Tajik Aluminium Plant v Ermatov & Ors [2005] EWHC 2241 (Ch)

Case No HC05C01237

[2005] EWHC 2241 (Ch)

IN THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

Venue Royal Courts of Justice, Strand, London, WC2A 2LL

Date 21 October 2005

Before

THE HONOURABLE MR JUSTICE BLACKBURNE

Between

Tajik Aluminium PlantClaimant

(1) Abdukadir Ganievich ErmatovDefendants

(2) Ansol LimitedDefendant

(3) Avaz Saidovich NazarovDefendant

(4) Ashton Investments LimitedDefendant

(5) Alexander Vitalyevich ShushkoDefendant

(6) Anna OsadchayaDefendant

(7) Cherzod Abdoukadirovich ErmatovDefendant

(8) Ansol Resources LimitedDefendant

(9) Ansol Capital LimitedDefendant

Murray Rosen QC, Neil Kitchener and Charles Fussell (instructed by Herbert Smith) for Claimant

Paul Stanley (instructed by Byrne & Partners) for 1 st Defendant

Brian Doctor QC, Paul Sinclair and Rosalind Phelps (instructed by Clyde & Co) for the

2nd to 6th, 8th and 9th Defendants

Hearing Hearing dates: 21 st and 25 th to 28 th July 2005

Judgment

The Honourable Mr Justice Blackburne

Introduction

[1]Located in a large town roughly 30 miles from Dushanbe, the capital of Tajikistan, is an aluminium smelting plant. The plant is state owned, is the biggest industrial enterprise in Tajikistan and accounts for a significant proportion of the country’s GDP. These proceedings are brought by the entity which owns and runs the plant and which I shall refer to as Tadaz. They are concerned with claims arising out of the running of the plant by its former director, Abdukadir Ermatov, who is the first defendant and a Tajik national, and in particular with arrangements which it is said that he corruptly entered into with Avaz Nazarov, who is the third defendant and also from Tajikistan.

[2]From roughly 1996 onwards Mr Nazarov, acting through the medium of various entities, most recently a Guernsey company called Ansol Ltd (“Ansol”) which is the second defendant, supplied alumina to Tadaz. Alumina is the material from which aluminium is derived. Mr Nazarov (through his companies) had done so, certainly in recent years, as the supplier of most if not all of Tadaz’s alumina requirements. Since May 2003, Ansol had supplied the alumina to Tadaz as a 50% participant in a joint venture conducted through a BVI company called Hamer Investing Ltd (“Hamer”). The other 50% participant in the joint venture was another BVI company called Elleray Management Ltd (“Elleray”). The supplies were made under barter arrangements whereby, in consideration of the supply to it of alumina, other raw materials and various items of funding, Tadaz would deliver finished aluminium. The effect of the arrangements was that most of the aluminium produced by Tadaz was delivered to its alumina supplier and funder. The essence of Tadaz’s claim is that the arrangements were so structured as to strip Tadaz of most, if not all, of the profit it could and should have made from the production of the aluminium and that this was the result of a corrupt understanding between Mr Nazarov and Mr Ermatov. It was achieved, it is said, in part by supplying alumina to Tadaz at prices, reflected in the quantity of aluminium delivered under the barter arrangements, which were substantially above the average (world) market price for alumina and partly by the fact that Ansol (and later Hamer) had an extended period within which to effect deliveries of the finished aluminium to the ultimate purchaser which, for the most part, was a Norwegian company (and major world producer of refined aluminium) called Hydro Aluminium AS (“Hydro”). This occurred under linked supply arrangements entered into between Tadaz and Hydro, the effect of which, it is said, was that Ansol (and later Hamer) had (at Tadaz’s expense) the use of the aluminium until the time for its delivery.

[3]It might be wondered how a dispute over the operation of an industrial enterprise based in a remote country in Central Asia and involving foreign nationals ordinarily resident overseas comes to be before the courts in this country. The reason, it seems, is what is alleged to be the role of the fourth defendant, Ashton Investments Ltd, a UK registered company owned and controlled by Alexander Shushko, the fifth defendant, a English national of Belarussian origin who is ordinarily resident in this jurisdiction. Ashton supplied Ansol with management and consultancy services and is said through that role to have been centrally involved in the implementation of the fraudulent arrangements devised by Mr Ermatov and Mr Nazarov. The sixth defendant, Anna Osadchaya, is also alleged to have been involved in the implementation of the fraudulent arrangements. She is a Russian national who, according to the evidence, is ordinarily resident in Russia and has no connection with this jurisdiction. The other connections with this jurisdiction are(1) that Mr Ermatov is now here (having fled from Tajikistan in March of this year) and

(2) that Cherzod Ermatov, who is the seventh defendant and the son of Mr Ermatov, is said to be ordinarily resident in this country. Cherzod Ermatov is the registered proprietor of a leasehold flat at 15 Charter Court, 16A Harcourt Street, London, W1, which, it is common ground, was purchased in May 1999 out of monies, approximately £300,000, provided by Mr Nazarov. It is alleged that, whether or not the flat is beneficially owned by the seventh defendant or held by him as a nominee for his father, the provision of £300,000 was a product of the corrupt arrangement alleged to exist between Mr Ermatov and Mr Nazarov.

[4]The Defendants do not challenge the jurisdiction of the English Court to entertain Tadaz’s claim. On the contrary, Ansol brings a counterclaim under Part 20 against Tadaz and others, the nature of which I will explain later.

[5]Before me are applications by all of the defendants other than the seventh defendant, to set aside orders made against them by Etherton J on 13 May 2005. Tadaz has been represented by Mr Murray Rosen QC, appearing with Mr Neil Kitchener and Mr Charles Fussell, Mr Ermatov by Mr Paul Stanley, and the other defendants (with the exception of the seventh defendant who has not appeared and is not represented before me) by Mr Brian Doctor QC appearing with Mr Paul Sinclair and Ms Rosalind Phelps.

[6]The matter first came before Etherton J on 12 May 2005. It did so on a without notice basis. The following day Etherton J made:(1) worldwide freezing orders against Mr Ermatov, Ansol, Mr Nazarov, Ashton, Mr Shushko and Ms Osadchaya up to the value of US $170 million;

(2) immediate asset disclosure orders against those defendants (subject to a lower asset value of £5,000) to be followed up by the service within seven days of service of the order of affidavits setting out the information sought;

(3) a proprietary injunction against all nine defendants freezing any assets derived from any secret profits, bribes, secret commission or other unlawful payments received by any of them as a result of or in connection with “any dealings with and/or the supply of alumina to and/or aluminium produced” by Tadaz, including in particular the flat at 15 Charter Court;

(4) an order for the disclosure of information concerning the nature, value and location of any assets caught by the proprietary injunction, to be followed by confirmatory affidavits; and

(5) search and seize orders against Mr Ermatov, Mr Nazarov, Ashton, Mr Shushko, Ms Osadchaya and Cherzod Ermatov directed to named addresses (including the flat at Charter Court) and covering all records in those defendants’ possession relating to dealings with the supply of alumina to and the production of aluminium by Tadaz. The order (“the Etherton Order”) was made upon a variety of undertakings, mostly of a standard nature, but included an undertaking (“the Rusal undertaking”) given by Rusal Management Company Ltd (which was not and is not a party to the proceedings but has since been joined by Ansol to the Part 20 proceedings):

“Not, without the leave of the Court, to use any information or documents obtained as a result of the carrying out of this Order nor to inform anyone else of these proceedings except for the purposes of these proceedings (including adding further Defendants) or the commencement by the Claimant of other civil proceedings in relation to the same or related subject matter to these proceedings until after the return date.”

