⚖️ A Russian Circuit Court confirms that registration of a creditor in an “unfriendly” state does not automatically preclude recognition and enforcement of an arbitral award in its favor

Schlumberger Logelco, Inc., Panama, as contractor (applicant), and Chepakovskoye Oil Production Enterprise LLC, as customer (respondent), entered into an agreement for integrated services, including engineering and technical support for the construction of wells with horizontal completions at the Chepakovskoye field in the Stavropol Region. Under the agreement, if the contractor’s equipment was lost in a well, the customer was required to pay the contractor the full replacement cost of equivalent new equipment. The agreement also contained an arbitration clause in favor of the ICAC at the Chamber of Commerce and Industry of the Russian Federation.

Following an incident that made it impossible to retrieve the equipment from the well, the applicant commenced arbitration. The arbitral tribunal partially upheld the applicant’s claims, ordering the respondent to pay more than RUB 60 million in property losses and USD 30,000 in registration and arbitration fees.

The applicant applied to the Stavropol Region Arbitrazh (Commercial) Court for a writ of execution for compulsory enforcement of the arbitral award. The respondent objected, relying on the following grounds:

👀The applicant’s corporate structure provided for full control by a company incorporated in the British Virgin Islands, a British Overseas Territory included in the list of “unfriendly” states;

👀Enforcement of the award in favor of an applicant controlled by a company from an “unfriendly” jurisdiction would contravene Russian countermeasures and, consequently, Russian public policy.

The court rejected the respondent’s arguments and issued a writ of execution for the award. The respondent appealed the first-instance ruling to the North Caucasus District Commercial Court, reiterating the same arguments.

The North Caucasus Circuit Arbitrazh (Commercial) Court likewise rejected the respondent’s arguments, relying on the following considerations:

🔘The foreign company’s claim was not subject to the special regime governing the performance of obligations to foreign counterparties established by Presidential Decrees;

🔘Enforcement of the arbitral award would be effected through the applicant’s Russian representative office, which was consistent with the applicable countermeasures; and

🔘“The mere fact that the applicant is incorporated in an unfriendly state, in the absence of the transaction in question being subject to restrictions and the applicant being included in the list of legal entities subject to special economic measures, cannot in itself constitute grounds for the debtor (a Russian entity) to refuse to perform its obligations, where the arbitral tribunal has established, and the company has not disputed, the existence of its obligations to the applicant.”

Accordingly, the court found no grounds to set aside the first-instance ruling and dismissed the respondent’s cassation appeal.

📎The judicial act is available at the link.

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