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England and Wales High Court (Commercial Court) Decisions |
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You are here: BAILII >> Databases >> England and Wales High Court (Commercial Court) Decisions >> Filatona Trading Ltd & Anor v Navigator Equities Ltd & Ors [2019] EWHC 173 (Comm) (07 February 2019) URL: http://www.bailii.org/ew/cases/EWHC/Comm/2019/173.html Cite as: [2019] EWHC 173 (Comm) |
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Case No: CL-2017-000515 Case No: CL-2017-000638 Case No: CL-2018-000121 Case No: CL-2017-000117 |
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Rolls Building, 7 Rolls Buildings Fetter Lane, London EC4A 1NL |
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B e f o r e :
____________________
(1) FILATONA TRADING LIMITED (2) OLEG VLADIMIROVICH DERIPASKA |
Claimants |
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- and - |
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(1) NAVIGATOR EQUITIES LIMITED (2) VLADIMIR ANATOLEVICH CHERNUKHIN (3) NAVIO HOLDINGS LIMITED |
Defendants |
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AND BETWEEN |
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LOLITA VLADIMIROVNA DANILINA |
Claimant |
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- and - |
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1) VLADIMIR ANATOLEVICH CHERNUKHIN (2) NAVIGATOR EQUITIES LIMITED (3) VADIM KARGIN |
Defendants |
____________________
Graham Chapman QC, Tom Ford and Felix Wardle (instructed by Byrne and Partners LLP) for the Claimant in the second action
Jonathan Crow QC, John Machell QC, James Weale and Fraser Campbell (instructed by Clifford Chance LLP) for the First and Second Defendants in both actions
Iain Pester (instructed by PCB Litigation LLP) for the Third Defendant in the second action
Hearing dates:
26, 27, 28, 29 November 2018
3, 4, 5, 6, 10, 11, 12, 13, 17, 18, 19, 20 December 2018
16, 17, 18 January 2019
____________________
Crown Copyright ©
INTRODUCTION | 1 |
Approach to the evidence | 10 |
The witnesses | 17 |
Mrs. Danilina | 18 |
Mr. Deripaska | 21 |
Mr. Chernukhin | 27 |
Witnesses called by Mr. Deripaska | 35 |
Witnesses called by Mr. Chernukhin | 42 |
Peripheral witnesses | 53 |
THE TGM CLAIM | 63 |
The nature of the issue on the TGM claim | 63 |
The circumstances of Mr. Chernukhin and Mrs. Danilina by 2001 | 66 |
Mr. Deripaska | 83 |
The purchase of shares in TGM in 2002 | 84 |
The investment opportunity and the initial approach to Mr. Deripaska | 84 |
The reason for investing in TGM | 91 |
The purchase of shares in TGM | 93 |
Absence of a formal joint venture agreement | 96 |
Subsequent contact between the parties | 104 |
Negotiations in 2004 | 111 |
Navigator Equities Limited and The Compass Trust | 124 |
Mr. Chernukhin's departure from Russia | 136 |
The SHA | 137 |
Events of 2005-06 | 142 |
Changers to the corporate structure in October 2005 | 142 |
The meeting in London in December 2005 | 146 |
The Settlement Reconciliation Act | 152 |
The purchase of shares by Navio Holdings Limited | 153 |
Provisional assessment of joint venture partners as at mid-2006 | 154 |
Reporting to Mr Chernukhin | 181 |
The end of Mr. Chernukhin and Mrs. Danilina's relationship and the establishment of the Sanderson Trust | 182 |
The dispute over the management of TGM | 218 |
Attempts to replace Mr. Kokorev as General Director of TGM | 218 |
The 3 February 2010 Supervisory Board meeting | 230 |
The Stewarts Law letter dated 1 March 2010 | 237 |
The takeover of TGM | 242 |
Buy-out negotiations between Mr. Deripaska and Mr. Chernukhin | 253 |
Inferences from later events | 267 |
The Sanderson Trust and Foxglove Holdings Limited | 268 |
The formal demands to replace Mr. Kokorev as General Director of TGM | 272 |
The Stewarts Law letter dated 1 March 2010 | 273 |
Mr. Chernukhin's refusal to provide proof of his ownership of Navigator during the buy-out negotiations | 274 |
Matters which support Mr. Chernukhin's case | 275 |
Lies and late disclosure |
279 |
Factual conclusions in the TGM claim | 283 |
The legal issue in the TGM claim: interpretation of the SHA | 286 |
Disposal of the TGM claim | 320 |
THE FAMILY ASSETS CLAIM | 324 |
Governing law of the alleged 2007 agreement | 325 |
Discussion of the Family Assets claim | 342 |
Disposal of the Family Assets claim | 366 |
SECTION 68 CHALLENGES | 370 |
The buy-out award challenge | 372 |
The oppression challenge | 381 |
The valuation challenge | 385 |
CONCLUSIONS | 389 |
Mr. Justice Teare:
INTRODUCTION
Approach to the evidence
Speaking from my own experience, I have found it essential in cases of fraud, when considering the credibility of witnesses, always to test their veracity by reference to the objective facts proved independently of their testimony, in particular by reference to the documents in the case, and also to pay particular regard to their motives and to the overall probabilities. It is frequently very difficult to tell whether a witness is telling the truth or not; and where there is a conflict of evidence such as there was in the present case, reference to the objective facts and documents, to the witnesses' motives, and to the overall probabilities, can be of very great assistance to a Judge in ascertaining the truth.
An English judge may have, or thinks that he has, a shrewd idea how a Lloyd's broker, or a Bristol wholesaler, or a Norfolk farmer, might react in some situation which is canvassed in the course of a case but he may, and I think should, feel very much more uncertain about the reactions of a Nigerian merchant, or an Indian ship's engineer, or a Jugoslav banker. Or even, to take a more homely example, a Sikh shopkeeper trading in Bradford. No judge worth his salt could possibly assume that men of different nationalities, educations, trades, experience, creeds and temperaments would act as he might think he would have done or even - which might be quite different - in accordance with his concept of what a reasonable man would have done.
