The Lugovoi Law has allowed Russian companies to move arbitration proceedings from so-called “unfriendly” countries into Russian courts on the premise that they would otherwise not have fair access to justice. The challenge facing international companies is whether their former Russian counterparts will seek to collect awards granted to them by the Russian courts by bringing their claims to courts outside Russia – to Russia-friendly or neutral countries where international companies have assets.
These international companies are concerned that Russia-friendly countries may extradite personnel working there or visiting these countries to Russia if a Russian court or law enforcement agencies demand it.
Russia’s treaties with many countries, sometimes dating back to the Soviet times, allow for such legal cooperation between the countries. The question is whether it will work in real life.
The Lugovoi Law comes into effect
In 2020, the Russian parliament adopted a bill submitted by Andrei Lugovoi, a Russian MP wanted in the UK over the deadly poisoning of ex-KGB officer Alexander Litvinenko on British soil. The initiative, dubbed the Lugovoi Law, has become the bane of many international companies that withdrew from work in Russia following Russia’s full-scale invasion of Ukraine two years later.
When major European companies backed by major international banks broke up with their Russian partners in 2022, these Russian companies sought compensation for damages and brought their lawsuits to the Russian courts. Many of these Russian partners were state corporations or companies controlled by people from President Vladimir Putin’s close circle.
It is no wonder that the most powerful of them, such as Gazprom and its affiliates, have already won multiple awards amounting to hundreds of millions of dollars and are likely to win more in the ongoing proceedings. Russia-based assets of Western companies and banks that had provided guarantees for their joint projects with Russian firms are being seized, and the awards are often larger than the value of these assets.
Breaking the problem down
The best way to approach the above concerns is by breaking the problem into three questions.
The first question: Will a Russian company seek to claim the award abroad?
This is the most difficult from the research perspective that needs to be considered on multiple levels:
- State interest level: Is there government pressure – formal or informal – on the company to pursue claims against former Western partners abroad?
- Organisational logic level: what are the incentives and barriers to pursuing such claims within the Russian company?
- Personal level: what is the personality of the key decision-maker in the Russian company, and what is their track record in interactions with the Western counterparties and foreign courts? Is this person prioritising the pursuit of the company’s claims abroad?