This article is the second part of the discussion of the judgement of the Higher Regional Court of Berlin no. 12 SchH 5/22 and aims to examine the phenomenon that courts in different jurisdictions (in this case, in Russia and in Germany) determine the competence to decide a dispute in exactly opposite ways: The Russian court determined the exclusive jurisdiction of Russian courts under art. 248.1 and 248.2 of the Russian Arbitration Procedure Code (RAC) and the German court determined the jurisdiction of an arbitral tribunal in Vienna.

The first post on this decision discussethe issue of service of documents to Russia and how the Berlin Court circumvented that issue:

This post now deals with the question of conflicting decisions on jurisdiciton in different countries.

1. Introduction

It is not an uncommon problem that courts in different jurisdictions come to different decisions regarding their jurisdiction. In the current situation, this arises even more often when sanctions are involved, especially with regard to Russian parties as Russia has adopted legislation (art. 248.1 and 248.2 RAC) that are aimed at protecting sanctioned Russian entities from litigation and arbitration outside Russia.

2. Overview

The background of this case is – as can be seen from the Russian decisions which are published without being anonymized – a contract between the German company Siemens and the Russian Railways (RZD).

According to the facts published in the decisions, Siemens terminated a contract with RZD and invoked sanctions as a reason for termination. Despite an arbitration clause in the contract, RZD turned to a Russian state court and obtained a decision that declared the termination invalid. At the same time, RZD obtained an anti-suit injunction based on art. 248.1 and 248.2 Russian Arbitrazh Code (RAC).

Siemens then turned to the Berlin Court of Appeal and obtained the present judgement (no. 12 SchH 5/22), which determined the admissibility of arbitration proceedings in Vienna pursuant to Section 1032 (2) German Code of Civil Procedure (ZPO). Section 1032 (2) ZPO states: “An application for a declaration of the admissibility or inadmissibility of arbitration proceedings may be filed with the court until the arbitral tribunal has been constituted.”

The application of section 1032 (2) ZPO in proceedings with foreign parties without a seat of arbitration in Germany is possible via section 1025 (2) ZPO in conjunction with section 1032 (2) ZPO.  Section 1025 (2) ZPO states: “The provisions of Sections 1032, 1033 and 1050 also apply if the place of arbitration is abroad or has not yet been determined“.

The legal consequence of the German court decision on the admissibility of the arbitration proceedings in Vienna would be that the claimant could initiate arbitration proceedings there, cf. section 1032 (3) ZPO, and hope that the respondent would participate in these despite a contrary decision on the part of the respondent.

This, however, would not solve the problem of opposing court decisions.

As can be seen from the wording of the Russian court decision, it is to be expected that the respondent will not abide by the decision of the Higher Regional Court Berlin.

In the decision of the Arbitrazh Court of Moscow of 2nd November 2022, the court referred to art. 248, 248.1 and 248.2 RAC and prohibited Siemens the initiation of arbitral proceedings in Vienna. These provisions stipulate in principle the exclusive jurisdiction of Russian (Arbitrazh) courts for disputes in connection with foreign participants and with foreign parties, as well as the prohibition on initiating or continuing proceedings involving persons subject to restrictive measures (sanctions).

The refusal or even prohibition of litigation (anti-suit injunction) before a foreign court or an international commercial arbitration court outside the RF based on this is thus diametrically opposed to the decision of the Higher Regional Court Berlin, which in turn determined the admissibility of conducting arbitration proceedings in Vienna. How can these contradictory decisions be reconciled? Is it even possible to do so? If at all, one solution could consist in the simple application of basic legal principles.

Furthermore, the question arises as to how this “anti-suit injunction” is to be qualified by the RF. Does this even constitute such an injunction, the object of which is the prohibition of the initiation of parallel proceedings in another state or another legal system in order to obtain a favourable decision there? The aim is to avoid “forum shopping”. But is this expedient if an arbitration clause with a seat of arbitration in Vienna has already been agreed in the individual contract?

The present decision from the Arbitrazh Court prohibited the applicant from initiating proceedings in Vienna. Art. 248.2 RAC also provides for legal grounds to award to damages up the amount claimed in foreign arbitration to the Russian party. Sofar, that has not been claimed.

By contrast, the German decision is only of declaratory nature. Non compliance with it does not necessarily result in damages for the non-complying party.

3. Outlook

Diametrically opposed decisions between international parties give rise to difficult legal issues whose complexity is just as high as their legal dynamics and the interest in resolving them.

Here, we have a decision dated 2nd November 2022 from a Russian court, prohibiting Siemens from pursuing its claims in arbitration and a decison rendered on 1 June 2023 by the German Kammergericht, declaring that the arbitral tribunal in Vienna is competent to decide this dispute. German courts do not recognise Russian state court decisions in general, the more so, if the Russian courts were not even competent to decide the matter (cf. § 328 para 1 no. 1 ZPO). However, what would happen in a third country that recognises both German and Russian decisions? The German approach would be that if two foreign decisions can – in principle – both be recognised, the earlier one takes precedence (cf. § 328 para 1 no. 3 ZPO). If other countries adopt the same approach, it could well be that the Russian decision as the earlier one is recognised. Considering the reasoning of the Russian decision and the ratio behind art. 248.1 and 248.2 RAC, this could, however, only happen in countries that do not recognise the sanctions imposed by the EU, USA, UK and other countries. Given that Siemens likely has assets in many countries, there will surely be some more interesting developments in this matter in the years to come.