance of the functions of an arbitrator or requires the disclosure of this information to the parties. Further, analyzing the provisions of the Code of Conduct for Arbitrators in the Settlement of International Investment Disputes prepared by UNCITRAL (Approved by the UN General Assembly Resolution of December 7, 2023), one can pay attention to the following rule: an arbitrator cannot be influenced by a loyal attitude towards any party to the dispute or any other person or entity, as well as take any action, which create the appearance of a lack of independence or impartiality. A broad interpretation of these criteria makes it possible to consider this rule as a reason to doubt the impartiality of the arbitrator if the arbitrator has publicly taken an unequivocal position against the domicile country of the party to the dispute, however, such a circumstance is still subject to proof. Thus, the nationality of an unfriendly State, in this regard, should be considered as "another circumstance that may cast doubt on impartiality," but only as a basis for starting a review of the issue of impartiality. The mere fact of citizenship, in the author's opinion, is not enough to assert the absence of such a thing. There must be other evidence of a lack of objectivity and impartiality. A different approach and a different interpretation opens the way to assessing this approach as discriminatory (It is also noteworthy, for example, that the list of arbitrators of the ICAC of the Russian Federation still contains many arbitrators, citizens of unfriendly countries, who continue to receive appointments and consider cases, regardless of the presumption formulated by the Supreme Court of the Russian Federation.).

A brief analysis of the prerequisites for the application of article 11 (a) of Regulation No. 833/2014

Analyzing the practice of applying measures to protect Russian persons by Russian courts, it is necessary to analyze the reaction of the "affected" jurisdictions, in particular the provisions of article 11 (a) of Regulation (EC) 833/2014. Let us consider the prerequisites for the application of article 11 (a). It follows from the text of article 11 (a) that the following conditions are the grounds for compensation of damages:

(1) Filing a claim with a court in a third country.

First of all, let's analyze the term "claims lodged with courts in third countries" / "filing a claim". Based on the broad interpretation of the term "claim" in English, we must assume that in article 11 (a), the term "claim" means any appeal for judicial protection in court, whether it is a statement of claim or any other appeal to the court with a property or non-property claim. A different understanding could unreasonably narrow the scope of the norm and limit its application, which, most likely, was not the intention of the legislator.

Next, it is necessary to define the term "court of a third country". Based on the text of article 11 (a), we must assume that this provision refers to any institutional judicial body of any State outside the European Union, including, for example, the courts of England, the United States, Switzerland. In any case, this term covers the state courts of the Russian Federation, to which a claim may be filed under the rules of Article 248.1 of the APC of the Russian Federation^[7].

(2) The claim must be related to any contract or transaction, the execution of which was directly or indirectly, in whole or in part affected by the measures introduced in accordance with Regulation (EU) 833/2014.

The content of this part of Article 11 (a) as a prerequisite includes, therefore, the need to link the claimed claim to a transaction that was affected by the sanctions measures of Regulation (EU) 833/2014 (hereinafter, for brevity, we will call such a transaction – sanctioned).

Firstly, it is noteworthy that article 11 (a) states only the connection with the transaction, which should probably imply the possibility of both contractual and tort claims, provided that there is a justification for the existence of any influence of tort on the sanctioned transaction.

Further, it should be noted that Article 11 (a) applies only to those transactions that are affected by the sanctions restrictions of Regulation (EU) 833/2014. It is logical to assume that if the sanctions restrictions are established in a different document, then the possibility of compensation for damages in relation to paragraph 11 (a) should be excluded, even if these restrictions are accepted by the European Union. Since there are currently no official clarifications in this regard, I believe that it is necessary to follow the literal interpretation of the norm and limit the scope of Article 11 (a) only to Regulation (EC) 833/2014.

