By John Helmer, Moscow
In the century-old story of the little boy and the four tigers, the latter force the lad to give up his clothes with threats to eat him, if he doesn’t come across. Then in a frenzy of envy and greed, the tigers chase each other until they turn to butter. Unscathed, the boy takes back his clothes, and his mother turns the tiger butter into pancakes.
In a turn-up for the books, after eight years of litigation in the US and Nigerian courts, pancakes is what the Nigerian government is now making of United Company Rusal. Not ready to take this lying down, lawyers for Rusal have asked the courts of London and Los Angeles to rule again on just who is the tiger, and who the boy in this story.
At stake is the Aluminium Smelter Company of Nigeria (ALSCON), the only producer of aluminium in Nigeria. At the end of 2009, when the contested ownership of the smelter had been in the courts for five years already, Rusal told shareholders in the prospectus for its initial public offering that win or lose, Alscon wasn’t worth much. “Although a decision against the Group may have an adverse effect on the Group’s ALSCON operations in Nigeria, including the potential loss of ALSCON and consequent loss of revenue, the Directors do not believe that any resulting liabilities will materially adversely affect the Group’s financial position or its operations as a whole.”
The prospectus also reported that its takeover of the Nigerian government’s 77.5% stake in ALSCON in December 2006, followed by the purchase of a German-held stake of 7.5% in 2008, cost the cash and share equivalent of $380 million. With this Rusal managed to arrange with the Nigerian government’s privatization agency to overrule a $410 million cash offer in 2004 by the Bancorp Financial Investment Group Divino Corporation (BFIG), a Nigerian-American group based in Los Angeles and headed by Reuben Jaja. The Nigerian government had already signed its acceptance of the higher bid, so it had to reverse the earlier decision. The government also retained a 15% shareholding in the company.
Again, according Rusal’s prospectus to shareholders, “the $250 million purchase price will cover the purchase of the shares in Alscon, as well as the dredging of the river. The company, together with Ferrostaal AG and the Government of Nigeria, also plans to invest an additional $150 million over the next three years to complete, refurbish and modernise Alscon.” That was in 2006. In fact, Rusal acknowledged in the prospectus, it had invested $76 million by the end of 2009, less than half the requirement. And since then, the collapse of Rusal into near-insolvency obliged the company to halt additional spending.
The final ruling at the third and highest level of the Nigerian court system, came on July 6 . The government’s Bureau of Public Enterprises (BPE) was judged to have acted illegally in nullifying the first contract with BFIG, and agreeing to the second with Rusal. The Supreme Court ordered BPE to comply with its contract with BFIG. Justice John Fabiyi ruled: “there is no doubt in my mind that an order of specific performance of the contract between the parties is clearly warranted and is hereby ordered as prayed. The appeal is meritorious in the extreme. It is hereby allowed. The decisions of the two courts below are hereby set aside. The claims of the appellant [BFIG] at the trial court are hereby granted.”
In 2007 BFIG had commenced litigation in federal US District Court in New York against Dayson Holding, a British Virgin Islands subsidiary through which Rusal had arranged its takeover of ALSCON. The Nigerians charged wrongful interference with BFIG’s contract, unfair competition, and conspiracy to commit fraud. After a year, the US judges ruled that jurisdiction for the claims should be in the Nigerian courts, and Rusal agreed to this. Documents signed by Dayson and Rusal executives, and filed in the US courts, formally accepted that if jurisdiction were refused in the US, they would accept jurisdiction of the Nigerian courts to rule on BFIG’s claims.
But now that the Nigerian courts have ruled against them, Dayson and Rusal have asked for the intervention of the London Court of International Arbitration to take charge, and try the case all over again.
In a new filing by Dayson and Rusal to the London court, dated October 16 and signed by lawyers Tim Portwood and Raed Fathallah, Rusal now claims it didn’t know what was happening in the Nigerian courts. The Supreme Court ruling on July 6, Rusal claims, was “learnt with surprise through the press.” To the London court, Rusal now says, the Nigerian Supreme Court had made a series of blunders, not least of all because the BPE “had apparently put no evidence in the record that it had sold the litigious shares in ALSCON to Dayson[Rusal]… this resulted in the implausible and impossible finding by the Supreme Court.”
A parallel claim has been filed by Rusal in federal US court in California to compel production of documents by the BFIG for use by the Rusal lawyers in the London proceeding.
A Moscow newspaper reported  last week that Rusal is now claiming it has spent at least $500 million on ALSCON, although the Rusal share prospectus indicates the amount is less than $330 million. No sales revenue is reported for ALSCON in Rusal’s financial reports for 2011 or 2012. There is no reference to ALSCON or the Nigerian court ruling against Rusal in the company’s most recent operational report, issued on September 4. Current production of aluminium at ALSCON is estimated to be less than 20,000 tonnes per annum, one-tenth of the planned capacity of the smelter.
Rusal is now claiming that BPE and Nigerian government officials had violated their sales contract by failing to keep Rusal properly informed of the Nigerian court proceedings, and by misleading the Nigerian courts. Accordingly, since Dayson “has good and perfectly valid title” to the smelter, “in which it has been investing heavily for the last seven years”, the Rusal group “finds itself with no choice but to defend its rights under the SPA [share purchase agreement of February 3, 2006, for ALSCON].”
In effect, the London court is being asked to retry eight years of litigation in Nigeria, enforce the second contract BFE signed with Rusal over the first contract signed with BFIG, and overrule the decision of the US federal courts that the jurisdiction to decide between BFIG and Rusal was rightfully in the hands of the Nigerians.
Jimmie Williams, the principal lawyer for BFIG, has responded that the Rusal claim will fail for constitutional reasons, as well on the evidence of what had happened. The international arbitration tribunal’s power to deal with disputes between Rusal and BPE cannot apply, he says, to the decisions the Nigerian government made before that deal was done, in favour of BFIG. “The [second] purchase agreement does not take precedence over Nigerian constitutional law. The Supreme Court said it best: Rusal should not have sought to purchase ALSCON when they knew its ownership was in dispute. They can only request that they be compensated for any legitimate losses that they may have incurred. However, this will not be determined until all parties are allowed to thoroughly review the books and records, since it is well known that the accuracy of Dayson/Rusal in maintaining such books is debatable.”
Williams warned that if the case goes to hearing before the arbitration court evidence of Rusal’s management and accounting practices in Nigeria will be tabled to show fraud, including inflation of operating costs to reduce tax obligations. As for the California court action, Williams said: “they are seeking to obtain BFIGroup’s incorporation documents, all documents we submitted to the FGN [Federal Government of Nigeria] during the bid process for ALSCON; and all documents representing ‘payments’ that may have been made to Nigerian government officials. We are presently evaluating how we are going to respond to these requests.”