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By John Helmer, Moscow

In the long history of English justice, it has happened before that candidates for the seats of the highest court in land have been obliged to rehearse their talents and qualifications before the monarch on his throne (aka the Crown). And not only their qualifications, technical and professional, but also their willingness to do the monarch’s bidding. If not for that, Crown courtiers have been known to intimate, the seat on offer might be pulled and presented to another arse.

In time of invasion threats, wars of religion, wars between king and barons, civil war between king and parliament, and conflicts between the lower house of parliament and upper, ambitious Englishmen who hoped to be high judges understood how to comport themselves in front of those more powerful than them, and on whom they depended.

In the evolution of the American democracy, this has been formalized as the nomination hearing process of judges named by the President before the Senate Judiciary Committee.

In London at the moment, an unusual – possibly unprecedented – test of a judge’s appointment is under way in court chamber No. 26 on The Strand. Starting on October 1, Jonathan Sumption, Queens Counsel and reported appointee to a judgeship of the Supreme Court, the highest court of appeal in the land, is lead counsel and barrister for Roman Abramovich, the defendant charged by plaintiff Boris Berezovsky with cheating him of several hundred million dollars worth of benefits that were, Berezovsky alleges in his testimony, part of a trust under English law.

In comparative historical terms, Abramovich and Berezovsky might be regarded as warlords at a stage of Russian history when the crown was worn by a man about as arbitrary, murderous and untrustworthy as King John I of England, who lived 800 years before Boris Yeltsin. In the earlier event, on June 15, 1215, King John was forced to sign a charter demanded by the warlords. As one of the illustrations implies, the king agreed to sign because he was surrounded by armed and armoured men; and not because, as the second illustration implies, he was being gracious to a bunch of bare-headed supplicants. In fact, the king knew it would have been dangerous for him not to sign. In Berezovsky’s case, he is claiming it was dangerous for him to sign, and dangerous too, if he refused to agree. His oral trust with Abramovich was the result. For Abramovich, Sumption is trying in court to show that because there was no Berezovsky signature on the agreement, there was no trust.

Sumption, it has also been reported in London, has been given leave to appear as fee-paying attorney for Abramovich, before he takes the proposed seat on the Supreme Court. Sumption appears to have confirmed his judgeship with this statement to the BBC. But he’s keeping mum on the terms of his deferment. Here’s the Law Society Gazette version, and here, the Lawyer.

The schedule for Berezovsky v Abramovich anticipates open-court proceedings for at least three months. Sumption, it has been reported while he himself remains silent, has asked for his judgeship to be postponed until Berezovsky v Abramovich is concluded. That might be double the duration of the trial, possibly longer.

The legal commentary has been that this puts the High Court judge, Justice Dame Elizabeth Gloster, in the awkward position of ruling in relation to Sumption’s moves with the understanding that he may be looking down at her from his higher appeals bench sometime soon. There has also been speculation that Sumption appears to be placing his desire for Abramovich’s money above his desire to serve his name, profession and the cause of justice in England.

That indeed is something, something secret. So when the moment came last week, during proceedings on October 13, that Sumption tried leading the witness with his display of the fundamentals of English law – he was cross-examining Berezovsky – he was slapped down by the judge. As observers in the courtroom remember the significant instant, Sumption was interrogating Berezovsky on how it could possibly be that so much of monetary value and wealth management could depend on the word of a couple of Russians – Berezovsky and Abramovich – without their writing everything important down and signing it.

Berezovsky replied that this was how relationships between Russians who trusted each other have been evolving towards trusts as they operate in English law. Sumption then asked Berezovsky how he understood the concept of an English trust. Berezovsky replied that in the year 2000 he had been advised by his partner, the late Badri Patarkatsishvili and also by another Russian business acquaintance, Vasily Anisimov, the owner of aluminium smelters at the time, that the Russian concept of trust was unenforceable in Russian law, but was in transition toward the English one, the better to protect the interests of the agreeing parties.

Berezovsky said that Russian business agreements could be struck by a handshake. Sumption asked whether Berezovsky understood that English trusts required written documents and signatures.

