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During the 2022 Russian invasion of Ukraine, Russia has unilaterally demanded that "unfriendly countries" pay for Russian natural gas in Russian rubles, despite the existing contracts specifying payment in dollars or euros. At the end of April 2022, Russia halted gas deliveries to Poland and Bulgaria, for which they had contracts for and had paid on-time in the currency required by the contract.

Is there any way that Poland and Bulgaria can sue Russia for breach of the contract? If so, in what court can they sue? And what remedies can the court provide, if it rules against Russia?

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    Could Russia sue governments which confiscated the private property of Russian citizens, and broke trade contracts with the sanctions? Anyone can sue anyone else, but between countries it's often difficult (or impossible) to actually win, or to enforce it even if you won. There is no higher court having complete power to enforce their decisions between sovereign countries.
    – vsz
    May 5, 2022 at 4:57
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    “John Marshall has made his decision; now let him enforce it.” - short of starting WW3 there's no way to compel the Russians to do anything whatsoever. May 6, 2022 at 17:51
  • @vsz: Freezing assets is not the same thing as confiscating. And many contracts did provide for compliance with sanctions, so they were not broken. And if there were contracts that were broken, those parties can seek compensation in courts or arbitration. And there is a way to enforce it -- there are lots of Russian assets that are frozen, but not seized, in foreign countries right now. Those could potentially be seized as damages if a court were able to order Russia to pay compensation.
    – user102008
    May 6, 2022 at 21:21

3 Answers 3

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Yes. The Russian owned party to the contract can be sued.

The remedies would be those available under the contract, which may or may not be futile to pursue, which almost certainly specify the court to which disputes should be brought. I have no access to the contracts and can't read the relevant languages anyway, however, so I can't tell you what they say about this point.

In all likelihood, a Russian court would not rule in favor of Poland or Bulgaria on this score, and would not order Russia to restart supplying natural gas to them (perhaps on the theory that national security and foreign affairs decisions are involved), and no other court would have the practicable ability to cause Russia to reopen its natural gas pipelines.

So, if they prevailed, the Court would have to fashion some other remedy (e.g. seizing Russian assets sufficiently associated with the contractually bound party over which they can acquire jurisdiction). If there is a third-party guarantor of the contract, collection could be feasible. If not, it would be much more challenging.

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    it' not the state of Russia but the 100% state owned Gazprom that is the contract partner
    – Trish
    May 4, 2022 at 20:06
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    It's entirely probable that force majure would apply as the failure to deliver is a result of unforeseeable circumstances/government action. Similarly, for a common law contract (which this isn't), the doctrine of frustration is available.
    – Dale M
    May 5, 2022 at 3:10
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    Gazprom is not 100% state owned
    – fraxinus
    May 5, 2022 at 6:48
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    @fraxinus Just like many petroleum companies, i.e. the Brazilian Petrobras, Gasprom is traded in the market, but the government holds majority of the shares. That means the government can do whatever they want with the company, as if it had 100% control. As far as administrative decisions are concerned, there's no difference. Gazprom can burn money in a furnace and no minority shareholder can do a thing beside complain in public. May 5, 2022 at 15:02
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    @Mindwin FWIW, most owners of publicly held corporations de facto have no say in the operations of the company and instead operate on what is sometimes called the "Wall Street Rule" of selling your shares if you are dissatisfied with management, rather than than trying to use your voting rights to secure better management.
    – ohwilleke
    May 11, 2022 at 15:13
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It robably can be, given that Gazprom's contract with Poland's gas company (PGNiG ) dates back to 1996, although it expires at the end of this year. And knowing that PGNiG has already sued (and won) in 2020 a price adjustment (on that contract) at the Stockholm Arbitration Tribunal, which seem to govern that contract. Although as mentioned in ohwilleke's answer, Gazprom (being state-owned by Russia) is probably unlikely to restart the deliveries, no matter what a court in an "unfriendly country" decides.

Interestingly, at least one the contracts between Ukraine's Naftogaz and Gazprom was governed by the same Stockholm arbitration tribunal. And Gazprom apparently lost that case too (at least in the first instance court); the appeals seem to go through the Svea Court of Appeal, which seems to be Sweden's regular (higher) courts.

