Category: Russia

The Constitutional Court of the Russian Federation has accepted arguments made by Egorov Puginsky Afanasiev & Partners Partner Dmitry Stepanov and found Article 302, Paragraph 1 of the Civil Code of the Russian Federation unconstitutional.

According to EPAM, “the Constitutional Court noted that, if the State did not take timely measures to identify property as being subject to escheat and did not inherit ownership of such property, then a citizen acquiring the property (an apartment) who neither knew nor ought reasonably to have known that he was acquiring the property from individuals who possessed it in circumvention of the rights of the State should bear no liability for this fact. The citizen is the end buyer of a property in the transaction chain and, if he has paid a reasonable price for the apartment acquired, he should not then have to bear the responsibility for the State’s oversight, but is instead subject to the protections afforded to him as owner of the property. The ruling of the Court declares article 302, paragraph 1 of the Civil Code of the Russian Federation to be inconsistent with the Constitution of the Russian Federation in permitting apartments to be claimed from end-buyer citizens by the State in the event that it has failed to identify its right to the escheat property in a timely manner.”

According to EPAM, firm client Alexander Dubovets’ challenge to constitutionality of the law had been denied by all previous courts to consider it, including the Supreme Court, which had all found in favor of the respondent, the Moscow City Property Department. According to EPAM, “in light of the Constitutional Court’s 22 June ruling, Alexander Dubovets’ case will be subject to review.”

“We are pleased that the Constitutional Court has engaged with this case in a thorough manner and that justice has been restored,” commented EPAM Partner Dmitry Stepanov. “In disputes like these, the citizen is on an unequal footing compared with the State. The State regulates the inheritance of properties and processes transactions, and citizens should be able to have every confidence in its registry infrastructure. If the State has failed to address all of the relevant issues when handling these processes, then it is the State, and not the citizen, that should bear the negative consequences of the system’s shortcomings, just as the Court has confirmed today. Our Client’s situation is one in which hundreds of good-faith purchasers throughout the country find themselves, and so the importance of the Constitutional Court’s ruling is hard to overstate.”

Liniya Prava, working in cooperation with King & Wood Mallesons, has advised the China Development Bank (CDB) Henan branch on financing provided to a Henan joint venture leasing company related to its lease of 16 Airbus A320 and A321 aircraft to Aeroflot.

According to Liniya Prava (LP), “On 28 April 2017, the first three new Airbus A320-214 aircrafts were successfully delivered to the Airbus Blagnac Delivery Center, France and the Hamburg Delivery Center, Germany. The transaction marked the first aircraft financing project for a financial institution in Henan province. The project was also an important part of CDB’s effort to support the Russian aviation industry and local leasing companies ‘going global,’ promote the ‘Belt and Road’ infrastructure initiative, and deepen regional economic cooperation.”

LP acted as Russian counsel to the CDB Henan branch and, among other things, reviewed financing and leasing documentation from a Russian law perspective, preparer Russian security documents, conducted legal due diligence in respect of the lessee, and confirmed Russian law-related conditions precedent.

The LP team was led by Partner Vadim Konyushkevich with support from Associates Kirill Rubashevskiy, Gleb Bazurin, and Aleksandra Braterskaya. According to Konyushkevich: “This project shows growing interest and trust of Chinese major financial institutions in the Russian aviation industry. Moreover, it is noteworthy evidence of the successful implementation and development of the ‘Belt and Road’ initiative. We were honored to work closely with King & Wood Mallesons for the benefit of Henan branch of our longstanding client – China Development Bank. Due to its size and cross-border nature, the project was very challenging, and we are happy to contribute to it by sharing our expertise in support of such financing transactions and in advising Chinese business in Russia.”

Egorov Puginsky Afanasiev & Partners has assisted Knauf Petrobord on its June 2, 2017 entrance into an agreement with the Government of Leningrad Region involving Leningrad’s funding of at least RUB 3.5 billion to renovate production facilities for cardboard facing before 2020.

According to EPAM, “the funds invested under the agreement will be used to upgrade facilities for producing cardboard facing from waste paper, including the refitting of cardboard machine No. 2 and an overhaul of treatment facilities. These improvements will enable an increase in cardboard production and quality, improve energy efficiency, and reduce the impact on the surrounding environment.”

EPAM reports that it “provided legal support to Knauf in formulating the terms of the agreement and during negotiations.”

Capital Legal Services has advised the Perm Concession Company — part of the VTB group — on its June 21, 2017 agreement with the government of the Perm region of Russia to construct and operate a bridge over the Chusovaya river.

The agreement covers a period of 15 years and involves an overall volume of investments of some RUB 14 billion, part of which will be provided by private investments from the VTB group. According to CLS, “under the agreement, the [Perm Concession Company] undertakes to build a new bridge, repair the existing one, reconstruct the access roads to the bridge, and create a modern system for managing road traffic.

