Exclusive Jurisdiction of Russian Courts: The Impact of Sanctions and the Lugovoy Law

Since the annexation of Crimea in 2014, the Russian Federation has been increasingly targeted by economic and other sanctions. After the start of the full-scale war against Ukraine in 2022, Russia became the most sanctioned country in the world. Sanctions target politicians, businessmen, various organizations (both commercial and non-commercial), and entire sectors of the Russian economy.

In response, Russian authorities adopted countermeasures against foreign politicians, businesses, and others, aiming to protect the interests of sanctioned individuals and entities. Even before 2022, both sanctions related to Crimea and Russia’s countersanctions were limited, but the Russian government was already preparing for further geopolitical conflict. One such measure was the Russian Parliament’s adoption on 8 June 2020 of amendments to the Arbitrazh Procedure Code, regulating business dispute procedures. The law, introduced by several MPs led by Andrey Lugovoy—who according to a European Court of Human Rights judgement was the direct perpetrator of the poisoning by radioactive materials of Alexander Litvinenko in London and has been sanctioned by multiple countries—aims to mitigate risks for sanctioned Russian entities.

The Lugovoy Law and Its Key Provisions

Known as the “Lugovoy Law,” it allows sanctioned individuals and companies to bring disputes to Russian courts and enables those courts to block parallel arbitration or legal proceedings abroad. A key provision of this law is Article 248.1, which asserts that Russian arbitrazh courts have exclusive jurisdiction over disputes involving sanctioned Russian parties. The term “restrictive measures” is loosely defined but primarily refers to sanctions.

On the face of it, Article 248.1 allows arbitrazh (i.e. commercial) courts to assert jurisdiction only

… unless otherwise is provided by an international treaty of the Russian Federation or agreement of the parties, according to which the consideration of disputes with their participation is within the competence of foreign courts, international commercial arbitration [tribunals] located outside the territory of the Russian Federation.

However, part 4 of Article 248.1 explains that if the arbitration agreement is inoperable as a result of restrictive measures which create obstacles with access to justice, Article 248.1 shall apply irrespective of the valid arbitration agreement:

4. The provisions of this article also apply if the agreement of the parties, according to which the consideration of disputes with their participation is assigned to the competence of a foreign court and international commercial arbitration located outside the territory of the Russian Federation, is unenforceable due to application in relation to one of the persons, participating in the dispute, restrictive measures by a foreign state, state association and (or) union and (or) state (interstate) institution of a foreign state or state association and (or) union, creating obstacles for such a person in access to justice.

In practice, courts and law enforcement agencies often apply part 4 of Article 248.1 regardless of applicable international treaties and arbitration agreements between the parties to arbitrate their disputes or to submit them to jurisdiction of foreign courts.

In my opinion, the Lugovoy Law contradicts Russia’s obligations under the New York Convention, to which it is a party. Article II of the Convention requires contracting states to recognize written agreements to submit disputes to arbitration and to refer parties to arbitration if such an agreement exists. It also conflicts with Russia’s own domestic law, specifically the Law “On International Commercial Arbitration,” which requires courts to refer parties to arbitration if they have a valid arbitration agreement unless it is found invalid or unenforceable.

Judicial Practices and the Impact on Arbitration Agreements

Despite these legal contradictions, Russian courts usually decide that the imposition of sanctions makes arbitration agreements inapplicable. They often do not assess whether the agreement is actually inoperable or incapable of being performed, instead assuming jurisdiction based solely on the fact that sanctions exist. This approach has been heavily criticized by legal scholars (including in Russia)  for its internal contradictions and legal defects.

The key precedent on applying Law No. 171-FZ is the Uraltransmash case, which shaped the interpretation of Article 248.1 of the APC. In 2013, Uraltransmash, a Russian company, signed an arbitration agreement with a Polish company, referring disputes to the Stockholm Chamber of Commerce. When the Polish company filed a claim in 2019, Uraltransmash sought a Russian court’s anti-arbitration injunction, citing EU sanctions against it. The Supreme Court ruled that sanctions alone create obstacles to justice, allowing Russian courts jurisdiction under Law No. 171-FZ, even without evidence of specific barriers, lowering the threshold for invoking the law.

In other words, the threshold for successfully invoking the Lugovoy Law before the Russian Courts in practice has become low, as the applicant only needs to prove that sanctions apply. Importantly, the court’s decision in the Uraltransmash case means that any sanctions, including personal and sectoral, allow a party to sue under the Lugovoy Law. Russian Courts have found that sanctions applicable to a Russian sanctioned party per se create an obstacle to access to justice in a forum outside Russia; no evidence regarding such obstacles is required to establish the jurisdiction of the Russian Courts.

Russian courts also have the power to issue anti-suit injunctions under Article 248.2 of the Arbitrazh Procedure Code, which prevents parties from continuing or commencing legal proceedings in foreign jurisdictions. Courts have frequently used Articles 248.1 and 248.2 to issue protectionist rulings. For example, in one case, the Judicial Collegium for Economic Disputes of the Supreme Court of the Russian Federation (case No. 309-ES21-6955) ruled that the imposition of sanctions automatically creates obstacles to accessing justice for Russian parties, making it unnecessary to prove specific difficulties.

In another case, the Arbitrazh Court of Saint Petersburg and the Leningrad Region asserted jurisdiction over a dispute involving a valid arbitration agreement under the Hong Kong International Arbitration Centre (HKIAC) (case No А56-129797/2022). The court ruled that the mere existence of EU sanctions against the Russian party was enough to justify transferring the dispute to Russian courts, without requiring the claimant to prove the impact of sanctions on the arbitration agreement.

Numerous similar cases have followed this approach. For instance, a Russian court issued an anti-suit injunction against First National Petroleum Corporation, a U.S.-incorporated company, ordering it to stop arbitral proceedings under the Stockholm Chamber of Commerce and imposing a penalty of nearly $150 million for non-compliance (case No. А70-26488/2022). Another Russian court ignored a valid arbitration agreement under the International Chamber of Commerce (ICC) tribunal and asserted jurisdiction over a dispute between a Russian company and Airbus S.A.S., citing sanctions against the Russian party (case No. А40-277243/2022-681909).

Russian arbitrazh courts generally hold that sanctions do not affect substantive obligations between parties and cannot excuse a failure to perform them. One court recently ruled that the sanctions imposed by foreign states do not constitute a force majeure event and do not exempt foreign parties from fulfilling their contractual obligations to Russian entities. The court added that foreign sanctions contradict Russian public order and are not applicable within Russia (case No А40-96948/23-102-970).

To sum up, Russian arbitrazh courts routinely assert jurisdiction in disputes involving sanctioned Russian parties, even when valid arbitration agreements or agreements giving jurisdiction to foreign courts exist. Courts justify this by citing the imposition of sanctions by  foreign states and invoking the Lugovoy Law. Moreover, they often impose injunctions prohibiting foreign parties from initiating or continuing proceedings abroad.