⚖️ St. Petersburg and Leningrad Region Arbitrazh (Commercial) Court stresses that the Lugovoy Law cannot be applied automatically or expansively, leaving Finnish company’s claim against Russian entity without consideration

Finnish company TM System Finland Oy (claimant), as supplier, and Russian JSC ILIM Group (respondent), as purchaser, entered into a supply and services agreement as part of a project to construct a pulp and paper mill in Ust-Ilimsk. The agreement contained an arbitration clause providing for arbitration under the ICC Rules, with Geneva as the seat of arbitration.

Despite the arbitration clause, the claimant brought an action before the St Petersburg Commercial Court and Leningrad Region Arbitrazh (Commercial) Court. In support of the Russian state court’s jurisdiction, the claimant argued the following:

👀The arbitration clause was unenforceable because a dispute involving Russian parties could not be heard fairly and impartially in a foreign state that had imposed restrictive measures;

👀The parties’ contractual relationship had a close connection with Russia, and therefore the Russian courts had jurisdiction to hear the dispute.

The court rejected the claimant’s arguments, relying on the following considerations:

🔘Exclusive jurisdiction of a Russian court may arise where “the legal fact of the imposition of restrictive measures against Russian citizens and Russian legal entities is the direct cause of the dispute” and the Russian party is prevented from accessing justice in the foreign state”;

🔘In light of the Constitutional Court of the Russian Federation’s guidance in Rulings No. 999-O of 29 April 2025 and No. 2615-O of 14 October 2025, Article 248.1 of the Commercial Procedure Code of the Russian Federation “does not provide for the automatic establishment of exclusive jurisdiction of Russian arbitrazh (commercial) courts”. The court must establish not only the subject matter and parties to the dispute, but also comprehensively examine the circumstances and identify other criteria necessary to ensure that all parties’ right to judicial protection is properly exercised;

🔘The claimant failed to provide evidence of any impediment to access to justice in proceedings conducted pursuant to the arbitration clause;

🔘“Essentially, in its statement of claim, the claimant seeks to establish on behalf of the respondent that the forum selection agreement cannot be performed, relying on restrictive measures imposed by foreign states against Russian companies.” At the same time, Switzerland, the seat of arbitration, had not imposed sanctions on the claimant. The claimant was also not a Russian legal entity, and no other evidence was provided that the restrictive measures directly affected the claimant or its ability to commence arbitration.

Accordingly, the court held that the parties’ arbitration agreement was enforceable and that there were no grounds for establishing exclusive jurisdiction over the dispute. The St Petersburg Commercial Court and Leningrad Region Commercial Court therefore left the Finnish claimant’s action without consideration.

📎The judicial act is available at the link.

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