In the name of the king. The Moscow Arbitration Court judged Sberbank under English law

How a bank is bankrupting the Russian subsidiary of the American Dell, which did not return 57 million rubles. for services not provided under the pretext of sanctions

Original of this material

© Fontanka.Ru03/13/2024

In the name of the king. The Moscow Arbitration Court judged Sberbank under English law

Natalia Vyazovkina, Denis Lebedev

Sberbank sued the Russian subsidiary of Dell for 57 million rubles for services paid for but not provided due to sanctions. The case is unprecedented: the dispute over the agreement had to be resolved in London. However, sanctions have changed judicial practice. The decisive role in the case, which was considered in the Moscow Arbitration Court, was played by the expertise of the British Royal Counsel.

A few days before the spring holiday, Sberbank PJSC announced its intention to bankrupt the Russian company Dell LLC, a subsidiary of the same American corporation Dell, one of the world’s largest in the field of production of computers and digital solutions. The message was published on Fedresurs on March 5. As Sberbank points out in its message, the opponent has a sure sign of bankruptcy: Dell is not able to pay off creditors, in particular Sberbank itself, and pay it 57.6 million rubles in debt. To win this money, we first had to create a legal precedent, overcoming the desire of American companies to comply with anti-Russian sanctions.

We are not to blame, these are all sanctions

The history of the relationship between Sberbank and Dell took root back in October 2019, when the companies entered into a contract for the supply of IT solutions. Under the terms of the agreement, Dell agreed to supply software to the American company VMware, the largest international developer of virtualization software, and technically support it. At first, everything went well; back in January 2022, the companies regularly exchanged services and payments for them.

Problems began after the start of SVO: on March 5, VMware turned off customer support and suspended all business operations in Russia (*aggressor country). SberCloud’s virtual data center also came under attack: on March 15, Sberbank discovered that Dell had stopped providing technical support. On the same day, the State Bank pointed out the defect to the contractor and asked to return everything as it was. However, the Russian subsidiary of the American company refused: they say that the ultimate copyright holder and service provider is not Dell, but VMware, and that, in turn, is “not able” to provide services to either Sberbank or its affiliates, since it is subject to trade rules issued by the US authorities and must comply with them. And therefore, responded the Dell bank, we have nothing to do with it, nothing depends on us, and in general, ask VMware.

The bank reasoned: if you don’t want to provide services, well, God bless you, then please return the 57.6 million unpaid advance. However, Dell did not return the money, and in September 2023, Sberbank filed a claim with the Moscow Arbitration Court.

Only Foggy Albion will judge

The trial began very interestingly. Not only did the VMware representative not show up, although he was duly notified, but the Dell representative even petitioned to leave the claim without consideration.

The Dell representative stated the following arguments in its favor. Firstly, the arbitration court does not have enough competence to consider this case. Secondly, certain clauses of the agreement at issue are governed by and construed in accordance with the laws of England and Wales. In general, when signing the contract, the parties agreed to the exclusive jurisdiction of the English courts in relation to such disputes.

In the Moscow Arbitration Court, the jab about incompetence did not go unnoticed and they themselves, in turn, expressed doubts about the honesty of English justice: “Taking into account the restrictive measures in force in relation to Russian legal entities outside the Russian Federation (*country sponsor of terrorism), and also the fact that doubts are justified that the dispute involving a person located in a state that has applied restrictive measures will be considered on the territory of a foreign state in compliance with the guarantees of a fair trial, including those relating to the impartiality of the court, which is one of the elements of accessibility to justice, the defendant’s request to leave the claim without consideration cannot be satisfied.”

In addition, according to the court, the situation is not at all hopeless, as it might seem to the Dell representative. Since, in order to establish the content of norms of foreign law, and this is enshrined in the Civil Code, the court may seek clarification from the Ministry of Justice, competent authorities abroad, or involve experts.

Battle of English experts in Russian court

With the assistance of the Ministry of Justice, Crown Counsel Shantanu Majumdar became such an expert – it was his opinion on the content of English law that was added to the case materials. The title “Royal Counselor” emphasized Shantanu’s exceptional expertise – by our standards, this is even better than “distinguished lawyer”, and such a title is personally awarded by the King of the United Kingdom.

