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By John Helmer, Moscow

A UK High Court ruling on Friday has struck a surprise blow against Ukrainian pipemaker Victor Pinchuk (image), as he fights to stave off bankruptcy claims from international Eurobond holders, international and Russian banks, and Ukrainian suppliers. The timing could not be worse for the Ukrainian, who has been paying Bill and Hillary Clinton, Tony Blair, and a group of European politicians to back him in the current Ukrainian political crisis.

In a 23-page judgement issued on January 31 by High Court Justice Sir Richard Field, Pinchuk’s principal lawyer David Goldberg and his law firm White & Case have been disqualified from representing Pinchuk in his High Court case against Igor Kolomoisky and Gennady Bogolyubov, the Ukrainian steelmakers. The judge found the lawyers had failed to prevent a conflict of interest when they took Pinchuk’s case at the same time as the firm represented Kolomoisky and Bogolyubov in a separate case in the US. “There was a risk,” the judge has ruled, that confidential information the lawyers had gathered from their representation of Kolomoisky and Bogolyubov, “might be used against Mr Bogolyubov and Mr Kolomoisky in the Commercial Court action [on Pinchuk’s claim] . In short, I accept..that it is only when one views the Commercial Court action in light of the [Pinchuk] allegations… that it becomes clear that there is a link to the confidential information.”

The judge also ruled that White & Case had lied about the conflict and their protection of confidential information. “If, in accordance with its own Policy document, White & Case had informed the Claimants [Kolomoisky and Bogolyubov] in March 2013 that ethical screens had been established, the position might well have been different. However, as we have seen, this step was not taken.”

Bogolyubov and Kolomoisky own the PrivatBank group, one of Ukraine’s largest conglomerates, Ukrnafta, the leading oil and gas producer in the country, plus steelmaking and manganese alloy producers and traders. It was the ferroalloy businesses which had retained White & Case. Along with steelmaker Rinat Akhmetov, they are the three wealthiest business figures in the country.

The net worth of Pinchuk’s steel pipe business, Interpipe, based in the eastern Ukrainian city of Dniepropetrovsk, used to rank him in their company. But this is no longer possible as Interpipe’s debts have mounted beyond $1.3 billion, and it has defaulted on repayments to a group of international banks, plus the Italian state trade credit agency, SACE. Pinchuk also owns Bank Credit Dnepr, Ukrainian media assets, and a foundation which has been promoting Ukraine’s alliance with the US and the European Union. The foundation has been collecting from Pinchuk and spending at an annual rate of $17 million per annum including payments to the Clinton couple, ex-Prime Minister Blair, ex-CIA director David Petraeus, and Polish politician Alexander Kwasniewski.

david_goldbergFriday’s High Court judgement reveals that Pinchuk has been paying Goldberg (right) and White & Case since May 2012 to pursue his Ukrainian rivals; the fees are estimated by London legal sources to have been running at about £1 million per month, or about £22 million ($36 million) to date. Pinchuk testified that if Goldberg and White & Case were barred from continuing to represent him in the high Court, he would suffer “great difficulty in finding another firm with a London office with the necessary expertise and Russian speakers; and, in addition to incurring very substantial additional costs, the determination of his claims would be seriously delayed.”

Sources at the High Court say a new law firm would require Pinchuk to put up asset pledges and personal security for payment of lawyers’ fees. These are likely to exceed another £20 million ($33 million), the sources estimate, if the case goes to trial. “The Field ruling is a red flag for the lawyers, too,” comments a London commercial lawyer. “Can they afford the risk of representing Pinchuk now?”

Lawyers for Kolomoisky and Bogolyubov refuse to comment on the latest judgement. It is not clear whether they will now move for the High Court to require Pinchuk to pay into the court an amount to cover their combined legal costs in the event Pinchuk loses, and they are awarded compensation. The parallel legal teams at Freshfields Bruckhaus Deringer (for Kolomoisky) and Skadden Arps Slate Meagher & Flom (for Bogolyubov), plus their teams of well-known barristers, are likely to cost at least £50 million ($82 million) through trial to judgement.

