Page 1 of 2 English justice versus Rusal
By John Helmer
MOSCOW - "Mr Deripaska is a man who denies everything," said Geoffrey Vos, QC,
in the Court of Appeal in London on July 21, arguing on behalf of Oleg
Deripaska's former patron, Michael Cherney (Mikhail Chernoy), that Deripaska
should face trial in England on Cherney's charges that he has violated their
contract and improperly taken Cherney's 20% stake in the founding company of
the group now known as United Company Rusal.
Deripaska, once Russia's richest businessman, is chief executive and
controlling shareholder of Rusal, the Russian monopoly producer of aluminum,
and one of the world's largest miners of bauxite and producers of alumina and
aluminum.
Four of the most senior judges in the United Kingdom have now
reviewed the counter arguments of Deripaska and have said they do not believe
them. Last week, a three-judge bench of the Court of Appeal endorsed the ruling
of UK High Court Justice Christopher Clarke, who ruled on July 3, 2008, that "I
am satisfied that Mr Cherney has a reasonable prospect of success in respect of
his claim."
Deripaska sought a ruling from the appeal court to withdraw jurisdiction over
the case from the UK court to a Russian one. London jurisdiction is claimed by
Cherney, an Israeli citizen, because his shareholding agreement with Deripaska
was signed there; because the contract specified the application of UK law;
because both he and Deripaska have homes and businesses there; and because UK
law provides for jurisdiction when a litigant would be deprived of a fair trial
if the litigation was held elsewhere.
If Cherney wins the trial that has been ordered and now confirmed, he stands to
recover a 13.2% of the Jersey-registered Rusal. Should that happen, Deripaska,
41, stands to lose majority control of Rusal or be obliged to pay the value of
the stake, plus dividends, damages and costs.
If awarded, that sum would make Cherney the single largest, most secured
creditor of Rusal, ahead of an international syndicate of more than 70 banks,
who are collectively owed US$7.5 billion; and of the Russian state banks, which
are owed at least another $6 billion. Only one other creditor is owed as much;
that is Vnesheconombank (VEB), the Russian state bank chaired by Prime Minister
Vladimir Putin. Security for the VEB loan is a 25% shareholding in Norilsk
Nickel, Russia's biggest mining company, which Deripaska had once hoped to take
over, and at least two of Rusal's Russian aluminum smelters.
With two English judicial rulings now against him, and with a UK court award of
that much cash, or a 13.2% stake, in "reasonable prospect", Rusal, its banks
and shareholders are obliged to show on their balance-sheet a contingency
set-aside that is enormous, and a shareholding reorganization that represents a
significant material change in all the arrangements and covenants Rusal's
bankers have so far contemplated. The value of all Rusal assets and shares
pledged as security are now at a discount that must be counted by the High
Court on Fleet Street.
All of this because, for the first time, an internationally recognized court is
to examine the legality of Rusal's founding documents, its cashflows and
dividends, and the shareholding and related agreements Deripaska signed with
Cherney.
For the first time too, the courts of the UK, and also Switzerland, are
reviewing the claims Deripaska has made that he saved the Russian aluminum
industry from criminality he has alleged against others - claims Cherney has
testified to be a gigantic frameup, pursued and amplified by a legion of
lawyers, private detectives, PR agents, and gullible reporters. Four English
judges have now said, in regard to the evidence of one of the media
conspiracies identified in court as the Mirepco case, they believe Cherney.
The pains taken to investigate are unprecedented. Justice Clarke set out his
findings in a 63-page judgement. He had gone through, he said, three days of
reading several thousand pages of documents, and two days of hearings. The
Court of Appeal has taken almost a year to consider 161 pages of freshly
written filings. Then two days of oral argument by Deripaska's advocate, Ali
Malek, QC, and Vos for Cherney, are recorded in 375 pages of transcripts, with
an additional 15-page summary handed to the bench before Vos began his
presentation.
The three appeal judges had signaled during their July 20-21 courtroom sessions
that they regarded Malek's argument relatively negatively, and Vos's argument
more positively. Sir Mark Waller, the deputy president of the Court of Appeal
for civil cases, hinted that he understood why Deripaska had spent so much time
and money to avoid trial in the UK court. "It must have taken the judge
[Clarke] a long time to read all the evidence and write a judgement. And
actually the dispute would have taken less time to try. That's an absurdity.