At that point, Justice Gloster intervened to say that in the law on trusts, English trusts could be formed by oral agreement. Sumption slipped away from the rebuke to continue interrogating Berezovsky with the innuendo that he knew, as the court should judge, that the written record was the only credible record of what Berezovsky had actually agreed with Abramovich. Berezovsky told Sumption he failed to understand why Sumption couldn’t grasp the point – that there are occasions when agreements are simply too dangerous for the interests of the parties to be put down in writing.

It isn’t known what form of agreement – written down or oral, formal or informal – has been governing Sumption’s appearance on Abramovich’s side until or unless he becomes a Supreme Court justice, accepts the knighthood that usually goes with the seat, the robes, and the extra large wig, etc.

But one thing is now clear from the Russians and from the Englishmen performing in Courtroom No. 26 – the concepts of trust, credibility, obligation and enforcement are a matter on which Russian culture and English culture may not be agreement, at least not on the surface. Sumption had made a bad mistake in law, as he attempted to make Berezovsky look a liar. That much the judge made immediately and politely obvious.

But just as importantly – the judge signalled the problem for the entire proceedings: how can Sumption and his client Abramovich make Berezovsky’s trust arrangement with Abramovich be judged to be lacking in evidence, and thereby unenforceable, if Sumption himself is relying on a secret trust arrangement promising big money for what he is currently doing, and protecting his next paying job?

One other important Russian peculiarity has also emerged from the trial so far, and that concerns the believability of Oleg Deripaska, chief executive of United Company Rusal and purported controlling shareholder of Rusal (with a stake of 47.41%, according to the Rusal website). The Berezovsky case is the first of the High Court trials of how Deripaska came to own, or claims to own and control Rusal, Russia’s aluminium monopoly, worth $14 billion in current share market capitalization. Two other trials follow in the High Court shortly.

In January of 2012, immediately after the courtroom proceedings are scheduled to wind up for Berezovsky v Abramovich, Deripaska will go on trial in the High Court for the second time. This is in the case of The Honourable Nathaniel Philip Victor James Rothschild v Associated Newspapers Limited. According to the papers filed by Rothschild (and Deripaska’s) London lawfirm Schillings, Rothschild claims to have been libeled and his reputation damaged by two accounts of his meetings in Moscow with Deripaska, as reported by the Daily Mail of London on May 22, 2010. Here is the story as the newspaper continues to report it.

Of primary interest to the British reporters in this story was the fact, claimed in the publication and apparently not contested, that Rothschild had airlifted Lord Peter Mandelson from Switzerland to Moscow in his private jet in time to attend a January 2005 dinner meeting which Deripaska was hosting. That banquet, across the street from the Russian Foreign Ministry, was for senior executives of US aluminium-maker Alcoa, plus Peter Munk, the Canadian goldmining magnate and advisor to both Rusal and Rothschild. So swiftly was the airlift undertaken, according to the newspaper Mandelson didn’t have time to get a Russian entry visa into his passport; that, reportedly, was arranged at the airport by Rusal’s security men.

When they published their story, the Daily Mail reporters believed that the dinner conversation between Deripaska and Alcoa’s chief executive at the time, Alain Belda, plus Rothschild and Mandelson, was focused on the closing of Alcoa’s purchase of two Rusal-owned aluminium sheet-rolling mills in Samara and Rostov regions. The Daily Mail asks: “Why then was Mandelson there at all?”

Until Rothschild and Schillings stand up in court in a few weeks’ time, it isn’t clear from the publicly available documents what exactly Rothschild is complaining about, since the innuendo – if there is one in the publication – is that it was Mandelson, then Trade Commissioner of the European Commission, who may have had a conflict of interest regarding tariffs then in force, later to be dropped, for rolled aluminium products exported from Russia to the European Union (EU). The Commission is denying that, claiming the tariff decision was transparent and undertaken independently of Mandelson.