The role of Rusal Management Company Ltd (“Rusal Management”) will be referred to later.

[7]Permission was given and directions made for the service of the proceedings outside the jurisdiction on Mr Ermatov, Ansol, Mr Nazarov and the eighth and ninth defendants, and, by a later order as I understand it, on Ms Osadchaya.

[8]The Etherton Order contained a so-called gagging provision to the effect that until the return date, except for the purpose of obtaining legal advice, neither the defendants against whom the search order had been made, nor anyone else with knowledge of the order, should directly inform anyone of these proceedings or of the order or warn anyone that proceedings had been or might be brought against him by Tadaz. There was also a provision directing Mr Ermatov, Mr Nazarov, Mr Shushko and Ms Osadchaya to deliver their passports to the supervising solicitor under the search and seize order and prohibiting them from leaving the jurisdiction pending compliance by them with their obligation to provide information as ordered against them and pending completion of execution of the search and seize order. Before me was (with the other applications) an application for the return to Mr Nazarov and Mr Shushko of their passports (which had been delivered up in compliance with the Etherton Order) and for the removal of the gagging provision. A compromise was reached in relation to the gagging provision. It resulted in an order made by me on 20 July. So I need say no more about that aspect of the dispute. At the end of the hearing I indicated that I thought that Mr Nazarov and Mr Shushko should have their passports back. I assume that that has now happened so that I am no longer troubled by that matter either.

[9]Execution of the Etherton Order began in the early afternoon of 13 May. That same afternoon the defendants, other than Ms Osadchaya (who was not in any event within the jurisdiction) and the eighth and ninth defendants, applied to Lewison J for an order staying further execution of the search and seize order. The matter was disposed of on the basis, and a consent order so recorded, that the search of the premises in question would continue, that copies would be made of the hard disks of all computers located at the searched premises, that DLA (the supervising solicitors) would take to their own offices all documents seized and copies of the hard disks, and that Tadaz should not have access to any of them until noon on the following Monday, 16 May, or, if notice of an application was given to Tadaz by that deadline, until after the hearing of directions on such application the afternoon of the same day.

[10]I understand that between 1500 and 2000 files were taken from Ashton’s offices. The bulk of the files are said to consist of documents concerned with Ashton’s ongoing business. I am told that they contain much information of a commercially sensitive nature. I am also told that the documents continue to remain at DLA’s offices.

[11]At that stage all of the defendants were instructing the same solicitors, Clyde & Co.

[12]On the morning of Monday 16 May, Clyde & Co, by now no longer acting for the Ermatovs (Mr Ermatov Senior subsequently instructed and is now represented by separate solicitors, Byrne & Partners) applied for directions in relation to the Etherton Order, in particular for suspension of the disclosure of information provisions, pending the outcome of an application by them to set aside that order. They sought an order that all documents and records taken into possession by DLA in execution of the search and seize order should be retained by that firm, with no access being granted to Tadaz or its solicitors in the meantime, pending the outcome of their application to set aside the Etherton Order.

[13]That application came before Park J on the afternoon of 16 May. He ordered suspension of the information disclosure obligations in the Etherton Order pending the outcome of their intended applications (which had not yet been issued) to set aside that order. He made directions for service of the application and the evidence on it with a view to the matter coming on for hearing on the first available date after 20 June. He directed a further hearing, on 27 May, to consider whether the suspension of the information disclosure provisions should continue. In the meantime, he directed DLA to continue to retain the documents and records taken by them into their possession on execution of the search and seize order. He also directed that Tadaz should have no access to them.

[14]The matter next came before Laddie J a few days later. By then all of the defendants now before me, other than Ms Osadchaya, had issued applications to set aside the Etherton Order. The hearing on that occasion resulted in an order the effect of which, so far as material, was to continue the suspension of the information disclosure orders (subject only to the completed affidavits being lodged with the Defendants’ solicitors by 24 June) on the same terms as Park J had previously ordered. The order gave directions for the service of evidence on the basis that the applications would come on before the court with a time estimate of three days on 4 July 2005 or as soon as possible thereafter.

[15]Since then a very large volume of evidence, including expert reports, running to over 20 lever arch files and necessitating extensive pre-reading has been served, together with lengthy skeleton arguments. Ms Osadchaya, who remains out of the jurisdiction, has instructed Clyde & Co and joins in the applications to set aside the Etherton Order. The result of all of this has been that the hearing before me took place over five court days ending on the last but one day of the summer term.

Tadaz

[16]Before coming to the circumstances in which the present dispute arises, I should say something about Tadaz, its organisation and how it has operated both before and after the break-up of the Soviet Union of which Tajikistan once formed a part.

[17]Tadaz started up in 1975. It was established therefore in the days of the former Soviet Union when, under the system of state planning that then operated, considerations of profitability, the raising of capital needed to maintain operations, and the logistics of running a smelting plant located at a huge distance from alumina supplies and the consumers of the aluminium it produced were of no or relatively little importance. In contrast to this is the position following the collapse of the Soviet Union when Tajikistan emerged as an independent country and was faced with having to run the plant shorn of the featherbedding it had previously enjoyed.

[18]The plant had a design capacity when built of just over 500,000 metric tonnes (mts) annually of aluminium making it one of the largest aluminium smelters in the world although it never achieved this throughput. It appears that currently, or at any rate when these proceedings were launched, its capacity had fallen to 420,000 mts per annum (or possibly less than that) but, as I understand it, the plant has never achieved this reduced production level. I am told that it produced 360,000 mts in 2004 which is said to have been the best figure for ten years.

[19]Production of aluminium is a continuous process in the sense that it is necessary, if the particular smelting unit is not to be emptied and decommissioned, for the processing to be carried on without a break. Restarting the unit is, it is said, extremely expensive. An unplanned stoppage of the process would lead to the molten aluminium in the pot solidifying and, so it is said, render the unit in question economically unfit for further use.

[20]One of Tadaz’s difficulties is that, although located near to plentiful energy sources (Tajikistan is mountainous and can produce cheap hydro-electric power), none of the sources of the raw materials required for aluminium production (mainly alumina, itself produced from bauxite) are located near the plant. Raw materials have to be purchased and brought in by rail, often over great distances and, following the collapse of the Soviet Union, across more than one international frontier.

[21]According to the evidence of Mr Ermatov the plant faced huge difficulties – over and above those just described – as a result of a civil war in Tajikistan which lasted between 1992 (a year after the country gained its independence) and 1997. The paramount need was to maintain continuity of production, not merely to avoid damage to smelting equipment from a forced closure but also because of the plant’s significance to the Tajik economy. Unsurprisingly, production declined owing to shortages of raw material and, from 1995 onwards, a lack even of electricity during the autumn/winter period. Production reached an all time low in 1997 when only 180,000 mts of aluminium were produced. Some of the smelting units were forced to close causing substantial damage.

[22]Following the ending of the civil war, production gradually picked up. By 2004, aluminium production had doubled from what had been achieved in 1997 (when the civil war was still continuing). This meant that Tadaz was contributing between 17% to 20% of GDP, earning some 60% of the country’s export revenue and accounting for 45% of the goods imported into the country (comprising the materials needed for aluminium production at the plant).

[23]Besides its important role in the economy of Tajikistan, the plant’s operation is central to the economy and well-being of the town where it is located. I understand that it directly employs 12,700 people and indirectly affects the lives of many more. Mr Ermatov describes how, over the last few years, Tadaz has provided accommodation for its workers, together with sports, youth and a variety of social facilities. In addition it has contributed $20 million to a variety of public projects of one kind or another. (For ease of understanding all currency references are to US dollars rather than to the local currency.)