Why not get the thing tried? ... One can't just sort of help feeling that some
form of assessment that there may be [the] trial won't take place in Russia ...
you're taking up a large part of the time of the English Court wrestling with
where a dispute should be tried. One has to ask why."
Waller answered his own question with a hypothetical about the courts of
"Ruritania". "Let's take an absurd example," the judge said in court on July
20. "Four years ago I concluded a contract in country Ruritania ... everything
points to Ruritania being the natural place to try the case, but by the time
the English Court has to consider ... the court system in Ruritania has
completely broken down ... There is a court there, but after this fourth year,
the evidence is absolutely clear that the judges will be bribed by the litigant
whom I'm trying to sue ... The idea that the English Court wouldn't say that in
the interests of justice the case must be tried here [in the UK] doesn't stack
up, to be crude about it."
In writing the judgement for the court issued on Friday, Waller made clear his
ruling was not about the quality of justice in Russia; certainly not, he
emphasized "that a fair trial could never be obtained in Russia - on the
contrary". Deripaska and his counsel had attempted in the courtroom, in a
pre-hearing interview on the BBC, and in the columns of selected London
newspapers, to make the case appear to be putting the Kremlin on trial, with
Deripaska the victim of his own patriotism. These claims were rejected.
"Disputes as to forums," Waller ruled, "should not become state trials."
Deripaska, he said, should face trial on the grounds already decided by Clarke.
Those grounds, Waller and his two fellow judges, Sir Martin Moore-Bick and Sir
John Chadwick, agreed, came down to Clarke's judgement "that Mr Cherney had a
reasonable prospect of success in respect of his claim [116] and indeed that he
had the better side of the argument that the agreements as alleged by him
(relating to 20% of the shares in a Russian company known in the proceedings as
'Rusal') were made"; that "the risks inherent in a trial in Russia
(assassination, arrest on trumped up charges, and lack of a fair trial) are
sufficient to make England the forum in which the case can most suitably be
tried in the interest of both parties and the ends of justice"; and that "there
was a significant likelihood of Mr Cherney being prosecuted if he returned to
Russia and a real possibility that Mr Deripaska might use his influence, or his
ability to orchestrate feelings against Mr Cherney, to encourage the
authorities to take that course, and a distinct possibility that the charges
would be trumped up."
The Appeal Court ruling was a unanimous one. Moore-Bick added his comments to
the ruling: "I am satisfied that the judge was right to have regard to matters
that might prevent Mr Cherney obtaining justice in Russia when deciding
whether, viewed overall, England was the appropriate forum for the trial of the
action ... The judge held that there was no evidence that Mr Cherney had been
involved in criminal activities and Mr Malek did not seek to challenge that
finding. It follows, therefore, that there is a real possibility that any
charges brought against him would not be well-founded ... The fact that Mr
Cherney is not a political opponent of the Kremlin may mean that he is not
exposed to the risk of mistreatment on that ground, but it does not mean that
the system might not be turned against him for other reasons if Mr Deripaska or
those supporting him thought it might be worthwhile to do so."
Chadwick had commented the least of all three judges on the bench during the
hearings, but he was negative towards Malek's arguments on most points.
Chadwick wrote in the ruling: "The argument is founded on a misunderstanding of
Lord Goff's observations in The Spiliada case [1] ... It is not for this court
to re-assess the weight to be given to the matters which the judge was entitled
to take into account in exercising his own discretion."
Rusal has posted an announcement of its negotiations for debt relief with its
creditors, but nothing yet on the Appeal Court decision. Vera Kurochkina,
spokesman for the company, did not respond to a request to comment. A PR agent
in London was quoted by the Financial Times reporter, Catherine Belton, as
saying: "We vehemently reject the vexatious claims made by Mr Cherney and will
continue to contest them".
Belton repeats one of the Deripaska allegations which the High Court has
already dismissed. The London newspapers do not report the finding by all four
judges, as written by Waller, "that Mr Deripaska was capable of making
allegations to denigrate Mr Cherney, and the judge thus reached this
conclusion."
According to Rusal, the latest debt repayment terms it has negotiated with what
is called the "coordinating committee" of the more than 70 international
lenders is conditional on all of the banks agreeing. And none has agreed since
the Court of Appeal issued its ruling on Friday. According to Deripaska, whose
comment appears on the Rusal website: "This is a landmark restructuring for
RUSAL and an endorsement for Russian businesses from the international lending
community."
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