Julia Talagaeva comments on Baltic Shipyard’s winning a dispute, for Delovoy Peterburg newspaper

Baltic Shipyard JSC, which is part of the United Shipbuilding Corporation, recently won a dispute with the Main Interregional Directorate of the Russian Federal Bailiff Service. This was a consequence of another case—Baltic Shipyard recovering €5.1 million from its Finnish counterparty, Wärtsilä Solutions OY, for the failure to supply marine equipment. As previously reported by Delovoy Peterburg, the foreign company was supposed to supply diesel standby generators, stern tube seals, and stern tubes to the Saint Petersburg shipyard. This equipment was intended for Project 22220 icebreakers Yakutia and Chukotka. But due to the sanctions imposed on Russia after the special military operation had started, the Finns refused to supply marine equipment to Baltic Shipyard.

Since the sanctions have restricted Russian businesses’ access to international arbitration tribunals (that usually handle disputes related to such contracts), the Russian government has introduced a new legal regulation to protect Russian entrepreneurs by enabling domestic companies to file claims against foreign companies with Russian state commercial courts.

In May 2023, the State Commercial Court of Saint Petersburg and the Leningrad Region recovered €5.1 million from Wärtsilä Solutions OY. This decision went all the way through all the courts that upheld it (in particular, in March of this year, the Russian Supreme Court refused to submit the cassation appeal filed by the Finnish company to the judicial board).

After receiving an enforcement order, Baltic Shipyard filed with the Main Interregional Directorate of the Russian Federal Bailiff Service an application seeking to initiate enforcement proceedings and, accordingly, to recover €5.1 million from its Finnish counterparty. However, the bailiffs refused to deal with this case, referring to the improper execution of the enforcement order.

Then Baltic Shipyard appealed the decision of the Main Interregional Directorate of the Russian Federal Bailiff Service in the State Commercial Court of Saint Petersburg and the Leningrad Region, which not only recognized the bailiffs’ inaction as illegal, but also obligated them to correct the violations committed.

As it turned out, the bailiffs returned the enforcement order, because Wärtsilä Solutions OY did not specify the details typical of Russian legal entities (Taxpayer Identification Number (INN), Primary State Registration Number (OGRN), etc.). The state commercial court pointed out that the foreign company had its identification number and location inserted in the enforcement order.

It is not easy to enforce a decision in Russia, either, for example, to foreclose on any asset of a foreign counterparty, and sometimes it is impossible. First of all, you may run into difficulties when searching for assets if your foreign agent owned something in Russia unofficially or if the ownership structure was indirect. Another question is that before leaving, foreign companies had sold their assets. And even if a Russian merchant won a dispute against his foreign counterparty, there are simply no assets that could be used to repay the debt.

“In particular, EU sanctions have imposed a ban on transactions with legal entities that have applied to a Russian court in connection with a transaction or contract, the performance of which was directly or indirectly affected by EU sanctions. These measures were taken in response to a significant number of disputes initiated by Russian businesses with the application of the rules on the exclusive jurisdiction of Russian state commercial courts (the legal regulation introduced after the start of the special military operation. — the editor’s note). If, using these rules, a Russian company files a claim with a Russian court against a foreign counterparty, then, in fact, it itself will become subject to EU sanctions. This approach taken by the EU gives rise to significant risks for Russian entrepreneurs: if a Russian legal entity has assets in the EU, then they can be arrested or frozen due to a legal dispute with a foreign counterparty in Russian state commercial courts,” commented Julia Talagaeva, Senior Associate, Forte Tax & Law.

For more information, click here (in Russian).