Following the Blog’s established tradition, this post provides an overview of key developments in the field of arbitration in a selection of jurisdictions in Eastern Europe. This year’s highlights include significant legislative improvements, far-reaching judicial decisions from domestic courts, including the evolution of Russia’s counter-sanctions regime, and a potentially consequential ruling by the European Court of Human Rights (“ECtHR”). The post neither can nor aims to offer an exhaustive outline of all developments in the region’s arbitration landscape.
Legislative Developments
With some of the most in-demand arbitration jurisdictions, such as France and the UK, currently considering the amendments to their respective arbitration laws, some Eastern European countries have, as well, undertaken efforts to modernize their regulations.
Latvia
Latvian arbitration legislation reached an important milestone in 2024 with the introduction of an extensive restatement of its arbitration framework.
First and foremost, the amendments to the Latvian Code of Civil Procedure, which entered into force on July 4, 2024, established a long-awaited legislative framework for the annulment of arbitral awards under the Latvian arbitration law. Somewhat surprisingly, until 2024, Latvian legislation had not provided for such a mechanism. Previously, the only control that Latvian courts exercised over arbitral awards was carried out during enforcement proceedings.
The newly adopted legislation provides for the possibility of setting aside the awards on the same set of grounds provided for in Article 34 of the Model Law and establishes the necessary procedural framework. Interestingly, the law does not allow for an appeal of a court’s decision setting aside an award (nor a decision granting exequatur).
This development was precipitated by the country’s Constitutional Court which found that the lack of the possibility to challenge an arbitral award over egregious procedural flows violated a party’s right to a fair trial granted by the Constitution.
The amendments however are not confined to introducing a route for annulment alone, but contain further enhancements of the state’s arbitration law. Among others, the improvements, for instance, gave way to a more liberal approach to the form of the arbitration agreement, abolished a redundant requirement that arbitrators may be appointed exclusively from the closed lists of arbitrators maintained by the arbitral institutions, and established a legal framework for the examination of fact and expert witnesses in arbitral proceedings.
Although the effectiveness of the amendments in practice has yet to be assessed, the Blog’s commentators praised the long-awaited modernization of the state’s arbitration law.
Albania Found Liable by ECtHR for Unreasonable Delay in Enforcement of Arbitral Award
A decision was handed down in 2024 in a lengthy international litigation, holding Albania in breach of the European Convention on Human Rights (“ECHR”) for an unreasonable delay in the enforcement of an award rendered in the proceedings against the state itself.
Indeed, the ECtHR held that Albania’s stalling of the proceedings for over 17 years could not be justified by the complexity of the case nor attributed to the applicant. As was discussed on the Blog, the ECtHR’s jurisprudence constante considers the effective enforcement of a final and binding judgement as an integral part of the right to a fair trial under Article 6 of the ECHR. Therefore, it found that Albania’s excessive delay in enforcing the award had violated its beneficiary’s right to a fair trial.
Interestingly, the same applicant introduced a separate application, with reference to the same circumstances, alleging the violation of Article 1 of the Protocol to the ECHR (“Protocol”) that guarantees the protection of property. Although the ECtHR confirmed that an arbitral award could constitute a “possession” under the Protocol, it rejected the application as manifestly ill-founded.
The decision comes in line with the ECtHR’s previous practice, such as a decision against Slovakia for the non-enforcement of a Paris-seated ICC commercial arbitration award that came two years earlier, also discussed on the Blog.
Ironically, the ECtHR’s decision condemning Albania for a 17-year procedural delay was issued almost 15 years after the application was made.
An Arbitration Clause May Be Deemed Unenforceable Due to Inability to Cover Arbitration Costs
Another important development in case law occurred in Poland, where the Supreme Court sided with the jurisprudential trend adopted by certain countries, allowing, under specific circumstances, for the inapplicability of a valid arbitration agreement due to the defendant’s financial constraints (both the ruling of the Supreme Court and an overview of the countries’ approaches have been discussed on the Blog).
The Supreme Court acknowledged the autonomy that the parties to a contract enjoy, including their right to drag the dispute from the state judicial system and refer it to arbitration. It noted nonetheless that such autonomy is not unlimited, and, if weighed against the fundamental right to access to justice, the latter should prevail.
Citing Article 6 of the ECHR, the Supreme Court emphasized that an arbitration agreement, being a waiver of the state courts’ jurisdiction, cannot de facto constitute a waiver of a right to a trial altogether.
Importantly, the Supreme Court highlighted that the unenforceability of the arbitration clause is the ultimate measure that should be applied with caution and only in cases where objective financial impediments, that are impossible to resolve, create the risk of denial of access to justice as such.
