Why did Gazprom Export achieve a fine of $1.5 billion for the Polish Europol Gaz

The Arbitration Court of St. Petersburg and the Leningrad Region prohibited the Polish company Europol Gaz from continuing the process against “Gazprom export” at the Stockholm Chamber of Commerce (TPS; Stockholm arbitration) and imposed a sanction of $1.5 billion on her for violating the ban. This follows from messages, published in the court file. Europol Gaz, which owns the Polish section of the Yamal-Europe gas pipeline (683 km) and compressor stations, demands the same amount from Gazprom’s subsidiary.

“If the company (Europol Gaz. – Vedomosti) fails to comply with the decision, the decision will be awarded in favor of LLC “Gazprom export” 285,365,650 US dollars 52 cents and 5,356,830,000 Polish zlotys in rubles at the exchange rate of the Central Bank of the Russian Federation on the date of payment,” the court decision says. In addition, they want to collect a state duty in the amount of 206,000 rubles from the Polish company.

Lawsuit “Gazprom Export” was satisfied on October 26, the full text of the decision is dated October 31. The justification for the court’s decision states that, according to paragraph 2, part 3, p. 248.1, Art. 248.2 of the Arbitration Procedure Code of the Russian Federation, a Russian legal entity in respect of which a foreign state, their union or government agency has applied restrictive measures, “in disputes with its participation, has the right to an anti-suit injunction against the person who initiated the proceedings in a foreign court” outside Russia . The decision emphasizes that Gazprom Export justified in the request “circumstances confirming the exclusive competence of arbitration courts in the Russian Federation to consider the dispute (clause 4 of part 2 of Article 248.2 of the Arbitration Procedure Code of the Russian Federation).”

Europol Gaz was a joint venture between Gazprom and the Polish state oil company Orlen, the partners each owned 48% of the shares (another 4% belonged to the Polish Gas-Trading SA). In November 2022, 48% of Gazprom’s shares in Europol Gaz came under compulsory management due to the inclusion of the company in the Polish sanctions list. In response, Russia added Europol Gaz to its sanctions list, banning payments to the company. As a result, on May 11, Gazprom lost the opportunity to use Yamal-Europe for gas exports.

And on October 10, 2023, Orlen announced that it would acquire the Polish section of Yamal – Europe. Under the terms of the deal, Europol Gaz will buy out 48% of the shares owned by Gazprom.

At the same time, Europol Gaz filed a lawsuit in May 2023 TPS according to the agreement concluded in 2010 “Gazprom Export”, Russia, the Polish state-owned company PGNiG and Europol Gaz. The company demanded to recover $285 million for transporting gas through Poland in 2006-2009. and 5.3 billion zlotys ($1.2 billion) in losses – so the total claims reached $1.5 billion. Gazprom Export stated that the SCC lacked competence to consider the dispute and the impossibility of ensuring an impartial hearing, but the Stockholm arbitration court rejected this request in September. In response, Gazprom Export demanded that the Russian court “prohibit the initiation or continuation” of proceedings in the SCC against persons against whom sanctions were imposed – that is, the Russian company itself.

The decision dated October 31 states that “there is no prospect of an impartial, objective, comprehensive and fair hearing administered by the Stockholm Chamber of Commerce against the LLC”Gazprom export” is currently not available” for political reasons. This “indicates the exclusive competence” of the arbitration court of St. Petersburg and the Leningrad region to consider the dispute between Gazprom Export and Europol Gaz, the document says.

Although the amount of the sanctions of $1.5 billion for violating the ban on continuing proceedings is unprecedented for Russian courts, similar cases have already occurred in practice, Kira Vinokurova, co-head of the sanctions law and compliance practice at Pen & Paper, reminded Vedomosti. According to her, for the first time the amount for failure to comply with the ban of 190,000 pounds sterling was established by the court in the spring of 2022 at the request of JSC Sovfracht (Russian shipowner) in relation to the English Prosperity Estate Ltd. Another example is the case regarding the application of Tyumenneftegaz JSC against First National Petroleum Corporation (filed in 2022), the decision was made in March 2023. There, the monetary amount for violating the ban amounted to more than $148 million, says Vinokurova.

As in the current case with “Gazprom export”, the fine for violating the ban in these cases was equal to the amount of the claims declared by the foreign company in foreign arbitration. “It should be noted that this sanction is directly provided for in Part 10 of Art. 248.2 of the Arbitration Procedural Code of the Russian Federation and is not something extraordinary,” the lawyer emphasizes.

The arbitration only makes a decision on the merits of the claims – for example, on the recovery of a certain amount of money from the defendant, Vinokurova clarifies. The issue of foreclosure on specific property falls within the competence of the court of the state in whose territory the arbitration award will be enforced.

At the same time, according to Vinokurova, the question of the parties’ chances of recovery for violating the ban on continuing the proceedings or as a result of such proceedings depends on the availability of their property in the relevant jurisdictions.

Given the scale of Gazprom’s parent company and its at least nominal presence in Europe and other foreign jurisdictions, the Poles’ chances of recovery seem higher. “Gazprom, on the contrary, may find it extremely difficult to enforce an act of a Russian court if the Polish company does not have property in Russia or friendly jurisdictions,” Vinokurova sums up.

According to the director of the Russian International Affairs Council and an expert in sanctions law, Ivan Timofeev, “the bottom line” is that the situation is a dead end for both the Polish and Russian plaintiffs. In his opinion, none of the parties will give up their positions and are unlikely to pay any amounts, even if established by arbitration courts.

The issue seems more political than legal, Vinokurova notes. Based on the current policy of the Polish authorities, it cannot be ruled out that the Polish court may decide that the frozen rights of Gazprom may become the subject of recovery by arbitration decision.

“Experience suggests that companies simply stop their work in Russia or in the country that has imposed sanctions. The result will be a severance of economic ties and projects. Arbitration and court decisions on both sides are unlikely to be implemented,” concludes Timofeev.