Can Russia be sued over breaking gas contracts?

Question

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?

Answer 1

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.

Answer 2

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.

Answer 3

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.