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By John Helmer in Moscow

Herbert Smith is the large London-based law firm whose role in representing the Tajikistan Aluminium Company (Talco) has helped set one of the highest fee-charging cases in the UK High Court in recent history. The law firm also helped itself to some of the judge’s personal notes and papers in the case. That discovery led Justice Stephen Tomlinson to publicly rebuking Herbert Smith’s counsel in the case, Murray Rosen, just days before the case was settled out of court on November 27.

The UK High Court case began as a claim by Talco alleging fraud and mismanagement by Avaz Nazarov and others, who traded with the plant until they were ousted at the end of 2004. Nazarov filed a counter-claim, accusing the Talco management of fraud, forgery, and a scheme to force the plant to operate at a loss, while the profits of its aluminium exports were channeled through companies in the British Virgin Islands (BVI).

International banks, and the US and Norwegian governments, have become embroiled in the affair.

In June of this year, the International Monetary Fund (IMF) issued a public report ordering an independent international audit of Talco’s accounts, and charged the company with “most worrisome financial operations [which] remain nontransparent.” The IMF also ordered the establishment of “a special monitoring unit at the ministry of finance”, whose mandate will include identification in Talco’s books of “untapped tax revenues and hitherto hidden contingent liabilities.”

The US government, concerned that the scandal in the London court would undermine Tajikistan’s ability to service its debts, publicly called for the audit and reform of Talco’s operations. The World Bank, Asia Development Bank, and the European Bank for Reconstruction and Development (EBRD) also began reviewing Tajikistan’s financial condition.

The closure of the case in London came after a final day of court hearings, when Justice Tomlinson made a dramatic discovery, and charged Rosen with responsibility. Rosen is described on the Herbert Smith website as “tactically flawless”, an “excellent advocate” with “considerable experience and a weighty reputation”. When the judge discovered that his notes were missing, he told Rosen in open court that he and the junior counsel had some explaining to do. The removal of the judge’s materials, Tomlinson went on, “ is absolutely intolerable. It is covered with my own annotations, which (a) are private and confidential to me and (b) are useful, and if I am going to have my documents removed in that manner, we shall be in an absolute shambles.”

Rosen apologized, claiming that one of the firm’s paralegals was to blame. He “apparently replaced your Lordship’s copy with the cross-referenced copy and that is your Lordship’s copy”, according to Rosen.

-> Talco trial transcript, 18.11.2008 — page 6, 27

Repeating that the loss of his documents was “just intolerable”, Tomlinson went on to excoriate the firm’s conduct: “It also has very serious implications if my documents, my marked-up documents are going to be retained on your side of the court.” Rosen was ordered by the judge to “cause a check to be made to make sure that no other documents of mine have been removed.”

Rosen was unavailable to answer questions about the incident. The instructing solicitor in the Talco case, Simon Bushell, declined to say why the firm had tampered with the judge’s notes; nor why, in an earlier episode noted by the judge on November 11, there had been tampering with documents submitted in evidence. In that episode, the judge ordered Rosen to “tell me when you are ready to give an explanation, but obviously the sooner the better.”

But the case ended before the lawyers gave the judge their “explanation”, or the judge decided what to do about it. Taking and reading a judge’s personal notes during a trial is unprecedented in English court practice.

Tom Rose, who heads global communications for Herbert Smith, blamed Talco for being unable to respond: “we have not been given client authorisation to comment to you in response to any questions relating to the case,” he said in an email. Separate emails and telephone calls requesting comment from Talco’s chief executive, Sadriddin Sharipov, and spokesman, Saehat Kadyrova, were confirmed as received by Sharipov’s secretary; but in four weeks there has been no reply.

The Herbert Smith website reports that Simon Bushell, who was the instructing the solicitor in the aluminium case, “has undertaken investigations into complex, worldwide frauds, conspiracies, insolvencies, and coordinated multi-jurisdictional proceedings.” The website also claims that Bushell represents the “Tajik Aluminium Plant in English High Court and BVI High Court proceedings alleging fraud and seeking the recovery of damages in excess of US$485m.” The firm has not yet reported that the High Court proceeding has been settled on confidential terms.

