The role of UK law in Russian business is huge. A new twist in the Baring Vostok case could put an end to it

Artyom Avetisyan, the businessman assumed to be behind the arrest of U.S. investor Michael Calvey, has demanded that a dispute over Vostochny Bank involving Calvey’s Baring Vostok be heard in Russia — even though the shareholders agreement says all disagreements will be tried in the United Kingdom. If Avetisyan is successful, this will threaten all Russian businesses that refuse to trust Russian courts and rely, instead, on UK law to solve corporate conflicts.

Details 

Avetisyan this week went on the offensive. On Tuesday, he filed a lawsuit in a court in Russia’s Far East against Baring Vostok, demanding 9.99% of Vostochny Bank’s shares.

• Avetisyan received an option for a 9.99% stake in Vostochny Bank in 2016 when it merged with his Uniastrum Bank. But in 2018, Baring Vostok refused to uphold the agreement, claiming Avetisyan moved asset stripped ahead of the merger. This disagreement is what lies at the heart of the Baring Vostok case.

The most important detail is not the lawsuit itself, but the fact it was filed in Russia. The shareholder agreement between Avetisyan’s companies and Baring Vostok states that all conflicts regarding Vostochny should be heard in The London Court of International Arbitration (LCIA). But the shareholder agreement contains another arbitration clause: if LCIA does not meet the Russian judicial standards, then each side of the conflict can choose another court. In his Russian filing, Avetisyan argues that the British court’s decision will be “impossible to execute” in Russia. This might have very serious consequences.

• In a Russian court, Avetisyan has a high chance of success. He has the support of the security services, and President Vladimir Putin has de facto supported his position. Moreover, ignoring the rulings of foreign courts very much fits the trend in legal politics.
• It is impossible to prevent a Russian court from making a decision about a transaction involving the shares of a bank registered in Russia.
• But such a decision could call into question the shareholder agreements of almost every company in Russia. Most major deals in Russia in the last 20 years have been structured using offshore companies, and one of the benefits of this was that offshore companies are governed under U.K. law.

Why the world should care

The ruling in Avetisyan’s lawsuit could set a precedent allowing businessmen with good connections to move legal disagreements to corrupt Russian courts. This would be particularly dangerous for foreigner companies that don’t stand much of a chance in proceedings against influential Russian partners in Russian courts.