OJSC VTB Bank v Parline Ltd [2015] EWHC 1135 (Comm); 29 April 2015 - DAC Beachcroft

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OJSC VTB Bank v Parline Ltd [2015] EWHC 1135 (Comm); 29 April 2015

Published 28 mayo 2015

In this recent judgment of the Commercial Court, a Russian bank ("VTB") has failed in its attempt to recover outstanding monies which it had loaned to a Russian transport company ("Yurganz") in 2008. The case is a useful example of the way in which the English courts approach and decide proceedings governed by foreign law (in this case, Russian law).


VTB brought its claim in England against an English holding company which owned 100% of the shares in Yurganz (the first defendant, "Parline"), a director of Parline domiciled in England, and a Russian individual who was the main beneficial owner of Parline (the "Defendants"). Earlier jurisdictional proceedings had determined that England was the proper forum to bring this Russian claim. VTB loaned RUB1bn to Yurganz in March 2008. By January 2009, Yurganz had defaulted on its monthly interest payments to VTB. No further interest payments were made, and in June 2009 VTB accelerated repayment of the loan, rendering the entire capital sum repayable with default interest accruing. Yurganz subsequently became insolvent in June 2010. Yurganz was throughout the period part of a larger group of companies (the "Group") whose business was the transportation of goods. Yurganz owned the group's rolling stock, which it leased to other Group companies.

The claim

VTB contended that the actions of the Defendants caused Yurganz to enter bankruptcy, with the consequence that VTB suffered loss quantifiable as the diminution in the value of its receivables under the loan (which it valued at some RUB700m). In particular, VTB claimed that the Defendants (1) caused Parline to reduce a debt to another Group company, (2) to dispose of 45% of its fixed assets (specifically items of rolling train stock, such as wagons, open-box cars and railway tanks), and (3) to purchase worthless bonds issued by another Group company – all acts, it was claimed, which resulted in Parline becoming balance sheet insolvent.

In rejecting VTB's claim, the judge determined three principal issues:

  1. VTB's claim could not be brought under Article 1064 of the Russian Civil Code which provides a general basis of tortious liability for the causing of harm. Relying on the evidence of the Defendants' expert witness on Russian law, the judge found that allowing a claim to be brought under Article 1064 during the course of the bankruptcy would effectively undermine the principles of Russian insolvency law, since it would allow claims to be made on a first come, first served basis, rather than by the priorities established by law;
  2. VTB was unable to prove that the Defendants' alleged acts caused Yurganz to be balance sheet insolvent. In fact, the alleged acts did not appear to have adversely affected Yurganz's balance sheet, since (1) the reduction of debt involved the discharge of a liability, (2) the disposal of 45% of stock yielded a significant resultant receipt, and (3) the purchase of bonds (said by VTB to be "worthless") involved a purchase at below face value of a liability on Yurganz's balance sheet. The liability existed because Yurganz had undertaken by way of public irrevocable offer to purchase said bonds from third parties in the event of an interest payment default by the issuing Group company. Further, VTB could not prove in any event that the Defendants had caused or procured the alleged acts;
  3. VTB could not prove its loss with the certainty and specificity required by Russian law. Until the liquidation procedure is finished, no such clarity could be achieved. Further, there was insufficient evidence precisely to determine the diminution in the value of receivables caused by the bankruptcy (assuming there was such a diminution at all).


The judge predictably relied heavily on the parties' expert evidence as to Russian law, preferring the evidence of the Defendants' expert that granting VTB's claim would require a somewhat unconventional application of Russian law. The judge noted, for instance, a lack of Russian case law supporting VTB's primary case that an Article 1064 claim could be brought during the course of a bankruptcy. This decision demonstrates that the English courts will more often than not interpret foreign legislation and case law conservatively. The English courts are understandably reluctant to make decisions based on novel interpretations of another country's laws.


Jonathan Brogden

Jonathan Brogden

London - Walbrook

+44 (0)20 7894 6290

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