Both sets of claims, Talco’s against Avaz Nazarov and former managers and traders for the aluminium smelter, and Nazarov’s charges against Talco, have been wound up in this settlement, with no liability or fault admitted by any of the parties.

The court transcripts reveal that Nazarov had been claiming $130 million from Talco, including in that figure $30 million paid to Gerald Metals in a claim also related to metal trading by the smelter.

United Company Rusal, controlled by Oleg Deripaska, took over the smelter from Nazarov in December 2004, and then financed the litigation against him in London. Rusal paid Nazarov compensation last year of $130 million when it settled out of court, and exited from the case. Rusal is currently suing Herbert Smith in a London arbitration proceeding related to fees charged in the case.

There has been no disclosure of the terms of Talco’s new agreement with Nazarov. But the collapse of the LME price of aluminium is believed by sources, who have been following the case, to have been one reason prompting the out of court deal. At less than $1,500 per tonne, Talco Management Ltd., the British Virgin Islands (BVI) company that earned most of the profit from the smelter’s exports, is unable to fund the legal fees required by Herbert Smith to keep the London case going, as well as a parallel suit Talco has launched in BVI against Rusal. At one stage, according to the court testimony, Herbert Smith was charging more than $10 million per month in fees. More recently, this is believed to have been running at about $3 million per month.

Rusal has publicly criticized Talco for the high-cost lawsuits Rusal once encouraged. After the announcement of the end of the London case against Nazarov, Rusal said Talco should “learn its lesson” and abandon the litigation altogether. In a public statement, Rusal said: “Talco has adopted a policy of seeking to avoid legitimate liabilities by making sensational but ultimately meritless accusations of fraud against those to whom it owes money. Instead of wasting yet more of Tajikistan’s limited resources on fruitless legal fees, Talco should simply pay what it owes to its creditors. If Talco does not and rather now pursues fraud allegations against Rusal, Rusal is confident that these claims will ultimately suffer the same fate as those previous claims . . . rejected, abandoned and wholly discredited.”

Tajik witness testimony in London, and evidence of the agreement Hydro Aluminium signed with Talco in December 2006,

-> Hydro-TadAZ “settlement agreement”, December 20, 2006.pdf — see especially sect 14

have also triggered internal inquiries at the World Bank and the European Bank for Reconstruction and Development (EBRD). Hydro is controlled by the Norwegian government, and also publicly listed in New York.

The World Bank official in charge, Annette Dixon, visited Dushanbe on November 25, meeting Tajik President Emomali Rahmon, a day before Talco’s lawyers wound up their case in London. Dixon is being replaced as head of the Central Asia region at the bank. A Dushanbe source claims the World Bank had been urging Rahmon to reform the running of the aluminium smelter, and end the litigation. Dixon has declined to answer questions.

In December 2006, the World Bank and the EBRD publicly and privately encouraged Hydro Aluminium and Talco to formulate the trading scheme, which, according to the High Court evidence, caused the smelter to operate at a loss, while profits accumulated through the BVI company. Justice Tomlinson heard testimony that the EBRD bankers had been “unwitting dupes in this charade”. The EBRD’s head of compliance, Enery Quinones, refused to answer questions. Spokesman Anthony Williams said “the EBRD has no further comment.”

Herbert Smith has claimed that, before the settlement agreement was struck, it had been successful in removing from the High Court claim the charge that monthly cash remittances from the smelter, and payments for jewellery and shopping sprees, were for the “personal benefit” of the President. The court transcript shows that all that was agreed by lawyers for both sides was that the President was charged with having “full knowledge and consent” of the payments, and to have been one of the beneficiaries. The charge sheet in the Nazarov claim also alleges that cash payments to Rahmon “are not unlawful in Tajikistan…They were made because that is the way Tajikistan is run.”

-> Extract of the amended revised Defence.pdf

In an earlier High Court ruling on a related case involving Talco and Hydro, Justice Thomas Morison said, “[Talco] are not the victims of fraud, they have been the perpetrators of it in this litigation… [Talco] has been involved in deliberate attempts to mislead the [Arbitration] Tribunal and have committed acts which in this jurisdiction are serious crimes [forgery and attempting to gain a pecuniary advantage by fraud].”

-> Judgement of Morison J relating to Talco conduct, May 2006

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