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Are provisions on the place of dispute resolution no longer effective?

In June, the Arbitration Court of Moscow considered a dispute between Hong Kong-based GTLK and American J.P. Morgan Chase Bank with a prorogation clause (i.e. a clause specifying the transfer of the dispute to the jurisdiction of a specific state court, in this case – Hong Kong). It is noteworthy that the dispute was between foreign companies (such disputes rarely reach Russian courts), as well as the fact that the court ignored the clause in favor of the "neutral" Hong Kong (which is not on the list of "unfriendly" jurisdictions).

How a dispute between foreign companies ended up in a Russian court

1. The plaintiff did everything to bring the dispute to a Russian court. He filed a lawsuit not only against the American bank, but also against its American subsidiary. It is worth remembering a recent case we have written about, regarding holding subsidiary companies accountable for debts of their parent companies. In the GTLK case, the arbitration court already took into account the position of the Supreme Court of the Russian Federation and did not automatically grant the lawsuit against the Russian subsidiary of the bank. This is a very positive sign - courts have begun to apply the arguments of the Supreme Court of the Russian Federation and based on them, reject (absolutely unfounded, in our opinion) lawsuits against subsidiary companies:

"The mere fact of affiliation of defendant 1, guilty of blocking the plaintiff's funds and causing him losses, and defendant 2, in the absence of any other criteria and connections with the unlawful actions of defendant 1, cannot, under Articles 15, 322, 393 of the Civil Code of the Russian Federation, serve as a basis for holding defendant 2 liable for the actions of defendant 1.

The plaintiff's argument about the presence of assets in Russia by defendant 2 and the possibility of enforcement against these assets, as well as the difficulty and practical impossibility of enforcing the court's decision against defendant 1 in the US or another foreign state, cannot be a basis for holding them jointly liable, since the ability to enforce the court's decision against a non-guilty party's affiliates in the absence of abuse of rights cannot be a basis for recovering damages from those affiliated persons."

2. The plaintiff argued that Hong Kong-based GTLK is a 100% subsidiary of the Russian "GTLK", which in turn is owned by the Russian Federation. Of course, when the Russian court was explained the direct connection to the Russian budget, the court deemed it sufficient grounds to consider the dispute:

"The defendant's argument about the absence of any connection of the plaintiff with the territory of the Russian Federation in terms of the competence of the Russian arbitration court is not accepted, as the ultimate beneficial owner of all the blocked funds of the plaintiff is a Russian company, the sole 100% participant of the plaintiff, as well as the Russian Federation, the sole shareholder of the plaintiff's founder, in connection with which, considering the Russian beneficiary and the direct financial interests of the Russian Federation, the provisions of Article 248.1 of the Arbitration Procedure Code of the Russian Federation on exclusive jurisdiction are applicable to this dispute."

How the court ignored the prorogation reservation

Certainly, Russian courts have been considering disputes for several years that, according to the contract, would be subject to adjudication in a "hostile" jurisdiction. However, in this case, the matter would be heard in a "neutral" jurisdiction like Hong Kong, which has not imposed sanctions against Russia and is not considered "hostile", like the People's Republic of China, which formally abstained from applying US sanctions against Russian companies.

Nevertheless, the Russian court heard the dispute because the courts of Hong Kong could refer to sanctions as force majeure, leading to J.P. Morgan Chase Bank's release from liability, which contradicts Russian public policy (Article 248.1 of the APC RF).

What are the results

• Claims for damages against J.P. Morgan Chase Bank N.A. (USA) have been fully satisfied
• Claims for joint liability of J.P. MORGAN BANK INTERNATIONAL (Russian branch) have been rejected

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