Commodity Trading Company at Risk of Losing EUR 340+ Million Due to Contract Breach

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Commodity trading companies working in the international arena sign multi-million dollar business contracts that impact not only the wellbeing of their business partners but millions of consumers who use different types of energy on a daily basis. If something goes wrong and a company of this magnitude breaches their agreement, it can ruin the plans of numerous market players, result in substantial financial losses, and tarnish the reputations of energy providers.

Businesses impacted by such situations are usually very stressed and scramble to preserve their assets at any cost, which can create problems for their opponents. 

Searching for Culprits

Even if an energy supply contract is terminated due to uncontrollable external factors, affected parties may try to find a scapegoat and attempt to place responsibility on the energy company’s shoulders. They hire the best lawyers and fight tirelessly in court to try to recover their losses at the expense of the opposing party. 

Legal proceedings can cost large sums of money and drag on for months or even years while lawyers engage in evidence gathering, interviewing involved parties, and assessment of all facets of the case. But the lengthy legal process does not stop some people.

Rather than accepting the fact that certain situations are impossible to control and not every project culminates in the desired result, some businesses persist in seeking restitution, pointing fingers and ending up with more expenses and wasted time, resulting in greater disappointment.

Let’s consider a specific case.

Ukrenergy Trade SE and Korlea Invest, A.S. v. SFTC Ukrinterenergo

According to this article, in January 2013 companies Ukrenergy Trade SE and Korlea Invest, A.S. filed lawsuits against SFTC Ukrinterenergo due to breach of contract. The companies failed to export and deliver electricity in the volumes stipulated by contracts signed in 2008. 

Ukrenergy Trade SE demanded that SFTC Ukrinterenergo cover losses amounting to EUR 268,313,000, while Korlea Invest, A.S. demanded EUR 73,880,000. In total, SFTC Ukrinterenergo was at risk of losing EUR 342, 193, 000.

The case was reviewed in the Vienna International Arbitral Centre of the Austrian Federal Economic Chamber. In September 2018, the court stated that the management of SFTC Ukrinterenergo represented by Vasily Andriienko, Dmitry Kotlyarenko, Vasily Skalatskyi, Roman Matviienko, and Aleksandr Manuilenko was not responsible for profits lost and damages incurred by Ukrenergy Trade SE and Korlea Invest, A.S. Details about the verdict were published on the official website of SFTC Ukrinterenergo.

Consequences for the Parties 

Ukrenergy Trade SE and Korlea Invest, A.S. wasted a great deal of time, money and energy on legal proceedings that did not bring them the desired result but, quite the opposite depleted their resources and distracted them from attending to their own business operations. Instead of recovering after their failure and working on new projects, they focused their efforts on this hopeless case. 

As the winner, SFTC Ukrinterenergo suffered the least damage, but the conflict left its imprint on the company’s operations. Ten years of litigation undoubtedly cost SFTC millions in attorney’s fees and distracted the company’s management from their responsibilities. 

This conflict also threatened the company’s reputation. Heated controversies and negative PR, which is often used to attack opponents, can destroy any organization’s good name. Without a positive public profile, a business can quickly lose its niche authority.

In the case of SFTC Ukrinterenergo, the company has a good record, behaves openly and transparently on the market, and takes part in socially important projects. For instance, in 2014, SFTC Ukrinterenergo partnered with Inter RAO (Moscow) to ensure a reliable and uninterrupted electrical energy supply to Crimea. 

The merits of each member of the management team are also noteworthy:

  • Vasily Andriienko is the CEO of the company since December 2014. He is a Doctor of Economics (Economic Security of Economic Entities) with more than 25 years of executive-level experience in state authorities and an Honored Employee of Civil Defence of Ukraine.
  • Dmitry Kotlyarenko (Deputy Director for Economy and Finance) is a Candidate of Economic Sciences (Economics and Management of National Economy) with more than 15 years of work experience in power sector in the field of economy and finance.
  • Vasily Skalatskyi (Deputy Director for Investment Planning and Asset Management) is an Honored Economist of Ukraine with 22 years of executive level experience.
  • Roman Matviienko (Deputy Director for Commercial Affairs) has 14 years of executive-level experience and more than four years’ professional experience in the power sector.
  • Aleksandr Manuilenko (Deputy Director for Supplier of Last Resort Operation) has three university degrees, namely, in electric power systems, jurisprudence and business management, more than 15 years of executive-level experience, and more than 20 years’ professional experience in power sector.

Consequently, the case did not do serious harm to the company and its management team, but only thanks to the previous accomplishments of SFTC Ukrinterenergo. Companies with modest reputation are much more vulnerable to the detrimental consequences of legal conflicts.

Before filing a lawsuit due to contract breach, forward-looking entrepreneurs should make certain their opponent is guilty, and that their lawyer will be able to collect compelling evidence and win a fair settlement. 

The legal mechanism should not be exploited to extract compensation from former partners when they are also suffering from a situation beyond their control. Act honestly, avoid shady practices and remember that justice always wins. 

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