Decree of the Federal Arbitrazh Court for the Uralsk Region No. F09-1774/13, as of 19.03.2013 (case No. А60-35653/12)

The Federal Arbitrazh Court for the Uralsk Region has considered a cassation appeal from Uralskaya Energosberegayushaya Kompaniya (hereinafter – the "Company").

The North Ural Urban District as a concession grantor and the Company as a concessionaire signed a concession agreement. The agreement provides the transferral by the concession grantor of property municipally owned by the concession grantor for paid ownership and use by the Company. Later, the concession agreement was terminated. Under certain provisions of the agreement, the Company was obliged to make annual investments in the property transferred under the concession agreement, however, at all times during the term of the concession agreement, the Company did not make such investments, which served as a ground for the concession grantor to apply to first instance courts.

The Company, referring to the fact that termination of the agreement occurred earlier than the dates provided in the concession agreement for the development and negotiation by the concession grantor of project documentation necessary for the investment purposes, and to the lack of property list and arrangements with the concession grantor, considered itself free of any investment obligations. Courts dismissed the arguments provided by the Company since the agreement did not contain grounds to release the Company from obligations under the concession agreement due before the termination date, and despite the fact that the project documentation had to be negotiated the Company had not been released from its obligation to make annual investments due to the direct inconsistency with the concession agreement.

This case also involved another point – penalty for nonperforming the investment obligations. After having reviewed the provisions of the concession agreement, the courts concluded that the agreement did not contain terms under which liability in the form of a penalty arose if an investment provision was breached, and dismissed the concession provider's penalty claim.

Russian Supreme Arbitrazh Court Judicial Panel, having heard an application for review through judicial supervision filed by the Company out of inconsistency in the construction and law rules application by the courts, did not see any grounds to refer the case to the Presidium of the SAC. Thus, early termination of a concession agreement does not affect investment obligations provided in such agreement.