However, this interpretation raises the question of how to resolve a hypothetical situation if a claim for a sanctions transaction is related both to the sanctions restrictions of Regulation (EU) 833/2014 and, for example, to the effect of Regulation (EU) 2022/263 of 02/23/2022. On the one hand, the connection of the sanctions transaction with Regulation (EU) 833/2014 directly opens up the possibility of claiming damages. On the other hand, the statement of a claim related to other sanctions restrictions cannot entail a negative effect in the form of the right to recover damages (compensation for court costs) in relation to article 11 (a). It can be assumed that the claims of a foreign person for damages can only be considered in terms of arguments related to Regulation (EU) 833/2014. However, how can the applicant of such a claim differentiate between his losses and claim damages related solely to the application of Regulation (EU) 833/2014? One can only assume that in this case, the process of proving the amount of damages and their connection with Regulation (EU) 833/2014 will be very difficult for a foreign person.

(3) The person concerned does not have effective access to legal remedies within the relevant jurisdiction

The next criterion is the evaluative condition that the applicant does not have "effective access to legal remedies" during the consideration of the case. We note that this criterion is also used by the Russian legislator and the Supreme Court of the Russian Federation when developing norms and legal positions aimed at protecting Russian individuals, in particular Article 248.1 of the APC RF. As we noted above, the Supreme Court of the Russian Federation assumes that it is impossible to achieve fair legal proceedings against Russian persons affected by sanctions in unfriendly countries, including the countries of the European Union.

First of all, it is necessary to consider the term "effective". The use of such a general formulation makes it possible to apply any criteria of alleged "effectiveness" to the assessment of the case review procedure. We can talk about a formal set of powers granted to a foreign person, such as the right to participate personally in a court case, the right to present a position on a case, the right to represent one's interests through a professional representative, etc. The restriction of a person in one of the powers can thus be considered as a restriction of effective access to legal protection. An analysis of the counter–sanctions legislation suggests that only in the case of a personal ban on entry to the Russian Federation for a foreign person may a situation arise where the rights of such a person will be formally limited in part - such a person will be deprived of the right to participate personally in the judicial process on the territory of the Russian Federation. Otherwise, the legislation of the Russian Federation does not contain any discriminatory norms against foreigners, including, for example, foreigners from the European Union. An analysis of judicial practice allows us to establish that many foreign persons, as well as their subsidiaries in the Russian Federation, actively participate in court proceedings in state courts and achieve positive results both in disputes with counterparties and in disputes with the Russian Federation, for example: The Ruling of the Supreme Court of the Russian Federation dated January 29, 2025 in case no. A-40-229638/2023, by which the Supreme Court of the Russian Federation adopted the position of a subsidiary of a German company on the legality of applying a reduced VAT rate when selling products in the territory of the Russian Federation; Decision of the Arbitration Court of the Samara Region dated 03/27/2024 in case No. A55-12586/2023, by which the Arbitration Court refused to recover damages from a Russian subsidiary of a German company for termination of supplies under the contract due to the imposition of sanctions restrictions. This approach of the Russian courts per se excludes the presumption of "ineffective judicial proceedings" against persons from unfriendly countries in the state courts of the Russian Federation (and second, of course, it does not exclude the possibility of a biased attitude of some judges towards individuals associated with unfriendly countries. An example of this approach is the well–known case of "Peppa Pig" - case no. A28-11930/2021, the decision of the court of first instance on which, however, was overturned by higher authorities. However, it is unacceptable to establish the presumption of a general biased approach towards foreigners, which is refuted by the examples given).

I assume that the drafters of article 11 (a) should have assumed a different assessment of the effectiveness of access to legal remedies, otherwise the rule would have been limited to dozens of individuals who are prohibited from entering the Russian Federation. Referring to the works of Russian scientists who analyzed the criteria for the effectiveness of the judicial system^[8], we can cite the following proposed criteria: "Criteria for the effectiveness of procedural law. Criteria for the effectiveness of applying to the court. Criteria for the effectiveness of judicial proceedings. Criteria for the effectiveness of a court decision. Criteria for the effectiveness of verification productions". Each of the proposed criteria involves an in-depth analysis of the work of the judicial system, involving the use of appropriate sources of knowledge about the judicial system, which are unlikely to be achievable when considering a particular case.