In the light of these considerations, the best approach for a judge to adopt in the trial of a commercial case is, in my view, to place little if any reliance at all on witnesses' recollections of what was said in meetings and conversations, and to base factual findings on inferences drawn from the documentary evidence and known or probable facts. This does not mean that oral testimony serves no useful purpose - though its utility is often disproportionate to its length. But its value lies largely, as I see it, in the opportunity which cross-examination affords to subject the documentary record to critical scrutiny and to gauge the personality, motivations and working practices of a witness, rather than in testimony of what the witness recalls of particular conversations and events. Above all, it is important to avoid the fallacy of supposing that, because a witness has confidence in his or her recollection and is honest, evidence based on that recollection provides any reliable guide to the truth.
First, a fact-finding judge can gain little from the demeanour of a witness when the witness is foreign, comes from a different culture and does not give evidence in his first language or does so through an interpreter; see The Business of Judging by Tom Bingham at p.11. In The Ikarian Reefer at p.484 lhc para. (4) Stuart-Smith LJ said that "most experienced judges recognise that it is not easy to tell whether a witness is telling the truth, particularly if the evidence is given through an interpreter." Second, in all cases, but especially in those cases where scuttling is alleged, the assessment of the reliability of a witness depends, not only upon a consideration of the extent to which his evidence is consistent with what is not in dispute, is internally consistent and is consistent with what the witness has said on other occasions but also upon a consideration of the extent to which his evidence is consistent with the probabilities. That involves placing the evidence in the context of the case as a whole. As was said in The Ikarian Reefer at p.484 lhc para. (4) the evidence of those impugned "has to be tested in the light of the probabilities and the evidence as a whole".
The witnesses
Mrs. Danilina
Without waiver of privilege, I discussed the position with my lawyers and they contacted Mr Deripaska's lawyers some time in spring 2016. I am informed that those communications are all privileged and I do not intend to waive privilege over them nor my communications with my legal advisors. I can say, however, that no agreement was reached, no payments were made to me (or proposed), and those discussions went no further.
Mr. Deripaska
For use in negotiations with CH. Negative information about him is required, including the information concealed by him from the public which, should it be published, would create a real threat to his reputation in the UK or would make him criminally liable if he were to return to Russia.
Mr. Chernukhin
Witnesses called by Mr. Deripaska
Witnesses called by Mr. Chernukhin.
Peripheral witnesses
THE TGM CLAIM
The nature of the issue on the TGM claim
The person who signed is the contracting party unless … (b) extrinsic evidence established that both parties knew he was signing as agent or company officer.
The circumstances of Mr. Chernukhin and Mrs. Danilina by 2001
Because '90s were years, '90s, beginning of 2000s, especially '90s, end of '90s, there was a quite tough situation about politicians or State officials in Russia. That is why my husband -- sorry my -- Vladimir, he preferred not to get registered, and to have all the assets with me up to a certain moment.
Mr. Deripaska
The purchase of shares in TGM in 2002
The investment opportunity and the initial approach to Mr. Deripaska
The reason for investing in TGM
The purchase of shares in TGM
Absence of a formal joint venture agreement
Subsequent contact between the parties
The negotiations in 2004
Because '90s were years, '90s, beginning of 2000s, especially '90s, end of '90s, there was a quite tough situation about politicians or State officials in Russia. That is why my husband -- sorry my -- Vladimir, he preferred not to get registered, and to have all the assets with me up to a certain moment.
Navigator Equities Limited and The Compass Trust
Mr. Chernukhin's departure from Russia
The SHA
THIS AGREEMENT was concluded on 31 May 2005.
BETWEEN:
FILATONA TRADING LIMITED, a company registered in accordance with the laws of the Republic of Cyprus (registration number No. 160653), hereinafter referred to as "Shareholder 1," and also the Beneficial Owner of Shareholder 1, Oleg Vladimirovich Deripaska (passport No. 95 03 468768 issued by the Department of Internal Affairs of the town of Sayanogorsk, Republic of Khakasiya on 11 September 2003, hereinafter referred to as "Beneficial Owner 1," Shareholder 1 and Beneficial Owner 1 hereinafter jointly referred to as "Party 1";
NAVIGATOR EQUITIES LIMITED, a company registered and operating in accordance with the laws of the British Virgin Islands (registration number No. 609747), hereinafter referred to as "Shareholder 2," and also the Beneficial Owner of Shareholder 2, Lolita Vladimirovna Danilina (passport No. 45 06 419120 issued by the Department of Internal Affairs of the district of Dorogomilovo on 30 April 2004), hereinafter referred to as "Beneficial Owner 2," Shareholder 2 and Beneficial owner 2 hereinafter jointly referred to as "Party 2"; and
NAVIO HOLDINGS LIMITED, a company registered and operating in accordance with the laws of the Republic of Cyprus (registration number No. 151271), hereinafter referred to as the "Holding Company";
Shareholder 1 and Shareholder 2 hereinafter individually referred to as a "Shareholder," and jointly referred to as the "Shareholders,"
Beneficial Owner 1 and Beneficial Owner 2 hereinafter individually referred to as a "Beneficial Owner," and jointly referred to as the "Beneficial Owners," Party 1, Party 2 and the Holding Company hereinafter being jointly referred to as the "Parties."
II GENERAL PROVISIONS
……………
2.2 Each Beneficial Owner undertakes to ensure due fulfilment of the conditions of this Agreement by the Shareholder of which he is the Beneficial Owner.
III. ACQUISITION OF SHARES OF THE ISSUER
3.1 The Parties agree to ensure transfer to the Holding Company, within 60 (sixty) calendar days of the date of this Agreement coming into force, the ownership rights to the Assets held by Party 1 (its Affiliates) and/or Party 2 (its Affiliates) as of the date of this Agreement coming into force.
Acquisition of the Assets by the Holding Company is effected at a price equal to 12,500,000 (twelve million five hundred thousand) US dollars.
Purchase of the Assets by the Holding Company is financed in its entirety by the Shareholders by granting of loans to the Holding Company. The sums granted to the Holding Company as a loan by each of the Shareholders shall be equal.
V. PRINCIPLES OF MANAGEMENT OF THE JOINT BUSINESS
…………..
