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June 13, 2022

Invasion of Ukraine and Related Sanctions: The Impact on Commercial Litigation in England

In our recent update Assessing the LCIA’s 2021 Annual Casework Report we reported that there had been a dip in the number of cases referred to international arbitration institutions in 2021. Further, the London Court of International Arbitration (LCIA) forewarned of the impact the ongoing war in Ukraine, and resulting sanctions, will have on its caseload.

Hot on the heels of the arbitration institutions, Portland Communications’ Commercial Courts Report 2022 gives insight into the number of judgments handed down by the London Commercial Courts between April 2021 and March 2022. This report notes a similar trend with the number of judgments being handed down falling 20% from 292 to 234. But it goes one step further and examines where the litigants come from, with a particular emphasis on the number of Russian litigants in the London Commercial Courts.

Is it the End of an Era for Russian and Ukrainian Litigants in the London Commercial Courts?

In the Commercial Court Report 2020–2021, the Judiciary of England and Wales identified 10 cases as highlights of 2020/2021. Of those 10, four had a connection with Ukraine or Russia (Surkis & Others v. Poroshenko & Another [2021] EWHC 2512 (Comm); VTB Commodities Trading DAC v. JSC Antipinsky Refinery & Others [2021] EWHC 1758 (Comm); Hulley v. Russian Federation [2021] EWHC 697 (Comm); Tatneft v. Gennadiy Bogolyubov, Igor Kolomoisky & Others [2021] EWHC 411 (Comm)). Whilst this may seem disproportionate, it highlights the value placed on English law and a high-quality independent judiciary.

Portland’s Commercial Courts Report 2022 adds flesh to the bones, recording the upward trend of Russian litigants using the London Commercial Courts from 20 in 2017/18 to 41 in 2021/22 and occupying a spot in the top three litigants by nationality in each of those years. Ukrainian litigants also featured in the top 10 litigants by nationality.

However, these statistics do not take account of Russia’s invasion of Ukraine. It is predicted that next year’s figures are bound to be considerably different as both Ukrainian and Russian litigants face difficulties in accessing the London courts.

What Next?

In the short term, news stories on big-ticket Russia-related litigation in the London Commercial Courts are likely to be dominated by the machinery of the Civil Procedure Rules: changes of legal representatives, extensions of time for procedural deadlines and adjournments.

Russian litigants cannot simply pick up their disputes from the London Commercial Courts and parachute them elsewhere. They are constrained by the governing law and jurisdiction clauses in their contracts, or by the sanctions imposed on them. Even those not under direct sanction will face challenges — for instance, there is a likelihood that defendants will aim to protect themselves from the risk of non-payment of costs through security-for-costs applications. Additionally, since the Russian banking system is largely sanctioned, it may be difficult for some Russian litigants to pay legal fees or any judgments made against them.

Two other areas of focus for both sanctioned and non-sanctioned Russian litigants, as well as affected Ukrainian litigants, will be legal arguments on the doctrine of frustration and force majeure.

As a result of either sanctions or practical issues in Ukraine, potential litigants may argue that performance of the contract has become impossible. The doctrine of frustration may assist parties where a serious event occurs after the formation of a contract that is both unexpected (so force majeure provisions would not apply — more below) and beyond the control of the parties, therefore making performance of the contract physically or commercially impossible. Courts will usually apply this principle as narrowly as possible.

Meanwhile, force majeure clauses — a creature of civil law systems but often found in commercial contracts — are usually defined within contracts as certain acts, events or circumstances beyond the control of the parties (e.g., natural disasters or the outbreak of hostilities, which is clearly most relevant to the Russian invasion of Ukraine). A force majeure clause would typically excuse one or both parties from performance of the contract in some way following the occurrence of the events listed in the clause. The effectiveness of force majeure clauses in setting aside the contract in the case of international sanctions will depend on the particular wording used and how the language is interpreted. Some clauses could expressly refer to sanctions as a force majeure event, while others may use broader language referring to acts by governments or other nonspecific language. Therefore, whether the force majeure clause can be successfully invoked will depend on the circumstances.

It is clear from the above that disputes relating to entities with a connection to Russia, Ukraine and Belarus will inevitably face complications. However, this does not necessarily mean it is the end of the story, and in the medium- to long-term there is the potential for a raft of sanction-related litigation and associated actions to come.

The material contained in this communication is informational, general in nature and does not constitute legal advice. The material contained in this communication should not be relied upon or used without consulting a lawyer to consider your specific circumstances. This communication was published on the date specified and may not include any changes in the topics, laws, rules or regulations covered. Receipt of this communication does not establish an attorney-client relationship. In some jurisdictions, this communication may be considered attorney advertising.

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