Exclusive Competence of Belarusian Courts in "Sanctions" Disputes: Another Case from Practice
Since the adoption in July 2023 of the Law of the Republic of Belarus No280-Z "On the Application of Special Restrictive Measures" (hereinafter referred to as the Law), residents of Belarus have the opportunity to "transfer" the place of dispute resolution from a foreign, most often "unfriendly" jurisdiction, to the economic courts of the Republic of Belarus.
A prerequisite for the consideration of disputes on the merits by Belarusian courts is the unenforceability of an arbitration or prorogation agreement in a foreign jurisdiction due to the adoption of restrictive measures by foreign states.
Read more about the procedure for the operation of the Law in the previous material of REVERA lawyers.
In this article, we propose to consider in detail the court case considered by the Economic Court of the Republic of Belarus, which will help to answer the following questions:
- Is it possible to apply the provisions of the Law to an arbitration agreement that is already unenforceable due to defects in its content?
- Is the buyer exempt from the obligation to refund the advance payment under EU sanctions law if the law of the EU Member State applies to the merits of the dispute?
Answers to questions can be found in the article.
Factual circumstances of the case
In 2016, an EU resident and a Belarusian resident entered into a contract for the supply of goods, according to which the EU resident acts as the seller, and the Belarusian resident acts as the buyer. A resident of Belarus made another full prepayment for the supply of goods. However, upon the arrival of the delivery date, the EU resident refused to fulfill its obligations, referring to the decision of the EU Council to include the Belarusian resident in the list of blocking EU sanctions.
In connection with the refusal of the EU resident to supply the goods, as well as to return the advance payment, the resident of Belarus, guided by the provisions of the Law, filed a lawsuit with the Economic Court of Belarus demanding the recovery of the amount of the advance payment. In terms of dispute resolution, the contract contained an arbitration clause on the consideration of disputes "in the Austrian Arbitration Institution, in accordance with the rules of this court". Applicable law – the law of a Member State.
Judgment
The court satisfied the claim and recovered from the EU resident the amount of advance payment for the undelivered goods. Below we will consider in detail the conclusions of the court, which are of particular interest from the point of view of the application of the Law.
a) Is it possible to apply the provisions of Article 10 of the Law to an arbitration agreement that is already unenforceable due to defects in its content?
For reference: according to paragraph 3 of Article 10 of the Law, if the agreement of the parties, according to which disputes involving them are subject to the jurisdiction of a foreign court or a foreign arbitration court (arbitration), cannot be performed due to the commission of unfriendly actions against one of the parties, which create obstacles for it to protect its violated or disputed rights and freedoms or to protect its legitimate interests, such a party may apply to the economic court of the Republic of Belarus for the resolution of such a dispute.
When considering the procedural part of the dispute in court, the EU resident indicated:
- Before applying Article 10 of the Law, the court should assess the validity and enforceability of the arbitration agreement as a whole, based on its literal interpretation. An arbitration agreement may not be declared unenforceable, for example, on the basis of obstacles to the protection of one's rights and freedoms (Article 10(3) of the Law), in a situation where such an arbitration agreement is no longer enforceable or invalid on other grounds. Based on the inaccuracy of the wording of the arbitration body in clause 12.2 of the agreement – Austrian Arbitration Institution, the EU resident considered that the arbitration agreement was already unenforceable.
The judicial practice of the Republic of Belarus adheres to a single approach: if the parties indicated in the agreement an incorrect or non-existent arbitration body, or indicated only the arbitration of a certain state in which several permanent arbitration institutions operate, such an agreement is considered invalid and unenforceable, this approach is confirmed by the practice of the Supreme Court. - In any case, the dispute is not subject to consideration in the courts of Belarus due to the following:
The Defendant is located on the territory of Austria, the general rule of jurisdiction, both under the legislation of Austria and Belarus is the court at the location of the Defendant;
the place of performance of the Contract is Austria;
the legal relations that have arisen between the Parties do not have a close connection with Belarus. - Based on a comprehensive analysis of Articles 10 and 11 of the Law, it follows that the subject of proof in cases on the establishment of a ban on initiating proceedings in foreign courts/arbitrations includes, among other things, the following circumstance: an arbitration/prorogation agreement cannot be executed due to the commission of unfriendly actions that create obstacles for it to protect its violated or disputed rights and freedoms or to protect its legitimate interests. The resident of Belarus did not prove the existence of such obstacles without providing relevant and admissible evidence.
Conclusion of the court: The Economic Court, when considering the dispute, applied the provisions of Article 10 of the Law to the arbitration agreement contained in the contract and recognized its competence to consider this dispute. At the same time, the court did not analyze the issue of the enforceability/unenforceability of the arbitration agreement on other grounds, except for Article 10 of the Law.
REVERA's conclusion: Paragraph 3 of Article 10 of the Law clearly establishes that if "[the agreement of the parties] cannot be enforced" due to obstacles in the protection of rights and freedoms, a resident of Belarus has the right to apply to the Economic Court of Belarus for consideration of the dispute on the merits. A literal interpretation of the rule implies that an arbitration or prorogation agreement must be concluded, enforceable, and only then the court, based on the circumstances of the case, can apply Article 10 of the Law, if the conditions for this are met, in particular, the circumstances included in the subject of proof are proved.
The analyzed case shows that a resident of Belarus has the right to apply to the court with a request to apply paragraph 3 of Article 10 of the Law even if there are reasonable doubts about the enforceability of the prorogation/arbitration agreement on grounds not specified in the Law. In other words, a resident of Belarus does not need to prove that he has the right to apply to a foreign court or arbitration, and the obstacles are only related to the application of foreign restrictive measures.
In addition, the case under consideration once again emphasizes the emerging practice in this category of disputes, which confirms that residents of Belarus do not need to prove the existence of obstacles to the protection of their rights and freedoms when considering disputes in a foreign jurisdiction. The very fact of the imposition of sanctions already indicates the presence of obstacles.
b) Is the buyer exempt from the return of the advance payment if the law of the EU member state applies to the dispute?
When considering the case on the merits, the EU resident pointed out that, in accordance with the Appendix to Regulation No765, the resident of Belarus (buyer) was included in the list of persons in respect of whom blocking restrictive measures were imposed. According to subpara. 1,2 of Article 2 of Regulation No765, all funds and economic resources owned or owned or controlled by such legal persons must be frozen. No funds or economic resources should be made available to them, directly or indirectly.
Thus, according to the EU resident, the applicable law establishes a direct ban on the return of the amount of the advance payment, since such actions directly violate EU law.
The court's conclusion: the Economic Court established the application of the law of an EU member state to the merits of the dispute, however, when applying the EU sanctions legislation (Regulation No765), the court pointed out that the EU Council Regulation of June 21, 2021, by which a resident of Belarus was included in the blocking sanctions, is not evidence confirming the existence of force majeure.
REVERA's conclusion: the Economic Court did not give an unequivocal conclusion as to whether the applicable law (the law of an EU member state) prevents an EU resident from delivering the goods or returning the prepayment. We believe that when considering such disputes, it is necessary to take into account the provisions of the applicable law, including sanctions regulations, as well as the terms of the concluded contracts. In the present case, the court limited itself to concluding that the EU resident had failed to fulfill its contractual obligations to deliver the goods, without analyzing the impact of the provisions of Regulation No765, which is part of the applicable law.
We will continue to monitor judicial practice on such disputes.
REVERA's lawyers will be happy to answer additional questions.
Authors: Alexey Fedorovich, Pavel Klementsov
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