5.11 The Parties agree that the appointment and termination of powers of persons who hold key management posts of the Issuer (excluding Representatives on the Supervisory Board) are effected independently by the Shareholder whose representative is the current General Director, excluding the case indicated below.
The post of Deputy General Director for textile production is formed at the Issuer. Here, regardless of the fact, which Shareholder's representative is the current general Director, the post of Deputy General Director for textile production will be held by a representative of Shareholder 2. In this case, his area of competence will cover all matters connected with the production, technology and sale of textile products.
The powers of the Deputy General Director for textile production and the rights which he is granted and which are necessary and sufficient for the solution of problems he faces, shall be agreed upon by the supervisory board of the Issuer.
VI WITHDRAWAL FROM JOINT BUSINESS
…………
6.2 The Parties agree that neither of the Shareholders may alienate its shares in the Holding Company in a manner other than by sale. Each of the Shareholders has a preferential right to acquire the Holding Company's shares to be sold by the other Shareholder, at the price offered to a third party.
VII. PROHIBITION OF COMPETITION
Party 1 and Party 2, each individually, is prohibited from carrying on Developer Activity on "Krasnaya Presnya" council territory in the City of Moscow, independently, or through representatives or Affiliates, unless additionally otherwise agreed by the Parties.
VIII. REORGANISATION (RESTRUCTURING) OF THE ISSUER
8.1 The Parties undertake to ensure due adoption and fulfilment by the competent management bodies of the Issuer of a resolution to reorganise (restructure) the Issuer by dividing the Issuer's business into a Textile Business and a Developer Business.
8.2 After the division of the Issuer's business into the Textile Business and the Developer Business, the said businesses shall be managed on the basis of the following principles:
(a) the Textile Business shall be managed by representatives of Shareholder 2;
(b) the Developer Business, unless additionally otherwise agreed by the Shareholders, shall be jointly managed by the Shareholders on a parity basis, namely: on the basis of equal participation by the Shareholders in the management and in the adoption of resolutions – including equal representation on management bodies – by the legal entities, to which shall be transferred the Issuer's Developer Business and/or real estate held by the Issuer as a result of the reorganization (restructuring) of the Issuer; an equal number of votes during the adoption of resolutions by the management bodies of such legal entities; and equal participation in the income and profits from the Developer Business conducted by such legal entities.
The cooperation of the Shareholders in the course of dividing the Issuer's business (as indicated above) shall be additionally defined by the Shareholders.
X. CHANGE OF CONTROL
10.1 A change of control ("Change of Control") in respect of either of the Shareholders signifies a change directly or indirectly, including indirectly through third parties or in any other manner whatsoever, of the rights of the Beneficial Owner of such a Shareholder in relation to: (i) exercise or control of the right to vote associated with shares making up no less than one-half of all shares in the authorised capital of either of the Shareholders; (ii) transfer or control of transfer of no less than one-half of the shares in the authorised capital of either of the Shareholders; (iii) appointment or control of appointment of no less than half the directors of either of the Shareholders.
The transfer by Beneficial Owner 1 of the rights indicated in this Clause to a person who is lawfully married to him on the date of this Agreement coming into force, shall not be considered Change of Control.
XIV FINAL PROVISIONS
………….
14.5 This Agreement together with the preamble, appendices and other documents necessary in accordance with this Agreement is the complete and exhaustive agreement between the Parties in respect of the subject matter thereof, and replaces all previous verbal or written agreements, obligations and arrangements of the Parties in relation to its subject matter that do not comply with the provisions of this Agreement.
………….
14.8 This Agreement creates legal rights and obligations for its parties, and also for their legal successors. The rights and obligations under this Agreement may not be transferred and/or ceded by one Party without prior consent of the other Parties in writing.
The events of 2005-06
Changes to the corporate structure in October 2005
The meeting in London in December 2005
The Settlement Reconciliation Act
The purchase of shares by Navio Holdings Limited
Provisional assessment of joint venture partners as at mid-2006
V is the sole BO of NEL, that is why the 50% share in Navio is only his. However, V confirmed that it was intended that LD should be the BO at the beginning. Before V's marriage LD and V agreed that the 50% share should be transferred to Foxglove, which is owned by a trust where both V and LD are beneficiaries…
Reporting to Mr. Chernukhin
The end of Mr. Chernukhin and Mrs. Danilina's relationship and the establishment of the Sanderson Trust
(a) TGM would remain (as it always was) as an asset belonging to Mrs. Danilina and her alone;
(b) the assets accumulated between them jointly and which they regarded as family assets would be distributed between them on an effectively equal basis with:
(i) Mrs. Danilina retaining and/or taking those residential real property located within Russia,
(ii) Mr. Chernukhin having the residential real property located outside of Russia, and
(iii) save for certain chattels such as cars and the weapon collection (which were to be owned by Mr. Chernukhin) and jewellery and artwork in Russia (which were to be owned by Mrs. Danilina), the balance of their assets would be split equally and Mrs. Danilina's 50% share held in a trust for her benefit;
(c) a new structure would be required to reflect these agreements;
(d) Mr. Chernukhin would be responsible for taking the necessary steps to give effect to the agreement.
VC's first partner, Lolita D., has been here, too, and both have decided to set up a new trust in their both favour. We have discussed and pored over this for quite some time, and finally we have come to the conclusion to set up a trust with the specifications as described in the attached memo.
The initial settlement will be some cash amount.
The subsequent settlement will be a common holding company (offshore) of the client and his former wife. This company will own a promissory note issued by one of the client's financing companies (like Navigator Finance Limited). The purpose of this is to let his former wife participate in the assets.
Furthermore, the former wife is the main manager of a Russian textile plant, whose shares are held by a Cypriot company. 50% of this Cypriot company are to be settled into the trust (i.e. will be assigned or sold to the mutual holding company). The other 50% are held by a third party.