Since the Rothschild claim was first filed in July of 2010, new evidence has appeared, suggesting that Deripaska and Belda may have had much bigger fish to fry at dinner than rolled aluminium exports to the EU. According to US State Department records, Deripaska approached Alcoa early in 2006 – the State Department estimate of timing – with a proposal for Alcoa to acquire control of Rusal through a shareholding swap and merger. There is other evidence that Alcoa had been seeking to buy control of several Russian aluminium smelters, including Bratsk, the biggest of Rusal’s smelters, at least six years earlier, before the Abramovich deal to which Berezovsky refers, and before it was incorporated into Rusal. That move, confirmed by Alcoa sources years ago, was blocked by opposition from a group of Russians controlling Bratsk and the Russian aluminium trade. Alcoa, company sources have also suggested, didn’t give up on the much bigger aluminium opportunities in Russia than the ones it bought from Rusal in 2005.

The risk to Rothschild, and also to Deripaska, in the High Court trial next January is that a full account will be sought from witnesses of what Rothschild and Mandelson heard Deripaska say at the Moscow dinner; where the two Englishmen went in Russia after dinner; and what Mandelson, Rothschild, Deripaska, and Belda did in the aftermath of the trip.

While the judge is considering that evidence, a third trial in the High Court is scheduled to get under way. That is Michael Cherney v Oleg Vladimirovich Deripaska. This is the lawsuit by Cherney (Mikhail Chernoy) to enforce signed trust and contract agreements with Deripaska, which date back to March of 2001, when Cherney’s shareholding in the Rusal business was the deciding factor for control of Rusal between competing bids from Abramovich and his partners (Berezovsky and Patarkatsishvili), Victor Vekselberg, Vasily Anisimov, and at a further remove, Alcoa. Cherney’s evidence in this case is that he put Deripaska, a junior manager he trusted, in charge of Cherney’s expanding interests in the Russian aluminium business; and that Deripaska repaid that trust by cheating Cherney of the latter’s stake in Sibirsky Aluminy, one of the forming companies of Rusal. Deripaska used to claim that he had no business dealings or shareholding partnership with Cherney, and that the only money he had paid was protection money. Noone on several UK court benches appears to believe that, and the documentary evidence belies it.

The sequence of these three High Court actions make, however, one piece of the same business history. Commencing with Berezovsky’s testimony in court last week, they reveal that contrary to Deripaska’s public claims, and the testimony of his counsel in the Cherney proceedings so far, Deripaska wasn’t a significant participant, let alone the prime mover in the creation of the Rusal enterprise. Others were more important as proprietors of the assets, and more powerful in terms of guarding the asset consolidation politically from government opposition, led (Berezovsky has testified) by Prime Minister Yevgeny Primakov; he took power after the August 1998 Kremlin bond default, and was deposed by Yeltsin in May of 1999.

According to Berezovsky’s evidence under cross-examination by Sumption, he and Patarkatsishvili were first approached in 1999 with a proposal to acquire several Russian aluminium assets, including the Krasnoyarsk smelter, the Bratsk smelter, the Krasnoyarsk hydro-electric power plant (on which the Krasnoyarsk smelter depended for its energy), and the Achinsk alumina refinery, which supplied part of the alumina which the smelters converted into metal.

At the same time, there were many powerful Russian businessmen competing for the same assets, Berezovsky has testified, including Anisimov and Mikhail Fridman’s Alfa group (which had lost out in an earlier round of battling for the Achinsk plant). But not any of the names mentioned include Deripaska’s. What happened next, after the deal initiation, according to Berezovsky, was that he approached Abramovich, who referred the deal idea to his advisors – they are named in court as Eugene Shvidler and Eugene Tenenbaum. Again, there is no mention – this too appears to be common ground between Abramovich’s evidence and Bereozovsky’s — that Abramovich asked Deripaska for advice or participation in the deal sequence.

The Berezovsky claim is that Abramovich and he agreed that he and Patarkatsishvili would acquire a 50% stake in the four Siberian assets for $581 million — the court testimony diverges on price in the range of $400 million to $575 million – which would be covered by Berezovsky’s and Patarkatsishvili’s share of oil sale profits from Sibneft. They then intended to flip the assets, when Abramovich resold (merged) them into the newly formed holding called Rusal, for which Abramovich’s idea was that Deripaska would pay.

