CANDEY obtains security for costs against Gazprom in bankruptcy proceedings in legal first against a creditor
Russian State-controlled JSC Gazprom Neft Ordered to pay security for costs in Bankruptcy Proceedings as Court recognises that enforcement of English Judgments in Russia will now be problematic
Against the background of Russia’s attack on the rule of law and the Kremlin’s order that Russian Courts can now settle all disputes (whatever the parties had agreed) Gazprom Neft argued that they may have difficulty in paying security if they are sanctioned.
In what appears to be the first Order of its kind, litigation law firm CANDEY’s client succeeded yesterday before ICC Judge Jones (22 March 2022) in obtaining a security payment of £675,000 against Russian company Servis Terminal LLC (in liquidation) and Russian State giant JSC Gazprom Neft.
Background
JSC Gazprom Neft through Servis Terminal LLC (in liquidation in Russia) is pursuing bankruptcy proceedings against CANDEY’s client Mr Valeriy Drelle, a Ukrainian-born Russian national, resident in London. The proceedings are based on a Russian judgment of RUB 2 billion (circa £11 million at current exchange rates) which Mr Drelle says was the result of a miscarriage of justice.
Mr Drelle denies the basis of the Russian judgment and will show that the Russian proceedings were tainted by unfairness and breached natural justice, due to the influence of Gazprom Neft - Servis Terminal’s largest creditor, which holds 99% of its debt. Gazprom Neft has been funding all of Servis Terminal’s costs in its case against Mr Drelle.
The Court order is the first security for costs known in bankruptcy and has created ‘new law’. The Court held that in the unique circumstance of an international insolvent creditor pursuing a debtor it may be possible for the debtor to obtain security for costs from the issue of statutory demand and/or with respect to a petition where the issues in substance are the same.
Key Issues
Mr Drelle argued that if he is successful in the hearing of the petition against him the enforcement of a costs order of the English Court will be difficult (if not impossible) in the Russian Federation in the current climate and that as Servis Terminal is insolvent, it will not pay Mr Drelle’s costs if ordered to do so. Additionally, Mr Drelle won the argument that JSC Gazprom Neft, being an interested party in this matter that was financing all of Servis Terminal’s expenses it should provide security for Mr Drelle’s legal costs.
Servis Terminal admitted that JSC Gazprom Neft is funding all of the proceedings but stated that Mr Drelle’s application should fail as there could be no doubt in Gazprom Neff’s ability to pay Mr Drelle’s costs (also noting that Gazprom Neft is not currently sanctioned) and that Mr Drelle did not prove that enforcement of an English court order would be problematic in Russia relying on pre-invasion authority. This position was dismissed by the Court.
The Court accepted that there can be no doubt that enforcement of English court orders or judgments in Russia would be highly problematic (even if no specific evidence is presented), that Gazprom Neft’s support of Servis Terminal justified a costs order against them and that hypothetical future sanctions cannot justify Servis Terminal’s or Gazprom Neft’s refusal to date to provide security. To the contrary potential sanctions meant that security was a necessity. It was also accepted that the recent sanctions imposed on Russian banks and energy-related activities created the strong inference that enforcement would be difficult, if not impossible in Russia.
Extradition
CANDEY had previously successfully resisted a Russian Federation attempt to extradite, Mr Drelle based on Russian criminal proceedings initiated by Gazprom Neft.
Representation
CANDEY acted for Mr Drelle who instructed Simon Davenport QC and Philip Judd of 3 Hare Court.
Latham & Watkins acted for Servis Terminal LLC (in liquidation) who instructed Clara Johnson of South Square.
Key Contact:
Yuri Botiuk, Partner
