Navigating the Complex Landscape of Arbitration and State Court Proceedings Amidst Russia-Related Commercial Disputes

The geopolitical tensions arising from the conflict in Ukraine have led to a surge in commercial disputes between Russian and non-Russian entities. These disputes frequently culminate in arbitration proceedings, with Russian parties often concurrently resorting to domestic Russian courts despite existing arbitration agreements. This trend is rooted in legislative amendments to the Russian Arbitrazh (Commercial) Procedure Code (APC) enacted in 2020, which empower Russian entities subject to sanctions to seek adjudication from Russian Arbitrazh Courts in certain circumstances, even if the dispute falls within the scope of an arbitration agreement. These amendments also authorize the issuance of anti-arbitration injunctions and the imposition of fines on foreign parties who proceed with arbitration, with fines potentially mirroring the disputed amount in arbitration.

In the international legal arena, parties have sought to counteract the Russian courts’ interference by pursuing legal remedies, including anti-suit injunctions from English courts, which seek to protect the sanctity of arbitration agreements. A recent ruling by the Higher Regional Court Berlin (Kammergericht) offers another strategic avenue for non-Russian parties to affirm the exclusivity of arbitration, even when the seat of arbitration lies outside Germany, provided the arbitral tribunal has not yet been constituted.

The Kammergericht’s Ruling: Asserting Global Jurisdiction for German Courts on Arbitration Admissibility

The introduction of European sanctions rendered a German party unable to fulfill its obligations under a contract with a Russian entity and caused it to terminate the contract. The Russian party challenged the termination and, despite an arbitration agreement submitting any disputes to VIAC arbitration with Vienna as the designated seat, commenced proceedings in the Arbitrazh Court of Saint Petersburg and sought an anti-arbitration injunction from the Arbitrazh Court of Moscow. In a strategic countermove, the German party petitioned the Kammergericht for a declaration pursuant to Section 1032(2) of the German Code of Civil Procedure (“ZPO”), asserting the exclusivity of arbitration. The Russian party did not participate in the proceedings, necessitating service by public notice.

In a previously unpublished decision dated 1 June 2023 (court docket no. 12 SchH 5/22), the Kammergericht declared the arbitration admissible under Section 1032(2) of the ZPO to the exclusion of Russian state court proceedings.  

The ruling is significant, highlighting the broad scope of Section 1032(2) of the ZPO, with the Kammergericht affirming its jurisdiction regardless of the arbitration’s seat or the arbitration agreement’s governing law. In this and a subsequent decision dated 6 November 2023 (court docket no. 12 SchH 9/22), the Kammergericht affirmed its willingness to entertain jurisdiction based solely on the location of a party’s domicile or assets that may serve as targets for enforcement within Germany. The latter ruling even contemplated that the mere possibility that the applicant could hold assets within Germany would be a sufficient basis for its jurisdiction.

This jurisdictional stance broadly empowers international parties to invoke Section 1032(2) of the ZPO to secure a declaratory decision from German courts.

Declaratory Relief: A Defensive Strategy Against Foreign Enforcement?

The prospect of the enforcement of a punitive 'fine' issued by a Russian Arbitrazh Court for engaging in arbitration is daunting. A declaration under Section 1032(2) of the ZPO could offer a strategic defense against such enforcement. These declarations lack the punitive enforcement mechanisms for contempt of court that potentially exist in relation to English anti-suit injunctions, but are more readily obtainable and may encounter less resistance in jurisdictions that are critical of anti-suit injunctions.

Indeed, Section 1032(2) ZPO declarations are potentially accessible in situations where anti-suit injunctions are not available. This may be the case for example where there is an insufficient connection to England, such as when the arbitration’s seat is outside of England and English law does not apply to the arbitration agreement. Because of their lack of coercive force, Section 1032(2) ZPO declarations are unlikely to offer effective protection against enforcement targeting assets located within Russia, where it is improbable that the declarations would be recognized. However, the non-injunctive nature of a Section 1032(2) ZPO declaration could face less opposition in recognition proceedings elsewhere, including in places that view anti-suit injunctions as an affront to sovereignty. Even without formal recognition, a declaratory ruling under Section 1032(2) of the ZPO can prompt an enforcing court to rigorously assess the legitimacy of the decisions in question, potentially impeding the enforcement of an Arbitrazh court judgment, depending on the jurisdiction and case specifics.

The significance of Section 1032(2) of the ZPO spans commercial and investment arbitration, as German Federal Supreme Court judgments have shown, by declaring certain intra-EU ICSID arbitrations inadmissible. Whether to reinforce arbitration integrity or challenge admissibility, the potential relevance of Section 1032(2) ZPO is unmistakable