In retrospect, though not yet referred to in the High Court, Abramovich got Deripaska to pay him $1.8 billion (out of Rusal revenues) for the assets Berezovsky says he and Abramovich had agreed would cost less than $600 million to acquire. Abramovich was tripling his money, it seems. But nowhere in the court testimony so far is Deripaska identified as anything but Abramovich’s factotum. Sumption’s case against Berezovsky’s claim is that Berezovsky wasn’t an equity stakeholder in the deal at start or finish, and that monies paid to him and to Patarkatsishvili were deal commissions or success and completion fees, not equity dividends or shareholding profit shares. Sumption is admitting for Abramovich that Berezovsky and Patarkatsishvili played a successful role of sorts. But striking by its absence in the evidence presented so far is the self-important role Deripaska claims against Cherney, and will claim in his own defence in court later on.

Berezovsky mentions the name of Dmitry Bosov as initiating one of the ideas for consolidating the Russian aluminium business under a single group’s ownership; Anisimov as making a similar proposal; Patarkatsishvili as the negotiator of the principles of the deal; Abramovich as the source of the money from Sibneft’s cashflow; and Eugene Shvidler, Abramovich’s partner in Sibneft, as his deal advisor. Again according to Berezovsky, it was agreed with Abramovich, Shvidler, Patarkatsishvili and himself at a meeting at the Dorchester Hotel in London on March 13, 2000, that Rusal would be comprised of Abramovich’s stake, including 25% for himself (and Shvidler) and 25% for Berezovsky and Patarkatsishvili; and 50% comprising assets held by Deripaska and his partners. The latter Berezovsky identifies as led by Mikhail Chernoy. In an aside during his court testimony, Berezovsky testified that he found it remarkable that Lev Chernoy was on the selling side at the start of the transaction sequence, while Mikhail Chernoy, his brother, was on the buying side at the conclusion of the sequence. Deripaska’s significance appears to have been dwarfed between the two Chernoys.

According to Berezovsky, Deripaska’s role was to manage the new Rusal holding, and take orders from everyone else, starting with Abramovich. The details of this arrangement with Abramovich were said by Sumption as having been nutted out in negotiations between a group of Abramovich aides led by Eugene Tenenbaum, an accountant from Toronto who founded the KPMG office in Moscow in the early 1990s and then left to work for Abramovich. Representing Deripaska were three men, according to Sumption – Alexander Bulygin, chief executive of Sibirsky Aluminy; Stalbeck Mishakov, a personal lawyer for Deripaska; and Paul Hauser, another personal lawyer for Deripaska. Hauser was the principal solicitor involved in settling a 2005 claim against Deripaska from aluminium traders, David and Simon Reuben; they charged that Deripaska had cheated them by switching aluminium sales revenues from their intended companies into shadow companies with the same names and different registrations. The claim for $300 million was settled out of court and paid by Deripaska.

Bulygin reappears at the Moscow dinner in January of 2005, when the Daily Mail claims Rothschild showed up with Mandelson in tow. But Bulygin was never more than Deripaska’s factotum. Since his dismissal in January of 2009 and replacement by Deripaska himself, Bulygin has disappeared from view. But not before he went on record as acknowledging that when his company thought better of the contracts it had signed, he tore them up. That is what the Reuben brothers and several others with profit-sharing, equity and trading contracts with Deripaska and his companies have gone to court to enforce. It is what Berezovsky is accusing Abramovich of doing in 2000, and Cherney is accusing Deripaska of doing in 2001 and the years which followed. What Belda might have to admit that Deripaska proposed to Alcoa in 2005 and 2006 may surface shortly. Over the past decade, in this game of lifting assets from one owner and reselling to another, the asset value has jumped by 35 times.

How much Abramovich knew or planned of the eventual scheme to swap Russian aluminium stakes at risk of Kremlin renationalization for US-listed Alcoa shares, may become clearer in Courtroom No. 26 before Christmas. But it is already clear that in that grand plan, Deripaska was playing second or third string. Rothschild apparently thought he needed help to convince Alcoa otherwise.

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