[24]Under Tadaz’s constitution, management and control of its affairs are vested in a single director, there being no board of directors as usually understood in English law. For ten years, until his removal on 6 December 2004, Mr Ermatov was Tadaz’s director. Latterly a Mr Sharipov was his deputy. On Mr Ermatov’s removal, Mr Sharipov was appointed to succeed him and a Mr Kabirov was later appointed as his deputy.

[25]It appears that Tadaz initiated these proceedings on the instruction of Mr Kabirov, rather than of Mr Sharipov. According to Tadaz’s evidence Mr Kabirov did so under a power of attorney signed by Mr Sharipov on 5 May 2005 which authorised Mr Kabirov in wholly unspecific terms to commence, conduct or settle any court action or arbitration proceedings on Tadaz’s behalf. According to paragraphs 7 and 262 of the first affidavit dated 13 May 2005 of Simon Bushell (a partner in Herbert Smith who act for Tadaz in these proceedings) - the affidavit contains the bulk of the evidence on which the without notice application to Etherton J was made - not only were the proceedings launched (on 13 May 2005) on Mr Kabirov’s instructions but, and oddly to my mind, this occurred without Mr Sharipov’s prior knowledge, indeed without any involvement on his part in the decision to do so. According to paragraph 262 of Mr Bushell’s affidavit (and subsequently confirmed by Mr Kabirov) there was a concern on the part of Mr Kabirov and those in the Tajik Government who had appointed him that since Mr Sharipov had served as Mr Ermatov’s deputy for many years:

“… knowledge of these matters may place Mr Sharipov in an embarrassing position in the sense firstly of the commencement of hostile proceedings personally against his long term former colleague; and secondly, in the event that Mr Ermatov (or anyone on his behalf) should seek to contact him …”

Nevertheless, Mr Sharipov, in evidence that he has since served on Tadaz’s behalf, says that he became aware of the proceedings in late May, that he is now fully aware of them, and that he is updated on them as they progress. He believes that they are well founded and states that they have his full support.

[26]Since the power of attorney under which Mr Kabirov purported to act is dated 5 May 2005 (a mere week before the claim was launched), although Mr Sharipov has since claimed that he gave Mr Kabirov authority to instruct Herbert Smith in early January, and since, on his own evidence, Mr Sharipov was aware of the proceedings by 26 May (indeed other evidence indicates that he was interviewed by Herbert Smith in the course of the previous month), there appears to me to be something distinctly contrived about the manner in which authority to bring the proceedings is said to have been conferred. This impression is heightened by the fact that it was as a result of a letter of complaint by Mr Sharipov (said to have been sent by him to the Tadaz prosecuting authorities on 7 December 2004) that led to the launching of criminal proceedings against Mr Ermatov. It is also to be noted that Mr Sharipov’s appointment of Mr Kabirov as his deputy is dated 31 January 2005 (three weeks after Mr Kabirov first instructed Herbert Smith) although, by its terms, the appointment is stated to take effect from 10 January, the very day Mr Kabirov says that Herbert Smith were first instructed. For his part, Mr Bushell states that Herbert Smith were instructed “in earnest” on about 17 January 2005. That was very nearly four months before Tadaz’s without notice application to Etherton J.

Tadaz’s evidence

[27]As presented to the court on 13 May 2005, largely in the affidavit of Mr Bushell, Tadaz’s evidence was to the following effect.

[28]Mr Nazarov has been associated with Mr Ermatov and Tadaz since 1995 or thereabouts. Between mid-1996 and the end of April 2003, Tadaz’s alumina requirements were supplied directly by Ansol (and, prior to Ansol’s incorporation in September 1998, by other entities in which Mr Nazarov was interested). All of its alumina supplies between May 2003 and December 2004 came from Hamer (the joint venture company) but had been procured by Ansol. The supply of alumina during this period was at prices (to Tadaz) which were double the average market price. The aluminium produced from alumina so supplied was (during the period May 2003 to December 2004) delivered to Hamer and then sold on by Hamer to Ansol resulting in Ansol having the ability to control its ultimate destination. The position was similar (but without Hamer being a link in the supply chain) in the period prior to May 2003.

[29]Regulating these dealings were “parallel sets of contracts”. One set comprised barter arrangements between Tadaz and Hydro for the exchange of alumina for an equivalent value of aluminium after production. These arrangements were originally contained in an agreement between Tadaz and Hydro entered into on 21 July 2000 and were followed by a replacement agreement (referred to in the evidence as the 2003 Barter Agreement) purportedly entered into on 25 September 2003. Alongside these agreements were other barter and supply contracts between Tadaz and Ansol and, separately, between Ansol and Hydro. They provided for the supply to Tadaz by Ansol of alumina and other raw materials (and finance) in exchange for finished aluminium, and under the separate arrangements between Ansol and Hydro, for the ultimate supply to Hydro of the aluminium produced by Tadaz. In paragraph 71 of his affidavit Mr Bushell said that the fraud alleged by Tadaz was:

“based on the contention that [the] agreements with Hydro were implemented in a manner which enabled Ansol Limited to manipulate Tadaz affairs in a way which was to Ansol Limited’s considerable benefit and to Tadaz considerable detriment.”

In paragraph 75 of his affidavit he stated that:

“Tadaz believes that both barter arrangements between Tadaz and Hydro were, in practice, subordinated and were therefore never properly implemented or performed by either party.”

[30]Delivery confirmations by Tadaz signed by Mr Ermatov, showing the receipt by Tadaz of alumina from Hydro, were fabricated. According to Tadaz’s records, there never was any genuine receipt from Hydro. The delivery confirmations were sent to Hydro by Ansol and never by Tadaz directly.

[31]The result was that Tadaz was deprived of a quantity of the aluminium produced from the alumina and therefore of the significant profits that such aluminium would have yielded.

[32]The arrangements which had this result were orchestrated by Mr Nazarov and acquiesced in by Mr Ermatov. Mr Ermatov did so because of bribes paid to him by Mr Nazarov and his confederates, in particular the payment of a £300,000 gift to enable him to acquire the Charter Court flat (now registered in the name of his son, the seventh defendant) and, it was believed, the payment of the costs of the seventh defendant’s degree studies in London (the costs of which greatly exceeded Mr Ermatov’s annual income as director of Tadaz). As a result of Ansol’s ability to control the ultimate destination of all of Tadaz’s produced aluminium, Ansol (and thus Mr Nazarov) was able to satisfy Tadaz’s apparent obligation to deliver aluminium to Hydro under the 2003 Barter Agreement and, by allowing the 2003 Barter Agreement to be “subordinated”, Hydro gave Ansol the opportunity to control and retain profits which would otherwise have been made by Tadaz. Ashton, through Mr Shushko, and Ms Osadchaya managed the arrangements on Ansol’s behalf and all three are therefore implicated in the fraud. There was (or was once) a connection between Mr Ermatov and Ashton in that between February 1997 and June 1998 Cherzod Ermatov had been a director of Ashton. At the time of his appointment Cherzod Ermatov was only 17.

[33]Until a copy was produced in November 2004, over a year after it had been purportedly entered into, no-one at Tadaz, not even Mr Sharipov, at any rate no-one apart from Mr Ermatov and possibly a Mr Kucharov, was aware of the existence of the 2003 Barter Agreement. Up to that time, the fraud on Tadaz, resulting from the corrupt dealings between Mr Ermatov and Mr Nazarov, went unknown to anyone outside those two and their immediate confederates.

