On August 1st, Pravo.ru published the article "July International Digest: Analysis of the 18th Sanctions Package and Solidarity of Anti-Suit Injunctions." The extensive analytical material features explanations of the new provisions by lawyers from leading Russian firms. KKMP Partner and Head of Dispute Resolution Practice, Stanislav Dobshevich, commented on the innovations regarding the restriction of recognition of investment arbitration decisions and the new mechanism for recovering damages in favor of EU member states.
In the 18th sanctions package, the European Union, among other things, introduced norms according to which the recognition and enforcement of investment arbitration decisions violating EU sanctions regulations No. 269 and 833 will be considered a violation of public order. Thus, the EU Council has created a legal collision:
“EU countries have concluded BITs (Bilateral Investment Treaties), and now refuse to fulfill their obligations under them, referring to acts of another subject of international law – the EU Council, which was not a party to the BIT,” explained Stanislav Dobshevich.
Despite the fact that this rule does not yet apply to decisions of commercial arbitration, the sanctions regulations effectively hinder their enforcement as well. For example, in May of this year, the Higher Regional Court of Stuttgart refused a Russian company enforcement of the ICAC (International Commercial Arbitration Court) award, citing sanctions regulation No. 833 and a violation of public order.
As part of the 18th sanctions package, the European Union also introduced a new mechanism for recovering damages. Now, according to the new articles 11e and 11f of regulation No. 833, a member state of the EU has the right to recover damages and expenses from the party initiating an investment arbitration against it in connection with the application of EU sanctions. Damages can be recovered from individuals and legal entities who initiated the investment arbitration, participated in it, or attempted to enforce its decision, as well as from the owners of such companies and controlling firms. The EU had already introduced a similar mechanism in the 14th sanctions package: Article 11a allows European entities to claim compensation for damages related to appealing to a Russian court under Articles 248.1 and 248.2 of the APC (Arbitration Procedural Code).
“In Article 11a, one could still see a relatively logical legal justification: the right to recover damages arises from initiating a dispute in violation of the arbitration agreement. In the case of Article 11e, however, the logic is completely absent: the EU member state itself allows a violation of the BIT, and it is then entitled to recover damages from the investor simply for seeking protection of their rights provided for in the BIT,” commented Stanislav Dobshevich.