Publication: Monitor Volume: 6 Issue: 157

Moscow won a legal and diplomatic victory yesterday in a bizarre court battle which had left Russian embassy personnel serving in France unable to pay their bills. The row had also further poisoned relations between Moscow and Paris, already strained due to continuing French criticism of Russia’s war in Chechnya. Not surprisingly, Russian diplomats in France, together with the Russian Foreign Ministry in Moscow, hailed yesterday’s court decision as a victory for common sense and even for diplomats all over the world. However, the lawyer for Noga, the Swiss trading company which had earlier won a court decision freezing Russian diplomatic accounts in France, vowed that the company would appeal yesterday’s decision (AP, BBC, August 10; Segodnya, August 11).

Noga is pursuing the Russian government for the repayment of more than US$60 million in debts, accrued as the result of a series of oil-for-food contracts between the two parties that were signed in 1991–the year the Soviet Union dissolved–and 1992. In 1997 Noga’s claim was backed by an arbitration court in Stockholm, a decision which paved the way for Noga to take legal action in France against the Russian government. That effort came to fruition in May of this year, when a Paris court froze the bank accounts of Russia’s embassy, trade mission and delegation to UNESCO. The accounts reportedly held only US$392,000, but the inability to access them put a financial squeeze on Russian diplomatic activities in France and were a major humiliation for Moscow.

Tensions between the two countries escalated last month, when Noga also managed briefly to impound the Russian sailing ship “Sedov,” which had traveled to France to take part in a regatta. A French court ultimately reversed that decision on the grounds that the “Sedov” was not owned directly by the Russian government and that its owners–the technical university in Murmansk–therefore could not be held accountable for its debts. The case drew considerable negative publicity in Russia, and elicited a demand by Russian lawmakers that Moscow move to seize French property in Russia. The “Sedov”–and the broader French court case against Russia–were reportedly discussed by Presidents Vladimir Putin and Jacques Chirac during a brief meeting at the G-7 summit in Japan. Russian diplomats had earlier warned that the incident “could have serious consequences for French-Russian relations” (see the Monitor, July 26). Indeed, the case threatened to really get out of hand when Noga lawyers warned on August 7 that they will demand seizure of Putin’s plane when he makes a planned visit to France in October of this year (Reuters, August 8).

The legal basis for Noga’s efforts to seize the Russian diplomatic accounts–and Russian government property more generally–lies in the company’s contention that Moscow specifically waived its sovereignty immunity when it signed the oil-for-food contracts with Noga in 1991 and 1992. Russian lawyers, on the other hand, apparently argued both that the Russian Federation could not be held accountable for contracts signed by the Soviet government, and that Russia’s diplomatic immunity was protected in any case by the Vienna conventions of 1961 and 1963 (Financial Times, August 6; AP, August 7; Reuters, August 8).

Indeed, in the lead up to yesterday’s court decision, Russian diplomats had made it clear that they would be satisfied only with a total victory. That is, a court ruling which did not merely unfreeze the bank accounts but which also supported Russia’s broader claims of diplomatic immunity in the case (Segodnya, August 8). The Russian side was successful in this respect. Yesterday’s court decision said that Russia had not shown an “unequivocal desire to renounce its immunity in the contracts signed with Noga. It also said that seizing the Russian assets is barred by the conventions, as Russia had argued. Noga was ordered to pay all court costs (AP, BBC, August 10).

In the wake of yesterday’s decision, Noga officials charged that the French court had been pressured into ruling in Moscow’s favor, and that they looked forward to pursuing the Russian government in countries where the judicial system was not so politicized as in France. There appeared to be some ground for Noga’s complaint. The French government, which has had to deal with Moscow’s threats and the negative impact that the case was having on bilateral relations, apparently has acknowledged that it went so far as to give legal advice to the Russians in the case. On August 7, moreover, a lawyer representing the French state advised the appeals court hearing the case to rule in favor of unblocking the Russian accounts. Moscow, moreover, sweetened the deal–and put additional pressure on the French government–by moving last week to settle the remaining part of a US$400 million agreement by which it will compensate French companies whose assets were confiscated after the 1917 revolution and individuals whose tsarist bonds were never honored (Reuters, August 8).

The French clearly hope that this week’s court decision will help warm relations between the two countries and open the door to a constructive meeting with Putin in France in October. But the Noga case may not yet be over. Lawyers for the company made it clear that they intend to appeal yesterday’s decision in France. They also indicated that Noga will continue to pursue similar legal actions against the Russian government in other countries around the world. The company presently has suits pending in Luxembourg, Switzerland and the United States.