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By John Helmer in Moscow

Oleg Deripaska is not having a good week.

On Monday, he revealed he was at maximum stretch to garner just enough shareholder votes for two seats on the Norilsk Nickel board, plus a seat for his highly unpredictable and unreliable shareholding ally, Mikhail Prokhorov.

On Thursday, Justice Christopher Clarke issued a 63-page ruling, granting the application of Deripaska’s former patron and business partner, Mikhail Chernoy (Michael Cherney), the right to a High Court trial of his $6 billion claim to his stake in Rusal, and in Deripaska’s holding, Basic Element. For the first time in an international court, Deripaska has been defeated on the issue of jurisdiction, and must now accept service and stand trial for the partnership agreement he allegedly signed with Cherney at the Lanesborough Hotel in London in March 2001.

According to Clarke’s ruling, “the two most important witnesses are the parties themselves. A substantial proportion of the relevant material (e.g. as to company structures, instructions to lawyers and accountants and movement of funds) must be in writing. Several witnesses, such as the representatives of Syndikus and Mr Philipides, Mr Mishakov and others are likely to be seasoned travellers. Neither party has suggested that they will suffer significant prejudice if the trial takes place here.”

“Taking all those considerations into account, I am persuaded that the risks inherent in a trial in Russia (assassination, arrest on trumped up charges and lack of a fair trial) are sufficient to make England the forum in which the case can most suitably be tried in the interests of both parties and the ends of justice and, accordingly, the proper place for the determination of this claim.”

The implications for one of the world’s most potent aluminium groups are unprecedented, and won’t be long in appearing.

For Deripaska’s Russian shareholders — Prokhorov with 14%, and Victor Vekselberg with 18.9% — have already showed signs that they are ready to break away from Deripaska’s control of Rusal (he holds 58.9%), if they believe he cannot take over Norilsk Nickel; if he cannot afford to meet his obligation to buy back their unlisted, unvalued stakes in Rusal; and if he cannot manage a value-enhancing public share listing for Rusal in the London market.

What turns out to be good enough for Lord Clarke will now become the acid test for Rusal’s attempt to list on the London Stock Exchange. If Prokhorov and Vekselberg recognize their predicament as similar to Cherney’s, then either Deripaska settles out of court with all three — or else he faces his first sworn oath, and the first real court of law to judge his business practices, since he and United Company Rusal (UCR) began their rise just over a decade ago.

Lord Clarke provides the first independently verified account of that history, based on an evidence file he himself says comprises 16 lever arch files; he estimates that they require almost three days, doing nothing else, to read.

This is the most comprehensive account of the history of the formation of the commercially and privately owned Russian aluminium sector that has ever appeared. For those with special interests, here too is an account of how Boris Berezovasky and his partner, the late Badri Patarkatsishvili, were gulled by Roman Abramovich, who appears to have begun with just 25% of Rusal, and ended with the 50% he sold to Deripaska. In a footnote that may weigh on Berezovsky’s case against Abramovich, also proceeding at present in the High Court, Judge Clarke says: “If that is so, and the agreement was carried out, it is not clear to me how the two of them [Berezovsky and Patarkatsishvili] continued to have interests in Rusal thereafter.”

Let Lord Clarke set out his opinion and ruling in his own words:
“This is not a run of the mill claim. 66% of UCR Rusal is said to be worth of the order of $ 23 billion. If so 13.2% is worth $ 4.6 billion, making the claim, after deduction of the $ 250 million, worth about $ 4.35 billion. The payment of such a claim, if valid, would be beyond the reach of most individuals. But Mr Deripaska was, on his account, the beneficial owner of the majority of the shares of Rusal, together with many other commercial interests. The Rusal group employs some 100,000 people. Mr Deripaska’s other companies employ over 250,000. He is said to be the richest man in Russia and ninth on the list of world billionaires.”

