Recent banking disputes arising out of Russian sanctions

First Claim – Anti Suit Injunctions against VTB

In June this year, the London Commercial Court granted permanent anti-suit injunctions and anti-enforcement injunctions against VTB Bank PJSC ("VTB") in relation to proceedings which had been brought by VTB in Russi

The Commercial Court found the Russian proceedings to be vexatious and oppressive and created an illegitimate jurisdictional advantage using Russian laws to circumvent arbitration clauses and the English sanctions regime.

VTB, a Russian bank, entered into multiple agreements with different entities of the JP Morgan Group between 2002 and 2021. VTB held a precious metal account at the London branch of JP Morgan Chase Bank (JPMB) as well as a futures and options account with JP Morgan Securities (JPMS) and entered into an ISDA Master Agreement with the latter. All agreements contained a clause according to which "any dispute" based on or in connection with the respective contractual relationship was subject to arbitration. The "Standard Client Terms of Business" further stated that any affiliates of the contracting JP Morgan entities were allowed to enforce its provisions if they confer a benefit on the respective affiliate.

When sanctions were imposed on VTB following the Russian invasion of Ukraine in February 2022, JPMB and JPMS treated this as being an event of default and terminated all agreements connected with the accounts held by VTB. The ISDA Master Agreement was also terminated on the basis of the "cross-default" provisions. VTB was informed that any outstanding balances would be held by JP Morgan until the sanctions were lifted or they were authorised to release the funds.

In October 2024, VTB commenced proceedings against JPMB and JPMS as well as six other companies in the JP Morgan Group in the Arbitrazh Court of St Petersburg and Leningrad Region to force repayment of the balances held by JP Morgan. The claims were based on Russian tort law, which applies a principle of "de facto representation" under which other companies in the same group as a debtor can be held liable for damages on the grounds that they failed to require the debtor to effect payment. According to VTB, these claims were subject to the jurisdiction of the Russian courts because the damage occurred in Russia and because it would be contrary to Russian public policy to apply foreign law. In addition, the Arbitrazh Civil Code provides exclusive jurisdiction in matters that concern sanctioned persons or entities.

JPM subsequently applied for anti-suit injunctions on 12 December 2024 arguing that the arbitration clauses precluded the jurisdiction of the Russian courts. Interim injunctions were granted the next day and final orders were eventually made, despite VTB contesting the jurisdiction of the English courts.

The commercial court dismissed the jurisdictional challenge and granted final anti-suit injunctions to all claimants except JP Morgan Bank Russia, which had submitted to the Russian jurisdiction.

The court held that the question of whether or not JPMB and JPMS were required to make payments to VTB was within the ambit of the arbitration agreements as an issue of performance under the contracts.

The court considered the claims brought in Russia under Russian tort law and concluded that, in substance, they were contractual in nature. These claims sought to recover amounts allegedly due under the UMAA and Client Agreement, both governed by English law. Although presented as tort claims, they were effectively attempts to enforce contractual obligations.

The court found that the Russian proceedings were an attempt by VTB to gain an illegitimate juridical advantage by avoiding English law. While not every circumvention of sanctions is unlawful, it is a relevant factor in determining whether proceedings are vexatious and oppressive.

The Russian legal provisions used to impose liability were found to be inconsistent with generally recognised principles of civil law. They imposed tort liability on companies not party to the contracts, based solely on their membership in the same corporate group. These principles disregarded corporate personality and contractual privity and were developed in response to international sanctions. The court described this as the application of “unnatural law” to relationships governed by English law.

The Russian legal approach also attempted to retrospectively alter the identity of contractual parties and the conditions under which payments were due. This undermined the certainty and integrity of English contractual obligations.

One issue was whether anti-suit relief could be obtained by JP Morgan entities which were not parties to the agreements with VTB, which incorporated arbitration clauses. Whilst JPMB's terms of business could in theory confer the right to arbitrate on other members of the group under the Contracts Act (Rights of Third Parties) 1999, in general, parties to a contract would not expect its terms to extend to any non-parties. Even a broad arbitration clause covering any disputes that arises in connection with the contract would not be interpreted as an agreement to initiate proceedings against third persons in a different forum.

The court held, however, that injunctive relief could be sought on the "vexatious and oppressive" proceedings basis. Under this principle, a court may restrain claims if "the ends of justice require it", in circumstances where the pursuit of foreign proceedings is vexatious and oppressive and that there is sufficient interest by the English courts in the matter. The Court found that the potential circumvention of arbitral proceedings with a seat in England constitutes sufficient grounds for an interest of the English courts. The proceedings were found to be vexatious and oppressive because they relied on principles developed in Russia to allow third-party claims in Russia in an attempt to circumvent the arbitration clauses. Russian tort law disregards the principles of corporate personality and contractual privity to extend liability to members of a group that are not involved in the respective transaction, circumventing the choice of forum agreed by the parties and subjecting the matter to the jurisdiction of the Russian courts. The court also found that Russian law does not recognise English sanction regimes.

VTB has appealed the judgment and the appeal hearing is due to take place before June 2026.

Second Claim – Private Sale

VTB Capital Plc (In Administration) (VTBC) issued a claim against JPMS in May 2025. VTBC, a UK-based former investment bank and subsidiary of VTB Bank, which was subject to sanctions, resulted in VTBC's assets being frozen and led to VTBC entering administration in December 2022.

VTBC had a longstanding relationship with JPMS, governed by two key agreements: a Client Agreement for exchange-traded derivatives (ETDs) and an ISDA Master Agreement for over-the-counter derivatives (OTCDs). These agreements allowed JPMS to close out VTBC’s positions in the event of default, provided it acted reasonably and with care.