CLS Partner Pavel Karpunin commented that: “Signing the concession agreement is a key event that allows transitioning from tender and negotiation procedures as such to implementing the project and resolving new tasks. It is very important that irrespective of the many issues we see today, the concession mechanism is working, since a concession is one of the most effective ways to attract private investments into infrastructure.”

Capital Legal Services will continue to render support to PCC during subsequent stages of the process as well, the first of which being the signing of a general contractor agreement and the financial closing.

DLA Piper has advised Doc+, one of the largest Russian digital health startups, on a USD 5 million round of financing from existing investors Baring Vostok, a Russian private equity fund, and Yandex, one of Europe’s largest Internet companies.

The startup already partnered with Yandex.Health, an online medical consultation service, and raised USD 5.5 million in the previous round from Baring Vostok and Yandex in July 2016.

According to DLA Piper, Doc+, which was founded in 2015, “is ranked top-20 in Europe and earned revenues of USD 1.2 million in 2016 with 70,000 app installations and 60,000 doctor visits. The new injection of money will be used to develop advanced digital health services, and to expand the core business of on-demand visits and telemedicine consultations of Doc+.”

DLA Piper’s Moscow-based team was led by Partner Leo Batalov and included Senior Associate Andrei Sheetkin and Associate Tatiana Askarova.

Herbert Smith Freehills has announced that finance lawyer Dmitry Gubarev will join the firm’s Moscow office as a partner. Gubarev joins from Orrick, Herrington & Sutcliffe in Moscow where he is a partner and head of the Russian Banking & Finance practice. 

According to Herbert Smith Freehillds, Gubarev “has broad international and regional experience on all types of finance transactions, including syndicated loans, real estate and infrastructure financings, pre-export financings and structured products. He also has significant experience in securitization transactions and debt restructuring in the Russian market, and he is a frequent lecturer on issues of banking law.”

His key credentials include acting for Sberbank of Russia and Bank VTB as providers of the loan to EuroSibEnergo Group that financed RUB 70 billion acquisition of 40.29 percent of Irkutskenergo (a company that operates several hydroelectric power plants, thermal plants and electric networks) from Inter RAO Group, the 14 bank syndicate lead arranged by Sberbank of Russia and ZAO Raiffeisenbank on the RUB 86.5 billion loan to Russian pipe maker Joint Stock Company Chelyabinsk Tube-Rolling Plant (ChelPipe), and the syndicate arranged by Nordea Bank in connection with USD 200 million unsecured loan to UralChem Group. He recently acted for Sberbank of Russia on RUB 31.5 billion sale of distressed debt of a major Russian metals and mining conglomerate to Gazprombank.

Gubarev began his legal career in 1998 with Freshfields, then moved to Chadbourne & Parke as an International Partner in 2003. In 2010 he joined Dewey & LeBoeuf, and in 2012 moved over to Orrick. At Herbert Smith Freehills Gubarev will work closely with Alexei Roudiak, the firm’s Managing Partner of the Moscow office, and with Banking/Finance Partner Artjom Buligin and Olga Davydava.

Alexei Roudiak commented: “We are delighted to welcome Dmitry to Herbert Smith Freehills. This hire builds on our success in the Russian market and the notable expertise Dmitry brings will significantly strengthen and expand the Banking & Finance capability and brand in Moscow and internationally. He has a brilliant track record of success handling some of the most complex transactions in the Russian market.”

Jason Ricketts, Global Head of Finance, Real Estate and Projects, added: “Dmitry is an important addition to the firm’s Russia offering and will further strengthen our existing Banking & Finance capabilities and deepen the range of services we can offer clients in Russia and across our network. Dmitry brings outstanding expertise and skills that will be valuable to both our clients and our firm and I’m delighted to welcome him to the Finance team.”

Commenting on his move to Herbert Smith Freehills, Gubarev said: “I am thrilled to join the incredible team at Herbert Smith Freehills. The firm has an outstanding international network which will enable me to offer clients first-class advice on the most complex transactions.”

CMS Russia has announced that Artashes Oganov has moved from Dentons to join the firm as Counsel and Head of Real Estate.

According to CMS, Oganov “brings to the firm over 10 years’ experience of working on a broad spectrum of real estate projects. He has advised clients on both domestic and cross-border M&A transactions involving commercial and residential property, joint ventures in the real estate sector, secured financings for construction and acquisition of properties, commercial and industrial construction projects.”

In addition, CMS reports, his expertise “also covers complex lease projects, including the lease of ‘future’ real estate, ‘build-to-suit’ lease arrangements, and sale-leaseback projects. Artashes has taken part as the lead lawyer in numerous full and limited due diligence reviews and regularly advises clients on general corporate, commercial and land law issues.”

