Case Law (#11 November 2012)

Berezovsky 0 v. Abramovich 2. Battle of the Oligarchs in Londons Courts

Stephen Ross

Londons Commercial Court is used to dealing with high value and complex pieces of litigation. It is estimated that around 60% of the Courts work relates to disputes between Russian/CIS/Ukrainian parties, even though it is often the case that the disputes have little to do with England.

The most recent Commercial Court decision of note concerned Boris Berezovskys titanic USD 6.5 billion claim against Roman Abramovich, the result of which threw up some very interesting issues for international litigators.

The claims

Mr. Berezovsky had two principal claims against Mr. Abramovich. The first related to a claim concerning Sibneft, the major integrated oil company in the Russian Federation. The second related to an interest which Mr. Berezovsky alleged he had in RusAl, which became a similarly substantial aluminium company.

The Sibneft claim

Mr. Berezovsky claimed that together with his Georgian business partner Badri Patarkatsishvili, he entered into an oral agreement in around 1995 with Mr. Abramovich to acquire a controlling interest in an oil company.

The principal terms of this oral agreement were that Sibneft would be held 50% for the benefit of Mr. Abramovich and 50% for the benefit of Mr. Berezovsky and Mr. Patarkatsishvili. Any profits or share of profits or future business interests which they acquired would be shared and distributed in the same proportions but Mr. Abramovich and his staff would be responsible for the daily management of the company.

Mr. Berezovsky also alleged that another oral agreement was made the following year (1996) in which the three men agreed that Mr. Abramovich, or his companies, would be the legal owner of all the Sibneft shares but that they would all continue to have those rights acquired under the 1995 agreement. In addition, Mr. Abramovich would also transfer to Mr. Berezovsky and Mr. Patarkatsishvili shares equivalent to their interest on request and they would continue to receive dividends and profits in relation to the split agreed.

From 1996 until 2000

Mr. Berezovsky claimed that large sums of money were paid by Sibneft to him and Mr. Patarkatsishvili under these agreements.

However, when the political situation in Russia changed around 2000, Mr. Berezovsky alleged that Mr. Abramovich threatened him that, unless he and Mr. Patarkatsishvili sold their ownership interests in Sibneft to him or his nominee, he would take steps to ensure that their interests would be expropriated by the Russian state and that a close friend of Mr. Berezovsky would be imprisoned for an extended period. As a result of this intimidation, Mr. Berezovsky allegedly sold his ownership for a price of USD 1.3 billion which he claimed was a substantial under-value as it was worth in excess of USD 5 billion.

The RusAl claim

In many ways the RusAl claim was similar to the Sibneft claim in that there was an alleged oral agreement.

From 1998 or 1999, the three men started acquiring assets in the aluminium sector and afterwards started to enter into negotiations with another oligarch, Oleg Deripaska, for the pooling of their assets. At a meeting at the Dorchester Hotel in London on 13 March 2000, Mr. Berezovsky claimed that they all agreed to pool their assets and that 50% of the new company would be owned by Deripaska and his partners (including Mr. Cherney) and the other 50% would be held by Mr. Berezovsky, Mr. Abramovich and Mr. Patarkatsishvili. In respect of that 50% share, Mr. Berezovsky again claimed that 25% would be beneficially owned by Mr. Abramovich and the other 25% by Mr. Berezovsky and Mr. Patarkatsishvili and yet again that the shares would be controlled or legally owned by Mr. Abramovich.

In around September 2003 Mr. Abramovich sold a 25% shareholding in RusAl to Mr. Deripaska without consulting Mr. Berezovsky or Mr. Patarkatsishvili, and as such Mr. Berezovsky claimed he lost USD 564 million.

Mr. Abramovichs defence

Mr. Abramovich did not deny that significant payments had been made to Mr. Berezovsky and Mr. Patarkatsishvili (USD 1.3 billion in 2001) but he said that these were payoffs in relation to the political patronage and influence (krysha) that Mr. Berezovsky provided and that the final payment was made in 2001. In addition, Mr. Abramovich stated that the alleged agreements were not valid as a matter of Russian law.

The courts decision

The English Judge (Mrs. Justice Gloster) dismissed all of Mr. Berezovskys claims in their entirety.