[34]These corrupt dealings are believed to go back to 1996 when Mr Nazarov first became involved in the supply of alumina to Tadaz under barter arrangements, although the detailed records presently available to Tadaz only cover the period since 2003. Such earlier records as are available to Tadaz do not enable it to demonstrate, in the way that the post-April 2003 records do, that the corrupt dealings extend back prior to May 2003 to the start of Mr Nazarov’s involvement in the supply of alumina. Instead, reliance is placed on a judgment delivered on 20 November 2001 by the Lieutenant Bailiff (Catherine Newman QC) in proceedings brought in Guernsey by a Mr Vardinoyannis against, among others, Ansol, Mr Nazarov, other entities controlled by Mr Nazarov, Ashton and, by amendment, Tadaz. The judgment was given on various interim applications made in those proceedings in which Mr Vardinoyannis was alleging that he was the victim of a conspiracy between Mr Nazarov and various of his companies (including Ansol) to act in breach of a joint venture agreement between him and Ansol entered into in 1996 relating to the supply of alumina to Tadaz under barter arrangements similar (if not identical) to those which later came into existence between Tadaz and Ansol/Hamer. The judgment is relied upon as indicating – although prior to any kind of trial of the issues on their merits – that Mr Nazarov controlled the terms upon which Tadaz did business, that Tadaz incurred very substantial debts and liabilities to companies controlled by Mr Nazarov, that it made no or no significant profits (whereas the companies controlled by Mr Nazarov made substantial profits through trading with Tadaz), and that, through Ashton, Mr Shushko managed the affairs of the companies controlled by Mr Nazarov and, in particular, their dealings with Tadaz.

[35]A “near irresistible” inference of all of this is that, in the period between 1996 to the end of 2000, there was a fraudulent scheme similar to the scheme between Tadaz and Ansol after that time. More generally, Mr Nazarov appears to have followed a mode of operating the trading relationship with Tadaz similar to how he controlled matters from 2000 onwards.

[36]In particular, Mr Ermatov has admitted, during informal questioning by personnel from the Tajik Prosecutor’s Office on 25 March 2005, that he had received the London flat as a gift from Mr Nazarov. In addition, Mr Cherzod Ermatov was studying in London and it was unlikely that his father would have funded the fees (the inference being that Mr Nazarov had funded them).

[37]Even apart from those two matters Mr Ermatov had, as a result of the contracts he had caused Tadaz to enter into, created significant liabilities to Hydro and possibly others, without good commercial reason and it was therefore difficult to resist the inference that he would only have done so if it was in his personal interest to do so. A similar inference was to be drawn to the extent that Mr Ermatov’s conduct had allowed Ansol/Hamer the opportunity to make profits at Tadaz’s expense. Ansol was central to the fraud as it had acted as Tadaz’s agent and committed serious breaches of duties owed to it as its agent by participating in the “transfer of value” from its principal, Tadaz. As the person who controlled Ansol and its main beneficial owner, Mr Nazarov was liable as “the architect and the principal controller of the fraudulent scheme and the person who (Tadaz believed) had bribed Mr Ermatov for his co-operation”. Ashton was primarily responsible for managing Ansol’s trading relationship with Tadaz and thus for carrying out the fraud which it did from its London office throughout the relevant period. Mr Shushko, as Ashton’s sole director, had managed the negotiations, execution and performance of the 2003 Barter Agreement and related agreements. Ms Osadchaya was involved in the administration of Ansol and of its associated companies and, in particular, had signed numerous documents on Ansol’s behalf in relation to its dealings with Tadaz.

The without notice application

[38]The various claims against the defendants other than the seventh to ninth defendants, were summarised (in Mr Rosen’s skeleton argument before Etherton J) as:

“… based on (a) breaches of contractual and fiduciary duties by Mr Ermatov and/or Ansol (b) wrongful inducement/knowing assistance in respect thereof by the other of the First to Sixth defendants (c) knowing receipt by the Defendants of monies (or their traceable proceeds) belonging in equity to Tadaz (d) deceit by the First to Sixth defendants for the false documents which perpetrated the scheme (e) conspiracy between the First to Sixth defendants to injure Tadaz by such unlawful means.”

[39]Reference was made in the skeleton argument to various well known English decisions illustrating those causes of action. Whether and to what extent Tajik law recognises similar causes of action, in the case of claims where Tajik law is likely to be the relevant law, were matters touched on in the evidence and in the skeleton argument. It was contended that, in so far as Tajik law was the relevant law, it recognised these or similar causes of action and, in so far as it was not the relevant law, English law was.

[40]The seventh defendant was sued as the registered proprietor of the flat which Mr Nazarov had given to him as a bribe for his father’s assistance in the fraud. The claims against the eighth and ninth defendants, respectively Ansol Resources Ltd and Ansol Capital Limited, were on the footing that they were companies in the Ansol Group controlled by Mr Nazarov and that they are companies which may have received the proceeds of the frauds from Ansol or Mr Nazarov. Since Ansol’s main business activity was its trading relationship with Tadaz, it was submitted that any payments made by it to other entities were likely to have derived from profits of the alleged fraud. In the case of the eighth defendant this was on the basis that Ansol’s audited financial statements for the year ended 31 March 2001 described it as the operator of a certain alumina refinery which, it was believed, was the source of some of the alumina delivered to Tadaz and that during the previous year Ansol had purchased materials amounting to US $47 million from it and that, at the year end, Ansol owed it $933,666. In the case of the ninth defendant, this was on the basis that as at 31 March 2001 Ansol had lent it $8.1 million, as compared with $4.7 million the previous year.

[41]Before the court was a brief report dated 10 May 2005 by ZAO PricewaterhouseCoopers Audit who are based in Moscow and whom I shall refer to as “PwC”. The report, which stated that its authors did not have access to any Ansol records and that their analysis was based on, inter alia, verbal information provided by Al Service Management and was not reconciled to primary documentation, was concerned principally with the period 1 May 2003 to 31 December 2004. Al Service, it appears, was a Russian joint venture company set up in Moscow to provide administrative support to Hamer.

[42]The report found that during the period 1 May 2003 to 31 December 2004 99% of all alumina purchased by Tadaz was acquired from Hamer and that Hamer itself had acquired 66% of the alumina from Ansol and 31% from “Rual”. By Rual was meant “Rual Trade Ltd, a company within the Rusal Group” (see the glossary of abbreviations on page 3 of the report). The glossary described the “Rusal Group” as a “group of companies associated with Russian Aluminium”. The report found that 71% of aluminium produced by Tadaz during that 20 month period was supplied to Hamer, 23% supplied to Ansol and companies associated with Ansol and the remainder to small, mostly Tajik, customers. It stated that Hamer in turn sold all of the aluminium acquired from Tadaz to Ansol. It found that Tadaz sold aluminium at approximately 96.5% of the London Metal Exchange spot price. It also found that “on average the price of alumina corresponded to 12.5% of the aluminium spot price” which it referred to as the “model market price”. Comparing the “model market price” with the actual price paid by Tadaz during the period 1 May 2003 to 31 December 2004, it found that Tadaz was acquiring alumina “for a price corresponding to about 22% - 31% of the aluminium price, from which it concluded that “the purchase price of alumina to Tadaz was artificially increased”. In a footnote it noted that the “figures are not directly comparable due to transport costs” in that the price paid by Tadaz included transportation costs to its plant whereas “the average market price is … without transportation costs”. Effectively therefore PwC were saying that, ignoring the effect of transport costs, Tadaz was paying twice the model market price for the supply of alumina to it by Hamer.

