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By John Helmer, Moscow

Elena Baturina won an unusual battle against Rupert Murdoch’s journalism last week. It is yet another demonstration that when it comes to dispensing Russian justice, the London courts are the only ones who do.

The court case, decided by a three-judge panel of the UK Court of Appeal on March 23, concerns the meaning to be ascribed to the homes of the wealthy, in particular the house Murdoch’s men claimed to belong to Baturina, when apparently it didn’t, and they were wrong. The Court of Appeal has ruled that in this case, the mistake of fact also constitutes a case of innuendo whose defamatory meaning Baturina is now free to litigate against the Times.

 

Let’s start with the home truths. Murdoch lives here when he is in Los Angeles, if the picture correctly identifies the property on the internet. He also lives here in Oyster Bay, New York – on the sea — when he needs a rest from the travails of Manhattan, where he also owns an apartment at 834 Fifth Avenue, near the Central Park Zoo. The pictorial disclosures appeared on US internet sites in January. The headline for the disclosures was: “Plenty of Hideouts for Rupert Murdoch if Things Go Down Under”. The innuendo was that if troubles materialize for Murdoch he has these places to withdraw to. “We’re not saying he was planning ahead,” commented the anonymous author on Curbed.com on January 25, “but this [Los Angeles house] looks like a mountain fortress.” A Beijing house also reported as belonging to Murdoch – his current wife is Chinese – is in a traditional hutong near Forbidden City; hasn’t been photographed fior publication; and was reportedly acquired in 2004, just after Bejing’s municipality issued regulations allowing private takeovers of the heritage properties to prevent them being razed.

Noone has claimed that Murdoch’s homes – altogether worth between $100 million and $150 million – aren’t his entitlement, or that they represent the accumulation of ill-gotten gains. Murdoch’s spokesman at News Limited in London, Miranda Higham, declined to confirm or deny whether the publications correctly identify his homes, “given [they are] somebody’s private homes.”

Contrast the treatment of a home called Witanhurst, which the Sunday Times of London, one of Murdoch’s best known newspapers, reported on September 27, 2009, to have been bought by Elena Baturina. The newspaper claimed in a banner headline that : “Bunker billionairess digs deep”, with the subtitle: “Russia’s wealthiest woman is spending up to £100m to give her one of the biggest family homes in Britain”. According to a paraphrasing in the court ruling, the article had claimed that Baturina had purchased the property through “a front company called Safran Holdings, based in the British Virgin Islands” for £50 million, and that she intended to live there.

This is the house, described in other reports as “second only in size to Buckingham Palace … set in five acres on Highgate Hill”:

According to the libel action filed by Baturina against Murdoch’s newspaper, the house isn’t hers, and she didn’t buy it. On October 4, The Times issued what it called a “Clarification”. This repeats the original claim and admits no mistake. “An article, “Yelena Baturina: bunker billionairess digs deep” (Sunday Times News, 27 September 2009), stated that Mrs. Baturina purchased the property Witanhurst. We are told that this is not correct.”

The innuendo there is that what the newspaper has been told may be untrue. But the original story has been removed from website publication. Three subsequent stories in the newspaper, published following the removal of the Mayor of Moscow, Yury Luzhkov, Baturina’s husband, on September 29, 2010, report allegations of wrongdoing by Baturina which have been circulating in the Moscow media.

Baturina is suing Times Newspapers Ltd in the UK High Court, charging the newspaper had intentionally libeled her with the Witanhurst claim. Through her lawyers, Baturina contends the attack on her reputation came in the form of the innuendo intended by the article. This was, she charged, that she had “used nominees as the shareholders and officers of [Safran Holdings] to hide her interest as the beneficial owner” of the House, and that she “had failed to declare her ownership of and interest in Safran [Holdings] and/or [the House], pursuant to Russian law”.

