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The Siemens v. Russian Railroads Case
The Siemens v. Russian Railroads Case
The Higher Regional Court of Berlin (Kammergericht or "KG") rendered a landmark decision on June 1, 2023, addressing complex legal issues arising from the dispute between Siemens and Russian Railroads (RZhD). The dispute concerned Siemens' unilateral termination of a maintenance contract for electric trains due to European Union sanctions. This decision focused on two primary issues: (1) the service of documents through public notification, and (2) the admissibility of arbitration. These issues are pivotal in understanding procedural challenges in cross-border disputes involving sanctioned parties.
Service of Documents Through Public Notification:
In October 2022, the KG sought assistance from the Russian Ministry of Justice to serve documents on RZhD under the 1965 Hague Service Convention. The Arbitrazh Court of Moscow (ACM) rejected this request, citing a violation of fundamental principles of Russian law and public policy. Higher courts upheld this rejection, stating that compliance with the request would undermine the procedural relationship between Siemens and RZhD, particularly given the ACM's anti-suit injunctions prohibiting arbitration at the Vienna International Arbitral Centre (VIAC).
As a result, the KG turned to service by public notification under Section 185 No. 3 of the German Civil Procedure Code (ZPO), which allows service through public notice if service abroad is unlikely to succeed. Russian courts have frequently refused service requests from EU countries under the Hague Convention, leading to a potential argument for German courts to resort to public notification immediately when dealing with sanctioned Russian parties. However, inconsistent reasoning in Russian court decisions makes predicting the outcome of service requests difficult.
Contrasting Approaches to Arbitration Admissibility:
The KG also addressed the enforceability of the arbitration agreement between Siemens and RZhD. The ACM had prohibited arbitration at VIAC, declaring the arbitration agreement unenforceable due to sanctions. In contrast, the KG found the arbitration agreement enforceable, emphasizing that access to arbitration must be guaranteed despite sanctions. The KG supported this view by referencing VIAC's clarification that sanctioned parties could still access arbitration.
Meanwhile, the ACM invoked Article 248.1(4) of the Russian Arbitrazh (Commercial) Procedure Code (APC), which grants Russian courts exclusive jurisdiction in cases involving sanctioned parties where arbitration agreements are deemed unenforceable. This reflects the position of the Russian Supreme Court, which argues that sanctions alone hinder access to justice for Russian parties and raise fair trial concerns in sanctioning states.
Strategic Considerations for German Parties:
The KG's decision offers potential procedural solutions for handling disputes involving sanctioned Russian parties, but challenges remain. Although the ACM has ruled in favour of RZhD—concluding that Siemens' contract termination due to EU sanctions was invalid—other considerations may influence whether Russian parties withdraw from arbitration agreements altogether.
First, resolving a dispute in Russian courts does not prevent proceedings abroad, and unfavourable foreign judgments could risk Russian assets overseas. Second, declaratory relief under Section 1032(2) ZPO preclude the recognition of a Russian court's decision in Germany. Third, even if Russian law allows forum changes, it does not permit altering the applicable law governing the contract's merits, often foreign law. Lastly, bringing a dispute to state courts compromises the confidentiality offered by arbitration.
While Russian courts may continue to favour sanctioned parties seeking anti-suit injunctions, the KG's decision remains a noteworthy attempt at safeguarding procedural fairness. Its effectiveness for Siemens, and its potential applicability to similar cases, will be determined by how these complex jurisdictional issues play out in practice.
