Head of foreign company subsidiary should not be bound by conflict of interests norms

Lawyers of the Law Firm "YUST" – Evgeny Zhilin, Associated Partner, and Alexander Evdokimov, Advocate, Head of the Arbitration and Court Practice, successfully represented the interests of “IT Services” LLC at the Board of the Supreme Court of Arbitration of the Russian Federation.

The dispute arose in connection with the claim laid by “Arctic Structures”, an American company, to a non-residential building owned by “IT Services” LLC (case file is available here). “IT Services” took possession of the immovable property as a result of a series of subsequent transactions.

However, “Arctic Structures” believed that the initial agreement of sale and purchase of the building had been executed by the head of its Yuzhno-Sakhalinsk subsidiary in violation of the requirements of Alaska State Law “On limited liability companies”. Namely – the procedure of resolving a conflict of interests was not observed. The Russian legislation analogues of this are the norms of executing transactions with interest. And the “Arctic Structures” representatives were of the opinion that, as the American law had been violated, said agreement was invalid, as well as the subsequent transactions of alienation of the building, including the alienation for the benefit of “IT Services”.

The first instance court dismissed the American company’s claim, and its arguments were confirmed by the instance of appeal and cassation. But the Chamber of the SCA of Russia submitted the case to the Board of the SCA of Russia for review according to the procedure of supervision.

It was on this stage that the lawyers of the Firm were contracted for defending the interests of “IT Services”.

During the session of the Board of SCA of Russia, Evgeny Zhilin and Alexander Evdokimov called the Court’s attention to the fact that there were no legal motives to apply the Alaska State Law to the actions of the head of the subsidiary. He was not a management body of the company but its representative, acting on the basis of Regulations and a power of attorney approved by the company’s director. The Firm’s lawyers also stressed that the representative of the American company was a citizen of the Russian Federation acting solely within the territory of the Russian Federation, and therefore not obliged to conform to any limitation of his authority imposed by any foreign law. Also, in the opinion of the “IT Services” attorneys, the claimant resorted to an erroneous remedy and missed the limitation period.

The Board of SCA of Russia upheld the position and dismissed the claim of the American company to revoke the court acts on the case adopted earlier.