[43]In a supplemental report, also dated 10 May 2005, PwC attempted to estimate the potential losses incurred by Tadaz as a result of the higher than market prices for alumina paid by Tadaz as described in the main report. It did so for two periods:(1) from 1 January 1999 to 30 April 2003 (during which Tadaz was said to be acquiring most of its alumina from Ansol) and

(2) from 1 May 2003 to 31 December 2004 during which, as already mentioned, Tadaz acquired most of its alumina from Hamer two thirds of which Hamer in turn had acquired from Ansol. The alleged loss for the first period was calculated at $146 million and for the second period at $75 million (a figure made up as to $34 million in respect of the margin Ansol was believed to have made on supplies by it to Hamer and as to $43 million as Ansol’s 50% of the overall profit margin enjoyed by Hamer from its dealings with Tadaz).

[44]The aggregate losses arising as a result of Tadaz’s trading, directly or indirectly, with Ansol over the six year period were therefore estimated by PwC at $223 million or $180 million if Ansol’s 50% share in Hamer’s profits was disregarded.

[45]The case for the making of freezing orders was advanced on the basis that (as it was stated in paragraph 62 and 63 of the skeleton argument placed before Etherton J) it was a proper inference – indeed a strong inference – that the first to sixth defendants might have sought, and might in future seek, to remove assets so as to put them beyond Tadaz’s reach. It was said that the existence of the fraudulent scheme alleged in the evidence itself supported the existence of a substantial risk of dissipation so that if given notice of Tadaz’s application to the court the defendants would be likely to try and remove their assets.

[46]As regards the grant of a search and seize order, it was stated (in paragraph 211 of Mr Bushell’s affidavit) to be self-evident that if an order were not granted there would be a significant risk of destruction or removal beyond Tadaz’s reach (of documentation), that in the absence of a search order documentation would be destroyed in an attempt to cover any further trail of wrongdoing, and that Mr Ermatov was likely to be in a position to procure the destruction or removal of documents which might be located at 15 Charter Court under the immediate control of his son.

[47]Mr Bushell’s affidavit made a number of disclosures. Among these were that he had had instructions from lawyers employed by Rusal Management whom Tadaz had authorised to give assistance and that, according to Mr Kabirov (Mr Sharipov’s deputy), this was because Tadaz had no previous experience of proceedings such as these, whereas Rusal Management “have a very well resourced Legal Department and are experienced in the field of international litigation and arbitration”. He disclosed that “Rusal” (as he referred to it) had given Herbert Smith instructions on a day to day basis and (in a later passage in the affidavit) that “Rusal’s participation” in this process “stems from its strong strategic alliance with Tadaz and the Government of Tajikistan”. He went on to explain that Rusal had recently announced that it was planning to invest $625 million in constructing a power station in Tajikistan and that the project represented “a further significant step in co-operation between Rusal and the Tajik Government”. He added that Rusal was interested in participating in any future privatisation of Tadaz and that “for this reason, Rusal has legitimate commercial reasons for supporting Tadaz in connection with the difficulties it is currently experiencing …”

[48]Mr Bushell also disclosed that on 16 December 2004, “a week or so after Tadaz was notified of the prohibition imposed [by the Tajik authorities] in respect of the export of aluminium [to Hamer or Ansol], under the Barter Agreement and other contracts” Tadaz had entered into a new agreement with CDH Investments Corporation (“CDH”) and that this was “a reaction to and not the cause of the cessation of deliveries of aluminium under the previous arrangements”. He explained that the need to maintain continuous processing at the aluminium plant (to avoid solidification of the units used during the process) coupled with the employment and other consequences of a cessation of activity at the plant explained why Tadaz had to move quickly to enter into replacement arrangements. He also explained that the new arrangement with CDH was “tolling” in nature, meaning that the alumina supplied to Tadaz and the aluminium which resulted from Tadaz’s smelting processes remained throughout in the ownership of CDH as so-called toller and therefore that Tadaz received its profit by way of a processing fee. He referred to the advantages of this new arrangement and explained that CDH was “ultimately owned by private investors based in Tajikistan” and that the Tajik Government expected that CDH and its investors might participate in the ultimate privatisation of Tadaz. He later referred to his belief that an affiliate of Rusal called Rual Trade Ltd was supplying alumina to CDH at spot market prices and that another affiliate was providing it with market analysis and pricing services.

[49]He explained that the need to act quickly after the events of 6 December (when Mr Ermatov was removed as director) meant that there was no time for any formal tender process before entering into the agreement with CDH, and that CDH was owned by a Tajik company called OJSC Orienbank which was mainly privately owned by a number of shareholders but with a small element of state ownership. He disclosed that Mr Kabirov (Mr Sharipov’s deputy at Tadaz) was until recently an executive of Orienbank but had become a member of its supervisory board.

[50]Mr Bushell also referred to the fact that there were arbitration proceedings on foot in Geneva between Elleray and Ansol concerned with their joint venture conducted through Hamer. He also referred to the existence of arbitration proceedings in London (started on 3 February 2005) brought by Hydro against Tadaz. He referred also to assistance Herbert Smith had received from employees of Al Service, mentioned earlier.

[51]He referred in paragraph 266 to the realisation that Hamer itself was exposed to possible claims by Tadaz, that this was recognised by Rusal (which, through Elleray, was effectively Ansol’s 50% co-venturer in Hamer) but that Tadaz had not yet determined whether to assert those claims adding that in the meantime “Tadaz is content to delay any decision in this respect on the basis of the continued support and co-operation received from Rusal”. He also added that he was aware “from those instructing me at Rusal” and from interviews with employees of Al Service who were involved in Hamer’s day to day operations that Hamer would contend that its involvement was the result of manipulation by Ansol and that it never made any real profit.

[52]Finally, Mr Bushell raised whether there could be a political motivation for the proceedings Tadaz was bringing. He referred to various reasons why it might be suggested that there might be but concluded, on the basis of his instructions from Mr Kabirov, that he did not consider that the proceedings were so motivated.

[53]As I have mentioned, it was essentially on that evidence (there was a short supporting affidavit from Mr Kabirov) that Etherton J made his order on 13 May. He was not willing to grant worldwide freezing orders unlimited in amount (as had been sought) but stated that the losses (as estimated by PwC) should be discounted by one fifth since he was not satisfied that the evidence justified extending the period of claim back to include 1999. It resulted in the freezing orders being limited to US $178 million. He was also concerned about the involvement of Rusal, both as a participant in Hamer and as an adviser to Tadaz, which was a position which he characterised as “rather curious”. He was concerned at what he referred to as “the potentiality for an abuse” arising out of the use of information contained in documents which might be disclosed as a result of the search and seize order or of information given pursuant to the information disclosure orders, Tadaz’s intention being that the information in question should be posted on to the persons within Rusal Management who were advising it. This concern resulted in the inclusion in the Etherton Order of what I have earlier described as the Rusal undertaking.

[54]The sufficiency and appropriateness of that undertaking have been the subject of considerable criticism, not least when the matter was before Laddie J on 27 May 2005. It resulted in Tadaz, through Mr Rosen, accepting that none of the documents or other information disclosed by the defendants in compliance with the Etherton Order should be made available to Rusal or its employees.

The defendants’ response

[55]This conveniently brings me to the defendants’ evidence which, at the hearing on 27 May, Laddie J described as a “most significant broadside directed at the justification for the order in the first place”. The evidence is mostly contained in witness statements by Mr Ermatov and Stephen Tricks (a partner in Clyde & Co acting for all of the defendants other than the two Ermatovs). There are also forensic accounting reports from RSM Robson Rhodes LLP by way of response to the reports of PwC filed on behalf of Tadaz.

