Liability of Foreign Companies and their Russian Subsidiaries: Supreme Court’s Stance

On 12 May 2025, the Supreme Court of the Russian Federation has provided its position in the remarkable case of Sovcombank v Citibank N.A. (US), Citibank CB JSC (Russia).

Sovcombank and Citibank entered into a master agreement, under which Citibank incurred a debt of USD 24.1 mln to Sovcombank. Due to the restrictive measures imposed by the US government against Sovcombank, Citibank failed to fulfill its obligations. As a result, Sovcombank brought a lawsuit against both Citibank (contractual claim) and its Russian subsidiary, Citibank CB JSC (tort claim).

The courts of lower instances found for Sovcombank. The Supreme Court overturned the court decisions and sent the case for retrial. The Supreme Court’s position encompasses major implications for holding Russian subsidiaries liable for the debts of their foreign parent companies.

Liability of Russian subsidiaries. The key issue expected to be considered by the Supreme Court was a possibility to bring a foreign debtor and its Russian subsidiary to joint and several liability which has become a widespread practice: Ruschemalliance v Unicredit banks, Alfa-Bank v Citi banks, etc.

According to the Civil Code of the Russian Federation, joint and several liability arises if the joint nature of the obligation is stipulated by a contract or established by law. The Supreme Court left open the possibility of the Russian subsidiary being held liable for the debts of the foreign parent company. However, the court did not provide the exhaustive and precise criteria for establishing such control. The court guided that the extent of the control should be subject to analysis based on the following:

• sum of the parent company’s investment in its Russian subsidiary;

• amount of the parent company’s property held by its Russian subsidiary;

• cash flow between the Russian subsidiary and its parent company.

If the foreign parent company’s assets are enough. The Supreme Court ruled that lower courts should verify whether the foreign debtor has enough assets for seizure in Russia, including ones held by its subsidiary. US Citibank had such assets in bank accounts with Russian Citibank, enforcement had already been successful.

Out-of-court remedy. The Supreme Court had emphasized the significance of verifying whether a Russian plaintiff is able to obtain funds out of court through the procedure provided by the US law. The Supreme Court had already outlined such a position, but it was applied on a case-by-case basis in disputes between Russian parties. Now the Supreme Court allows such an option in disputes involving foreigners.

The Supreme Court does not conclude that applying for the license is mandatory but rules that it may be worth trying to apply if such an application does not contradict Russian law.

Joining the Central Bank to the case. According to the Supreme Court, to assess whether the application for an unblocking license complies with the Russian law, the Central Bank of the Russian Federation should be joined as a third party to such disputes. The recent case law and our experience show that the Central Bank is often joined as a third party to establish a ban on freezing and seizing assets held in C-type accounts.

Meanwhile, the Supreme Court has indicated that the Central Bank should assess the availability of out-of-court remedies in foreign jurisdictions and their compatibility with Russian law. There is no certainty about the criteria based on which the Central Bank should provide such an assessment.

Our considerations. The major negative conclusion in the Supreme Court’s ruling is confirmation of the possibility to bring foreign parent companies and their Russian subsidiaries to joint and several liability. The Supreme Court gave some sort of guidance how to asses the extent of control of the parent company over the Russian subsidiary. However, no precise criteria are established, and trial courts will assess it on a case-by-case basis. Reading between the lines brings to the conclusion that if the foreign debtor has enough assets to be seized within the enforcement procedure, then the Russian subsidiary is not under threat. In other cases the assesment of the extent of control may not be in favor of the foreign debtor and its subsidiary.

Nevertheless, the Supreme Court’s implications allow foreign parties and their Russian subsidiaries to elaborate the defence based on (i) criteria of the extent of control and (ii) availability of the remedy to unblock funds abroad considering the position of the Central Bank. We will monitor how lower courts will interpret the Supreme Court’s conclusions and what the Central Bank will conclude in such cases.