The law to which Baturina was referring was a presidential decree of May 2009 requiring all public officials to disclose accurately and comprehensively their assets, including real estate, either belonging to themselves or to their spouses and families. As Luzhkov had filed a disclosure covering Baturina’s income, assets, and real estate, and as Witanhurst wasn’t on the list, Baturina charged Murdoch’s men with implying that she was unlawfully concealing her London property. Innuendo – the house was an ill-gotten gain, or at the very least, an ill-hidden gain, or maybe both.

In a preliminary High Court proceeding before Justice Sir David Eady, the judge ruled the libel case should proceed, and Baturina could take Murdoch’s men to trial. But he ordered Baturina to amend her submission to focus on the innuendo and the evidence that certain classes of readers had understood the report in that light. Eady ruled that readers of the newspaper in Great Britain and in Russia should be excluded from the claim, but that readers of the website version and Russian readers of republications of the original article should be included. The newspaper appealed to have the case dismissed entirely; Baturina appealed to have the class of readers expanded.

Baturina has won on both counts. In the judgement issued last week, written by Lord Neuberger and endorsed by two other justices, it was decided that the newspaper’s arguments had failed, and that the case should now go to trial. The limitation imposed by the lower court on the classes of readers who should be included in the claim was rejected: if Murdoch doesn’t settle with Baturina out of court, the trial evidence will focus on all readers of the original article, both print (estimated in the court papers at up to a million, including up to 400,000 Russians living in the UK)) and internet (about 30,000), in Britain as well as in Russia.

The appeals court ruling is that “there is nothing inherently defamatory in publishing a story that a claimant has purchased a house when she has not in fact done so.” But the significance of the report was in the innuendo – how the bare facts of the report would be interpreted in a larger context by its readers. The court rejected the argument from the newspaper that it lacked the means to know what interpretation Russians might give to the publication about Baturina. “It would not,” wrote Lord Justice Neuberger, “be right to conclude at this stage that TNL [Times Newspapers Ltd.] did not know or have reason to know of the meaning innuendo alleged to have been carried by the article.”

Without anticipating how the evidence will be considered by a judge and jury in the final outcome of a trial, Neuberger decided “her case raises an issue fit to be tried [and so] it seems to me that her claim must be permitted to proceed. While it is quite possible that her libel claim will fail, it seems to me, as it did to Eady J, that it could succeed, and, if it does, it is by no means improbable that the damages would be more than nominal. Once one accepts that there is a case in principle based on innuendo, and that it is not bound to fail on the grounds considered so far in this judgment, I am unpersuaded that there are any special facts which could justify the claim being characterised as an abuse of process.”

Since Luzhkov’s ouster by a presidential decree six months ago, both he and Baturina have been attacked in the Russian and international media with a torrent of innuendo alleging wrongdoing and corruption. Inteco, Baturina’s Moscow property development company – once the most trusted of the city’s real estate developers and project builders, compared to its rivals – has been reported to be facing breakup, its assets to be forfeit to court orders, or seized by others at disposal prices. For the time being, there is a distinct shortage of evidence, and little in the published reports except innuendo. The most potent of these is that Inteco had prospered because of preferential treatment in the award of land and other assets, or special financial benefits from the city and federal governments; and that without Luzhkov in power — this innuendo has run — Baturina’s business empire will not survive intact. Another way of putting this innuendo is the kleptocrats’ rule number 1 – the new men take all.

In February, a police search of Inteco’s Moscow office records was reported as based on allegations of an investigation into embezzlement of funds, in which an allegedly false-front company was used to pay an above-market price for land owned by Inteco, in order to pay Inteco’s debts to the Bank of Moscow. The bank’s offices were also targeted by the police. No evidence of the underlying value of the asset in the transaction has subsequently been presented to a court.

But the Bank of Moscow – previously controlled by the city government and run by allies of Luzhkov — has now been sold to a new group of shareholders whose identities are partly masked by VTB Bank and Suleiman Kerimov, the official acquirors at a takeover value of about $6.5 billion. That is roughly the same value as the Bank of Moscow’s market capitalization before the 2008 crash, and before the bank’s bonds and share price came under pressure as the campaign to oust Luzhkov gained strength last year.

