The Supreme Court reviewed a dispute between a Russian party and the foreign company J.P. Morgan Securities PLC, which was supposed to pay about USD 14 million under concluded agreements. The foreign company confirmed the debt but refused to pay, referring to UK and US sanctions imposed against Sovcombank and its legal successor.

The claimant argued that the payment could have been made through the Russian bank “J.P. Morgan Bank International”, which is controlled by the same holding, and that both entities jointly failed to act, causing the losses. Three court instances supported this approach and held both companies jointly liable, reasoning that they belong to the same holding, act consistently, and share a single decision-making centre.

The Supreme Court disagreed. It emphasized that simply belonging to the same holding does not mean that one company must answer for the actions of another. To shift the foreign company’s debt onto a Russian bank, courts must prove not just formal affiliation, but that the corporate structure was actually used in bad faith — for example, to avoid fulfilling obligations. The Court also pointed out that such liability touches on Russia’s public-law measures in response to foreign sanctions; therefore, the Bank of Russia should have been involved in the case. The Court further noted that it was necessary to determine whether the funds could still be returned through so-called “unblocking licences”, meaning that the losses might in fact only be the result of a temporary freeze.

Given the number of unresolved issues, the Supreme Court overturned the decisions of three lower courts and remanded the case for a new review.

Ekaterina Schmitt, a lawyer of Timofeev, Vahrenwald & Partners, commented for Advokatskaya Gazeta that this ruling continues the development of case law in which Russian courts examine the possibility of holding Russian subsidiaries of foreign companies liable for actions taken in compliance with sanctions regimes. She noted that the Supreme Court is trying to establish clearer criteria: what matters is not the formal connection between the companies, but whether that connection was used in bad faith to avoid obligations. She also highlighted the Court’s separate emphasis on involving the Bank of Russia, since imposing liability on a Russian bank affects its clients and the stability of the financial system. According to the expert, the further development of this practice will depend on how thoroughly lower courts examine the factual circumstances and the way foreign banks operate in Russia.

“Advokatskaya Gazeta” (Russian Advocacy Newspaper) is the official body of the Russian Federal Bar Association (published since 2007). The Newspaper’s publications are devoted to the most important legal topics, case law, as well as legal practice and issues of advocacy.

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