How (Not) to Do Business in Russia. Alexei Gorlatov for Handelsblatt Global
German building giant Hochtief is licking its wounds after an unlikely court battle with a shady Russian car dealer. Three of its employees have been sentenced to prison.
Loyal Russians may distrust Angela Merkel, but the imprint “Made in Germany” still commands respect, especially when it comes to automobiles. At the swanky Pulkovo car dealership in St. Petersburg, cappuccino-sipping customers in sharp suits gape at the latest Mercedes-Benzes, while next door, visitors to the flashy steel-and-glass Porsche Center drool over turbo-charged racers in jelly-bean colors. Yet, for all their lush trappings, these buildings are also a timely reminder of the perils of doing business in today’s Russia.
Germany’s largest construction company, Hochtief – which has been active in eastern Europe for decades – was hired to build the car dealerships. This would not be a customer relationship made in heaven. After its Russian subsidiary, Hochtief Development Russia (HDR), delivered the blueprints to its client, Yevgeny Voitenkov – a millionaire St. Petersburg car dealer, and a one-time purveyor of downmarket Lada cars – the latter suddenly and inexplicably called off the deal.
Some time later, Mr. Voitenkov cheekily built the dealerships with another partner, drawing on HDR’s documentation for the project. The deception was painfully transparent. “We even found the [same] spelling errors in the description of the supposedly new construction project,” said Hochtief’s lawyer, Yevgeny Rubinstein.
Hochtief's representatives only heard about the "hearing" when the bailiffs knocked on the door.
Unsurprisingly, Mr. Voitenkov refused to pay HDR for its services. So HDR filed a case with the International Court of Arbitration of the Stockholm Chamber of Commerce, as specified in its contract with Mr. Voitenkov. At this point, HDR prevailed and received around €4 million ($4.7 million) in damages.
Mr. Voitenkov mounted a counterattack, alleging that a Stockholm court member had represented Hochtief’s interests and that the tribunal was corrupt. In events unlikely to ever be fully confirmed or disproven, Mr. Voitenkov then appealed to a Moscow court of arbitration, where he produced alleged documentation of a €5 million loan to HDR – and won the right to seize the funds from Hochtief.
It’s doubtful the Moscow court proceedings ever took place. Hochtief’s representatives said they only learned about the “hearing” when the bailiffs knocked on their door. Hochtief said the loan document and signature were obviously fakes (and only available as photocopies).
Independent lawyers support Hochtief’s assertion. Alexei Gorlatov, head of commercial practice at corporate law firm Goltsblat BLP, described the case as “questionable.” The attorney added it was unlikely an international corporation like Hochtief would entrust a legal dispute to a small, little-known arbitration court in Moscow.
“This is not good for the investment climate in Russia.” Alexei Gorlatov, commercial lawyer at Goltsblat, on the outcome of the Hochtief case.
Hochtief conducted its own private investigation into the forgery matter, but it went nowhere. On the other hand, Mr. Voitenkov successfully filed charges against HDR’s general director, Yekaterina Radayeva, and project director Vadim Sokolov – for allegedly falsifying papers to obtain the building permit for the car dealerships. In the end, the court bought Voitenkov’s story and sentenced the two Hochtief managers to two years’ imprisonment; a company chauffeur was given 18 months.
Having seen a thing or two in its lifetime, the investor community in Russia was nonetheless aghast at the ruling. Matthias Schepp, head of the German-Russian foreign chambers of commerce, said that Hochtief had been “unscrupulously” exploited. The Opora Rossii, a Russian association of small and medium-sized enterprises, criticized the prosecution of HDR’s management. “This is not good for the investment climate in Russia,” said Mr. Gorlatov. Hochtief may appeal the court decision in November.
Only Mr. Voitenkov appears satisfied. “I think they’ll be punished further,” he told Russian media after the ruling, referring to Hochtief’s managers. “Frankly, such people should be put in chains.”
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