But the innuendo against Baturina has not been confined to the Inteco assets in Moscow.

Baturina’s victory in the London court went unnoticed and unreported in the Moscow press last week. But on Friday, two days later, two reports appeared, suggesting that she is being forced to sell out of her cement business in Novorossiysk city, cutting Inteco out of the lucrative production line for the construction of facilities for the Sochi Winter Olympics of 2014. Two stories appeared, almost identical in subject, in Kommersant and Vedomosti, identifying two Inteco cement plants, and a competitor, the Novorostsement group in the region, owned by Lev Kvetnoy.

He was reported in both publications as the likely beneficiary of a takeover, in which Atakay Cement and Verkhnebakansky Cement would be handed over by Baturina. Kommersant speculated the takeover transaction would be for a nominal price, plus debt. Vedomosti claimed the sale would be for € 200 million, speculating that the two plants might be indebted for €320 million in modernization costs. Inteco, the second newspaper also speculated, is carrying €763 million in debt, while the holding’s assets might be worth more than €1.1 billion, and Baturina’s personal fortune, about €350 million.

None of this has been verified; none of it may be true; none of it is, on the surface at least, illegal. Research into arbitrazh court and bank records has failed to find any evidence of significant debt or repayment claims against the two Inteco cement plants, or against Inteco in Krasnodar. The regional administration says it knows of no hostile takeover under way against Inteco, nor tax or other administrative procedures against Baturina’s companies. Kvetnoy’s company doesn’t respond to calls, and neither does Inteco headquarters in Moscow or the cement plants in Novorossiysk.

So what to make of the innuendoes? The answer is simple, according to sources with inside knowledge of the Inteco operations in Krasnodar, and the construction materials market in the area. They claim that Baturina’s Inteco didn’t prosper from administrative favouritism in the bidding for the Olympics Games projects any more than her regional or national rivals, which have also included Oleg Deripaska’s Glavstroi construction group and Filaret Galchev’s Eurocement.

Instead, Inteco, like Kvetnoy’s company and others, expanded with new production lines and big increases in their cement output in the belief there would be no stopping the construction boom, secured as it seemed to be by state budget money. What then happened in the wake of the 2008 crisis, these sources say, is that demand for construction materials collapsed. The plan for cement production growth suddenly appeared to be heading towards a surplus of supply, and the inevitability of falling prices, dwindling profit margins. Starting in 2008, Baturina started trying to sell out.

Kvetnoy’s interest appears to be in seeing that no other rival buys the two plants; and that if he is obliged to buy Baturina out to ward off the competition, he will do so at the lowest possible price. There is no innuendo in any of this, and no cement shoes for Baturina

There is, however, a serious innuendo in reports circulating in parallel in the Russian press, that prices for construction materials have been corruptly rigged in the region. Allegations, court cases, and a spate of removals or resignations from the state games project company, Olimpstroy, have all been circulating. These carry the extra frisson that the minister in charge of the Games projects, Dmitri Kozak, is officially responsible, and perhaps personally culpable. Kozak, a St. Petersburg lawyer and a close advisor in Vladimir Putin’s first presidential term, was also once one of Putin’s candidates for the presidential succession in 2008. That put Kozak in direct competition with Dmitry Medvedev. Kozak also clashed with Deputy Prime Minister Igor Sechin, and lost the power of his position in Moscow.

Is Kozak hoping to make a comeback, and does he threaten Medvedev and his supporters? It is speculation on these questions, and on the possibility that Kozak may return to Putin’s favour as a contender to supplant Medvedev for the presidential or prime ministerial candidacy in next year’s elections, which is the real reason there is so much Moscow interest right now in whose name is on the cement shoes on the shores of the Black Sea.

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