Volkswagen came under GAZ

A conflict unfolded around the sale of Russian assets of Volkswagen (VW), including a plant in Kaluga, to a new investor. The court seized the property at the request of the GAZ group. She wants to receive 15.6 billion rubles. and cancel the termination of the agreement on the contract assembly of Skoda and VW at GAZ. Sources of Kommersant link the amount of claims with the income that GAZ could receive from assembly until 2025. VW is surprised by the demarche of the ex-partner and hopes that the lawsuit will not delay the sale of assets – according to Kommersant, they are claimed by Avilon, which is ready to provide social guarantees to employees and pay off suppliers. But lawyers consider GAZ’s position to be strong in the current conditions and have no doubt that the situation around the sale will sharply worsen.

On March 17, the Arbitration Court of the Nizhny Novgorod Region seized VW’s Russian assets as an interim measure in a lawsuit by GAZ to recover damages from the German automaker and Volkswagen Group Rus (FGR) in the amount of 15.6 billion rubles. The arrest concerns the shares of foreign legal entities in the FGR (Volkswagen AG – 28.06%, Skoda Auto AS – 16.8%, Volkswagen Finance Luxemburg SA – 55.14%), financial assets of Scania and the property of the concern in the Russian Federation, except for cash . The court also prohibited any registration actions related to the liquidation, reorganization, change in the composition of participants, increase and decrease in the authorized capital of the FGR. The next meeting is scheduled for April 18.

The case file states that on August 10, 2022, GAZ and VW signed an agreement to terminate the contract assembly agreement and related documents. Now GAZ demands to recognize the termination agreement as invalid. A Kommersant source familiar with the situation notes that the divorce “was amicable” and for VW the lawsuit “was a surprise”, admitting that GAZ wanted to get the assets of the concern. A number of Kommersant’s interlocutors believe that the amount of the claim is calculated based on the costs incurred by the group since the assembly was stopped, as well as lost income.

In GAZ, “Kommersant” called the purpose of the claim compensation for damage caused as a result of VW’s failure to fulfill assembly obligations.

Assets, clarified in the company, act only as a security: “GAZ has its own facilities and personnel for the production of passenger cars in Nizhny Novgorod, and we need to ensure their loading and prospects.” The FGR expressed surprise at the lawsuit, “given good business relations over the years” and the completion of the partnership “on mutually agreed terms” as early as mid-2022. In GAZ, the unexpected change of position is not explained.

Meanwhile, the proceedings seriously destabilize the situation around the sale of Russian VW assets. The FGR specified that the concern is “in the process of applying for the approval of the Russian state authorities for the sale of its stake, including the plant in Kaluga with more than 4 thousand employees, to a trustworthy Russian investor.” “We hope the lawsuit will not delay the deal,” the company added.

Initially, AFK Sistema and Avilon claimed VW assets in the Russian Federation, as a result, the car dealer offered better conditions (see. “Kommersant” dated March 1). According to Kommersant’s sources, VW wanted the buyer to provide social guarantees for employees and pay off suppliers. But, clarifies one of them, the deal did not include a service division – that is, in fact, it was not about the complete withdrawal of VW from the Russian Federation. Avilon did not comment on the situation.

GAZ disputes the termination of the agreement from 2011 on the contract assembly of VW and Skoda. Investments in the project amounted to €300 million. In 2017, the agreement was extended until 2025. Already in 2018, GAZ was included in the SDN list of the US Treasury along with its beneficiary Oleg Deripaska and his other assets. But if the sanctions were eventually lifted from some large enterprises (see “Kommersant” dated January 28, 2019), it was not possible to do this with regard to GAZ, for it was only regularly renewed temporary exceptions in the form of the OFAC general license.

In May, amid the outbreak of hostilities in Ukraine, the US Treasury refused to extend the delay (it expired on June 25, 2022), which VW called a condition for cooperation. In fact, production, like almost all other foreign auto concerns in the Russian Federation, was suspended back in March 2022.

Igor Kuznets, partner of the ITS WM multi-family office, believes that the termination of the agreement “was caused by a difficult, but already established situation, so it is interesting what grounds GAZ could give.” “The general license had already expired at that time,” the lawyer emphasized.

However, the head of the practice of legal support for foreign economic activity “Regionservis” Maria Lyubimova objects that VW “knew about the sanctions, but for four years did not take any action.” In such a situation, in her opinion, the reference to force majeure when terminating the contract looks weak. Also, the lawyer says, initiatives are being discussed that directly exclude Western companies from unfriendly states and their subsidiaries from the perimeter of the application of force majeure rules.

“As part of the consideration of claims for the recovery of contractual damages, the courts have pointed and continue to point out that the application of foreign economic sanctions in itself does not indicate the impossibility of the foreign defendant or its Russian subsidiary to fulfill its obligations under the contract,” confirms A1 adviser Georgy Shashero .

As a result, according to Maria Lyubimova, “the prospects for meeting the stated requirements do not seem so vague.”

In such a situation, the lawyer adds, a deal to sell VW’s Russian assets “is unlikely to take place in the near future.” Although, she admits, interim measures can be appealed, GAZ itself can also cancel them.

Georgy Shashero clarifies that after 2014, within the framework of contractual relations with Russian contractors, Western parties began to insist on the inclusion of direct sanction clauses in contracts. Whether there is such a clause in the agreement between GAZ and VW is unknown. The lawyer agrees that interim measures on the claim “certainly jeopardize and at least freeze the deal to sell the VW business in the Russian Federation.” And if GAZ wins the case, “taking into account the size of the requirements,” it “is unlikely to be of interest to Avilon in the future.”

Olga Nikitina