Update on Russian case law regarding taking western brokers to Russian courts to transfer securities

In this post we provide a second update on recent Russian court decisions.

Case 2: Taking western brokers to court in Russia to transfer securities The second case involves the Cypriot company Lafourcad, that was owned by a Russian individual. Lafourcad wanted to transfer 6,360,000 shares of Sberbank from its account with EFG Bank Luxemburg to its account with the Russian broker Renaissance Capital. EFG Bank refused and mentioned sanctions as the reason to refuse the transfer. Lafourcad then sent an application to the competent sanctions authority in Luxemburg to get authorization for the transfer, which was rejected. 

Lafourcad then took EFG Bank to court in Russia for refusing the transfer. The Russian custodian for EFG Bank, Rosbank, which held the Sberbank shares for EFG Bank, was also involved in the case a third party. 

The Russian court determined that EFG Bank illegally refused to carry out the requested transfer and ordered Rosbank to carry out the transfer. As a result, Rosbank had to transfer the Sberbank shares and dividends out of the account of EFG Bank into the account of Lafourcad with Raiffeisen bank. 

All case materials can be found here: https://kad.arbitr.ru/Card/34af2ecf-7a13-40a3-a742-483a8073de50 

Why is this case interesting? 

Even if investors missed the opportunity to request the forced transfer of shares, investors may be able to sue their western broker and the Russian custodian in a Russian court. The court can then determine if the western broker unlawfully refused to transfer Russian securities to Russia. The court order can then be executed by the Russian custodian of the western broker. Many clients of western brokers hold ordinary Sberbank shares in accounts with western brokers that they would like to transfer to their account with a Russian broker, as this would often simplify the payment of dividends. 

Although the Russian court considered itself to be competent on the basis of article 248.1 of the Russian Arbitration Procedure Code, which is primarily aimed at Russians that are affected by western sanctions, western investors may well be able to get the Russian court to consider the case on the basis of article 247(7) of the Russian Arbitration Procedure Code. This article states that Russian courts are competent if the dispute arose out of relations related to the circulation of securities, the issue of which took place in the territory of the Russian Federation (see for example the following cases: https://kad.arbitr.ru/Card/aa009897-397e-40b8-b0cc-a5f476e175a9 and https://kad.arbitr.ru/Card/abec3367-9671-44dd-a7fd-d846a3f97b52).