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. Last Updated: 07/27/2016

Court Orders Ministry to Pay Bond

The Ryazan district court has told the Finance Ministry to repay $50,000 on a third tranche of MinFin bonds held by a Russian citizen, who sued the government for failing to repay the principal on its debt in May.

Moreover, the court decision says the Finance Ministry must pay the money back even if the ministry appeals the ruling. Only if the ministry wins an appeal will the plaintiff have to pay the awarded money back.

All this sounds too good to be true for MinFin bondholders, but The Moscow Times has received copies of the Ryazan court's ruling in favor of Alexander Tingayev, 24, who sought $50,000 from the ministry on five defaulted MinFin bonds.

Tingayev said the ministry had wanted to call the Central Bank as co-defendant; refused to bring the necessary documents saying they were classified; asked to postpone the decision until the government issued a decree; and kept saying "the Finance Ministry cannot be held responsible for the whole government."

The court secretary confirmed that the hearing took place and that the decision would enter into force Thursday.

The government defaulted on a third tranche of MinFin bonds May 14, refusing to repay principal worth $1.3 billion.

Later a statement was issued asking investors not to appeal the government's decision in the courts until Nov. 14. Last week the Finance Ministry published initial terms for restructuring the third tranche, saying the terms were up for discussion.

However, by that time the government had already faced several court battles and even lost the one in Ryazan.

Several creditors have already lined up to bombard the government with legal claims.

"We have clients who would like to follow our example," said Andrei Miroshkin, spokesman for Rusatommet, a legal company involved in litigation with the Finance Ministry on its own behalf.

Rusatommet is seeking repayment of the principal of $100,000 on bonds of the third tranche and the same amount on bonds of the fourth tranche.

"There are cross-default provisions included in the terms under which the MinFin bonds were issued," Miroshkin said.

He said it was very important to set a precedent and show the international investment community that the Russian legal system works.

"In the end, this will lead to a change of investors' sentiment and an inflow of foreign capital in the economy," he added.

The Finance Ministry spokesman said Monday the Ryazan court's decision would be appealed. On Tuesday the ministry refused to honor the court decision, Tingayev said in a telephone interview.

A spokeswoman for Vneshekonombank, which acts as the government's agent for sovereign debt, said that the decision did not affect the bank directly.

However, the Ryazan court's ruling says that the government should honor its liability immediately, even if it lodges an appeal.

"This means that the debtor should pay the amount due. The plaintiff will return the money only if an appeal is found to be justified," said Sergei Avramov, associate with legal firm Baker & McKenzie.

Article 211, Part 3 of the Civil Procedural Code says that a financial award by the courts can be implemented immediately if "due to special circumstances postponement in its implementation can cause serious damage for the plaintiff or if execution becomes impossible."

"This part of the court decision can be canceled by the appeal court at the request of the prosecutor or the defendant," says Khristo Komarov, lawyer with legal company Komarov & Son.

The Finance Ministry has only two days left to appeal the decision, which will come into force Thursday.

"The case could set an important precedent," Avramov said. "But this particular court decision is based on a lack of a legal framework regulating the dispute."

The decision indeed says that the court did not find any reason to refuse the plaintiff.

Avramov said he expected the necessary legal documents to be issued soon by the government, giving courts legal grounds to refuse claims.

It is not clear what legal stance the ministry will take, but lawyers agree the appeal court is likely to be put under horrendous pressure.