The Russian Supreme Court issued long-awaited
review* covering application by
Arbitrazh (commercial) courts of countersanctions rules and regulations. The Review covers the following main issues:
- The validity and legal consequences of transactions violating Russian countersanctions,
- Procedural aspects of disputes involving the application of Russian countersanctions,
- Intellectual property protection in the context of Russian countersanctions,
- Exemptions from liability for non-performance of obligations due to foreign sanctions,
- Jurisdiction of Russian courts in sanctions-related disputes,
- Customs rules for goods subject to Russian countersanctions.
These topics are covered in more detail in our alert.
- The Supreme Court confirmed that transactions aimed at circumventing Russian countersanctions are void from the outset, regardless of whether the parties acted in good faith. Such transactions include:
1. Sale of real estate to a Russian entity controlled by a person from an “unfriendly” state, if prior approval from the Government Commission was not obtained (Section 1);
2. Transactions intended to establish foreign control over a strategic enterprise without prior Government Commission approval (Section 2);
3. Violations of the special procedure for
fulfilling obligations under the countersanctions regime, including splitting payments to transfer more than RUB 10m (approx. EUR 114k) per month, and assignment of claims (Sections 3–5).
- The Supreme Court clarified that assignment of a claim is allowed if the underlying obligation is not subject to the countersanctions regime (Section 6).
A key point of the review is that special economic measures do not limit the protection of exclusive rights of foreign companies.- The special payment mechanism (type “O” accounts) applies to all obligations owed to right holders from “unfriendly” states, including obligations arising from unauthorised use of intellectual property (Section 10).
- The special payment mechanism does not apply to right holders that continue to operate in Russia and fulfil their contractual obligations. The right holder bears the burden of proving these circumstances (Section 11).
- Compulsory licensing may be granted if a right holder abuses its intellectual property rights or otherwise acts in clear bad faith (Section 12).
This position is based on a series of court rulings in a long-running dispute between a U.S. manufacturer of an original medicinal product and a Russian generic manufacturer. The courts found that the volumes of the original product supplied to the Russian market were insufficient and held that such limited supply amounted to an abuse of intellectual property rights. In practice, this creates a presumption of bad faith on the part of right holders from “unfriendly” states that have reduced their supplies to Russia or significantly increased their prices, especially in the pharmaceutical sector. As a result, in compulsory licensing disputes, the burden of proof shifts to the “unfriendly” right holder, who must justify its pricing and show that the reduced supply is not sanctions-related.
- The following parties may be exempt from liability, including liability for damages:
1. A broker – for failing to execute a client’s instructions relating to foreign securities, if the failure results from sanctions imposed on a Russian stock exchange that the broker could not prevent or overcome (Section 13);
2. The payer’s bank – for failing to execute a payment order, if the transfer was blocked due to sanctions of which the bank was unaware and could not reasonably have known (Section 14).
In both cases, the Supreme Court clarified that foreign sanctions may constitute force majeure only where they objectively prevent performance of the relevant obligation.
Should you have any questions, please do not hesitate to contact our experts.