“Mr Geoffrey Vos, QC, for Mr Cherney submitted that, where a claimant puts forward credible evidence of an agreement that is both at the heart of his claim and the foundation of his claim to English jurisdiction, but there is a conflict of evidence as to whether the agreement relied on was made, the Court should not attempt to resolve that conflict, and, if the claimant has presented a good arguable case, should not apply the Canada Trust gloss i.e. determine which side has much the better of the argument. If both parties have an arguable case on the point, to require the claimant to show that his case is markedly better than that of his opponent is, in effect, to require him to establish it on the balance of probabilities, when the authorities show that that is not necessary: Seaconsar 453 C-F; Canada Trust 555 D.”

“The essential test, laid down by the rules, is that the claimant must satisfy the court that England is the proper place in which to bring the claim. If he satisfies the court of this, the court has a discretion to permit service out. As Rix, LJ pointed out in Konkola, the discretionary nature of the exercise enables the Court to couch its decision in terms that do not prejudice the final trial wherever it may be, e.g. by deciding that the material before it is not sufficiently good to displace an established jurisdiction, or, presumably, to establish jurisdiction here.”

“I have come to the conclusion that, even in a case where there is a dispute between two apparently credible witnesses the Court should usually, before giving permission, be satisfied that the claimant’s contentions about the alleged agreement provide a much better, or at any rate a better, argument in favour of there being the ground for jurisdiction alleged than of there not being one. In granting permission to serve out of the jurisdiction the court is exercising an exorbitant jurisdiction over those who are not within its ordinary reach. In those circumstances the court is, as it seems to me, justified in applying the good arguable test in that manner in order to avoid the risk of compelling individuals or companies to submit to a jurisdiction to which they ought not in truth to be made subject. Further if, as Canada Trust indicates, the concept which the phrase reflects is “of the court being satisfied or as satisfied as it can be having regard to the limitations which an interlocutory process imposes that factors exist which allow the court to take jurisdiction”, it ought ordinarily to require that, when the Court looks at the material, it finds the points in favour of the ground for jurisdiction alleged to be more than just evenly balanced by those which point the other way.”

The judge also takes pains to sift through the evidence that Cherney has been the victim of at least one assassination attempt, and of widely published claims that he has had criminal associations, especially with a key figure in the case – Anton Malevsky.

According to Clarke, “in 1995 an attempt was made to assassinate [Cherney] in Israel. It appeared from the trial of two of his would-be assassins and from what the Israeli police told him that a Russian business crime group, possibly connected to the Russian secret services, contacted an Israeli private investigation firm to kill him. That firm hired a would-be assassin who was in fact a police informant. Two former military intelligence officers were sentenced to prison. A third man, who was the go-between, fled to Russia.”

Malevsky’s importance is in Deripaska’s evidence that the only reason he paid Cherney money, following the London agreement of 2001, was that he had to pay off Malevsky, an extortionist. The judge did not believe this claim. “Mr Deripaska appears to have sought to hide any connection with Mr Malevsky from a Swiss Investigating Magistrate. On 17th February 2005 he told him: “I know this person [Mr Malevsky] only by name. I have seen his name in the press”. Mrs Malevsky says that this statement is completely untrue and, in the light of her evidence, that seems likely to be so. She also states that the accusation that her husband was involved in organised crime is completely false.”

At the end of his summary of Cherney’s, then Deripaska’s claims about the evidence of their agreements, Clarke concludes: “I am satisfied that Mr Cherney has a reasonable prospect of success in respect of his claim. I consider the nature of the claim in more detail in paragraphs 136-8 below.”

This judicial statement may have immediate accounting implications for Rusal as a Jersey-registered company, whose financial accounts are required to provision for significant legal liabilities, if they are to qualify for the listing requirements of the London Stock Exchange and others. Until now, Rusal has told its listing advisors that the Cherney case has no “reasonable prospect of success”. Rusal’s balance-sheet and market valuation look a little different with a $6 billion contingency set-aside.