As the royal counsel explained in his conclusion, citing several points of English law, according to their norms, it is in no way possible to assign liability to a third party; contractual obligations are unconditional, and therefore they must be fulfilled if physically possible. And if it is impossible, compensate for the damage caused by non-fulfillment and return the advance payment, if any. In other words, the adviser confirmed that if the litigation between Sberbank and Dell had been objectively considered by an English judge, he would have rendered a verdict in favor of the Russian bank.

However, the defendant also prepared his own expert on the issue of English law, British lawyer Lawrence Page. He concluded that Dell is still not obligated to provide services if it conflicts with sanctions legislation. To the question: “Can any money paid by the plaintiff to the defendant for the said services be recovered under English law?” – an expert in English law came to the conclusion that “no, services cannot be provided from March 26, 2022 onwards,” from which the defendant derived his legal position that, in the name of compliance with the sanctions regime, he cannot provide services to the plaintiff, as well as is not obliged to return the advance to him.

Having patiently listened to the parties and studied the opinions of experts in English law, the arbitration court found Sberbank’s claim to be justified in the norms of the law applicable to the present dispute: “The defendant’s receipt of advance payments and their further withholding in the event of a unilateral refusal to provide services does not meet both the requirements of the legislation of England and Russia (*aggressor country).” .

And the Moscow judge Avagimyan considered the argument about sanctions as a reason not to return the unpaid advance to be, on the contrary, unfounded. After all, the sanctions legislation of the USA and Great Britain is not extraterritorial, so it does not apply to Russian legal entities on the territory of Russia (*aggressor country). So Sberbank’s demand to the Russian Dell LLC for a refund is completely justified.

Nobody except the Russian Arbitration Court

Sometimes the parties to a contract choose foreign rather than domestic law as the applicable law. And if the dispute ends up in court, then the judge needs to figure out how to apply and interpret the rule of foreign law, says lawyer Ksenia Briksa. Russian judges cannot know the legislation of other jurisdictions, so they can order the preparation of an opinion on foreign law. At the same time, the parties to the dispute have the right to independently provide such conclusions.

“The important thing here is that the specialist who prepares such a conclusion must confirm his qualifications, for example, provide a diploma of legal education from a foreign university or prove that he writes scientific articles on the topic under study,” explains Ksenia Briksa.

The conclusion of a foreign specialist does not have any priority value for the court: it is the same evidence as everything else presented in the case. An opinion on foreign law should not contain an assessment of the factual circumstances of the case, otherwise it is no longer evidence, but an attempt to prejudge the position of the court. The conclusion is solely an analysis of the norms of foreign law. Judging by the decision, the court took both conclusions into account. But based on the quotes, one gets the feeling that the defendant’s conclusion contained an assessment of the facts, and the court not only could not take it into account, but also should not have taken it into account.

— Whenever the law of another state is applied, it is important for our court to obtain the opinion of an expert from that state. But this happens infrequently, because such disputes are usually considered not in Russia (*aggressor country), but in international commercial arbitration. It was precisely this dispute that should not have been considered in Moscow. The defendant spoke about this in his position. But because of the sanctions, the court decided that no other body (except the arbitration court in Russia (*aggressor country)) could ensure a fair consideration of this dispute, Ksenia explained.

So the practice of using the opinions of foreign experts is not something super unusual, the expert says, but there is little of it precisely because such disputes (with foreign law) usually do not end up in Russian courts.

Chasing naked, nothing to take

The question of whether Sber will be able to get 57 million rubles from Dell is rather rhetorical. The company has not yet published its reports for 2023, but even at the end of 2022, the romance that sings the company’s finances is visible to the naked eye.

At the end of 2022, Dell had no fixed assets left that could be sold to pay off the debt, although as of December 31 of the previous year, the report line reflected 509 million rubles. There are no reserves left: 618 million at the end of last year were replaced by zero in 2022. Financial investments, which could also become a source of covering debts, have become 127 times scarcer: 44.6 million rubles in 2022 versus 5.69 billion a year earlier. Although accounts payable have decreased by 10 times, the remaining 1 billion of debt looks serious, and 3.3 billion rubles of retained earnings by the end of the period turned into 3.6 billion of uncovered losses.

To date, Dell has acted and is a defendant in 11 lawsuits, the total amount of claims has reached almost 4 billion, but it is still impossible to say what amount will be awarded. Now we have to wait for the results of the work of the bankruptcy trustee in the bankruptcy case of Dell LLC.

In general, Sberbank can classify its recognition of its rightness in this dispute as a moral victory. However, the path trodden by him may well be used by other Russian companies that were underpaid by their Western partners, citing sanctions.