[56]The gist of the response is to allege that, so far from the defendants having defrauded Tadaz, an allegation which they wholly deny, they, in particular Ansol, have been the victims of a fraud by Rusal, Tadaz and others (in which the President of Tajikistan is complicit) the effect of which has been cynically to supplant Hamer by CDH. They describe CDH as an entity effectively under the control of Rusal and/or close associates of the President. They contend that those now in control of Tadaz (in which Rusal is playing a prominent part) have resorted to a mixture of trumped up charges against Mr Ermatov and Mr Nazarov and other false evidence in order to bring about this result.

[57]As I have mentioned, Ansol has brought a counterclaim under Part 20 against Tadaz and others, including Rusal, two of Rusal’s principal officers, CDH, Orienbank and Hamer. It has done so with a view to establishing these counterclaims.

Evidence of the first defendant

[58]I begin with the evidence of Mr Ermatov.

[59]He indignantly denies the allegation that he has conspired to harm Tadaz or has defrauded it in any way. On the contrary, he describes in some detail the efforts made by him over the ten years that he served as the plant’s director (and also before that, since his employment with Tadaz dates back, he says, to 1977) to keep it in operation despite the huge challenges presented by the five year civil war and the need to operate the plant without the support previously enjoyed by it when it formed part of the Soviet command economy. He says that he managed to keep the plant operating at considerable personal risk to himself and his family during the civil war. He speaks with pride about the improvement in turnover, quality of aluminium produced, profitability achieved and contribution to the local and national economy in recent years by Tadaz. According to him, the truth is that Tadaz is being defrauded by Rusal and the new management for personal gain to the detriment of the plant and Tajikistan and that these proceedings and the criminal investigation which has been launched against him in Tajikistan are “an attempt to discredit those, including myself, who stand witness to this”. In summary his evidence was as follows.

[60]He and Mr Nazarov come from the same region of Tajikistan, are friends, and have known each other since 1991. When in 1996 (during the civil war) his son, the seventh defendant, was being harassed by rebels owing to his (Mr Ermatov’s) position in the plant he resolved to send his son abroad and asked Mr Nazarov for assistance which was willingly given. He describes a particular incident in December 1996, which led to him sending the seventh defendant abroad, when 40 or so armed people came to his house demanding $1 million in cash or aluminium to that value and issuing threats with a view to enforcing their demand. The assistance provided by Mr Nazarov resulted in Mr Nazarov sponsoring the seventh defendant’s education in London and providing him with the flat in Charter Court. Mr Nazarov supports hundreds of children from their region of Tajikistan, including paying the cost of sending some abroad, a fact which is well known in Government circles. He mentioned the assistance he had received from Mr Nazarov to President Rakhmonov in early 2001 when the President asked after his family at a weekend gathering. Mr Nazarov did not ask for and did not receive any favours in return for this assistance.

[61]Tadaz’s fundamental difficulty since Tajikistan’s independence in 1991 and therefore during his time as Tadaz’s director – has been lack of working capital. It is this lack that has led to Tadaz financing its activities by recourse to barter arrangements with third parties which in turn have resulted (in the period culminating in his removal as director and the subsequent criminal investigation) in Tadaz running up a substantial debt to Hydro. By the time of his removal this indebtedness amounted to $125 million and was represented, under the barter arrangements, by Hydro’s entitlement to aluminium to a like value. As a result of the efforts made to improve Tadaz’s performance coupled with the collaboration of foreign companies such as Hydro, Tadaz’s aggregate losses of $53.5 million recorded in the civil war period have been turned into aggregate profits of $146.5 million in the period 2000 to 2004. It has been the inability or unwillingness of the state authorities, in particular the President, to accept this method of operating, that has provided those who are behind the current proceedings with a pretext for the claims made against him and the other defendants.

[62]Another aspect of the background to these proceedings is the political situation in Tajikistan as it has been since the end of the civil war. The Government is authoritarian. Arbitrary arrest and detention are prevalent. Although elections take place, the Parliamentary system is flawed and electoral malpractice commonplace. Thus the President was re-elected in November 1999 with 96% of the vote. There is widespread abuse of power on the part of the President who has steadily consolidated his position. One of the techniques used by the President has been the practice of accusing his opponents, and others whom he regards as a threat to his position, of disloyalty. This has been followed by the investigations against them for criminal offences they have supposedly committed, leading to the jailing of the persons in question if they are unable to flee the country. (Mr Ermatov cites a number of examples of this. He also refers to various independent reports on Tajikistan and its political system in support of these contentions.)

[63]He is a victim of this process because not only has the President persecuted those whom he regards as his political rivals but he has also sought to place under his personal control key sectors of the Tajik economy by appointing to important positions those who are his relatives or come from his place of birth rather than appoint competent professionals. An example is the President’s brother-in-law, a Mr Saduloev, who now controls a significant proportion of the country’s cotton industry and is head of Orienbank which is Tajikistan’s largest commercial bank. In late 2003 he (Mr Ermatov) was pressured by the head of Tajikistan’s National Bank, acting on the President’s instructions, to transfer Tadaz’s accounts to Orienbank. Mr Saduloev attends on behalf of the President all important commercial and inter governmental talks taking place in Tajikistan. Through friends and family members the President and his brother-in-law now own 76% of that bank’s issued share capital. One of the President’s daughters controls all imports of sugar to Tajikistan, her husband is Deputy Director of Dushanbe Airport and as such is in control of fuel purchases and air ticket sales while his other son-in-law is head of Tajikistan’s Commodity Exchange. A wish by the President to take for himself and his close associates the benefit of Tadaz’s trading lies behind his removal from the directorship of Tadaz, the refusal to permit further supplies of aluminium to Hydro, the denial of the existence of any indebtedness to that company, the replacement of Hamer with CDH and the extraction by CDH of $23 million worth of aluminium in the first two weeks following the making of the tolling agreement between Tadaz and CDH. In addition CDH has seized cargos of alumina and other raw materials which were being acquired for Tadaz under the former barter arrangements.

[64]During his period as Director of Tadaz, it was illegal for Tadaz to sell aluminium without pre-payment. To be contrasted with this is CDH’s apparent indebtedness to Tadaz for the $23 million worth of aluminium taken by CDH during this initial period. This step was rendered possible by the making of a Presidential decree on 23 December 2004 (a few days after the tolling agreement was entered into) changing the law so that aluminium could be delivered to CDH without CDH first having paid for it.

[65]A key player in all of this is Rusal under the control of a Mr Oleg Deripaska, assisted by his second in command, a Mr Bulygin. Mr Deripaska enjoys the favour of the Russian President, Vladimir Putin, and recently succeeded in taking control of Russia’s aluminium industry.

[66]Against this background Tadaz’s claim that until November 2004 those who now control Tadaz together with Rusal had no knowledge of the 2003 Barter Agreement between Tadaz and Hydro and that its discovery came as a surprise, is absurd. Not only was the agreement referred to in Tadaz’s audited accounts for 2002 (signed off in May 2004) but it was discussed during a video conference in early May 2004 organised by the World Bank in which, among others, the state adviser on economic issues to President Rakhmonov participated.

[67]Nor have fraudulent confirmations been signed of the receipt by Tadaz of alumina. The alumina was delivered and, what is more, senior employees of Tadaz (in particular a Mr Azimov) verified each confirmation with his signature. They were signed in accordance with the contractual arrangements with Hydro.