Starting with the European Bank for Reconstruction and Development (EBRD), Deripaska has been obliged by many banks to sign affidavits and covenants relating to his relationship with, and obligations to, Cherney. Whether Deripaska was telling the truth must now become an issue for him to testify on oath in the oiak-panelled Gothic Revival room, off Fleet Street. The pressure on EBRD to accept his veracity from Deripaska’s supporters extended to fierce arguments on the board of directors between the representatives of certain countries, according to bank sources.

Here, for the first time, is a leading English judge’s assessment of the truth of the matter: “I cannot and do not purport to determine who is right on this. 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. I say that for a number of reasons.”

“Firstly, the account which Mr Cherney gives, both as to the background to and the making of the agreement, and what happened thereafter is detailed and plausible and consistent with contemporaneous documentary material.”

“Secondly, if Mr Deripaska was never a partner with Mr Cherney in any shape or form and never agreed to do anything with any interest of Mr Cherney in Sibal, or Rusal, because Mr Cherney had none, it is somewhat curious that Mr Deripaska should have chosen to cloak the parties’ true agreement in the form of a sale by Mr Cherney of shares in Sibal. It is equally, if not more, curious that he should have used as a proposed means of buying off Mr Malevsky a document which (a) says nothing about Mr Malevsky and (b) is expressed to be a supplement to and in fulfilment of Agreement No 1, to which Mr Malevsky was not a party, and of which it is not apparent that he ever received a copy, in which Mr Deripaska agrees to sell shares in Rusal and account for the proceeds to Mr Cherney. It is also curious that Supplement No 1 should bear the same date as Agreement No 1.”
“Thirdly, Mr Deripaska’s evidence in relation to Supplement No 1 is scant. Nor is there any explanation as to how Mr Cherney might have got hold of Supplement No 1, if it was not at the meeting on 10th January 2001, or signed it when it was on top of Agreement no 1.”

“Fourthly, there are documents which, or the failure to reply to which, provide support to Mr Cherney’s claims…”

For those readers, who like their business sauced in the detective genre, here is Justice Clarke’s interpretation of the handwriting experts. “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. According to Clarke: there is evidence which tends to support the claim that both Agreement No 1 and Supplement No 1 were executed by the parties in March 2001. 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.”

Details, which have not been published before about Deripaska’s public relations efforts in England against Cherney, are spelled out. Clarke rules: “I have set out the evidence given in relation to Mr Cherney’s alleged criminality or the lack of it in some detail because of the reliance that has been sought to be placed on it. 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.”

And so to the nub of the most important litigation in the aluminium industry: “Whether any agreement is found to have been made as alleged is in large measure dependant on whether or not the parties were partners in business or extortioner and victim. The answer to that depends, in part, on what happened in the relevant part of the aluminium business in Russia between 1993 and 2001. Any evidence on that topic is likely to come predominantly from Russians, who are likely to want to give evidence in Russian, or from Russian documents. Russia has an operating legal system of which Mr Cherney can avail himself.”

“It is, however, apparent to me that, if this claim is not allowed to proceed in England, it will not proceed in Russia. It is unrealistic to suppose that Mr Cherney’s claim could be prosecuted with any hope of success without his giving oral evidence and he will not return there for three reasons. Firstly, he fears for his life; secondly, he fears that he may be arrested on what he claims would be trumped up charges; thirdly, he does not believe that he will get a fair trial. I have, therefore, to consider what significance if any, should attach to the fact that a trial in Russia will, in all probability never take place. That must depend on the extent to which any of Mr Cherney’s fears are justified and whether, even if justified, they afford any reason for having a trial not in Russia but in England.”
“I am, as I have said, satisfied that, in this particular case, there is a significant risk that Mr Cherney will not obtain in Russia a trial unaffected by improper interference by State actors and that substantial justice may not be done.”

NOTE: readers who wish to review the full transcript of Lord Clarke’s ruling in 2008 EWHC 1530 (Comm), Case No: 2006 FOLIO 1218 may do so by referring to this link:
michael-cherney-v-oleg-vladimirovich-deripaska

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