The Judge concluded that there were no such agreements as he alleged. Having dismissed Mr. Berezovksys claims in relation to the agreements, the Judge did not need to go in to what the precise terms were. In any event, even if the 1995 agreement had been made in the terms suggested by Mr. Berezovsky, the Judge concluded that it would be invalid or ineffective under Russian law because its terms were not sufficiently certain to be effective as a concluded contract and there was no intention to create binding legal relations. The Judge found against Mr. Berezovsky in similar terms in relation to his other claims.

Key features of the case

Krysha

The Court took evidence from experts in Russian history on both sides about the political environment in Russia during the late 1990s and early 2000s and notions relating to political protection and krysha. It is the first time such issues have been articulated so freely and in such detail in the English courts.

Given the intense media interest in this trial, it was no surprise that this aspect of the case was widely reported around the world.

Oral agreements

In common with many oligarchs, neither man appeared to want to write anything down and the Judge noted that there were four highly contentious alleged oral agreements which were not backed up by any contemporaneous notes, memoranda or other documents referring to them or their terms.

This left Mr. Berezovsky with a very high hill to climb as the burden of proof was on him to establish his claims. He was the only witness who could give evidence on his part and, therefore, he had to convince the court, on the balance of probabilities, that the alleged oral agreements and threats had been made. It was not for Mr. Abramovich to convince the court otherwise.

Witness evidence

Given the above focus on oral agreements, the witness evidence provided by Mr. Berezovsky and Mr. Abramovich was a key element in this case. Part of the problem for Mr. Berezovsky was that the oral evidence relating to the claims was extremely stale and the court was being asked to make detailed findings in relation to matters that occurred many years ago.

However, Mr. Berezovskys main problem was his credibility as a witness. The Judge found him to be an unimpressive and inherently unreliable witness. She went on to say that he regarded truth as a transitory, flexible concept, which could be moulded to suit his current purposes.

These were particularly damning comments from a judge who did not spare Mr. Berezovsky any blushes when she went on to say that at times he was deliberately dishonest and clearly making his evidence up to suit his case.

One of the key moments in the case came when it was revealed that some of Mr. Berezovskys other witnesses stood to benefit financially if he won his case. Mr. Berezovsky initially denied this in the witness box but subsequently admitted it. Understandably, this did not impress the judge.

While the judge acknowledged that Mr. Berezovsky was without doubt a highly intelligent man, it seems she found him to be a little arrogant at times.

In the final judgment, which ran to over 500 pages, the judge quoted Mr. Berezovskys answer to a question from Mr. Abramovichs barrister. Mr. Berezovsky was asked whether his own expert on Russian history did indeed know about Russian history. Mr. Berezovsky replied, Definitely, he knows, much less than me but he knows ... because I made the history, he just learned the history.

By contrast the Judge found that Mr. Abramovich gave careful and thoughtful answers and was, on the whole, a reliable witness.

Legal fees

The legal fees are rumoured to run to over GBP 100 million in total on this case.

Most notably, Mr. Berezovskys solicitors in London were acting on a Conditional Fee Agreement (CFA). This is an agreement whereby the lawyers agree to only charge a percentage of their normal fees (say for example 50%) and if their client loses they will not get anything more. However, if the client wins, they would be entitled to their full fees and a percentage uplift.

Mr. Abramovichs lawyers were not on any such agreement and, Mr. Berezovsky finally agreed to pay around GBP 35 million of their fees on the basis of the general rule that the loser pays the winners legal fees.

In April 2013 contingency fees will be available in England which will allow solicitors to claim a percentage of any recovery made by the client. The precise rules are still being developed but all law firms in England are gearing up for this revolutionary change.

Other oligarchs at war in London

No sooner did the Berezovsky v. Abramovich trial end than the trial of Mr. Cherney against Mr. Deripaska (both individuals mentioned above) started. It was due to last over six months but recently settled on confidential terms.

Mr. Berezovsky has also settled or withdrawn all of his other claims against different parties. Nevertheless, English courts continue to be very busy with many similar cases, often involving oral agreements.

In particular, we have noticed that many of the second generation of oligarchs and minigarchs who started businesses in the first decade of this century are now starting to resolve their disputes in England, whether through the courts or by means of arbitration.

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