By John Helmer in Moscow
With just a week to go before Oleg Deripaska asks Norilsk Nickel’s international shareholders to vote in favour of his hostile takeover of the company, the UK High Court has ordered an end to Deripaska’s tactics towards former patron and partner, Michael Cherney (Chernoy); dismissed more of Deripaska’s claims about his opponent; and fixed the timetable for Deripaska to face trial on charges of fraud, deceit, and breach of trust.
In London last Friday, High Court Justice Sir Nigel Teare heard renewed argument by Deripaska’s lawyer, Ali Malek, and by David Foxton for Cherney. Cherney has been suing Deripaska for enforcement of their March 2001 agreement, in which Deripaska signed over the equivalent of a 13% stake in United Company Rusal, Russia’s aluminium monopoly and one of the world’s largest producers of bauxite, alumina and aluminium metal.
That shareholding, plus dividends Deripaska took for himself since then, and Chernoy’s claim to a share of assets Deripaska sold off, amount to more than $3 billion at current market values.
The High Court case has been in preliminaries for more than three years, as Deripaska attempted to avoid trial. His claims to avoid UK jurisdiction were dismissed in July 2008 by Justice Christopher Clarke. In the most detailed assessment of Deripaska’s credibility and business practices issued to date, Clarke ruled: “One side or other is plainly telling lies on a grand scale. But I am satisfied that, on the material presently before me, Mr Cherney has a good arguable case on this point, in the sense that he has a strong argument and that, insofar as any judgment can be made on present material, he has much the better side of the argument.” According to the judge, “I am satisfied that Mr Cherney has a reasonable prospect of success in respect of his claim.”
Clarke also ruled that Deripaska may be deliberately misleading the court and press with reputation-blackening propaganda about Cherney. “I cannot, for the purposes of this application, begin to determine where the truth lies. Mr Cherney may be a gangster or the victim of Kompromat. Mr Deripaska may be a spreader of calumnies about Mr Cherney, either true or false. The allegations against Mr Deripaska may be true. For present purposes it is material to note (a) that Mr Cherney has never been convicted of any crime anywhere; (b) that the highest Court in Switzerland has required the Cantonal Court to enter a non suit in relation to the charges against him; (c) that there is evidence in his favour of want of criminality on his part from individuals in very senior positions; but (d) that he is undoubtedly reputed to be a gangster in some of the public press in Russia and that there is hearsay evidence that this view is taken by some security personnel.”
Malek has lost each of the subsequent proceedings for the Deripaska side. He lost his appeal of the Clarke judgement last year before a three-judge bench of the UK Court of Appeals. The UK Supreme Court subsequently endorsed this judgement, dismissing Malek’s application for leave to appeal. This puts Deripaska squarely in the box for the first international trial over the history of the Rusal company.
In the latest London court proceeding on October 8, Malek repeated once more the claim that Cherney was a “representative of Russian organized crime,” who forced Deripaska to sign contracts and payments as part of a “protection racket.” Malek applied to have Deripaska’s selection of an expert on organized crime testify at the trial. Teare ruled this was irrelevant, writing: “The Defendant’s application for permission to adduce expert evidence on organised crime groups and/or protection rackets in Russia is dismissed.”
The judge’s new directions set out a set of weekly and monthly deadlines, starting on October 29. Disclosure of evidence must be completed by January 28 next. Signed statements of fact by witnesses, whose credibility will be cross-examined in the trial, must be exchanged by July 15, 2011. The experts Judge Teare has agreed to accept in the trial are restricted to issues of Russian law; the law of Lichtenstein (where Cherney and Deripaska jointly operated the offshore profit centre for their aluminium business); and handwriting.