[68]Those arrangements were well known and never questioned by Rusal’s representatives in Hamer which, after all, was (from May 2003) the first link in the chain of supply between Tadaz and Hydro both in respect of alumina and in respect of finished aluminium. Moreover, the barter arrangements with Hydro had been in place since 2000. There was never any double counting of alumina or aluminium and no question of any deception. Indeed, in late May 2004, a delegation from Hydro actually visited the plant in the course of which a meeting took place attended by Hydro representatives and senior officials of the Tajik Government and of the Tajik National Bank. What is more the 2003 Barter Agreement was prepared with the participation of Rusal’s lawyers. Present at the signing of that and other agreements were representatives of Rusal including, no less, Mr Bulygin and Rusal’s lawyers. No-one raised any questions about the various agreements between Hamer, Ansol and Hydro before his removal from the Directorship of Tadaz.

[69]The allegation is unfounded that on behalf of Tadaz he was buying alumina at a deliberately high price – far in excess of the true market price – and selling the finished aluminium cheaply. The barter financing arrangements included Tadaz’s various expenses, including insurance, transportation costs and the like; the barter contracts were all filed with Tajikistan’s Customs Agency. Moreover, the allegation fails to take into account Tajikistan’s negotiating weakness. Owing to its precarious financial position and history, Tadaz was unable to buy alumina on the open market but had to arrange transactions with partners who were willing to guarantee a large and continuous supply of alumina, to carry transport and financing costs and to deal on a barter basis. They had to be willing to bear the risk of transacting a large volume business with a state owned organisation in a country which was politically and economically unstable. The rewards therefore had to be high if they were to carry these risks. Tadaz might have been able to purchase its alumina needs at lower prices if it had had the necessary capital or credit. But that was never the case.

[70]Those considerations aside, the fact is that Tadaz was closely monitored by the Tajik Government. That was scarcely surprising given its importance to the Tajik economy. He produced frequent reports on Tadaz for the Government. Its affairs were subject to detailed assessment and analysis. He reported to President Rakhmonov monthly in writing and, until a meeting between Mr Deripaska of Rusal with the President in September 2004, would meet the President regularly to discuss his reports. In addition to the monthly reports, he produced quarterly and annual reports in which information on the plant’s performance was provided, including information on expenditure. The reports were produced in Russian and then translated into the Tajik language. (Mr Ermatov describes in some detail how the reports were produced and who received them, among whom were the President and the Prime Minister). Over and above those reports were the international financial audits on the plant’s annual statements. Moore Stephens had prepared audit reports for 2000 and 2001. PwC had undertaken the 2002 audit. By the time he was removed as director, he had instructed Moore Stephens to undertake the 2003 audit. These reports, contrary to what was stated by PwC in their reports to the court relied on in the without notice application, disclosed that Tadaz earned substantial profits in 2000 and 2002 and suffered only a small loss in 2001.

[71]The audited financial statements for 2002 contain a detailed breakdown of the cost of producing each metric tonne of aluminium in 2002 as compared with the preceding year. The quarterly accounts contained similar breakdowns of the production costs per metric tonne of aluminium including the alumina cost. Over and above those regular reports, he reported in writing from time to time to the President and others on alumina volumes and prices. (He cites an example which he believes was produced in early November 2004.) Those reports are or should all be available to Tadaz and produced to the court. The Customs Agency checked all imports of raw materials, which could not be unloaded without customs’ permission. These checks extended to documents detailing prices, quantities and the like. There were similar checks on exports of the finished aluminium including checks, as then required by Tajik law, that the aluminium had been paid for.

[72]In addition to all of this, he attended meetings with the Prime Minister and other Ministers where he was questioned about Tadaz’s affairs. Indeed, in 2002 and 2003 the President had himself been personally involved in discussions with Kazakhstan and Iran over supplying alumina to Tadaz.

[73]Not once in his ten years as director of the plant had anyone ever doubted the results of his work. It is inconceivable therefore that throughout or for any significant part of this time he could have been party to a fraudulent arrangement under which alumina was being acquired at excessively high prices, to the deliberate detriment of Tadaz, without anyone having realised the fact.

[74]The events which led up to and immediately followed his removal on 6 December as Tadaz’s director began with a meeting which he had helped organise between Mr Deripaska (Rusal’s chairman) and President Rakhmonov in August 2004. Following that meeting the President told Mr Ermatov that Rusal was going to undertake large investments in Tajikistan. Thereafter Mr Deripaska and Mr Bulygin visited Dushanbe on a regular basis. They had meetings with Mr Saduloev on these visits. From September 2004 Rusal’s representatives were based in Orienbank’s offices. By October 2004 Mr Sharipov (Mr Ermatov’s then deputy and eventual successor as director) became involved in the preparation of an agreement between Rusal and Tajikistan which was signed in about mid-October. The signing coincided with a visit to Tajikistan by President Putin of Russia. By that agreement it was envisaged that Rusal would invest large sums in Tajikistan’s energy and aluminium sectors.

[75]A few days following the signing of that agreement he was told by a close associate of President Rakhmonov that it was time for him to take up another job after ten years as Tadaz’s director. He was told that he should stand for Parliament in the forthcoming (February 2005) elections as a member of the President’s party and that in the meantime he should carry on as director.

[76]In the afternoon of 6 December he had a meeting with the President who thanked him for his work with Tadaz and announced that his party was putting him forward as a Parliamentary candidate in the coming elections and that, in the meantime, he should work as a Deputy Economics and Trade Minister. He accepted the President’s decision but was requested and was granted a one month holiday until 7 January 2004. Mr Sharipov replaced Mr Ermatov as director. His appointment was made by the Tajik Prime Minister. At a ceremony later that day at Tadaz’s offices, attended by various Tadaz employees and others, the Prime Minister thanked him on behalf of the President and Government of Tajikistan for his work as director of Tadaz.

[77]On 12 December, he flew to Moscow where he met Mr Nazarov. He was with Mr Nazarov in Ansol’s Moscow offices when Mr Saduloev rang to invite Mr Nazarov to Dushanbe for a meeting with President Rakhmonov to discuss issues concerning the plant. Mr Saduloev informed him that he too was to leave for Dushanbe. He took the night flight and arrived in Dushanbe the next morning. Mr Nazarov, however, was unwilling to return to Tajikistan for reasons concerned with his personal safety.

[78]At a meeting with Mr Saduloev back in Dushanbe on 17 December he was asked how much money Mr Nazarov made when working with Tadaz. He was told that Mr Nazarov should pay the plant’s debts because Tadaz would not be doing so.

[79]A week later, on 24 December, he returned to Moscow with his family. He did so in the company of Mr Saduloev and Mr Kabirov. Mr Saduloev indicated that he wished to see Mr Nazarov. However no meeting took place between the two of them at that time.

[80]He returned to Tajikistan on 7 January. That coincided with the end of his period of leave.

[81]On 11 January he was at a meeting attended by representatives of Hydro who had arrived in Tajikistan a day or two earlier to take up the issue of the suspension of supplies to them of the finished aluminium. Mr Saduloev and various representatives of Tadaz (including Mr Sharipov and Mr Kabirov) were also in attendance. During a break in the meeting he was informed by the Deputy Head of Tajikistan Public Prosecutor’s Office that a criminal investigation into the legality of the 2003 Barter Agreement had been opened. This was the first time that he had been challenged over that agreement. He explained there and then how the arrangements with Hydro worked. He was told that he would be questioned further about it. Later during the meeting the decision was made that there should be a further meeting in Dubai where Mr Nazarov was at the time. That same day the principal participants flew to Dubai where they remained for several days. There Mr Nazarov met Mr Saduloev and the Hydro representatives. Mr Bulygin of Rusal was also present together with other representatives of Rusal. The meeting remained throughout in touch with President Rakhmonov. The upshot of the meeting was that Rusal was opposed to Hydro receiving any of the aluminium which it was claiming. This had the consequence that Hydro’s claims remained unresolved.

