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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?

user102008
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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 05 '22 at 04:57
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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. – JonathanReez May 06 '22 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 06 '22 at 21:21

3 Answers3

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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.

ohwilleke
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    it' not the state of Russia but the 100% state owned Gazprom that is the contract partner – Trish May 04 '22 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 05 '22 at 03:10
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    Gazprom is not 100% state owned – fraxinus May 05 '22 at 06:48
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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. – Mindwin Remember Monica May 05 '22 at 15:02
  • @Mindwin What if the minority shareholder is the sovereign wealth fund of a Gulf state with which the Russian Federation would like to maintain amicable relations? – Rodrigo de Azevedo May 06 '22 at 20:07
  • @RodrigodeAzevedo they should've invested somewhere else. On state-majority companies, the minority shareholders are there just for the money, their stock might as well have no voting power. Especially in places where democracy hold little sway. – Mindwin Remember Monica May 10 '22 at 15:49
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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 '22 at 15:13
  • @ohwilleke that's why I like to say that when someone buys a share from any source other than the issuing company, they aren't "investing" in the company (e.g. the money they paid didn't fund operations) but instead "speculating" with the security. In my head canon, the vast majority are shareholders without being investors. – Mindwin Remember Monica May 11 '22 at 15:50
  • @Mindwin While I see what you are saying, I don't think that is an apt analysis, but a discussion of that is far off topic from the comments to this post. – ohwilleke May 11 '22 at 15:52
  • @ohwilleke indeed it is. But I digress. – Mindwin Remember Monica May 11 '22 at 19:17
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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.

David Siegel
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the gods from engineering
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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 04 '22 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. – the gods from engineering May 04 '22 at 21:28
  • Great sleuthing. – ohwilleke May 04 '22 at 22:30
  • @user102008 Imagine the other country was not Russia but rather North Korea. Do you have expectations in that scenario? – user253751 May 05 '22 at 12:32
  • @user102008: The most realistic outcome would be that Gazprom would need to pay the awards as soon as they want to resume deliveries to the EU - provided that they do resume deliveries at any future time. Considering the EU's CO2 plans, it might well be that Gazprom lost its marketshare forever. In that case, you of course have to write off any Gazprom debts to the EU. – MSalters May 05 '22 at 12:39
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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 05 '22 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 06 '22 at 04:04
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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.

akostadinov
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Dale M
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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. – Mark Johnson May 05 '22 at 04:08
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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. – Mark Johnson May 05 '22 at 04:27
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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. – Mark Johnson May 05 '22 at 04:42
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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 05 '22 at 05:00
  • @vsz For a nation of chess players (By sheer volume, Russia dominates, with 2,559 titled players, including a remarkable 243 grandmasters. In fact, Russia has more grandmasters than 143 countries combined.) it is actually quite surprising what they did not anticipate before. Victor's justice only applies to those who win, not to those who have badly miscalculated/misjudged the situation in almost everyway possible. – Mark Johnson May 05 '22 at 05:21
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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 05 '22 at 06:46
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    @MarkJohnson The owner of a company, even a 100% shareholder is not the company. In addition, beyond appointing the board of directors, the owner has (legally) no say in the management of the company. The extent to which this legal separation is a practical reality is irrelevant. Legally, the company has no control over the actions of its shareholders. If you make deals with state-owned corporations in autocratic countries, thems the risks you run. – Dale M May 05 '22 at 07:09
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    It doesn't matter, the main conditions of Force majeure is not fulfilled (an irresistible force or unforeseen event beyond the control of a state). – Mark Johnson May 05 '22 at 07:49
  • I think it would depend how legal Putin made his order. I know he ordered Gazprom on TV to only accept payment in rubles, but I'm not sure if he made a decree or Russia made a law in that regard. And even then, some trade treaties allow private parties to even sue sovereigns (for such interference in contracts), although I don't think Russia has signed up to any of those. – the gods from engineering May 05 '22 at 08:11
  • N.B. apparently Putin did sign some kind of order https://www.theguardian.com/world/2022/mar/31/putin-indicates-he-may-turn-off-gas-supplies-to-europe-overnight-russia-roubles However this "authorises the state-controlled Gazprombank to open foreign currency and rouble accounts for gas purchases", which is a bit confusing as it doesn't seem to actually force Gazprom to only accept payment that way, although I'm guessing Gazprom would argue that it does. – the gods from engineering May 05 '22 at 08:16
  • The other thing is that the Kremlin argues that "there is, in fact, no change" with their scheme and that "Russia remains committed to all its obligations under existing contracts, both in quantity and in price", so they don't quite say it's an economic sanction, which a government is generally entitled to impose under WTO etc. Which actually makes it harder for Gazprom to argue "force majeure". – the gods from engineering May 05 '22 at 08:22
  • @Fizz to my limited knowledge it means converting to rubles is Gazprom's problem, which is... fine? – user253751 May 05 '22 at 12:31