Russia in Dismissal of €350 Million Claims by French Holders of Imperial (Tsarist) Russian Bonds

June 8, 2005

Cleary Gottlieb won dismissal of claims against the Government of the Russian Federation brought by French holders of imperial bonds predating World War I and guaranteed by the Imperial Russian Government. The claims sought payment of approximately €350 plus 82 years’ compound interest (derived from fantastical calculations based on amounts originally expressed in gold rubles and gold Napoleons). The Court of Appeal of Paris has upheld and elaborated on the December 2003 decision issued by the Tribunal de Grand’Instance of Paris, dismissing the bondholders’ action on the ground of sovereign immunity.

The Court of Appeal based its decision in part on the historical research conducted by Cleary’s team of lawyers and summer associates in Paris, New York, Brussels, London and Moscow. The research demonstrated that the bonds, issued and guaranteed in 1882, were exempt from all Russian tax, notwithstanding the lack of a clause expressly exempting them. The Russian Empire did not introduce taxation of capital instruments held by non-residents until 1885, at which time the bonds were exempted retroactively. The Court considered the tax exemption was decisive for purposes of qualifying the guarantee as a sovereign act. In the course of their research, Cleary lawyers turned up long forgotten historical tax records of the period that had been, until now, unknown even to the Russian Ministry of Finance.

The Court of Appeal also upheld Cleary’s argument that Imperial Russian Government’s guarantee of the bonds, which were issued to finance construction of a strategic railroad in the Caucasus region, was a sovereign act in the public interest. This conclusion was largely based on research by Cleary lawyers in Paris regarding the history of 19th century Russian railway construction and the military significance of those railroads.