Russian Courts’ Case Law on the Sanctions-Related Matters
2024 proved to be another busy year for Russia’s judiciary dealing with the implications of the sanctions against Russia and its countermeasures for arbitration. The main focus of the arbitration community’s attention revolves around the practice of the application of the so-called Lugovoy Law—amendments to the procedural legislation providing for the exclusive jurisdiction of the Russian courts over disputes involving sanctioned entities. Introduced in 2020 as a protection of the right to a trial for sanctioned Russian companies, both its scope of application and its impact on arbitral proceedings have been increasingly expanding through case law since then.
Exclusive Jurisdiction of the Russian State Courts
Although initially introduced as a way for Russian parties effectively barred from seeking justice abroad due to sanctions, the practice of the Lugovoy Law has since expanded well beyond that. Following the development that obstacles to access to justice are presumed for any company under sanctions, subsequent case law left little of what is traditionally known as the “negative effect” of competence-competence.
In fact, a recent ruling by the Supreme Court, also discussed on the Blog, went as far as allowing the application of the Lugovoy Law in disputes between two Russian companies, neither of which was under sanctions, essentially disregarding the existence of a valid and enforceable arbitration agreement between them. The Supreme Court concluded that, since the purpose of the Lugovoy Law is to guarantee the right to a fair trial, it is sufficient for a party seeking to move a dispute from arbitration to a Russian court to establish the mere possibility of potential impediments, no matter how theoretical they may be.
In the case at hand, the court indicated that the seat of arbitration in a country that has imposed sanctions, or the involvement of arbitrators from such a country, as well as arbitrators’ statements praising such measures, may raise reasonable doubts as to their impartiality. Similarly, the impediments to the initially agreed-upon procedure need not be absolute but may involve additional financial, temporal, or even reputational costs, thus justifying the exclusive jurisdiction of the Russian courts.
Anti-arbitration Injunctions
As a means of enforcing the above-mentioned exclusive jurisdiction provisions, the Lugovoy Law provides for the possibility of an injunction preventing the commencement or continuation of proceedings involving sanctioned entities, a measure that is being increasingly used by Russian courts.
In one such case, decided in 2024, the court upheld an anti-arbitration injunction issued by a lower court against a Czech claimant that launched arbitration proceedings under the auspices of the Arbitration Court of the Czech Chamber of Commerce and the Agricultural Chamber of the Czech Republic against Russia’s Gazprom, seeking over EUR 112 million in damages for the breach of a gas transportation contract.
According to the courts, restrictive measures introduced by the European states against Russian companies hinder the latter’s access to justice. Importantly, the courts highlighted that “restrictive measures” do not necessarily imply that the Russian entity in question is subject to economic sanctions. Rather, they found that difficulties in engaging a local counsel, public statements of some European firms that they wouldn’t accept Russian companies as clients, and even increased Schengen visa fees constitute sufficient grounds to establish an uneven playing field for the Russian companies’ and their counsel’s participation in the proceedings abroad.
Another unexpected finding was that an award rendered by a Czech Republic-seated tribunal may be challenged in the Czech state courts which would ultimately put a Russian entity before the judiciary of an “unfriendly” state.
In line with the current Russian jurisprudence, the courts reiterated a position that the applicants seeking anti-arbitration injunctions are not required to prove actual difficulties with the proceedings in a foreign state but the prospects of such difficulties.
In granting the injunction, the courts also imposed a conditional penalty equal to the full amount in dispute, in favor of Gazprom, should the claimant pursue arbitration in violation of the injunction.
Presumed Bias of Arbitrators From “Unfriendly” Countries
Another development by the Russian Supreme Court concerned the standards of independence and impartiality of arbitrators. In its July 26, 2024 ruling, it established that any arbitrator that has a nationality of an “unfriendly” state should be presumed biased, unless proven otherwise. Although the Supreme Court expressly mentioned that the presumption of bias is rebuttable, it neither provided any guidance nor standard of proof to establish the arbitrator’s independence and impartiality.
To make things worse, the Supreme Court in that case also expressed its opinion on the calculation of damages by the arbitral tribunal, as well as its approach to the respondent’s force majeure defense, essentially reviewing the merits of the case.
Although lower courts have yet to pronounce on the case remanded by the Supreme Court, commentators believe that the approach taken in the ruling may have an immediate effect on other cases with similar issues.
All views and opinions expressed in this article are solely those of the author and do not reflect the official policy, position, or opinions of their employer or any affiliated organization.
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