It is also planned to hold the shares of the companies owning the personal real estate of the client and his former wife in Russia through the mutual holding company (you already know about this, it concerns the memo on Russian real estate which you have translated) …
My suggested names are:
V pre assets Madison trust
Lo pre assets Sanderson trust
Your joint new one Galaxy Trust
Mr Chernukhin plans to marry Lubov Golubeva in London on 17 November 2007 and it is their present intention to continue to reside in London after their marriage, at least for the time being. Lubov is a British Citizen and Mr Chernukhin is resident but non-domiciled in the United Kingdom.
Previously, Mr Chernukhin was in a very long term relationship with Lolita Danilina, who is domiciled and resident in Russia. Although that relationship has ended, Mr Chernukhin feels strong moral obligations to Lolita to ensure her long term financial security, even if those obligations could not be enforced against him in law (here or in Russia) as he and Lolita were never married. ·
I understand that Lubov is aware of Mr Chernukhin's strong feelings on this point and that she is happy to enter her marriage with him on the clear understanding that financial arrangements are being put in place by Mr Chernukhin to ensure, so far as he is able, that Lolita is properly financially provided for now, during his lifetime, and in the event of his death.
You explained that Ogiers in Jersey are working at setting up two Trusts, one for Mr Chernukhin and one for Lolita. Mr Chernukhin will transfer by gift various assets into those Trusts. A holding company will be formed ·and the Trustees of each Trust will subscribe for shares in the holding company, which will be paid for with the assets gifted into the Trusts. The Trusts will then consist of shares in the holding company only and dividends will be paid to the Trusts, and in this way income from Sanderson Trust will eventually be paid to Lolita. There seems to be no evidence of any commercial arrangement with Lolita that would underpin this proposal. If I have misunderstood this planned structure, please do let me know.
Pre Nuptial Agreements in England and Wales
Mr Chernukhin is concerned to take what steps he can to try to protect Lolita's Trust against any claim by Lubov, in the event of the breakdown of their marriage in the future. To try to achieve this, he is contemplating entering into an English Pre Nuptial Agreement with Lubov.
Vladimir confirmed that the intention was to create separate trusts to benefit Lolita and himself which would in turn each own 50% of a company which would hold a promissory note for approximately US$125m - this is based on their agreed valuation of their combined assets.
The Sanderson Trust would also hold a 50% shareholding in Madsan Holdings Limited (managed and controlled by Guernsey), who would be issued a promissory note from Navigator Finance Limited (NFL) in the sum of US$125,000,000. Once Madsan has opened new bank accounts with Credit Suisse (see note below), the note would be called and funds paid to Madsan's bank account. Madsan would then loan the funds back to NFL the same day (the asset), at an interest rate of LIBOR + 2%. The promissory note would also bear interest at 7% and from the date the note is issued to date called, would approximately generate a further US$719,000 interest for the period.
LD's requirements to discuss
• LD to discuss with VC the allowance to be available for her son (Gregori Danilin) - possibly US$100,000 per annum
• whilst alive the trustees should look to LD as principal beneficiary
• there will be no automatic request for funds
• all correspondence via VC
Special Notes
• All correspondence relating to LD's structure must be passed via VC (or PA)
• No statements or reporting to be provided
• Accounts to be prepared but not sent to client
• Contact sheet to be prepared and send to VC for forward to LD
• Bible of documents to be produced for LD and sent to VC
As trustee of this Trust I would like to make my wishes known to you. I understand that this is an expression of my wishes only and cannot in any way fetter your discretion.
As you are aware this Trust has been settled predominantly to benefit my ex-partner Lolita Danilina and her issue. This is due to the regard I have for her and her family and to our historic relationship in developing the assets.
Therefore going forward I would be grateful if you would look solely to Ms Danilina for guidance. She is also intending to provide you with a letter of wishes to give guidance as to her wishes in relation to the assets.
During my lifetime, as recommended in the letter dated 14 November 2007 written by the settlor of the trust Mr Vladimir Chernukhin, you look to me for guidance.
In the event of my death please give consideration to benefiting my son, Gregori Danilin, who was born on 12 July 1985, access to an annual "allowance" of $l00,000 (one hundred thousand US dollars only).
I would be grateful if all correspondence in relation to my interest in the trust could be sent to Mr Chernukhin who will in due cause be appointed as Protector and Family Council to the Trust. I also would like to make clear that I have no expectation or need to receive statements of assets in relation to the Trust.
1. There is to be NO CONTACT with Lolita in Russia. A call to her mobile is okay… All correspondence is by email to Vladimir.
2. Any income in the trust is to be accumulated as there is no need for any distributions in the foreseeable future.
3. Please see the attached papers confirming Vladimir is the first protector and Lolita's signature just in case the KYC does not include it…
4. The trust deed needs to be amended to show Lolita as Vladimir's successor protector…
5. …
6. The trust also owns Foxglove Ventures Limited but that is not reflected in the ledgers
7. …
8. I understand that Foxglove owns the shares in a textile factory in Russia. If so de we actually have the shares yet and how is this asset reflected in the books?
The dispute over the management of TGM
Attempts to replace Mr. Kokorev as General Director of TGM
Please make sure (as far as voting by your representatives is concerned) that the appropriate resolution is passed to terminate the authority of the current general director and appoint Shareholder 1's representative to this position.
Last night I discussed our situation with OVD by phone.
He asked me to talk with you about the fact that we really want to exercise our right to replace the GD [General Director].
Certainly this should be in the legal realm. Yesterday, after bringing in OVD's personal lawyers, we studied the situation. On the whole, we feel that we are completely in compliance with the SA. Hence we ask that everything be done to exercise our right as soon as possible.
We hope for your understanding and cooperation.
I hope after yesterday's conversation you no longer have any doubts as to our Shareholder's position on the matter of replacing the General Director.
I also hope that the Supervisory Board meeting scheduled for tomorrow will be constructive and productive. At the same time, allow me to point out the following: If any of the Supervisory Board members from your side are unable to attend the meeting for any super-compelling reason, you can arrange for them to cast a vote by absentee (written) ballot. This possibility is provided for by Section 16.4.5 of the Company's Charter and Section 8.2 of the Statute on the Supervisory Board of Trekhgornaya Manufaktura OJSC.
Thanks in advance for your understanding.
