Ruling No. 1831/12 of the Russian Supreme Arbitrazh Court of June 19, 2012 on Split Jurisdiction Clauses

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The above ruling, after being delayed for a month, was finally published on September 2, 2012. 

It relates to a split jurisdiction clause of a type that is in common use, for example in loan agreements, and which limits the remedies available to one of the parties. Typically, in a loan agreement containing such a clause, the borrower may only seek arbitration, while the lender may choose between arbitration and litigation in the suitable jurisdiction.

The Court ruled that such split jurisdiction clauses are invalid and unenforceable. It held that, by allowing one party to bring a court case, while depriving the other party of such right, split jurisdiction clauses restrict two fundamental rights: the right to equal access to the courts, and the right to a fair trial.

Even though the specific split jurisdiction clause considered by the Court was governed by Russian law, the Court’s ruling raises a question about the validity of such clauses when governed by foreign law. It is likely that such clauses will no longer be able to protect lenders from being sued in Russian courts.

We will continue to monitor the legislation and legal practice on this issue, and will provide you with periodic updates.

Please feel free to contact Dmitry Gubarev if you have any questions.

Published In: Alternative Dispute Resolution (ADR) Updates, Civil Procedure Updates, General Business Updates, Finance & Banking Updates, International Trade Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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