The District Court of Nicosia has issued a freezing order against Russian real estate company Surmena Enterprises Company Limited, a Cyprus-registered real estate company, in a long-running legal battle between former partners in a business deal that went sour, Russian style. The case was brought by French businessmen Jean-Francois Ott against his former partner, Russian national Albert Akopyan, whom the court has now ordered to pay €62mn in compensation.

The battle has been running for years. After graduating from the elite French university Sciences Po, and a short career as an investment bank trader, Ott went to Prague in the early 90s following the fall of the Berlin Wall and got into the real estate business. Within a few years he had built up a portfolio worth hundreds of millions of dollars and taken his ‘Orco Property Group’ public in France to focus on the Central European real estate markets. Next was ‘Orco Germany’, the then largest commercial space owner in Berlin.

“I have been doing business in Central and Eastern Europe (CEE) since 1991 and invested more than €3bn in more than 200 real estate assets and developments,” Ott says.

After Russian President Vladimir Putin took over in 2000 and Russia began to boom, Ott decided to go to Moscow. “If we had a million square metres of real estate in Berlin then we should have at least a few hundred thousand in Moscow, which is after all the biggest city in Europe,” Ott told bne IntelliNews.

Ott went into business with the Russian conglomerate AFK Sistema, starting with the acquisition of the MaMaison Pokrovka site in 2005, and the development from scratch of one of the first Moscow boutique hotels that became part of a collection of 35 hotels. Among the developments Ott completed in Moscow was the building that was eventually sold to the European Bank for Reconstruction and Development (EBRD) for its Russian HQ. It was at this time that Ott got to know Albert Akopyan and the two men invested in several successful projects, including setting up Molcom in 2007, where Akopyan, through his company Surmena, was a minority shareholder in an 80:20 split. Ott says a total of €85mn was invested into the project, which is a modern logistics complex and is the key asset belonging to Surmena.

“In general, logistics assets have been growing in value these last 15 years and while rents remain stable or even went down, the yield, the risk profile has improved a lot and so did the take-up. It was, and still is, a great business, but it’s tough to manage,” says Ott.

Then everything went wrong. The 2008 crisis hit and abruptly ended Russia’s boom. Ott’s shareholders watched the value of their Russian asset tank and wanted out.

“I wanted to sell the logistics warehouse in order to focus on our investments in Germany to survive the 2008 financial crisis. I was right, as our portfolio in Berlin of more than 1mn square metres has increased four-fold in value,” says Ott. “Akopyan blocked the sale efforts in Russia in order to become the only bidder. But he had little money and asked for seller’s financing. We sold to him at €53mn and he paid the initial first instalment of €8mn and for the rest got financing from us at a 10% interest rate for one year. He made another payment of €8mn but then stopped all payments and all communication. We had to sue him, as he was not answering phone or letters while the 10% interest kept accruing."

Ott says he realised that Akopyan was not going to pay anything else and the lawsuits began to fly. Ott admits that the complicated offshore legal structures that are typically used to mitigate the “Russia risk” become a problem if partners get into a dispute, as it is not clear in which jurisdiction cases should be brought. The transnational nature of the ownership structures slows the process down and massively increases the costs of trying to hold partners to account if they renege on deals.

Courts in London already ruled last October that Surmena should pay the award of €62mn, which was the culmination of a protected legal battle between the partners in a once flourishing real estate partnership.

There are several companies involved in the dispute under the umbrella of Surmena that own the titles to several valuable properties, including: Theonia Enterprises Company Limited, Karousa Enterprises Company Limited and Sarakina Enterprises Company Limited, which own valuable properties in Russia. Amongst the various assets owned by these companies is CJSC Logistics Company Molcom, which operates a logistics business in the Moscow Region. Akopyan ended up as both the beneficial owner of Molcom and its fatly-paid CEO, although he now lives in Paris and flies to Moscow one week a month for business. In Paris, he lives in a luxurious apartment and is a prominent member of the local Russian expat community.

Surmena’s assets have now been frozen by the District Court of Nicosia as part of Ott’s efforts to force Akopyan to settle the arbitration award from October and reportedly are already having an impact on his Russian-based business. The District Court of Nicosia also ordered Surmena to pay €10,000 per day for late payment, a ruling that Surmena has not contested, although the company is yet to reach its creditor with a payment plan.

The District Court of Nicosia freezing order applies to all of Surmena’s assets and, indirectly, to Molcom. The freezing order prevents Surmena and, indirectly, Sarakina, Theonia, Karousa and their respective directors from taking any actions with respect to these assets. Ott welcomed the decision of the District Court in Nicosia.

In the next stage the court will appoint a liquidator and try to sell Molcom, but Ott says he doesn't know what they will find when they take the company over, as it is likely that anything of value will have been moved out of the company to more holdings. Ott says in that case he intends to bring criminal charges and go after Akopyan in France, where he is registered as a tax resident.

However, Ott says that he has faith that he will be paid in the end. “The legal system works [in Russian deals]. It is just very slow and expensive,” Ott told bne IntelliNews.