The 3 February 2010 Supervisory Board Meeting
Our voting position is not determined here, not at the Supervisory Board meeting. It is determined by the shareholders. The shareholders have stated their position, as far as I know. I cannot judge, as I was not present at these negotiations, but our shareholder stated his position on this matter to shareholder number one.
Here, I am authorised to represent the position of one of the shareholders. So right now I will be voting according to the instruction given to me.
I am forced to contact you again, since the situation regarding our partnership at Trekhgornaya cannot be called anything but a stalemate. Of course, a 50-50 partnership, in general, does not preclude such problems, but everything should at least have some framework. Even if one assumes for a second that, as you claim, the condition for exercising our legal right to replace the general director is that there be agreed-on tasks for the new general director, we have fulfilled it by sending you the Business Plan for Trekhgornaya Manufaktura as agreed by us, Lolita, and all members of the Supervisory Council. The tasks for the new general director are clear, yet things are right where they were. We cannot understand, why do you deal with the partners that way? And we are even beginning to get used to the fact that the team in Moscow practically ignores any elementary shareholder rights. Won't it turn out that we are approaching a line beyond which you will be ashamed to look us in the eyes as partners? This is a complicated subject, but there is another one: Are your rights reliably protected against inappropriate actions by Lolita's management?
The Stewarts Law letter dated 1 March 2010
The takeover of TGM
On the morning of December 15th, 2010, upon arrival to the office, we saw a lot of armed and unarmed security guards who, behaving aggressively enough, blocked the entrances to administrative and production premises, some office rooms located on the territory and in the buildings of our enterprise. Our executives informed us that the management of the factory was replaced and from now on another private security company would protect our territory.
Buy-out negotiations between Mr. Deripaska and Mr. Chernukhin
After the concert, there was a cocktail party. Mr Deripaska was standing with Mr Chernukhin and beckoned me over. He told me that he would buy the Navigator interest for US$100 million. Mr Chernukhin asked whether it would be possible to close the deal [within] two months and Mr Deripaska agreed.
It is common ground that a deal in principle at a price of $100 million for Navigator's interest in Navio was reached between Mr Deripaska and Mr Chernukhin in Davos on 23 January 2013.
Confirmation of the beneficial ownership by of VA. Chernukhin in relation to Navigator (Chernukhin's company is the current shareholder in Navio, seller of the shares) and provision of a personal guarantee by VA. Chernukhin.
Beneficial owner of Navigator and Chernukhin's guarantee
The shareholder agreement in respect of Navio (the "SHA") was signed by L. Danilina as beneficial owner of Navigator. For the purposes of the SHA, Navigator and Danilina are jointly designated as Party 2. Chernukhin contends (verbally) that it is him who is the beneficial owner of Navigator and that Danilina signed the SHA mistakenly without being a beneficial owner.
Risks:
1) Challenge of the transaction (transfer of the rights to the shares and termination of the SHA) by Danilina, with our position being weakened by the following factors:
(i) the buyer, acting in good faith, must rely on the document available to him (the SHA), where Danilina is named as the beneficial owner;
(ii) technically Danilina is a party to the SHA, and SHA's termination without her signature may be recognized as invalid, i.e. there is a risk of Danilina making claims arising out the SHA after the closing of our deal with Chernukhin.
2) the financial status/assets of Navigator are unknown, and there is no one who would compensate our losses in case there is a breach of the agreement for the sale and purchase of Navio shares.
Chernukhin refuses to personally guarantee the absence of risks of any third parties making claims in respect of Navio shares being sold by him. In response to our request for confirmation of Chernukhin's status as the beneficial owner, we have been provided with a Memorandum by his Cypriot lawyers (Appendix No. 2), which is not adequate for the claimed purpose and cannot be used to reduce the risks for the following reasons:
1) The Memorandum contains general provisions of the Cypriot legislation regarding the registration of rights to shares and confirmation of rights of their legal owners;
2) The Memorandum does not confirm that Chernukhin is the ultimate beneficial owner of Navigator, that Danilina is not an ultimate beneficial owner of Navigator and that the fact of existence of an ultimate beneficial owner other than Chernukhin (either now or in the past) will not prejudice or limit the rights of the buyer of 50% of Navio shares.
Possible solutions (in descending order of preference to us):
1) obtaining an express consent from Danilina to our deal and termination of the SHA and release of claims;
2) a properly executed document confirming the waiver by her of her rights to Navio shares (however, there is the risk of forgery);
3) indemnity (or warranty) personally from Chernukhin (being a person who is in better financial circumstances than Navigator) providing for full compensation by Chernukhin of our losses in case Danilina files a lawsuit and wins;
4) checking documents to be submitted by Chernukhin to ascertain the holding structure of his shares in Navio (there is also a risk of forgery or concealment of a document/ agreement which would be essential for our purpose).
All that your lawyer was pointing out is that technically she is a party to the contract, so if you do the deal with Mr Chernukhin there was a risk she might bring a claim pretending that she was the true joint venture partner. That is the risk he was pointing out to you, isn't it?
I am sure you remember the discussion around Mr Chernukhin's beneficial ownership and the risk of third parties having interest in the shares he is now selling. OVD wants to try to persuade Mr Ch. personally to sign a very simple letter to confirm his beneficial ownership. It shall not be very legalistic, but in the worst-case scenario should give us some legal standing to go after Mr Ch.
Inferences from later events
The Sanderson Trust and Foxglove Holdings Limited
The formal demands to replace Mr. Kokorev as General Director of TGM
The Stewarts Law letter dated 1 March 2010
Mr. Chernukhin's refusal to provide proof of his ownership of Navigator during the buy-out negotiations
Matters which support Mr. Chernukhin's case
Lies and late disclosure
Factual conclusions in the TGM Claim
The legal issue in the TGM Claim: the interpretation of the SHA
It is a well-established rule of English law that an undisclosed principal can sue and be sued upon a contract, even though his name and even his existence is undisclosed, save in those cases when the terms of the contract expressly or impliedly confine it to the parties to it. This rule is an anomaly, but is justified by business convenience. It has been held so for many years.