It is logical then to assume that the officials of the European Union, when developing the provisions of Article 11 (a), should have been guided by the provisions of Article 6 of the Convention for the Protection of Human Rights and Fundamental Freedoms of 11/04/1950. (more: "Convention"). Numerous works by scientists both in the Russian Federation and other countries are devoted to the interpretation of article 6 of the Convention. Assessing the effectiveness of justice from the point of view of article 6 of the Convention, the following standards of justice are distinguished:

"The standard of accessibility of justice: a person who believes that his right has been violated must be provided with access to court.

Institutional standards: The dispute must be considered by 1) an independent and impartial court, 2) established on the basis of law, 3) whose decision must be enforced or reviewed in exceptional cases.

Procedural standards: dispute resolution proceedings should be 1) public and held within 2) a reasonable time and 3) fair."^[9]

Similar criteria for evaluating the work of the justice system are associated with a single basis for building the judicial system – basic human rights and freedoms, and the orientation of each system to ensure them within the framework of the functioning of the judicial system.

In the course of its work, the ECHR has repeatedly considered complaints from citizens of the Russian Federation against the Russian Federation with reference to violations of Article 6 of the Convention. I think it would be reasonable to assume that the developed approaches of the ECHR to assessing the compliance of the judicial process in a particular case with the standards of Article 6 of the Convention should become a guideline for assessing the criterion of "effective access to legal remedies" within the framework of the application of Article 11 (a).

In the framework of this article, we propose to refer to some of the works of Russian scientists who have analyzed the decisions of the ECHR on the application of Article 6 of the Convention^[10]. An analysis of the ECHR's decisions on disputes involving the Russian Federation suggests the following possible violations of article 6 of the Convention, which can be considered as grounds for applying article 11 (a).

As mentioned earlier, in some limited cases, the application of art. 11 (a) may be based on a reference to the restriction of access to court proceedings in relation to persons who are prohibited from entering the territory of the Russian Federation^[11].

Further, analyzing the potential violation of the principles of justice, the following points can be identified that can be taken into account when analyzing the effectiveness criterion.

(1) Violation of the rules of jurisdiction^[12]. Such a violation can certainly be considered cases where the provisions of Article 248.1 of the APC RF are applied and a dispute is referred to a Russian state court in violation of the terms of an arbitration or settlement agreement. At the same time, the question of how legitimate, from the point of view of the Russian legal order, an action can be recognized as a violation of an arbitration or pro-settlement agreement is debatable and ambiguous, especially in cases where the relevant arbitration or pro-settlement agreement was concluded after the entry into force of the provisions of Article 248.1 of the APC RF and the parties were aware of the possibility of changing jurisdiction upon the occurrence of appropriate conditions (influence sanctions on the Russian side).

