Page 1 of 2 Deripaska loses UK court appeal
By John Helmer
MOSCOW - The Supreme Court of the United Kingdom has ruled that Russian
oligarch Oleg Deripaska should be denied permission to appeal against the
earlier rulings of four judges, who have ordered him to face trial on claims he
defrauded Michael Cherney (Mikhail Chernoy), his former business partner and
founder of the Russian aluminum monopoly, of his rightful stake in the company.
The Supreme Court, formerly known as the Law Lords of the House of Lords, is
the highest appeals court in the British legal hierarchy.
In proceedings before High Court Justice Christopher Clarke in 2008, and before
the Court of Appeal this year, Cherney is claiming a 13% shareholding, worth at
least US$4 billion in the
Jersey-registered, still privately owned United Company Rusal, which is one of
the world's top-three producers of bauxite, alumina and aluminum.
Justice Clarke ruled that Cherney's claim should be heard in the UK High Court
and that when it is, the claim has "a reasonable prospect of success".
Deripaska has now failed before three appellate judges and three Supreme Court
justices to avoid a trial on this claim. The timing of the London order, dated
December 9 and released on December 14, came just days after the Hong Kong
Exchange declined to approve Deripaska's application to sell Rusal shares in
the China market.
But even as the London court ruling was issued, Rusal sources were telling the
press in Moscow that they still hope to find sharebuyers in Hong Kong and to
gain the approval of the local bourse to start selling the shares next month.
The text of the brief ruling by Lord Justices Nicholas Phillips, Jonathan Mance
and Lawrence Collins in the Supreme Court says that permission to appeal was
"refused because the application does not raise an arguable point of law of
general public importance which ought to be considered by the Supreme Court at
this time, bearing in mind that the case has already been the subject of
judicial decision and reviewed on appeal".
Baron Philips of Worth Matravers is the president of the Supreme Court and the
most senior judge in England. Like the US Supreme Court, the UK court considers
appeals of last resort, but only when there are major issues of constitutional
or public policy dispute. In Cherney's claim for his shares in Rusal, there has
been unanimity on fact and law among the judges who have reviewed the case.
Deripaska was quoted by the Financial Times this month as describing the UK
court rulings against him as "crap. Second, it is nothing to do with the
company". Rusal has made no official comment. In July, just before the UK Court
of Appeal ruled against him, Deripaska told the BBC, "I don't understand your
country." He added: "I'm not sure I will have any links with Britain in the
future."
There is a long list of international banks, which in order to do business with
Deripaska's aluminum company for the boom years of metal trading, have accepted
claims about the shareholding of Rusal which, to date, the UK courts have not
accepted; have suspected of being doubtful; and now require the test and rules
of evidence in an unrigged international court to verify.
The European Bank of Reconstruction and Development (EBRD), and the
International Finance Corporation (IFC) of the World Bank announced in January
2006 that they had investigated Deripaska's and Cherney's claims. They agreed
to make a loan of $150 million to Rusal "based on full disclosure of ownership
by RUSAL's and Basic Element's owner Oleg Deripaska, and additionally provides
for detailed commitments to greater transparency, good corporate governance and
high business standards, covering RUSAL and Basic Element [Deripaska's
Moscow-based holding company]. Compliance with these commitments is covenanted
in legal documentation with the EBRD and IFC."
An EBRD source told Asia Times Online that the last line meant that Deripaska
had signed a statement denying any shareholding agreement with Cherney. The UK
court rulings cast doubt on this and other covenants Deripaska has signed with
other banks.
These banks, including those listed as underwriters for the Hong Kong share
sale - Credit Suisse, BNP Paribas, and Bank of China International Holdings -
are now placing themselves in the position of making unsubstantiated warranties
in Rusal's Hong Kong share prospectus that are the subject of an imminent
international trial. Goldman Sachs reportedly withdrew from the IPO underwriter
list in November. For Deripaska, the UK High Court trial will be his first.
Cherney has said through spokesmen and lawyers that he is not opposed to an
initial public offering (IPO) for Rusal; such a public share listing was one of
the conditions Deripaska had signed in his shareholding agreement with Cherney
in London in March of 2001, the text of which has been disclosed in the London
proceedings. Justice Clarke has accepted that Deripaska's signature on the
documents is likely to be genuine.
Cherney now says that, following the end of Deripaska's appeals and the
certainty of a High Court trial within weeks, "the banks have to set up
something in advance, a contingency fund or another arrangement, to ensure that
Oleg Deripaska has the funds to pay for my shares of Rusal. This is especially
relevant in light of the latest decision by the UK Supreme Court. If the banks
will not demand from my partner to have such a guarantee for my shares, they
will appear to be facilitating the grab of my assets, and will become
Deripaska's accomplices."
Lawyers in London believe that Justice Clarke, who is supervising the trial of
Cherney's claims and Deripaska's defense, has demonstrated impatience with
delaying tactics since the case began in 2006. He is likely, the sources
believe, to schedule the trial to start by April next.
But Deripaska, who has been sued by several of his partners in the past and
settled out of court with each one, is believed in Moscow to be unlikely to
agree to be cross-examined in the London court and to testify on oath. The
takeover by the Kremlin of Rusal shares and other assets, as security for
bailout loans, and agreements Deripaska is believed to have struck with Russian
government officials, make Deripaska's appearance before the High Court bench
even less likely.
So, as Hong Kong investors contemplate whether to buy into the company,
Deripaska must ponder how to give back a chunk to Cherney. A source who has
been close to the Moscow negotiations over Deripaska's debts to the Russian
banks believes Deripaska hasn't the cash and can't raise new debt to pay
Cherney in money. They believe Deripaska will have to give Cherney shares.
That in turn will make Cherney highly prominent among Rusal's shareholders and
reduce Deripaska's stake in the company even more. In addition to Deripaska and
Cherney, Rusal's other shareholders are Mikhail Prokhorov, who started building
his stake when he sold his 25% shareholding in Norilsk Nickel, Russia's largest
mining company, to Rusal; Victor Vekselberg and Len Blavatnik, who took Kremlin
orders to merge their SUAL aluminum concern into Rusal in 2006; and Glencore,
which took Rusal shares in exchange for selling alumina refineries in Ireland
and Italy to the Russian group.
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