In determining who is entitled to sue or liable to be sued on a contract, a useful starting point, where the contract is in writing, is to look at the contract. In doing so a number of elementary principles should be borne in mind. The first is that a person may enter into a contract through an agent whom he has actually authorised to enter into the contract on his behalf or whom he has led the other party to believe he has so authorised. But we are concerned here only with actual authority. Where an agent has such actual authority and enters into a contract with another party intending to do so on behalf of his principal, it matters not whether he discloses to the other party the identity of his principal, or even that he is contracting on behalf of a principal at all, if the other party is willing or leads the agent to believe that he is willing to treat as a party to the contract anyone on whose behalf the agent may have been authorised to contract. In the case of an ordinary commercial contract such willingness of the other party may be assumed by the agent unless either the other party manifests his unwillingness or there are other circumstances which should lead the agent to realise that the other party was not so willing.
Were the terms of the contractual documents passing between Richards and the defendants such as to exclude the plaintiffs from being able to sue the defendants or to be sued by them on the contract that was made? Otherwise the plaintiffs are entitled to sue the D defendants by virtue of the general rule, stated by the Master of the Rolls, that normally a principal can always step in and enforce the contract if his name was unmentioned or even if his existence was undisclosed at the time the contract was made.
It is not in dispute that English Law permits an undisclosed principal to sue or be sued on a contract, subject (for present purposes): (1) to the terms of the written contract expressly or impliedly confining it to the named parties; (2) to the willingness of the "other" contracting party to contract with the undisclosed principal; (3) to the agent having actual authority to contract on behalf of the undisclosed principal and exercising such authority.
There is no material dispute between the parties as to the governing principles. For a party to be an undisclosed principal it must hence be established that: (1) the agent contracted with and within the scope of the actual authority of the undisclosed principal; (2) at the time of the relevant contract, the agent intended to contract on the principal's behalf; and (3), there is nothing in the contract or surrounding circumstances showing that the agent is the true principal and which excludes the making of a contract with an undisclosed principal.
The terms of the contract may, expressly or by implication, exclude the principal's right to sue, and his liability to be sued. The contract itself, or the circumstances surrounding the contract, may show that the agent is the true and only principal.
If courts are too ready to construe written contracts as contradicting the right of an undisclosed principal to intervene, it would go far to destroy the beneficial assumption in commercial cases, to which Diplock J. referred in Teheran-Europe Co. Ltd. v. S. T. Belton (Tractors) Ltd. [1968] 2 Q.B. 545, 555.
… it might be putting the proposition too highly to say that the mere specification of parties in a contract serves to oust the doctrine of undisclosed principal since, if it were true, then every contract with named parties would serve to prevent a finding that there were undisclosed principals which would defeat the principle itself.
In the case of an ordinary commercial contract such willingness of the other party [to treat as a party to the contract anyone on whose behalf the agent may have been authorised to contract] may be assumed by the agent unless either the other party manifests his unwillingness or there are other circumstances which should lead the agent to realise that the other party was not so willing.
The question to be answered therefore is whether the terms of the contract of employment are inconsistent with the intervention of the Claimant as principal. This type of question has been approached in the past by enquiring whether there are words in the contract which designate the agent as "the real and only principal" and as "the only person" who is to have the rights and obligations arising under the contract; see Fred. Drughorn Limited v Rederiaktiebolaget Trans-Atlantic [1919] AC 203 at p.209 per Lord Sumner. Thus the mere description of the agent as "charterer" in a charterparty did not prevent the undisclosed principal from intervening because "it does not say that he is not chartering for others, and if that is what he has done in fact the law allows them to prove it." (per Lord Sumner at p.209)
Mr. Berry submitted that where the terms of an agreement unequivocally and exhaustively identify the parties to it, it is impermissible to seek to contradict it. I accept that submission. Thus in in Foster v Action Aviation Limited [2013] EWHC 2439 (Comm) at paragraphs 131-135 Hamblen J. (as he then was) said that where a contract identifies the principal upon whose behalf an agent enters a contract, it is not open to a party to suggest that the agent entered the contract on behalf of someone other than the identified principal. If the principal is not identified then, as Lord Hobhouse observed in Shogun Finance v Hudson [2004] 1 AC919 at paragraph 49 "where the person signing is also acting as the agent of another, evidence can be adduced of that fact".
FILATONA TRADING LIMITED, a company registered and operating in accordance with the laws of the Republic of Cyprus (registration number No. 160653), hereinafter referred to as "Shareholder 1," and also the Beneficial Owner of Shareholder 1, Oleg Vladimirovich Deripaska (passport No. 95 03 468768 issued by the Department of Internal Affairs of the town of Sayanogorsk, Republic of Khakasiya on 11 September 2003, hereinafter referred to as "Beneficial Owner 1," Shareholder 1 and Beneficial Owner 1 hereinafter jointly referred to as "Party 1";
NAVIGATOR EQUITIES LIMITED, a company registered and operating in accordance with the laws of the British Virgin Islands (registration number No. 609747), hereinafter referred to as "Shareholder 2," and also the Beneficial Owner of Shareholder 2, Lolita Vladimirovna Danilina (passport No. 45 06 419120 issued by the Department of Internal Affairs of the district of Dorogomilovo on 30 April 2004), hereinafter referred to as "Beneficial Owner 2," Shareholder 2 and Beneficial Owner 2 hereinafter jointly referred to as "Party 2"
… to ensure due fulfilment of the conditions of this Agreement by the Shareholder of which he is the Beneficial Owner.
… may require a high degree of communication, cooperation and predictable performance based on mutual trust and confidence and involve expectations of loyalty which are not legislated for in the express terms of the contract but are implicit in the parties' understanding and necessary to give business efficacy to the arrangements. Examples of such relational contracts might include some joint venture agreements…
14.5 This Agreement together with the preamble, appendices and other documents necessary in accordance with this Agreement is the complete and exhaustive agreement between the Parties in respect of the subject matter thereof, and replaces all previous verbal or written agreements, obligations and arrangements of the Parties in relation to its subject matter that do not comply with the provisions of this Agreement.
Where there is an entire agreement clause this is evidence which tends to negative any suggestion that a party intended to sue or be sued by a person other than the counterparty in respect of disputes under the agreement.
