Russia Sanctions Litigation: key trends update

Since 2022, foreign companies and their Russian subsidiaries face critical problems with litigation in Russia, most of which arise from the Russian courts’ exclusive jurisdiction over “sanctions” disputes, a recent trend in joint liability of Russian subsidiaries for the debts of their foreign parent companies, seizure of assets of foreign companies located at accounts of different types, etc.

In our previous newsletters we have already covered the basics of sanctions litigation, sanctions articles, their initial and subsequent application and key trends in relation to sanctions litigation.

Here we continue talking about the evolving landscape of Russia sanctions litigation with respect to recent developments and future risks.

1. Latest Supreme Court’s positions: change of the approach?

1.1 The Supreme Court’s landmark ruling under Citibank’s case reversed the court decisions rendered within the previously established approach of bringing Russian subsidiaries of foreign company groups jointly liable with foreign parent companies in Russian litigation even though they are not a party to the disputed relations - so called “reverse piercing of corporate veil”.

Predictably, the Citibank’s ruling has reversed a trend on “group liability” of foreign holdings which is confirmed by new court decisions, in particular in Adorabella v. Credit Suisse AG, Bank Credit Suisse Moscow JSC et al., GTLK Asia v. J.P. Morgan Chase Bank N.A & J.P. Morgan Bank International LLC, Gekolina Investments v. Euroclear, Renaissance Credit et al., SDM-Bank v. Citibank N.A. & Citibank JSC, Sveza Tyumen v Raute Corporation & Raute Servis LLC.

1.2 However, the Citibank’s ruling still left gaps for interpretation, thus, the final word on admissibility of joint liability of the parent company and its Russian subsidiary has not been said.

The Supreme Court has a chance to clarify the approach in one of J.P. Morgan cases. The following arguments will potentially be scrutinized: (i) corporate affiliation alone does not create joint liability; (ii) obligation to act in good faith does not require performance of obligations instead of the parent company on its own; (iii) the fact that enforcement in Russia is easier for a Russian claimant cannot be a ground for holding the Russian subsidiary liable.

Another important point is that the Supreme Court has also a chance to reshape the position enshrined in Uraltransmash case where it stated that the mere fact of imposition of sanctions is enough to establish the exclusive jurisdiction of the Russian court over such a dispute.

The next hearing under J.P. Morgan case is scheduled for October 1, 2025.

2. Developments of the disputes regarding blocked assets

2.1 In Ananyev v. Euroclear & Clearstream case the Supreme Court first expressed its position re. disputes over blocked securities, where it upheld the position of lower courts on dismissing the claim for recovery of damages from European depositories due to blocking the securities:

• The claimant cannot be considered as suffering a loss of the asset in case of preserving the ownership;
• To grant such a claim the claimant has to prove that all possible remedies for unblocking the securities were exhausted;
• Any market value fluctuations were part of financial risks that are inherent to any investment activity.

2.2 However, now the approach in Ananyev’s case is yet to be scrutinized by the New Acting Chairman of the Supreme Court who demanded the case for review.

3. Enforcement in and outside Russia

3.1 Enforcement in Russia – key points:

3.1.1 Applying for a writ of execution: assets are not specified and shall be searched by the bailiff. The creditor is empowered to bring a writ of execution directly to a Russian bank where the debtor’s funds are located. Accounts receivable are also assets that can be seized by the bailiff;

3.1.2 Possibility to change the order of enforcement after the judgment is rendered under the application of the bailiff, creditor or debtor. Enforcement can touch upon assets that are not directly owned by the debtor: courts approve seizing shares in the indirect subsidiary;

3.1.3 Risks of freezing funds located at the “mixed” accounts of foreign banks and financial institutions who may be joined to the court proceedings as interested parties at the enforcement stage. “Mixed” accounts are regular accounts that contain both funds of the debtor (defendant) and the debtor’s clients as clients of a depositary due to holding of their securities.

Exceptions: ban on seizing accounts under specifically stipulated regimes, including “C”-type accounts.

3.2 Enforcement outside Russia – key tips:

3.2.1 Need to take into account local law in the place of enforcement;

3.2.2 Typical requirements: (i) final judgment; (ii) fixed sum; (iii) rendered by the court with international jurisdiction;

3.2.3 Key insights of enforcement of Russian judgments with sanction element: (i) jurisdictions with some potential for recognition of judgments rendered under Article 248.1 APC: the UAE and China; (ii) examples of refusal in recognition of Russian judgments under Article 248.1 APC: Kazakhstan (BUT with reference to a different formal ground); (iii) recognition of the Russian judgment rendered in favor of a sanctioned party: Israel.

To learn more about enforcement of Russian judgments abroad please refer to our Guidebook.

4. New trends in freezing and seizure of C-type bank accounts

Despite the ban on freezing and seizing of “C”-type bank accounts under court decisions and acts of other authorities issued after January 3, 2024, some authorities are trying to find various ways to circumvent the established restriction to seize the assets on “C”-type bank accounts.

The most recent trends of circumvention of the ban on freezing and seizure by the bailiff:

4.1.1 Interpreting the established ban as applicable only for the disputes which are considered after January 3, 2024;

4.1.2 Applying to the court for changing the order of enforcement to freeze or seize “C” type accounts with respect to court judgments rendered before the ban.

NB Russian Central Bank’s position in such a dispute: even if the judgment was rendered before January 3, 2024, but the new writ of execution is issued after this date due to the change of the order of enforcement, the “C” type accounts should be kept untouched.