In February 2022, JPMS declared an Event of Default and proceeded to close out VTBC’s ETD positions. However, instead of executing these trades on public exchanges, JPMS opted for a private sale to its own proprietary trading desk, charging VTBC a US$1.14 million fee for this process. VTBC challenged this decision, arguing that the private sale was unjustified, especially given the liquidity of its positions, and that the fee was unexplained and excessive.

VTBC also claims that JPMS delayed converting VTBC’s Euro and Sterling balances into US Dollars until March 2022, despite having closed out the positions weeks earlier. VTBC claims this delay exposed it to adverse exchange rate movements, resulting in a €1.9 million loss.

VTBC argued that in choosing a private sale over exchange execution, JPMS acted in breach of an implied term of the Client Agreement under common law that JPMS would act in good faith, without arbitrariness, capriciousness, or irrationality, and with regard to relevant factors and ignoring irrelevant ones as well as the statutory implied term pursuant to Section 13 of the Supply of Goods and Services Act 1982, that services will be carried out with reasonable care and skill, specifically in relation to regulated financial services (clearing and execution of ETDs).

JPMS rejects the claim that it should make any payment to VTBC because US sanctions apply to VTBC and that any payment by JPMS would expose it and JP Morgan in the US, to criminal and civil penalties by FATCA. Although a Basic Needs Licence was issued by OFSI and FATCA had issued a General Licence which allowed payments into a blocked account (into which VTBC funds had been paid) it was not possible to move these funds.

JPMS also denied that any implied term applied in circumstances where comprehensive express terms had been agreed and rejected the argument that it was not entitled to close out the positions and sell the ETDs by private sale and could not have predicted that the exchange rate would negatively affect VTBC.

Third Claim – Liquidation of Open Positions of Gazprom

VTBC issued a claim against Citigroup Global Markets Ltd (Citibank) in March this year, which claimed Citibank had acted in breach of a futures and other exchange traded derivatives agreement. The parties had entered into various derivatives trades, including options and futures on equity securities issued by Gazprom.

After the VTBC's assets were frozen due to sanctions legislation on 24 February 2022, Citibank issued a margin call which VTBC was unable to satisfy. Citibank duly issued a default and termination notice and informed VTBC that it was responsible for determining the liquidation amount amounted to almost $16m arising out of five Gazprom positions. VTBC has sought declaratory relief from the Court for the avoidance of the stated liquidation amount which should be replaced by a recalculation by reference to expert evidence. VTBC claimed that Citibank acted in breach of the Braganza duty in calculating the liquidation amount as it was carried out irrationally and not in accordance with market practice.

English law recognises a private law duty where a party exercising a contractual discretion must do so “reasonably” or “rationally”. It was discussed at length in the Supreme Court’s decision in Braganza v BP and the duty became known as the Braganza duty. It has become clear that where a party has a contractual discretion, the Courts will imply a term into that contract requiring the relevant party to exercise its discretion in a way which is not irrational, capricious or arbitrary in a public law sense.

Citibank has defended the claim, explaining that it was not able to liquidate the Gazprom positions in the same way as the other open positions by trading in the market due to the extreme market conditions at the time. Instead, the positions were transferred to the equity derivatives trading team which was a market maker in exchange traded derivatives which duly charged the Citibank's Futures, Clearing and FX primer brokerage team a fair price for the risk it assumed, which amounted to $38m. The decision to do that was based on Gazprom's share price and derivative was volatile and illiquid and VTB's default exposed Citibank to open market risk.

Citibank denies any breach of the Braganza duty and the calculation of the liquidation amount was entirely rational.

Fourth Claim – Frustration

VTBC issued a claim against Continental Capital Markets Ltd (CCM) last month, which arose from unsettled financial trades impacted by the 2022 sanctions. CCM, an FCA-authorised investment and brokerage firm entered into trades with VTBC, involving Russian debt securities in February 2022. Trades were meant to settle via Euroclear but Euroclear froze VTBC's accounts, preventing VTBC's settlement payments of Russian domestic securities.

VTBC withdrew settlement instructions to settle to avoid breaching sanctions and argued that this delay in settlement did not cancel or terminate the trades: the contracts remained valid and VTBC intended to perform them once appropriate licences were obtained.

VTBC was granted a general sanctions licence by OFSI on 1 March 2022 to ensure VTBC could continue to pay basic expenses, which was expanded on 1 April 2022 to allow any payments in connection with the insolvency proceedings of VTBC.

However, later in April 2022, CCM sent letters purporting to terminate two of the trades, claiming frustration due to supervening illegality or impossibility of performance, or alternatively, repudiatory breach by VTBC for failing to settle on time, on the basis that the trades were governed by International Capital Markets Association Rules.

VTBC disputed both grounds:

• In relation to frustration, VTBC claims that settlement was not illegal or impossible, only delayed. Once licences from UK, US, and Belgian authorities were granted, settlement became lawful and feasible.
• In relation to the claim of repudiatory breach: VTBC contends that it did not breach the contract, as it was prevented from settling due to sanctions and had communicated its intent to perform once permitted.

VTBC also asserted that the trades were governed by its own terms, not the ICMA Rules on the basis its terms of business were accepted by conduct and remained valid and enforceable despite delays and that VTBC's terms allow VTBC to close out contracts if the counterparty fails or is likely to fail to perform and exercised its right in March 2023.

Summary

The legal consequences of sanctions imposed on entities in circumstances where licences are later issued by OFSI and OFAC which enable the sanctioned entity to make payments are not straightforward.

It will be interesting to see how the courts develop not only their interpretation of these licences and the tension between the licences and the terms governing the trading relationships but also how financial institutions appropriately exercise their discretionary options upon a default.