For my part I do not think that the entire agreement clause in the terms and conditions necessarily serves to exclude altogether the possibility that there might be undisclosed principals. The language used is not wholly unequivocal and the parties could, had they wished, have expressly stated that the parties thereto were the only parties that could sue and/or be sued. But they did not. On the other hand, I do consider that it is a cogent indication that the alleged agents (the First and Second Defendants) did not intend to act on behalf of an undisclosed third-party principal and that this was also the view of the Claimant. It is evidence that can go into the mix.
14.8 This Agreement creates legal rights and obligations for its parties, and also for their legal successors. The rights and obligations under this Agreement may not be transferred and/or ceded by one Party without prior consent of the other Parties in writing.
Disposal of the TGM claim
THE FAMILY ASSETS CLAIM
a) TGM would remain (as it always was) as an asset belonging to Mrs. Danilina and her alone;
b) the assets accumulated between them jointly and which they regarded as family assets would be distributed between them on an effectively equal basis with:
i) Mrs. Danilina retaining and/or taking those residential real property assets located within Russia,
ii) Mr. Chernukhin having those residential real property assets located outside of Russia and
iii) save for certain chattels such as cars and the weapon collection (which were to be owned by Mr. Chernukhin) and jewellery and artwork in Russia (which were to be owned by Mrs. Danilina), the balance of their assets would be split equally and Mrs. Danilina's 50% share held in a trust for her benefit;
c) a new structure would be required to reflect these agreements; and
d) Mr. Chernukhin would be responsible for taking the necessary steps to give effect to the agreement.
Governing law of the alleged 2007 agreement
Article 3 Freedom of choice
1. A contract shall be governed by the law chosen by the parties. The choice must be expressed or demonstrated with reasonable certainty by the terms of the contract or the circumstances of the case. By their choice the parties can select the law applicable to the whole or a part only of the contract.
2. …
3. The fact that the parties have chosen a foreign law, whether or not accompanied by the choice of a foreign tribunal, shall not, where all the other elements relevant to the situation at the time of the choice are connected with one country only, prejudice the application of rules of the law at the country which cannot be derogated from by contract, hereinafter called 'mandatory rules`.
4. …
Article 4 Applicable law in the absence of choice
1. To the extent that the law applicable to the contract has not been chosen in accordance with Article 3, the contract shall be governed by the law of the country with which it is most closely connected. Nevertheless, a separable part of the contract which has a closer connection with another country may by way of exception be governed by the law of that other country.
2. Subject to the provisions of paragraph 5 of this Article, it shall be presumed that the contract is most closely connected with the country where the party who is to effect the performance which is characteristic of the contract has, at the time of conclusion of the contract, his habitual residence, or, in the case of a body corporate or unincorporate, its central administration. However, if the contract is entered into in the course of that party's trade or profession, that country shall be the country in which the principal place of business is situated or, where under the terms of the contract the performance is to be effected through a place of business other than the principal place of business, the country in which that other place of business is situated.
3. Notwithstanding the provisions of paragraph 2 of this Article, to the extent that the subject matter of the contract is a right in immovable property or a right to use immovable property it shall be presumed that the contract is most closely connected with the country where the immovable property is situated.
4. …
5. Paragraph 2 shall not apply if the characteristic performance cannot be determined, and the presumptions in paragraphs 2, 3 and 4 shall be disregarded if it appears from the circumstances as a whole that the contract is more closely connected with another country.
A failure to make a transaction in a simple written form shall deprive either party thereto of a right to refer to witness testimony evidencing the same or applicable terms and conditions, if any dispute arises. However, neither of them shall be deprived of a right to produce written or any other evidence.
Discussion of the Family Assets claim
We understand that this data set includes documents from the five original custodians and the two additional custodians. Barclays inform us that this data set contains some 4,500 documents. Once the Barclays review has been completed, we will be able to provide you with an update setting out the date range covered by this set of documents. At this stage, Barclays believe it covers documents in the date range 2008 to 2009.
The former category has now been searched, and the relevant documents disclosed. The tapes in the latter category have not been searched. This is said to be because restoration of the tapes in the latter category would be a complex technical exercise, expected to cost at least £130,000. Clifford Chance indicated their view that this exercise would be "wholly disproportionate and unreasonable".
First: the documents evidence again that the promissory note was not intended to be a sham and was intended to allow Mrs. Danilina to participate in the assets (see the emails of 20 March 2008 and 17 December 2008); Second: the documents evidence the importance placed on steps in relation to the Promissory Note being taken in advance of meetings with Mrs. Danilina (see the emails of 20 March and 23 – 28 May 2008) … ; Third: the documents reinforce the fact, denied by Mr. Chernukhin, that the Sanderson Trust / Madsan Holding structure paid and held monies for use by Mrs. Danilina (see the email of 17 December 2008 ("I'm not sure what the long term plans are for these funds ie when Lolita may next need some")).
These points are consistent with the conclusions I have reached above – namely, that Mr. Chernukhin did intend to make financial provision for Mrs. Danilina through the Sanderson Trust structure, but not pursuant to a 2007 agreement on the terms alleged. In my judgment, any further documents are likely to do no more than suggest precisely the same conclusions, and would not be such as to call into question the views set out above. In those circumstances, it would indeed be disproportionate to require additional further expense in searching the unrestored back-up tapesI have reached the conclusion that Mrs. Danilina's case on the Family Assets claim fails, not by reason of documents withheld by Mr. Chernukhin but because the weight of all of the evidence is against the alleged agreement. Whilst I have found that there was an intention on the part of Mr. Chernukhin to make financial provision for Mrs. Danilina, she has failed to demonstrate that the 2007 agreement was made as alleged, given: (i) the remarkable aspects of the claim which I have summarised above, (ii) the absence of support for the alleged agreement in the documents disclosed by Mr. Kiener and Barclays Wealth, (iii) the understanding of Gordon Dadds that Mr. Chernukhin was motivated by moral considerations and that there was no commercial arrangement to underpin the proposals, (iv) the absence of any evidence that Mrs. Danilina referred to the alleged agreement at the meeting on 14 November 2007, and (v) the fact that her interest as a discretionary beneficiary of a trust was inconsistent with the alleged agreement. The application to strike out Mr. Chernukhin's defence as an abuse of process therefore does not arise.
