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. Last Updated: 07/27/2016

Lomonosov Ruling Favors Investors

ST. PETERSBURG -- The Northwestern Regional Arbitration Court on Thursday overturned a lower court's decision to renationalize the historic Lomonosov Porcelain Factory, clearing the way for foreign investors to fully take control of the historic plant.

Western majority shareholders, who had bought up 84 percent of the 255-year-old factory, were elated at the court's decision, which capped a months-long battle against an Oct. 11 ruling that had declared Lomonsov's 1993 privatization illegal.

"Justice has been done, and Russia has narrowly once again avoided destroying its reputation among international investors," said Douglas Boyce, Lomonosov general director and vice president of The U.S. Russia Investment Fund, which holds almost a third of the shares in Lomonosov.

The three judges sitting in the case did not state the grounds for Thursday's ruling. Under Russian law, the factory should receive a document stating the court's reasons within five working days of the decision, Boyce said.

"It's gratifying to be out of the end of this. It's the end of an old problem. I've never been so excited about being in Russia in my six years of experience here," said Alastaire Stobie, Lomonosov board chairman and senior vice president of Delta Capital Management Inc., which manages The U.S. Russia Investment Fund.

Representatives of the factory's former administration, ousted at a Jan. 20 shareholders meeting, vowed to appeal the decision to the next and highest court, the Supreme Arbitration Court in Moscow.

"This decision is a big surprise, but it will not be the end in this long-running game," said Lyudmila Galenskaya, a representative of the former administration and a law professor at St. Petersburg State University.

"I am sure that the Moscow court will overrule this and agree with the previous correct decisions," she added.

When the St. Petersburg and Leningrad Region Commercial Court ruled last October that Lomonosov Porcelain Factory had been illegally privatized, The U.S. Russia Investment Fund and fellow foreign shareholders Kohlberg Kravis Roberts & Co., appealed the decision to the St. Petersburg and Leningrad Region Court of Appeals in December. When their appeal was rejected, they took their case to the Northwestern Regional Arbitration Court that heard the case Thursday.

However, their opponents may not find it as easy to take the dispute further in the Russian legal system.

The Northwestern court is the last local court to which parties in the dispute could automatically file an appeal.

But whereas appeals on a local level must be taken up by the next and highest court once they are filed, the Supreme Arbitration Court is not necessarily obliged to take up such an appeal.

If Lomonosov's case is not taken up by the Supreme Arbitration Court, then Thursday's decision will stand.

"The decision as of today is in full force," said Maxim Kalinin, an associate attorney with law firm Baker & McKenzie's St. Petersburg office.

However, several analysts on Thursday said the case's political sensitivity meant that the supreme court would probably agree to hear the appeal.

"Although there are some legal issues, this case will be decided politically," said Zarina Samayeva, senior lawyer at Renaissance Capital, a Moscow-based investment group.

The factory, founded by one of Peter the Great's daughters, has found itself the center of what many analysts have called a litmus test for shareholders rights in Russia.

"Although damage from the previous rulings has been done, this ruling will send a signal that courts are willing to stand up for small foreign shareholders. This decision is a step in the right direction and is one of many that are needed," said Roland Nash, chief economist at Renaissance Capital.