Legal Journals

Russian Authorities Order Foreign Company to Pay Damages

By twu

A court in Russia ruled in February against Telenor, a Norwegian telecom company, in favor of a Russian mobile-phone company, Vimpelcom. The court held that Telenor had caused Vimpelcom a loss of $1.7 billion when it delayed the company?s move into the Ukranian market. As a result, the court froze Telenor?s 29.9% stake in Vimpelcom and now Russian authorities are ordering Telenor to pay the $1.7 billion in damages or risk losing its stake all together. If Telenor refuses, Russian bailiffs can sell their stake to pay the damages.

Telenor believes the order is simply a legal pressure tactic from the Russian company Alfa Group which owns 44% of Vimpelcom, and states that it will not pay the damages. Instead, the company plans to appeal the order in the Moscow Arbitration Court. The Norwegian government has also sought help from Moscow since they themselves own 54% of Telenor. However, talks between the Norwegian and Russian government have had little success. Russian officials have stated that they will not intervene in a private dispute.

Many argue that the current case is not without precedent in Alfa?s track record. The company has been described as ?aggressive? and a U.S. judge referred to Alfa?s ?history of ?vexatious and collusive? litigation and failure to comply with court orders? in his ruling against the company. There is also growing fear among foreign investors that the global financial crisis has worsened Russia?s already unfavorable legal environment. Investors are concerned that powerful Russian businesses will use their local leverage to abuse the rights of their foreign partners.

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Full post as published by Harvard International Law Journal Digest on April 13, 2009 (boomark / email).