Disposal of the Family Assets Claim
SECTION 68 CHALLENGES
The buy-out award challenge
48 Remedies
(1) The parties are free to agree on the powers exercisable by the arbitral tribunal as regards remedies.
(2) Unless otherwise agreed by the parties, the tribunal has the following powers.
(3) The tribunal may make a declaration as to any matter to be determined in the proceedings.
(4) The tribunal may order the payment of a sum of money, in any currency.
(5) The tribunal has the same powers as the court—
(a) to order a party to do or refrain from doing anything;
(b) to order specific performance of a contract (other than a contract relating to land);
(c) to order the rectification, setting aside or cancellation of a deed or other document.
The Parties undertake to do their utmost to settle all disputes and disagreements arising from this Agreement or in connection therewith, including those concerning its execution, breach, termination or invalidity ("Dispute"), by negotiations.
[….]
In the event that [a dispute is not settled following negotiation and/or mediation], the Dispute is to be settled at the London Court of International Arbitration in accordance with its rules, the provisions of which are deemed to be included in this Clause 12.1.
(1) Any member of a company who complains that the affairs of the company are being conducted in a manner oppressive to some part of the members (including himself) or, in a case falling within subsection (3) of section 163, the Council of Ministers may cause an application to be made to the Court by petition for an order under this section.
(2) If on any such petition the Court is of opinion- (a) that the company's affairs are being conducted as aforesaid; and (b) that to wind up the company would unfairly prejudice that part of the members, but otherwise the facts would justify the making of a winding-up order on the ground that it was just and equitable that the company should be wound up, the Court may, with a view to bringing to an end the matters complained of, make such order as it thinks fit, whether for regulating the conduct of the company's affairs in future, or for the purchase of the shares of any members of the company by other members of the company or by the company and, in the case of a purchase by the company, for the reduction accordingly of the company's capital, or otherwise.
The oppression challenge
The valuation challenge
37. The second additional matter of law is raised by the allegation of the Grigorishin Respondents that certain conclusions were "manifestly illogical and cannot rationally be sustained". These challenges derive from the language used by Sales J. in Metropolitan Property Realizations Limited v Atmore Investments Limited [2008] EWHC 2925 (Ch). In that case, which concerned a rent review arbitration, the arbitrator's approach to assessing the revised rent assumed that a notional tenant would take a relevant notional lease at a rate which included a profit element for itself but his calculation did not in fact include any element of profit for the notional tenant. Sales J. concluded that the award was obviously flawed as a matter of the commercial logic which the arbitrator had himself decided should be applied. The award could not be regarded as a "rationally sustainable resolution of, or dealing with, the basic issue which he had to determine" (see paragraph 20). This was a serious irregularity within section 68(2)(d) – a failure to deal with an issue.
38. It seems to me that this decision must be treated with some care. It is clear that the mere fact that the arbitral tribunal has reached the wrong conclusion cannot constitute a serious irregularity within section 68. That was clear when Sales J. made his decision. HHJ Humphrey Lloyd said so in Weldon Plant c Commission for New Towns [2001] 1 AER (Comm) 264, which was cited with approval by Colman J. in World Trade Corporation v Czarnikow Sugar [2005] 1 Lloyd's Reports 42. It was also made clear by the House of Lords in Lesotho. Sales J. referred to World Trade Corporation but did not refer to Lesotho. I infer that it was not cited to him. It is also clear that so long as an arbitrator deals with an issue it does not matter that he has done so "well, badly, or indifferently" (see The Secretary of State for the Home Department v Raytheon Systems Limited [2014] EWHC 4375 (TCC) at paragraph 33(vi) per Akenhead J.). I therefore have difficulty in accepting that the mere fact that the tribunal's reasoning is manifestly illogical or cannot rationally be sustained can amount to a serious irregularity. Indeed Mr. Brisby made clear in his reply that he did not contend that illogicality is a free-standing ground for striking down an award. Rather, it may indicate that there has been a failure to address an issue. It seems to me that that is way in which the decision of Sales J. in Metropolitan Property Realizations Limited v Atmore Investments Limited should be understood. That case was based upon section 68(2)(d). The "glaring illogicality" identified by Sales J. indicated that the arbitrator in that case had not dealt with an issue which it was essential for him to determine. To regard illogicality or irrationality by itself as a form of serious irregularity would lead to the courts examining the reasoning of an arbitral tribunal to see whether it was logical and rational. That is not envisaged by section 68.
CONCLUSIONS
Note 1 I was therefore surprised to receive from counsel for Mrs. Danilina, after sending out the judgment in draft, a “List of Omissions from the Draft Judgment”. Some 12 matters of evidence or submission (with reference to counsel’s opening and closing submissions) were provided “in order to assist the court”. The purpose of providing the parties with the judgment in draft is not to invite them to provide such a list. It is also difficult to understand in what way such a document “assists” the court when the court has provided its judgment in draft and is (the next day) formally to hand down judgment. The provision of a “list of omissions” is an inappropriate use of the procedure whereby judgments are sent out in draft. The court is not obliged to address in writing every piece of evidence relied upon or submission made. The court is obliged to consider all of the evidence and submissions and set out its reasons for reaching the conclusion it did. [Back] Note 2 Counsel for Mrs. Danilina has said, in response to the draft judgment, that the court has not dealt with the case on estoppel by representation or by convention. But in the light of my findings of fact no such case can arise. [Back] Note 3 Counsel for Mrs. Danilina has said, in response to the draft judgment, that the court has not dealt with the case on estoppel by representation. But in the light of my finding that the alleged agreement has not been established there is no claim as alleged and the suggested estoppel cannot create a cause of action where none has been established. [Back] Note 4 Counsel has also said that the court has not dealt with Mrs. Danilina’s case on unjust enrichment. But any such claim is part and parcel of the alternative claim for breach of duty which Mrs. Danilina may advance hereafter, assuming that it has been pleaded. [Back]