In total, then, Pinchuk is facing a new bill for lawyers, payable in advance, of about £70 million ($115 million). Admissions in December by his Interpipe executives, plus investigations of loss-making insurance business in Russia, suggest Pinchuk doesn’t have this money. According to banking sources in London, he cannot borrow it. If put up for sale and discounted for the circumstances, personal assets like Pinchuk’s collection of Damien Hirst artwork ($50 million), his motor yacht Oneness ($25 million), and his London home (£80 million) may add up to the requirement. However, his bank and bond creditors believe they should have first call in the event Interpipe faces a court-ordered liquidation.

Sources close to the debt negotiations with Pinchuk say he is barred from making fresh pledges if they already secure earlier credits and past-due debts. The committee includes SACE, ING of the Netherlands, Commerzbank of Germany, and Royal Bank of Scotland (RBS). The sources say Pinchuk has already pledged his business assets, and must raise cash against personal assets to prevent loss-making Interpipe from trading while insolvent. The record of Pinchuk’s serial defaults has been made available by lawyers acting for claimants against Pinchuk in the courts of Ukraine and Russia, along with sources close to the international banks and bondholders to whom Pinchuk has been in default since last November.

Last week a London-based Deutsche Bank unit, which acts as the trustee for $200 million in Eurobonds issued by Pinchuk’s Interpipe, announced that one of the bondholders has formally applied for full repayment, or failing that, for bankruptcy and liquidation. According to the notice from Deutsche Trustee Company in London, “Kelsey Investing Limited as holders of Notes…have requested that the Trustee declare the Notes immediately due and payable.”

justice_fieldUntil last week the argument at the High Court hearing on December 19, and the evidence submitted by the two sides, had been kept under wraps by Justice Field (right) “to protect,” he now says, “the confidentiality of the information that is at the heart of the case.”

That case is over who owns a Ukrainian iron-ore mining company called Krivorozhskiy Zhelezorudnyy Kombinat (KZhRK), which was privatized by the Ukrainian government in 2004 when Pinchuk’s father-in-law Leonid Kuchma was Ukraine’s president. The asset is now owned by Akhmetov. Between Kuchma’s favour and Akhmetov’s takeover, Pinchuk claims he paid for KZhRK, and that Kolomoisky and Bogolyubov cheated him. Pinchuk’s claims were filed in the commercial division of the High Court on March 12, 2013, as reported in detail here.

In their response, Kolomoisky and Bogolyubov deny reaching the oral agreements on which Pinchuk’s claims depend. They have also counter-claimed that Pinchuk ran a scheme of diverting operating business and asset payments into his own pocket, and into a slush fund for Kuchma’s political purposes. Their story and the court filings can be read here.

The latest High Court document reveals that Pinchuk is aiming to collect “not less than US $2 billion”.

The ruling by Justice Field reveals that in addition to his main High Court claim, Pinchuk has been paying his lawyers to run a parallel case against Kolomoisky and Bogolyubov in the London Court of International Arbitration (LCIA), which began at the start of August 2013. Until now that proceeding has been covered by the LCIA’s confidentiality rules. Last August the Pinchuk lawyers also opened a third court case in US federal district court in Miami, Florida, seeking orders to produce information by Florida-based companies belonging to Kolomoisky and Bogolyubov. Those orders have been appealed, and are presently blocked by the LCIA.

Altogether, according to the judge’s summary, Pinchuk has been paying White & Case for “149 individuals (88 lawyers and 61 secretarial or other support staff)… Of the 88 lawyers, 55 work or worked in the London office and further 21 were based in the Moscow office. The remaining 12 lawyers worked in New York (4); Washington (1); Miami (1); Paris (2); Singapore (2); Hong Kong (2).”

Witnesses from White & Case, plus technical evidence from the firm’s computers, assured Justice Field there had been no access to the confidential information by Goldberg or the other Pinchuk lawyers working with him on the High Court case. Field dismissed the evidence, ruling that it does “not preclude the possibility of oral disclosures. And as to the confirmations obtained in interview, the possibility remains that there has been inadvertent disclosure, or that disclosure may have escaped the memory.”

Regarding Goldberg’s conduct, the judge said; “I find it hard to see any good justification for it.”

“The issues raised in the judgment,” White & Case say in their response, “are very specific to the facts of this particular case and to the relationship between the parties involved, but we are considering whether any improvements to our policies and procedures can or should be made.”

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