The 'Lugovoy Law' and the Erosion of Arbitration Autonomy: An Analysis of Articles 248.1 and 248.2 of the APC RF

The recent session 'Beef à la Russe: The Battle for Jurisdiction' at the Russian International Arbitration Congress highlighted a critical tension in contemporary Russian jurisprudence: the balance between protecting national interests and maintaining the integrity of international commercial arbitration. At the center of this debate are Articles 248.1 and 248.2 of the Arbitrazh Procedural Code (APC RF), colloquially known as the 'Lugovoy Law.'

The Expansion of Jurisdictional Reach

Originally conceived to shield Russian parties unable to access foreign courts due to sanctions, the 'Lugovoy Law' has undergone a significant interpretative expansion. As noted by arbitrator Sergey Usoskin, the evidentiary threshold for establishing 'obstacles' to justice has plummeted. The requirement to prove objective, insurmountable barriers to foreign litigation has been replaced by a mere assertion of potential visa restrictions.

More concerning is the application of these norms to jurisdictions not traditionally classified as 'unfriendly.' The law is now being invoked in disputes involving Belarus, Kazakhstan, and India, citing logistical frictions such as banking difficulties or the reluctance of foreign counsel. This expansive practice effectively renders arbitration clauses in international agreements optional, encouraging Russian entities to bypass contractual obligations in favor of the Arbitrazh Court of Moscow (ASGM).

Comparative Legal Perspectives and Corporate Liability

While some practitioners argue that such norms are unprecedented, others point to analogous mechanisms in European Union regulations. Specifically, Article 11A of certain EU regulations mandates that disputes involving EU sanctions be heard in European courts, with the threat of anti-suit injunctions for non-compliance. This suggests that the shift toward 'jurisdictional nationalism' is a broader global trend rather than an isolated Russian phenomenon.

From a corporate law perspective, a critical point of contention remains the issue of subsidiary and joint liability. The practice of allowing creditors to pursue a Russian subsidiary for the debts of a foreign parent company—under the guise of the 'Lugovoy Law' framework—challenges the fundamental principle of the separate legal personality of corporate entities. While some argue this mirrors the practices of transnational corporations, it creates a precarious environment for Russian subsidiaries within global structures.

The Presumption of Bias and the Crisis of Neutrality

A particularly contentious development is the Supreme Court's thematic review (No. 8/2026), which introduces a presumption of bias against arbitrators from 'unfriendly' countries.

Economic Consequences and the 'Price of Risk'

This judicial trend has direct economic implications. The consistent refusal to recognize foreign awards based on "public policy" or the "unfriendly" nature of the jurisdiction is effectively neutralizing the utility of international arbitration for Russian business.

As highlighted by Yuri Bashmakov, counterparties are now pricing the risk of non-enforcement directly into their contracts. This manifests as higher transaction costs, demands for larger advance payments, and more stringent guarantee requirements, ultimately increasing the cost of doing business for Russian companies.

Statistical Analysis: The LASI Index

Data presented by KIAP and the 'Lugovoy Law' Working Group provides a quantitative measure of this trend. Using the Lugovoy Application Satisfaction Index (LASI), the study revealed a staggering level of judicial approval for jurisdictional transfers:

This statistical reality suggests that the 'Lugovoy Law' has evolved from a protective shield into a primary tool for jurisdictional capture. The current trajectory indicates a systemic erosion of the principle of pacta sunt servanda in the context of arbitration agreements, necessitating a more rational and restrictive intervention by the Supreme Court to prevent the total collapse of international arbitration practice within the Russian Federation.