1. The essence and origins of conflict

The conflict of shareholders of the Belorussian Potash Company Closed Joint Stock Company (the CJSC BPC) escalated in summer of 2013, and then resulted in August 2013 in the arrest and the filing of accusation to Vladislav Baumgertner who is the general director of the Uralkaliy Corporation and the chairman of the board of the CJSC BPC. It is the typical case illustrating lawyers’ insufficient training of both companies and possibly their token approach to the issues of incorporation of this joint venture in 2005.

The golden rule of all the joint ventures is a primary arrangement for all the aspects of the co-operation including the order to withdraw from business, as the morning sun never lasts a day. In 2005 such actions were not taken. As a result, shareholders of the both companies had found themselves in the conflict situation arisen from the partners’ disputes in relation to the further long-term strategy of the profit maximization and increase of the share in the world potash market. There were reports in the press respectively the intention of the BelarusKaliy to create its own stocking infrastructure in the countries which are the most relevant in the sale of potash (Brazil, India, China), so the CJSC BPC intended to venture at the change of the market structure, passing the international agents. Such actions could produce a significant effect for 2-3 years, but Belorussian budget unlikely could withstand such cash deficiency which would be a result of the sharp change of the selling policy against the backdrop of the reduced prices for potash salt. In particular, such arrangements, which should be based on the long-term strategy of business development, are absent in the documents governing corporate operations of the CJSC BPC. Apparently that intelligible financial plan for the next 5-10 years is absent, and the shareholder’s agreement, which could ensure the realization of company’s business plan and would state the series of specific co-investing obligations of the parties for infrastructure development, isn’t signed. This situation is improper for such great business project.

2. The ways of the dispute resolving and the conflict resolution

By now, it is clear that occurrence associated with the arrest of Vladislav  Baumgertner has become the political factor, which is leveled by Belorussian and Russian MSM. There are some publications related to intention of some Russian entrepreneurs to buy-out Suleiman Kerimov block of shares urgently and resolve the conflict by the conducting of new negotiations with Aleksandr Lukashenko and the directory of BelarusKaliy.

Presumably, such situation will take place because the crisis of allied connections is no t corresponding to the Russian and Belorussian interests at this time.

The image-building losses of Belarus, occasioned by the arrest of businessman invited for the meeting with Myasnikovich prime-minister, are also clear – now there is the press-release of KamAZ informing of the renouncing visit of the general director – Mr. Kogogin.

In my opinion, the conflict resolution can be obtained in the manner of working-out and signing of the detailed shareholder’s agreement as part of the new joint venture. Probably that the newly formed PLC Belorussian Potash Company will become such joint venture – the clone of functioned previously

the CJSC BPC. The problem is that in the Belorussian legislation (as against the Russian Federation) there is not any concept of a shareholder’s agreement at this time, and the appropriate bills haven’t been announced yet. So, formation of the joint venture can be realized by two manners: either by the forced adoption of the Belorussian Republic’s Law on Joint-Stock and Limited Liability Companies which should be contain the novelties concerning a possibility of signing of shareholder’s agreement (at least, analogous to provisions of Russian Federal Law on Joint-Stock Companies (entered into force on 01/07/2009), or by foundation of similar organization in other jurisdiction (for instance, in Switzerland). The plans concerned with foundation of the international joint trader in the third jurisdiction have circulated in the BelarusKaliy and Uralkaliy Companies.

The damage, which was claimed by the Belorussian party to the extent of $100 mln. carried to the Russian partners by structures of the Uralkaliy Company, and (according to the Belorussian investigation) by Vladislav Baumgertner’s team, and also by the majority shareholder – Suleiman Kerimov, must be confirmed documentarily. And now let’s factor out from the investigation of opened criminal cases and turn to civil aspect of this matter.

As there isn’t the shareholder’s agreement in the joint venture, and consequently there isn’t an arbitration clause concerning the possibility of submission to international arbitrational court (pre-dispute arbitration clause) (more preferably that an arbitration which is in a neutral jurisdiction), thus apparently that such dispute between shareholders will be adjudicated in accordance with the common rules of cognizance and jurisdiction – the Belorussian Commercial Court either at location of CJSC BPC (Minsk City), or at location of the main extractive enterprise (the Gomel Region, Gomel City). And this is not very hopeful prospect for Russian partners taking into account a level of constitutional authority of the state’s first person – the president Lukashenko (he’s entitled to issue ordinances which have the force of law), the overregulation’s level of Belorussian state administrative system, and real dependence of commercial courts on the factor of outside “helpful hints”.

At least, the Russian shareholder has a chance of losses’ minimization using its insurance policy whereby UralKaliy insured its entrepreneurial risk within the CJSC BPC’s business. At least, in such manner they could make themselves safe from – so far so good.

We will continue watch closely the development of affairs and legally significant news within this on all sides meaningful conflict.

Dr. iur. Ilya Alexandrov, LL.M., MBA (Finance)