What is this guide?
Russian law restricts both the choice of law and the types of dispute resolution mechanisms that can be used for certain Russia-related Commercial Contracts. Recent changes to Russian law have caused a degree of uncertainty amongst clients as to what they can and cannot do when transacting with Russian parties or in transactions involving Russian entities.
This guide will help you to understand:
- what restrictions apply and when;
- what works and what does not for certain types of contracts;
- traps to avoid; and
- practical drafting solutions.
Who is it for?
This guide is primarily intended to assist in-house counsel who handle Russia-related Commercial Contracts and who need to have a practical understanding of the nuances of drafting dispute resolution and governing law clauses in the Russian context.
What are the key points?
Dispute resolution and governing law clauses in Russia-related Commercial Contracts need to be tailored to reflect the nuances of the Russian legal system, and parties need to understand the consequences of choosing certain dispute resolution options for Russia-related Commercial Contracts. The caseload in the Russian courts1 is generally high2, and as a result, judges may not have sufficient time to thoroughly consider all the issues at stake. As a consequence, time spent on securing effective dispute resolution and governing law clauses will invariably be time well spent.
The guide has two sections:
- Governing law clauses (Section 1); and
- Dispute resolution clauses (Section 2).
A properly drafted contract should have both clauses. When choosing the governing law of your contract, the key point is that Russian law restricts your choice in certain circumstances. These circumstances are set out in Section 1. Where any of them applies, Russian law must govern your contract in order for it to be recognised and enforced within Russia.3
When drafting a dispute resolution clause, we suggest that non-Russian parties adopt the following approach:
- First, consider whether it is mandatory as a matter of Russian law for the dispute to be resolved through litigation in Russian courts, ie whether the dispute is non-arbitrable or falls within the exclusive jurisdiction of Russian courts4, or whether you have the freedom to opt for arbitration or offshore litigation.
- Second, if Russian court litigation is not mandatory and arbitration is preferred, consider whether it is mandatory that any arbitration:
- be seated in Russia;
- be seated in Russia and be heard by a permanent arbitration institution ("PAI"); or
- be heard by a PAI (where there is an option for arbitration seated offshore).
- Third, if there are no Russian law restrictions (and you can do so as a matter of commercial bargaining power), consider opting for arbitration with a seat outside of Russia or national court litigation in the jurisdiction where enforcement is likely to take place.
Section 2 explains these points in more detail.
The contents of this publication are for reference purposes only. They do not constitute legal advice and should not be relied upon as such. Given the complexity of the Russian legal system, this guide can only ever be introductory in nature. Each clause should be carefully drafted, taking into consideration the likely types of disputes, the exigencies of a given situation and the applicable laws. There are many sector-specific and deal-specific issues which justify departure from the general principles set out in this guide.
Russian law and regulation are subject to regular change. This guide reflects the law as at September 2020.