This last one focuses on Deripaska’s signatures on the March 2001 agreements with Cherney. If they are genuine, Deripaska’s defence collapses. Justice Clarke has already concluded in detail on the handwriting evidence presented to the court:
“Then there is the forensic evidence of the papers Cherney and Deripaska signed in London, making themselves partners in the future of Rusal and Base Element… In 2008 Mr Robert Radley, an experienced forensic expert, examined the originals of Agreement No 1 and Supplement No 1, which were in the possession of Mr Cherney’s solicitors. His report of 2nd April 2008 reveals that the dates and signatures on both Agreement and Supplement were completed with the same blue ballpoint ink, with similar ink flow onto the paper, and with similar defects in the lay down of the ink, save that Mr Cherney’s signature on the Supplement was completed with a different blue ballpoint ink. In other words Mr Deripaska signed Agreement No 1 and Supplement No 1 with the same pen. Further, ESDA examination revealed that the original Supplement was signed by Mr Cherney when it was resting on Agreement No 1. This is consistent with both documents having been signed on the same occasion. Why Mr Cherney should have signed the Supplement with a different pen is unknown but I do not regard that as a circumstance that justifies a conclusion that the Supplement did not come into existence in the circumstances described by him.”
Once the expert reports have been finalized by the deadline of December 9, 2011, the preparation of the trial papers will be almost complete. If there is argument between the lawyers over the expert reports, Justice Teare ruled that he will not listen to another repetition of Deripaska’s claims. “If the experts’ reports cannot be agreed, the parties are to be at liberty to call expert witnesses at the trial, limited to those experts whose reports have been exchanged.”
Preparation of what in the UK court practice are called the trial bundles – the documentary evidence on which the cross-examination of witnesses is based, along with the judge’s final rulings – is set for no later than 10 weeks before the trial. The final pre-trial review before the judge has been fixed for no later than January 28, 2012.
The schedule puts a stop to further delaying tactics, and fixes a trial date “not before March 1, 2012.” The precise start date must be decided within the next fortnight, the judge ruled Friday He told the lawyers the trial should last between 8 and ten weeks.
Teare also agreed to Cherney’s request in his initial court filing for two trials. The first, according to the judge, will “determine all issues of liability and (if appropriate) the nature of the relief which is to be granted to the Claimant and/or the principles by reference to which such relief is to be assessed (including, in the event that damages are to be awarded, the date for assessment of such damages)”. If Cherney wins, there will then be a second trial to “determine an assessment of quantum of damages and/or the precise form of any other relief.”
In the prospectus which Deripaska signed off for the sale of Rusal shares on the Hong Kong Stock Exchange in January, the company acknowledged the seriousness of the threat to Rusal’s assets, market capitalization, borrowing agreements, and share price of the High Court trial:
“UC RUSAL is unable to express a view on the merits of Mr. Cherney’s claim. However, in the event that Mr. Cherney succeeds in his claim and obtains the relief he is seeking, then, unless Mr. Deripaska funds the judgment bill entirely from assets unconnected with the Group, Mr. Deripaska’s beneficial interest in UC RUSAL or (depending on the remedy granted) certain assets of the Group, such as a portion of UC RUSAL’s interest in RA, would be affected adversely by the claim. In such circumstances, such adverse effects could also have adverse consequences under the terms of the Group’s debt restructuring agreements.”
Deripaska has been sued in the courts and tribunals of the UK, Switzerland, US, British Virgin Islands, and elsewhere. When he has failed to stay out of the jurisdiction, and has been compelled to testify on oath regarding Rusal’s business practices, he has settled the claims against him out of court.
Anticipating that outcome in the London case, the Rusal prospectus warned the Hong Kong market that “Mr. Deripaska’s beneficial interest in UC RUSAL would also be adversely affected if he financed any settlement of the claim through a sale of his beneficially owned shares in UC RUSAL…” If Cherney should seek to secure Deripaska’s capacity to pay the bill, and apply for a freeze order against his assets, or an enforcement order to secure the court’s awards, the Rusal prospectus says: “Mr. Deripaska has informed the Company that he strongly denies and will vigorously resist Mr. Cherney’s claim. The Company would vigorously contest any claim if made against it, any of its subsidiaries or any of its or their respective assets.”
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