In response to Russia's aggression against Ukraine, the European Union ("EU") and other Western nations, including Switzerland, imposed numerous economic sanctions on Russia, in particular in the financial, energy, trade and industry, with the aim of weakening Russia's ability to continue its war efforts and to signal a unified stance against violations of international law.
Russia implemented various countermeasures against Western companies. One such measure is Article 248 of the Russian Arbitrazh Procedural Code, which grants exclusive jurisdiction to Russian commercial courts (Arbitrazh) over disputes involving Russian persons who are subject to sanctions or disputes related to sanctions imposed by foreign states, state associations and/or trade unions as well as institutions of foreign states.
Since 2020, Russian law has enabled Russian courts to bypass arbitration agreements and contractual jurisdiction clauses (irrespective of the governing law of the arbitration agreement or underlying contract), arguing that sanctioned Russian parties cannot receive a fair trial in foreign (arbitration) courts. Additionally, according to Article 248 para. 2 of the Russian Arbitrazh Procedural Code, Russian commercial courts may issue anti-suit injunctions against non-Russian parties, prohibiting them from initiating or pursuing legal proceedings outside Russia and imposing heavy fines for non-compliance.
As a result, many Russian companies subject to sanctions have sought to litigate in Russian courts instead of the contractually agreed-upon forums. This has placed EU companies in a legal dilemma – either submit to (unpredictable) Russian jurisdiction and risk violating EU sanctions (e.g. by executing the Russian judgment) or pursue legal action in Europe and face penalties from Russia.
Since 2022, Switzerland has chosen to align itself with the EU sanctions by implementing the Ordinance on Measures in Connection with the Situation in Ukraine ("UKRO"). Consequently, Swiss companies have been facing similar challenges.
EU and Swiss Responses
On 16 December 2024, the European Union adopted its 15th package of sanctions against Russia, explicitly prohibiting European courts from enforcing any decisions based on Article 248 of the Russian Arbitrazh Procedural Code, as the recognition and enforcement of such decisions would undermine the EU sanctions regime.
In response, Switzerland introduced further measures on 12 February 2025. Accordingly, the UKRO was amended, leading to the adoption of Article 29d UKRO on 13 February 2025, which states:
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1 No injunction, order, measure, judgment or other judicial decision issued pursuant to Art. 248 of the Russian Arbitrazh Procedural Code, or deriving from an equivalent provision of Russian legislation shall be recognised, implemented or enforced in Switzerland. 2 No request for criminal assistance in connection with an alleged violation of an injunction, order, measure, judgment or other judicial decision referred to in para. 1 shall be enforced in Switzerland. 3 No penalty or other sanction imposed under the Russian Criminal Code in connection with an alleged violation of an injunction, order, measure, judgment or other court decision referred to in para. 1 shall be recognised or enforced in Switzerland. |
This provision aims, among other things, to shield Swiss companies from the enforcement of Russian judgments issued under Article 248 of the Russian Arbitrazh Procedural Code.
Remaining Risks and Challenges
Despite these measures, significant risks remain, particularly regarding seizures of assets in Russia and in third countries that have legal cooperation agreements with Russia ("Partner Countries"): Russia has entered into agreements on the recognition and enforceability of foreign judgments with the successor states of the Soviet Union in particular, but also with other states that are not currently on the list of "unfriendly" states, including China, India, Iran, Iraq, Egypt, Serbia and Argentina. Assets located in Russia or in a Partner Country which belong to a party in dispute with a person invoking Art. 248 of the Russian Arbitrazh Procedural Code may be subject to seizure, either as a protective measure or pursuant to the execution of a final judgment. Moreover, if a party fails to comply with Russia's anti-suit injunctions, the resulting sanctions may be enforced, and accordingly, assets may be seized both in Russia and in Partner Countries.
For Swiss companies operating globally, the challenge lies in ensuring that they have no assets in Russia or Partner Countries to avoid their seizure. However, given the interconnected nature of global markets, this restriction could impose a substantial financial burden, potentially outweighing the consequences of the enforcement of a Russian judgment.
Moreover, complications arise when arbitration is seated in Russia. Depending on the arbitral institution and the tribunal's composition, there is a risk that EU and Swiss sanctions may not be recognized. As a result, an arbitral award could potentially require EU or Swiss companies to render performance in violation of these sanctions. Unlike Russian court judgments, arbitral awards are enforceable pursuant to the Convention on the Recognition and Enforcement of Foreign Awards of 1958 ("New York Convention"), which obliges contracting states to recognize and enforce foreign arbitral awards. However, one exceptional ground for refusing recognition and enforcement of a foreign arbitral award is if the award contradicts the public policy of the enforcing member state.
Conclusion
While EU and Swiss measures help mitigate the impact of Russian countermeasures, legal uncertainties, particularly regarding asset seizures and arbitration enforcement remain. In this regard, Swiss Companies should take suitable precautions when drafting contracts or structuring companies.
For constant updated information relating to the sanctions adopted by Switzerland against Russia, we recommend going through the "Measures relating to the situation in Ukraine (available in German, French, and Italian only)" and the "FAQ (available in German, French, and Italian only)" pages of The State Secretariat for Economic Affairs ("SECO"), which is the federal government's centre for all main issues relating to economic and labour market policy in Switzerland.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