According to another source covering the same matter, that "Arbitration Tribunal" seems to be the shortened name of the Arbitration Institute of the Stockholm Chamber of Commerce.

A Bulgarian gas company (Overgas) and Gazrpom seem to have dueled in (arbitration) court before the International Chamber of Commerce instead (which also offers arbitration services), with an appeal through the London courts.

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  • Suppose PGNiG/Overgas win in arbitration against Gazprom, but Gazprom and Russia don't accept it, does PGNiG/Overgas have any way to obtain appropriate compensation? Could the countries involved sue Russia itself if Russian courts refuse to honor the arbitration award?
    – user102008
    May 4, 2022 at 20:39
  • @user102008: honestly, I don't know. It depends on what the contracts stipulate exactly with respect to arbitration. My impression is that it isn't optional or to be accepted or rejecte on a case-by-case dispute at least in some of those, or else Gazropm would have had nothing to gain potentially e.g. by accepting arbitration in the 2020 Polish case. From what I can tell, they had increased the price and it's not like the court was likely to increase it even more for them. May 4, 2022 at 21:28
  • Great sleuthing.
    – ohwilleke
    May 4, 2022 at 22:30
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    @user253751: Well, North Korea doesn't have a lot of assets abroad, while Russia does have a lot of assets abroad, which might be possible to seize with a court judgment against Russia, if that's possible in this case.
    – user102008
    May 5, 2022 at 16:45
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    @user102008 "Could the countries involved sue Russia itself", generally, countries don't let individuals sue other countries, see the various legal opinions about JASTA.
    – mbrig
    May 6, 2022 at 4:04
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No

None of Poland, Bulgaria or Russia is a party to the contracts so they have no standing to sue.

The contracts are between companies: Russia's Gazprom and Poland's PGNiG and Bulgaria's Bulgargaz. These would be the entities that could sue.

Whether they can sue will depend on if there has been a breach of the contract. No doubt the contract deals with force majeure events such as a government order. Even if they don't the UNIDROIT Principles will apply: relief from performance is granted "if that party proves that the non-performance was due to an impediment beyond its control and that it could not reasonably be expected to have taken the impediment into account at the time of the conclusion of the contract or to have avoided or overcome it or its consequences."

None of the parties to the contract could have reasonably foreseen the war in Ukraine, the EU sanctions and Russia's law on foreign transactions being made in Roubles.

It doesn't matter that some of those events were within the control of one of the party's sole shareholder. Legally the shareholder and the company are different people and a company has no control over the actions of its shareholders in any event.

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    Force majeure is unlikley, since the action was brought about by the owner of one of the contract parties. Under international law, it refers to an irresistible force or unforeseen event beyond the control of a state, making it materially impossible to fulfill an international obligation. Accordingly, it is related to the concept of a state of emergency. May 5, 2022 at 4:08
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    Since the owner of one of the contract parties authorized the "special military operations" on the 24th of Feburary and signed a decree ordering the one sided change of the contract conditions, it was within their control to avoid the bringing about of the situation. This is not a case of Force majeure. May 5, 2022 at 4:27
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    Since the owner of one of the contract parties deliberately brought about the situation (authorization and signing of decree) it was, for them, forseeable and therefore they can be held accountable for their action. I disagree with all of your conclusions for the above reasons. May 5, 2022 at 4:42
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    @MarkJohnson : kicking them out of the international banking system is not something they had a control over (or could have reasonably anticipated), and the demand to be payed in Rubel is a direct response to being blocked from the SWIFT system. So there is at least some part over which they were not in control of.
    – vsz
    May 5, 2022 at 5:00
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    @vsz AFAIK that's not the case. Russian does have plenty of dollar reserves, they decided that they want to keep them and force the EU countries to subsides the ruble by allowing them only to pay in rubles. There is a correlation between trying to force the payment in rubles and the sanctions, but there is no "force majeure" reason to do so... the Russian government decided to remove some options that they have to force a specific output, this is the definition of anti-force majeure.
    – GACy20
    May 5, 2022 at 6:46

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