Featured Case: Contracts

Agreements; Aluminium; Intimidation; Oil companies; Profits; Russia; Shares Berezovsky v Abramovich. [2012] EWHC 2463 (Comm). Gloster, J. 31 August 2012


Roman Abramovich
Roman Abramovich

The claimant Russian businessman failed to prove any binding agreement that he was to have an interest in a Russian oil company or a Russian aluminium company.

Claims dismissed

The claimant Boris Berezovsky sued the defendant Roman Abramovich claiming that he had an interest in two substantial Russian companies, Sibneft, an oil company, and RusAl, a company in the aluminium industry. Berezovsky and Abramovich were Russian businessmen. Sibneft had been privatised by the Russian state and the majority of its shares came to be owned by Abramovich.

Berezovsky alleged that it had been agreed in 1995 that the shares in Sibneft would be held as to 50 per cent for Abramovich and as to 50 per cent for Berezovsky and his associate Badri Patarkatsishvili; it was further agreed that profits would be distributed in the same percentage proportions and that any future business interests which they acquired, whether or not related to Sibneft, would also be shared between them in the same proportions; the 1995 agreement had been supplemented by a 1996 agreement; thereafter very large sums of money were paid at Abramovich’s direction to Berezovsky and Patarkatsishvili. As a result of intimidation, the pair had been coerced into selling their interests in Sibneft to Abramovich in 2001 at a substantial undervalue.

Berezovsky alleged in relation to RusAl that, in accordance with the 1995 agreement, certain aluminium assets had been pooled in RusAl and that it had been agreed that Abramovich would beneficially own 25 per cent of RusAl, while Berezovsky and Patarkatsishvili would beneficially own 25 per cent between them; Abramovich had then sold a 25 per cent shareholding in RusAl without consulting Berezovsky or Patarkatsishvili or obtaining their consent which was said to be a breach of contract and/or trust and/or fiduciary duty by Abramovich.

When Patarkatsishvili died, Berezovsky brought proceedings against members of his family, his estate and others alleging that he had an interest in certain assets or a claim for damages on the basis they had agreed that all commercial investments made by either of them would be shared on a 50:50 basis.

Abramovich denied any agreement that Berezovsky would have any interest in Sibneft or its profits; the payments made to Berezovsky had been ad hoc payments for the exercise of Berezovsky’s political patronage or protection; there was no agreement that Berezovsky or Patarkatsishvili should be entitled to participate in any future business venture undertaken by Abramovich and therefore they had no interest in the pre-merger aluminium assets or in RusAl.

Claims dismissed

Berezovsky was not a reliable and truthful witness. Abramovich was a truthful and, on the whole, reliable witness.

There was no agreement in 1995 or 1996 that Berezovsky would receive an interest in the shares or profits of Sibneft. The arrangement between the parties was that Abramovich would make payments to Berezovsky and Patarkatsishvili in exchange for their assistance and protection. The amounts to be paid were agreed on an ad hoc basis. Although the payments might have reflected the earnings of Sibneft and Abramovich’s other companies and hence his ability to pay, there was no agreement that Berezovsky and Patarkatsishvili would be entitled to a proportionate interest in the profits, whether as a result of a share ownership interest or otherwise.

The alleged 1995 agreement would have been governed by Russian law and under that law it would have been invalid for uncertainty, and because the lobbying services that Berezovsky agreed to provide were not capable of being a lawful contribution to a partnership agreement and because there was no intention to create legal relations. The 1996 agreement would have been invalid for similar reasons.

Abramovich did not make threats to Berezovsky with the intention of intimidating him to dispose of his alleged interests in Sibneft. The sum of $1.3bn paid by Abramovich to Berezovsky and Patarkatsishvili did not represent the sale price of their alleged Sibneft interest, but rather was a final lump sum payment in order to discharge what Abramovich regarded as his obligations to them for their protection.