(2) Waiving the applicable law when issuing a judicial act. In case of refusal to apply the norms of foreign law, for example, regarding the assessment of EU sanctions legislation, such refusal may be considered as a violation of justice standards in the sense of article 6 of the Convention^[13]. An analysis of the decisions taken by state courts, which consider, for example, the issue of qualifying EU sanctions as force majeure, allows us to establish that Russian courts often refuse to apply the law applicable to the contract to this issue in accordance with art. 1193 of the Civil Code of the Russian Federation, citing the contradiction of the sanctions legislation to the public policy of the Russian Federation. As an example, we can refer to case no. A40-167352/2023, in which the courts of three instances consistently rejected the application of foreign law with the following wording: "Meanwhile, the norms of foreign law cannot act as grounds for violating the rights of a Russian legal entity, including through unilateral renunciation of contracts, since the consequences of the application of economic sanctions contradict the public policy of the Russian Federation and are not subject to application on its territory by virtue of a direct indication of the law (art. 1193 of the Civil Code of the Russian Federation, paragraph 5, paragraph 1 of the Information Letter of the Presidium of the Supreme Arbitration Court of the Russian Federation dated 26.02.2013 No. 156, part 1 of art. 1 of the Federal Law of 04.06.2018 No. 127-FZ "On measures of influence (countering) the unfriendly actions of the United States of America and other foreign states", Resolution of the Constitutional Court of the Russian Federation dated 02/13/2018 No. 8-P ... When deciding on the need to use a mechanism to protect public order, the court should proceed not from the contradiction of the content of a foreign norm to the fundamental principles (control over the content of norms of foreign law, but from the unacceptability for the country the Court of consequences of the application of a foreign norm" (A similar argument can be found in the following cases: A40-194447/2023, A40-121362/2022, A40-91304/2023 and many others.). This approach of the Russian courts can also be assessed as the basis for recognizing the dispute resolution procedure as not conforming to the standards of article 6 of the Convention.

(3) Bias in the adoption of a judicial act, including lack of impartiality in the consideration of a case. Here it is necessary to pay attention once again to the position of the Supreme Court of the Russian Federation, assessing the possibility of a fair hearing of a case involving Russian persons in so-called "unfriendly states" in case No. 304-ES24-2799, in which the Supreme Court of the Russian Federation formulated a rebuttable presumption of the lack of impartiality of any arbitrator / judge, a citizen of an unfriendly state: "Lack of impartiality and objectivity in the consideration of this case in the FOSFA Arbitration by such a composition of judges is presumed, as long as there is no evidence to the contrary."

A similar approach can be applied to the assessment of the activities of Russian courts by judicial authorities of "unfriendly" states. De facto, the implementation of the principle of reciprocity is the opposite. The application of this approach will lead to the non-alternative application of Article 11 (a) in the case of a case in a Russian court. An analysis of other criteria for the effectiveness of judicial protection will be required only if the case against an individual who is a citizen of an EU member state or a legal entity incorporated in an EU member state is considered outside the European Union and outside the Russian Federation (such potential cases include, for example, cases of recognition and enforcement of judgments Russian courts in third jurisdictions).

Assessing the overall fairness of the trial, we can assume a reference to the creation of unequal conditions for the participants in the process, in particular, violations of the principle of competition and equality of the parties to the dispute.

Thus, an analysis of the standards of justice in the sense of Article 6 of the Convention suggests that the courts of the EU member States, in the case of substantiation of the exclusive competence of the Russian court on the basis of Article 248.1 of the Code of Administrative Procedure of the Russian Federation, are likely to find a violation of "effective access to remedies" in the context of Article 6 of the Convention. The remaining possible references to violations of justice standards are debatable and require careful assessment.

Conclusion

In conclusion, it should be noted that the development of judicial practice in the application of an injunction against the consideration of disputes in a foreign jurisdiction, as well as the transfer of the place of dispute resolution to the Russian Federation, causes a response from foreign states. Using the example of article 11 (a) of Regulation (EU) 833/2014, we can assess the confrontation between jurisdictions, each of which is taking measures to defend sovereignty in terms of protecting the state's function of administering justice, as well as ensuring the rights and freedoms of citizens and legal entities. At the same time, each of the States involved may reasonably believe that transferring the case to a competing jurisdiction is likely to fail to provide adequate protection for citizens. Relevant examples of judicial acts can be easily found both in the Russian Federation and in each of the EU countries. However, the measures taken represent an increase in economic pressure on the parties to the dispute, both on the one hand and on the other, and force the plaintiff and the defendant to look for a way that will entail lower risks for them when seeking judicial protection. At the same time, it is not difficult to construct a situation where the property interests of each of the parties, when applying to the court for judicial protection, will suffer so much that, in principle, it will make such an appeal economically impractical and leave the parties with only one effective way to resolve the dispute – the search for an out-of-court compromise.