On November 3 2015 the president signed the Law on the Jurisdictional Immunity of a Foreign State and the Property of a Foreign State in the Russian Federation, which will come into force on January 1 2016. The bill was introduced several years ago, but remained dormant in Parliament until recently.
The bill attracted significant attention from national and international press due to the context in which it was passed – in particular, the recent attempts to impose freezing orders on various Russian assets in a number of European jurisdictions. This update addresses some of the law's provisions, which will be of particular interest to those practising in the field of cross-border resolution.
The law is largely based on the UN Convention on Jurisdictional Immunities of Foreign States and Their Property, which Russia signed in 2006, but never ratified.
The law applies to 'foreign states', which is a defined term under the law and is nearly identical to that in the UN convention. It includes:
- a foreign state itself;
- constituent units of a federal state or political sub-divisions of the state;
- agencies or instrumentalities of the state or other entities, to the extent that they are entitled to perform and are actually performing acts in the exercise of sovereign authority of the state; and
- representatives of the state acting in that capacity.
The law governs the following immunities granted to a foreign state by Russian state courts:
- immunity from a state court's jurisdiction;
- immunity from provisional measures, and
- immunity from enforcement.
It does not govern:
- the jurisdiction of arbitral tribunals;
- diplomatic and similar immunities; or
- immunities under international treaties.
The law establishes the functionality doctrine of sovereign immunity. This means that a foreign state does not enjoy immunity from a Russian state court's jurisdiction with respect to its commercial acts if they are not performed in the exercise of its sovereign powers. This includes private transactions with individuals and legal entities and other commercial acts that are undertaken in Russia or that are undertaken abroad and have an effect in Russia. The court will be guided by both the nature and purpose of the transaction in question.
In addition, the law provides that immunity from a state court's jurisdiction cannot be invoked in disputes involving:
- employment contracts;
- participation in companies and other collective bodies;
- property rights;
- personal injury and damage to property;
- intellectual and industrial property; and
- ships that are owned and operated by the state.
These provisions are largely based on Articles 11 to 16 of the UN convention.
The foreign state can consent to exercise of jurisdiction of the Russian court or waive the immunity.
Consent to exercise of jurisdiction
A foreign state can consent to the exercise of jurisdiction of a Russian court through an international treaty, written agreement or declaration before the court, or through a written communication in a specific proceeding. This consent cannot be revoked. The law also expressly provides that the consent cannot be invoked if the foreign state's participation in the proceedings is for the sole purpose of invoking immunity or asserting a right or interest in property that is at issue in the proceedings.
The foreign state's consent to the application of Russian law in relation to a particular dispute, its non-participation in the proceedings and its involvement of a state representative as a witness or expert in the proceedings do not constitute consent to the exercise of jurisdiction.
Consent to the exercise of jurisdiction in relation to a particular dispute does not affect the foreign state's immunity from provisional measures and enforcement.
Waiver of immunity
Immunity is deemed to be waived if the foreign state has initiated the proceedings, intervened in the proceedings or taken any other step relating to the merits of the proceedings.
Immunity is also waived:
- in respect of a counterclaim in proceedings that is instituted by the foreign state and vice versa; and
- in respect of state court proceedings relating to arbitration if the foreign state has entered into an arbitration agreement.
Waiver of jurisdictional immunity does not affect immunity from provisional measures and enforcement.
As stated, consent to exercise of jurisdiction or waiver of immunity from jurisdiction of a Russian court does not affect immunity from provisional measures and enforcement. The foreign state can therefore invoke these immunities, unless it has expressly consented to the exercise of jurisdiction in relation to provisional measures or enforcement; or has allocated or earmarked property for satisfaction of the claim which is the object of the proceedings.
In addition, immunity from enforcement cannot be invoked if the property in question is used or is intended for use by the foreign state for purposes unrelated to the exercise of sovereign powers.
Article 16 lists the following types of property which are deemed to be used for the exercise of sovereign powers:
- property that is used for diplomatic purposes;
- military property;
- items of cultural heritage or archives that are not intended for sale;
- property that forms part of various scientific, cultural or historical exhibitions not intended for sale; and
- property of the central bank or another supervisory body of a foreign state that is responsible for bank supervision.
One of the most cited features of the law is Article 4. This provides that the jurisdictional immunities of a foreign state in Russia may be restricted based on the principle of reciprocity, if it is established that the foreign state imposes restrictions with respect to the immunities of Russia or its property in the foreign state's territory.
Presumably, this provision takes into account both the differences in legal rules on immunities as applicable in a particular foreign state and restrictive interpretation of those immunities in court practice in that state. Therefore, in theory, it may be irrelevant if a restrictive interpretation of state jurisdictional immunity has been applied against Russia or has general application under the law of a particular foreign state. However, in practice, it is unlikely that the reciprocal restrictions will be applied before there is a real risk to Russian sovereign property abroad.
One of the most straightforward cases of the potential application of Article 4 is where the immunity of Russian property listed in Article 16 is not recognised in the foreign state. On a number of occasions, various creditors under the awards rendered against Russia have threatened or even sought to enforce, or at least to obtain freezing orders against, all types of property that are listed in Article 16. By introducing Article 4, Russia seeks to discourage foreign states from implementing any enforcement actions against such assets.
Despite some negative press, the new law should be welcomed for promoting legal certainty in regulating a foreign state's immunities before the Russian courts and incorporating internationally recognised standards into Russian legislation.
This is particularly important in the context of the international enforcement of foreign investment treaty and commercial arbitral awards in Russia against foreign states. The reciprocity provision may present an interesting opportunity for parties choosing jurisdiction for enforcement against sovereign property. Arguably, in circumstances where the state against which the enforcement is sought may apply a lower threshold of state immunities against Russian state property, there may be a better chance of the award being enforced against the state's property in Russia. However, it remains to be seen whether the reciprocity provision will be applied by the Russian courts, and in what circumstances.
The law also provides clear guidance that foreign states can expressly waive their jurisdictional immunities by agreement. If possible, such an agreement should also be sought in relation to private contracts to which the state or state body is a party, to avoid any future disputes over the nature and purpose of the transaction in question.
For further information on this topic please contact Andrey Panov at Norton Rose Fulbright (Central Europe) LLP by telephone (+7 499 924 5101) or email (email@example.com). The Norton Rose Fulbright website can be accessed at www.nortonrosefulbright.com.
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