Enforcement of ICC award against Transnistria in Russia

An outstanding ruling of the Moscow Arbitrazh Court of 13 September 2021 in case № A40-128695/2021 denies recognition and enforcement of an ICC award to a creditor against the Republic of Transnistria, making a controversial statement: Money in a bank account represent clients’ contractual rights against a credit institution and is not a tangible object and thus cannot be identified as “property” of a debtor in a foreign country. With this reasoning, the Moscow Arbitrazh Court denied jurisdiction to enforce an award, even though the respondent has bank accounts in Russia.

Facts of the case

WJ Holding Limited (the Claimant) applied to the ICC International Court of Arbitration in Paris against the Republic of Transnistria (the Respondent). The dispute arose from an agreement on the purchase of 100% shares of JSC “Bender Oil Extraction Plant” by the Claimant from the Respondent. “Bender Oil Extraction Plant” owns a large oil extraction plant in Bender, Moldova. The arbitral award granted the Claimant a sum of 12 423 247 USD as reimbursement for damages and as contractual penalty.

Applicant’s requests

The Claimant applied for recognition and enforcement of the award at the Moscow Arbitrazh Court and demanded financial and tax statements in order to evaluate the property of the Respondent in the Russian Federation and its finances in the bank accounts.

Respondent’s official representation in Russia

The Claimant referred to the fact that the website of the Ministry of Foreign Affairs of the Respondent announced the establishment of an official representation in Moscow, and that, in accordance with Russian law the legal form chosen was a public organization – the Foundation for the Development of Social and Cultural Relations “Transnistria”.

Respondent’s property assets in Russia

The Claimant also indicated that the Respondent has property in Moscow, namely money on bank accounts. The official website of the State Customs Committee of the Respondent indicates the accounts to which payments of customs fees in foreign currency are made. All these accounts are held with CJSC “Pridnestrovsky Sberbank”, which is registered on the territory of the REspondent, but has no representative offices outside its territory. Therefore, all payments made from outside the territory of the REspondent are to be transferred through correspondent accounts, Sberbank of Russia PJSC and TCB Bank PJSC, Moscow.

Court’s position on the disputed issue

Non-cash is not a property asset

The ruling of the Moscow Arbitrazh Court of June 29, 2021 dismissed the application (A40-128695/2021). The cassation court left the challenged act unchanged. The Claimant had not provided sufficient and credible evidence that the Debtor owned property assets located in Moscow. Non-cash money of clients of a credit institution under bank account agreements, by virtue of their legal nature, exist in the form of the clients contractual rights against the credit institution. Thus, the money in the bank account is not a material object (property).

Not enough evidence for a representative office

The court also stated that not enough evidence was presented to prove the existence of registered representative offices of the Respondent in the Russian Federation.

No original arbitration agreement or a duly certified copy thereof

In addition, in violation of paragraph 2 of Art. 4 Art. 242 of the Russian Arbitrazh Procedure Code the Claimant did not submit the original arbitration agreement or a duly certified copy thereof to the case file.

Conclusion

The decision stands out negatively in the practice of recognising and enforcing foreign awards in Russia and contradicts the common understanding of “property” in Russian law. The Russian Civil Code has always been equating “property” with “property rights” (Art. 128 of the Civil Code). Following the adoption of the amendments the Tax Code in 2020 (Law No. 219-FZ of 20.07.2020) it now also recognises non-cash money located on the bank accounts as “property” for tax accounting purposes. The decision shall be seen as an outstanding one and might not be confirmed by the Supreme Court or followed by other courts in general.