A purported agreement by Berezovsky and Patarkatsishvili to sell shares in Sibneft to a British Virgin Islands company was a sham, entered into for the purpose of satisfying money-laundering requirements in respect of the payment of $1.3bn. Abramovich was not involved in the agreement and not aware of its terms.

No agreement was made between Abramovich and Berezovsky that Berezovsky would have an interest in any pre-merger aluminium assets and there was no agreement that any interest in the pre-merger aluminium assets should be paid for out of Berezovsky’s entitlement to Sibneft or Sibneft-related profits. Neither Berezovsky nor Patarkatsishvili had any interest in any of the companies which acquired the pre-merger aluminium assets. There was no agreement that Berezovsky or Patarkatsishvili would have a share of the RusAl business created by the merger of the pre-merger aluminium assets. The receipt by a company controlled by Patarkatsishvili of a substantial sum following the sale of RusAl shares by Abramovich was to discharge Abramovich’s obligation to pay an agreed commission to Patarkatsishvili for his assistance in relation to the aluminium business.

Berezovsky’s claims in relation to Sibneft and RusAl were dismissed.

For the claimant Berezovsky

Addleshaw Goddard partner Mark Hastings

Addleshaw Goddard partner John Kelleher

One Essex Court’s Laurence Rabinowitz QC

One Essex Court’s Richard Gillis QC

One Essex Court’s Nehali Shah

One Essex Court’s Simon Colton

One Essex Court’s Henry Forbes-Smith

One Essex Court’s Sebastian Isaac Esq,

Fountain Court’s Alexander Milner

Brick Court Chambers’ Roger Masefield

For the defendant Abramovich

Brick Court Chambers’ Jonathan Sumption Esq, QC,

Brick Court Chambers’ Helen Davies QC

Brick Court Chambers’ Daniel Jowell QC

Brick Court Chambers’ Andrew Henshaw Esq

Brick Court Chambers’ Richard Eschwege Esq

Brick Court Chambers’ Edward Harrison Esq

Brick Court Chambers’ Craig Morrison Esq

Skadden Arps Slate, Meagher & Flom partner Paul Mitchard QC

Skadden Arps Slate Meagher & Flom partner Karyl Nairn

For the Anisimov defendants to the Chancery Actions

3 Verulam Buildings’ Ali Malek QC

3 Verulam Buildings’ Sonia Tolaney QC,

3 Verulam Buildings’ Anne Jeavons

Freshfields Bruckhaus Deringer partner Ian Terry

Freshfields Bruckhaus Deringer partner Matthew Bruce

For the Salford defendants to the Chancery Actions

Maitland Chambers’ David Mumford

Macfarlanes partner Iain Mackie

For the family defendants to the Chancery Actions

Serle Court’s Jonathan Adkin

New Square Chambers’ Watson Pringle

Signature Litigation partner Graham Huntley

Signature Litigation partner Helen Brannigan

Commentary

Shane Gleghorn

This is an important reminder about best practice in relation to the presentation of witness evidence, and will inform the advice given by lawyers in similar cases where there is lack of corroborative documentation.

Of course, all lawyers dread an outcome where the judge attributes to your main witness a tendency to say “almost anything” in support of his case. But a more helpful practical lesson is that Abramovich was commendedfor distinguishing between his own knowledge, reconstructed assumptions and speculation. Lawyers can point to a very real example of how that approach won a case of the “he said she said” kind.

Moreover, it is likely that the judgment will assist English lawyers to market to foreign litigants on the back of the advantages of their legal system, and the reputation of English courts as a respected neutral venue with unbiased judges.

Potential claimants will have to ask themselves whether they are willing to be subjected to such thorough scrutiny by an English court. However, although it was not a mechanism that lent itself to this particular battle, parties who prize confidentiality will continue to gravitate towards arbitration.

Given, therefore, that the LCIA remains a popular arbitral body for CIS parties to nominate in their agreements, the risk of adverse publicity may simply divert some cases into arbitrations with an English seat.

Shane Gleghorn, head of commercial disputes, Taylor Wessing