Oganov has been working with Dentons (and legacy Salans) since December 2007.

Jean-Francois Marquaire, the Managing Partner of CMS Moscow, comments: “We are pleased to welcome Artashes to the team. I am confident that Artashes’ experience will be a significant contribution to the firm’s expertise and will boost our real estate practice”.

Artashes commented that:: “CMS is recognized as one of the strongest and most reputable law firms in Russia serving clients’ needs in all key areas of legal expertise. I am excited about becoming a part this talented team and look forward to helping the firm further reinforce its market position in the real estate sector.”

“These are interesting times,” says Natalia Drebezgina, Partner at Debevoise & Plimpton in Moscow, when asked for The Buzz in Russia.

“Everyone was hopeful for this year, and basically those hopes have come true. There’s increased activity in the market that started at the beginning of the year and is continuing.” Drebezgina reports that capital markets work is up significantly, as “the number of Eurobond issuances by Russian issuers is astonishing — and at really low rates.” She says following recent issuances by Detsky Mir, Europlan, TMK, and the recently announced Polyus deal, equity capital markets, which were slow since before 2014, “seem to be picking up a bit as well.” 

Drebezgina reports that “M&A has picked up a great deal, primarily Russia to Russia deals and foreign investment from China.” She also notes an increase in interest from the investors from the Middle East. “We also see real estate M&A and some construction deals. Some of the projects that were put on hold are now moving ahead.” She smiles. “The market appears to be quite busy.” 

“That said,” Drebezgina concedes, “the market is still influenced by geopolitical and macroeconomic developments.” She notes that some optimism came from the resumption of slow economic growth and the hope for improvement of bilateral relations following last fall’s election of Donald Trump to President in the United States, “though the results have been more complicated than we expected.”  

Drebezgina says there’s no major new legislation pending at the moment. “In terms of legislation, we are still digesting the recent reforms of the Civil Code, corporate law updates, changes to interested party and major transactions regime, the increased use of Russian law in deals and changes to the arbitration law and rules on arbitrability of disputes. So the last couple of years were full of new developments, which effect most transactions, and the market is still adapting to those.”

Finally, turning to the subject of the Russian legal market, Drebezgina refers to some fallout from Chadbourne’s global tie-up with Norton Rose, with the firm’s formal Managing Partner moving to Reed Smith in London. “But otherwise nothing major,” she says. Drebezgina says there haven’t been any major cuts at firms in recent months. “Difficult decisions were made in prior years,” she says. “And now everyone is in a waiting mode.”

Russia’s Art De Lex firm has counseled OJSC Magnitogorsk Iron and Steel Works on the successful resolution of its claim of abuse of dominant market position against JSC United Company RUSAL — Trading House.

According to Art De Lex, RUSAL and OJSC Magnitogorsk Iron and Steel Works (MISW) failed to agree on a contract for the supply of pitch MISW, and the lack of suitable rolling stock owned by RUSAL made it impossible to sell pitch to another buyer, leading “to the emergency suspension of the production of pitch at Magnitogorsk Iron and Steel Works.” According to the firm, “given the critical nature of the environmental situation in the enterprise and the risk of stopping the production of coke chemicals, Magnitogorsk Iron and Steel Works had to conclude the contract on the terms of RUSAL.” MISW lodged a formal complaint with the FAS (Russia’s Competition authority), accusing RUSAL of imposing onerous contract terms on it. The FAS’s initiated a case against RUSAL.

Art De Lex reports that, “while reviewing the complaint, FAS Russia confirmed the presence of signs of abuse of the dominant position by RUSAL, while also perceived improper conduct in the actions of Magnitogorsk Iron and Steel Works. At the end of 2016, FAS Russia gave warnings to both companies to stop the violation of the antimonopoly legislation.”

Following this warning both sides negotiated a new supply agreement, and on May 18, 2017 JSC United Company RUSAL — Trading House submitted documents announcing that the warning issued to it had been resolved.

According to Yaroslav Kulik, a partner of the Art De Lex law firm, which served as a consultant to protect interests of MISW, “the companies agreed on mutually beneficial non-discriminatory terms of the coal tar pitch, corresponding to economically justified pricing conditions for coal tar pitch.” Following RUSAL’s announcement, the FAS commission decided to terminate its consideration of the case.

According to Art De Lex, “this case, which had been under consideration for more than a year and a half, is unique and extremely important for the emerging practice of resolving disputes between dominant buyers and dominant sellers. Prior to this case, FAS Russia did not apply the approaches used in the present case (on issuing warnings to both the buyer and the seller simultaneously). This demonstrates the flexibility of the antimonopoly authority in solving complex and out-of-the-ordinary problems in important commodity markets.”