A US court has found an oil and gas company in breach of contract in a deal that apparently remains unsettled four years after a Russian bank collapse caused the failure of letters of credit (L/Cs) that should have settled the deal.

The jury in a Houston court found Avalon International in breach of its contract with Pipeco Services and awarded that company US$1 million.

Russian venture

Avalon was a 49 per cent owner in a Russian oil and gas partnership known as ZAO Stimul. In 1998 Stimul as the buyer agreed to purchase pipe for a hydrocarbon project from the seller, Pipeco.

Stimul provided L/Cs through a Russian bank. The pipe was ordered and shipped by Pipeco in 1998. The bank however collapsed, causing the L/Cs to fail, during the Russian banking crisis in August of the same year.

Obligations

Pipeco agreed to accept a cash security deposit of US$1 million for the shipment. In 1999 Avalon sued Pipeco in an Oklahoma court to recover the deposit but agreed a settlement before trial. As part of that settlement, Avalon agreed to use its best endeavours to persuade Stimul to pay Pipeco $1 million.

The Houston court upheld Pipeco's argument that Avalon had failed to meet its obligation under the settlement agreement. Avalon maintained that it met its obligation under the agreement and despite the court's findings, it intends to file post-verdict motions to set aside the verdict or for a new trial.

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