KIAP associates have obtained a change in the case law in relation to recovery of funds blocked at foreign banks

KIAP associates have obtained a change in the case law in relation to recovery of funds blocked at foreign banks

In the 1st half of 2022, multiple Russian companies encountered the blocking of their money transfers via foreign banks. Foreign authorities substantiated similar blocks by inclusion of money recipients or their banks into the designated persons lists.

Finding itself in the straits when a payer was unable to de-block or refund the blocked funds, and a creditor did not obtain the money, each of the parties has brought lawsuits into the court: the payers against their banks concerning recovery of damages, and creditors against the payers, stating the failure to receive the payments.

In the first case, the courts concurred about the inadmissibility of recovering the losses from banks, since the banks duly performed their client orders, and the money were blocked in foreign jurisdictions after the correspondent accounts were debited.

In the second case, the courts recovered the payers' debts to the creditors, formally stating the standing of the Supreme Court of the Russian Federation under which an obligation is only deemed performed from the moment of crediting the payee's correspondent account. If the money is not received, it means the obligation is not performed.

Payer companies found ended up in the situation when their accounts were debited with the amount of an obligation and that amount was blocked at foreign banks, and simultaneously the same amount was recovered from payers by an award of the Russian court. 

A principal who encountered a similar problem and lost in the first instance court appealed to KIAP. The fact that a consistent court practice has accumulated during the 2 years aggravated the situation.

In the court of cassation, the team of KIAP associates managed to assure the panel that the court orders were illegal, referring to the fact that the risk of a payee's or a bank's inclusion into the designated persons lists cannot be shifted to the payer. The court overturned the court orders and sent the dispute for re-examination, indicating the need to ascertain the date of introducing sanctions versus the money recipient and its bank, and to evaluate the legality of such recipient's actions, which insisted that an invoice should be paid in a foreign currency via a sanctioned bank.

The project was completed by Ilya Ischuk, Partner, Daniil Zherdev, Senior Associate, Anna Andreyeva, Associate, and Tamara Fillinykh, Junior Associate.