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By John Helmer, Moscow

The UK High Court ruled this morning in London that the half-billion dollar fraud claim pursued by state shipping company Sovcomflot and its chief executive Sergei Frank was based on fabrications and lies. Frank was condemned in the ruling, and his witnesses dismissed as dishonest. Former Sovcomflot chief executive Dmitry Skarga and former chartering partner Yury Nikitin, have been vindicated in the ruling by Justice Sir Andrew Smith, which was handed down at 10 o’clock London time.

Today’s ruling is the most serious condemnation ever issued by an independent international court of the conduct of Russian officials of state company business. Legal costs in Frank’s pursuit of his predecessor have run to at least $50 million.

Frank, a former federal transport minister, will now face interrogation by government officials, led by Sovcomflot board chairman, Sergei Naryshkin, who is also chief of the presidential administration; Deputy Prime Minister Igor Shuvalov, who as the previous Sovcomflot board chairman encouraged Frank to pursue the London court vendetta; and Deputy Prime Minister Igor Sechin, who was also identified in the court testimony as the state official responsible for personnel and policy control of the Russian oil transportation concession.

Also likely to face internal grilling at the Kremlin is Gennady Timchenko, the oil trader whose role in the Sovcomflot affair was also documented in detail during the year-long proceedings.

Here are the official press statements issued in London this morning:

PR0210
December 10, 2010

Skarga cleared in battle with Sovcomflot as Frank is routed.

Former Director General of Sovcomflot, Dmitry Skarga, has won a resounding victory in the High Court against his former company headed by his successor, Sergei Frank, a former Minister of Transport of Russia.

After a legal case spanning five years, including a 6 month hearing, Mr Justice Andrew Smith dismissed in full the case of fraud and conspiracy brought against Mr Skarga by the largest shipping company in Russia.

State-owned Sovcomflot had alleged that Mr Skarga had taken bribes from Russian businessman, Yuri Nikitin, to promote deals favourable to Mr Nikitin including charters of Sovcomflot vessels, sale and leaseback transactions and newbuilding deals.

The Court rejected these allegations and, in the process, found that Sovcomflot witnesses had lied in order to manufacture a case against Mr Skarga. Mr Frank himself, who falsely denied meeting with private investigators that had been instructed by Sovcomflot to investigate Mr Skarga, was described by the Judge as “not a reliable witness”

The disagreement between Mr Skarga and Mr Frank was described by the Court as “acrimonious” and it was Mr Frank himself who had, according to the Court, instigated the investigation into Mr Skarga which led to these proceedings. According to the Judge, Mr Frank also threatened a key witness for Sovcomflot, Mr Privalov in order to obtain his assistance. Mr Privalov’s evidence was described as “thoroughly dishonest”.

Mr Skarga said that it had a been a long battle, but he was very pleased with the final result.

10 December 2010

PR0210
December 10, 2010

Izmaylov defeats Novoship after epic High Court battle.

Former President of Novorossiysk Shipping Company (Novoship) has won a resounding victory in the High Court against his former company.

Serious allegations of fraud had been brought against him by Novoship. Not only were those allegations dismissed in full but the prime witnesses against him, Mr Borisenko of Sovcomflot and Mr Oskirko of Novoship were found to have given false testimony.

Mr Borisenko, the former Chief Financial Officer of Sovcomflot, gave evidence which the judge, Mr Justice Andrew Smith, described as “thoroughly dishonest.”

Mr Oskirko, a vice President of Novoship who still holds this position, gave evidence which the Judge described as “dishonest”, “untruthful” and “false”.

The Judge recognised that employees of Sovcomflot and Novoship were likely to have been put under “great pressure”, to give false evidence supporting the Claimants’ case, although the particular person or persons responsible for applying that pressure were not specifically identified.

The allegations that Mr Izmaylov had received bribes from the Russian businessman and co-defendant, Mr Nikitin, in order to promote deals favourable to Mr Nikitin were completely dismissed.

Mr Izmaylov welcomed the Judge’s decision which vindicated him completely.

10 December 2010

PR0210
December 10, 2010

Nikitin welcomes High Court judgment in Sovcomflot dispute

RUSSIAN shipowner and businessman Yuri Nikitin has welcomed the decision of the High Court in London to clear him of most of the claims made against him by Russian shipping giant Sovcomflot and Novorossiysk Shipping company (Novoship) with whom Sovcomflot has merged. The decision comes after a trial spanning six months in which Sovcomflot and Novoship sought to recover approximately $850m they claimed was owed to them as a result of the alleged dishonest actions of Mr Nikitin and others. Mr Nikitin is meanwhile considering an appeal against the finding of the court that his commission arrangements with a number of leading shipbroking firms were unlawful.

All allegations against Mr Nikitin regarding the alleged bribery of, and fraud and conspiracy with, Dmitry Skarga, the former Director General of Sovcomflot, failed completely. All allegations against Mr Nikitin regarding the alleged bribery of, and fraud and conspiracy with, Tagir Izmaylov, the former President of Novorossiysk Shipping Company, also failed completely.

In consequence, the allegations that Mr Nikitin had paid bribes to Mr Skarga or Mr Izmailov to secure allegedly favourable deals with Sovcomflot and/or Novoship, such as sale and leaseback deals, so-called below-market charters and newbuilding contracts, were all dismissed with the result that the vast majority of the financial claims against Mr Nikitin were also dismissed.

The claim that Mr Nikitin’s commission arrangements, in particular with the brokers Clarksons, Galbraith’s and Norstar, were unlawful, whereby commissions were paid to companies associated with him on some ship sales and purchases, surprisingly succeeded with the net result, after taking into account Clarkson’s and Galbraith’s own settlements with Sovcomflot/Novoship, that some of the defendants had to pay just over $40m out of the $850m claim. This comes to less than 5 per cent of the total claims.. Mr Nikitin does not accept this part of the judgment.

The vast majority of the claims against Mr Nikitin were found by the court to be based on dishonest evidence from dishonest witnesses employed by Sovcomflot and Novoship. The court accepted that the witnesses who live in Russia, particularly those employed by Sovcomflot or the NSC group, would have felt “great pressure” to support the claimants’ case and that the evidence from the claimants’ key witnesses, Mr Privalov and Mr Borisenko, was “thoroughly dishonest”.

Mr Nikitin’s position has been largely vindicated. Mr Nikitin is considering an appeal in respect of the commission claims. It is his position that he introduced business to the brokers Clarksons, Galbraith’s and Norstar (otherwise there would have been no reason for the brokers to pay him) and that an arrangement whereby brokers pay a party a commission in return for the introduction of business is neither unusual nor unlawful.

 Lax & Co LLP provides legal advice on all aspects of shipping and international trade, including contract of carriage disputes, ship sale and purchase issues and complex high value litigation. It works with shipowners, charterers, operators, P&I clubs, shipyards, banks and commodity traders, and regularly acts in conjunction with lawyers in other jurisdictions.

www.laxlaw.co.uk

For more information call: Issued by:
Mike Lax Chris Hewer
Lax & Co Merlin Corporate Communications
+44 207 6239434 +44 1903 50 20 50
mike.lax@laxlaw.co.uk chris@merlinco.com

Sovcomflot press service was contacted for its comment. The mobile telephone of Andrei Kechashin, Frank’s spokesman, did not respond. The press office didn’t answer telephone inquiries either. The company’s website posted no official response to the court ruling of today.

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