[82]Back in Dushanbe, he had a meeting with President Rakhmonov at which Mr Saduloev, Mr Kabirov and Mr Sharipov, with others, were present. At the meeting the President accused him of having created artificial debts by Tadaz to foreign companies. He was also accused of signing false confirmations of alumina deliveries from Hydro. No-one was interested in hearing his explanation of how the arrangements with Hydro had operated.

[83]At a further meeting the next day, 19 January, headed by President Rakhmonov, Mr Bulygin, backed up by Mr Deripaska, claimed that, according to Tadaz’s books, Tadaz owed $236 million ($200 million to Hamer and $36 million to others) but that, over and above those amounts, $125 million was due from Tadaz to Hydro although this further indebtedness did not appear in Tadaz’s records. He (Mr Ermatov) explained to the meeting how the arrangements with Hydro worked and stated that Mr Bulygin was making false and misleading statements. He explained that the sum owed to Hydro was part of the overall plant indebtedness of $236 million and was not additional. He pointed out that Tadaz’s arrangements with Hydro had been working since 2000, that Mr Bulygin had taken part in the negotiations that had led to the 2003 Barter Agreement, and that Rusal had been involved since 2003 but had not hitherto suggested that anything was incorrect. The President cut short the discussion and ordered the General Investigating Magistrate to deal with the matter.

[84]From that time onwards he was called daily to the Public Prosecutor’s Office for questioning although he continued to serve as Deputy Economics and Trade Minister. He was told not to leave Tajikistan. On 21 February 2005, shortly before the Parliamentary elections, he was pressured into withdrawing his candidacy. Aware that his immunity from prosecution (which he enjoyed as a member of Tajikistan’s Upper House) would terminate when the elections to the Upper House took place on 25 March and therefore when his membership of that House would come to an end and fearing for his own safety, he felt that he had no other choice but to leave the country with his family. This he did on 21 March when he left for Tashkent and later for Dubai. He rang Mr Nazarov to tell him that he had left and later met him in Dubai when he explained in detail what had happened. After obtaining a visa he was able to come to this country arriving here in April 2005. He has not since returned to Tajikistan.

[85]So much for Mr Ermatov’s evidence. I have done no more than summarise what seemed to me to be its more important points.

Evidence of the second to fifth defendants

[86]The evidence filed on behalf of the second to fifth defendants is to the following effect.

[87]Starting in late 1994, which was during the civil war, Mr Nazarov through a company called Ansol Trading Corporation supplied Tadaz with raw materials on a regular basis although, at that stage, the volumes involved were only a small percentage of the total supplies required by Tadaz. Dealings were throughout conducted on a barter basis. After the civil war ended, the position of Tadaz stabilized and from 1997 onwards aluminium production volumes increased each year.

[88]By 1999/2000, Ansol had barter arrangements in place with Tadaz and was supplying raw materials in significant amounts. Although described in the documentation as an “exclusive” arrangement, Tadaz remained at liberty to deal with other parties subject to certain conditions. The materials supplied comprised not just alumina but also other raw materials needed in the smelting process together with Tadaz’s general financing requirements. Under the barter arrangements Ansol was entitled to receive aluminium to the value of the raw materials and the financing that had been supplied.

[89]Although a barter agreement in principle allows the supplier of raw materials to take immediate delivery of finished aluminium without waiting for that particular consignment of raw materials to be converted into aluminium, in practice the operation of the barter arrangements between Ansol and Tadaz required significant sums of working capital in order to avoid cash-flow problems. There were three particular cash flow problems. First, on the supply of raw materials to Tadaz there would usually be a significant delay between the sourcing of the raw materials and the delivery of those materials to Tadaz. This was primarily because of the logistical problem of transporting raw materials to Tadaz from places as far away as West Africa, India or even Venezuela. An average delay of 30 days for transporting raw materials from their point of origin to Tadaz was by no means unusual. If the original supplier required immediate payment or pre-payment, Ansol would need to cover the outflow of cash for that period. Second, to manage its own obligations and finances Tadaz would normally stipulate in its barter agreements with Ansol for a credit period of approximately one month from the time it received the raw materials until the time it released the finished aluminium. In addition, the Tadaz Customs prohibited the release of aluminium to counterparties unless the counterparties could demonstrate a pre-payment for that metal by way of supplies of raw materials or other payments made to or on behalf of Tadaz. Third, the finished aluminium was released to Ansol on railway trucks at Regar railway station near to the plant. Most of the metal destined for the West European markets would be carried by rail to Tallinn in Estonia or to St Petersburg from where it could be shipped to the ultimate purchaser. Purchasers were prepared to pay a better price for Tadaz metal when stored in a warehouse in Tallinn than they were when sitting on a railway truck in Regar station. The rail journey from Regar to Tallinn crosses several countries and can take another month. The result was that it would not be unusual for Ansol to have to cover a period of 90 days or more between when payment was made by it for the raw materials and payment was made to it by a final buyer for the finished metal.

[90]In addition, as Tadaz had to operate on a continuous cycle, it was not feasible for Ansol to wait until payment by the final buyer before purchasing another batch of raw materials for supply to Tadaz. Ansol would have to arrange frequent shipments of raw materials to Tadaz and therefore could end up financing three months’ worth of raw materials at any given time.

[91]By 2000 Hydro was interested in participating in these supply arrangements. Hydro had previously dealt with Tadaz and had done so as early as 1993 which was well before Mr Nazarov had started dealing with Tadaz on a regular basis. Although this relationship had resulted in Tadaz owing monies to Hydro, Hydro was keen to acquire Tadaz’s aluminium because it was of a grade suitable for re-smelting (to produce refined aluminium) and it was available at a discount to LME prices.

[92]At this time, Ansol had an existing relationship with a Saudi bank called Al Rahji Investment Corporation which was involved in providing finance. Al Rahji had provided commodity financing on Islamic Law principles which prohibited the charging of interest. Such financing involved the party who provided finance purchasing the commodity from the seller and immediately re-selling it to the buyer at an increased price (with the increase in price serving in lieu of interest). Such arrangements gave rise therefore to a contract between the buyer and seller and to contracts between the buyer and the bank and the seller and the bank, although only one physical transfer of the actual commodity took place.

[93]This was the basis upon which the 2000 Barter Agreement (dated 21 July 2000) between Hydro and Tadaz was concluded. It was essentially a finance agreement and operated in conjunction with three other contracts:(1) Ansol’s existing barter agreement with Tadaz dated 30 December 1999 (subsequently replaced by another similar agreement on 29 December 2000) whereby in exchange for aluminium, it agreed to supply raw materials (not confined to alumina) to Tadaz and make payments to third parties on Tadaz’s behalf,

(2) an “aluminium agreement” dated 21 July 2000 between Ansol and Hydro whereby Hydro agreed to purchase aluminium from Ansol in exchange for Hydro providing financing facilities necessary to finance the sourcing of the raw materials and the making of payments for Tadaz, and

(3) a “financing facilitation agreement” between Ansol and Tadaz dated 21 July 2000 which regulated the relationship between Tadaz and Ansol under the 2000 Barter Agreement.

[94]The Islamic finance structure was attractive to Hydro because it gave to Hydro a direct contractual right to the aluminium in effect as security for finance that it provided. It was not envisaged that Hydro would exercise that direct contractual right unless Tadaz defaulted. In the normal course of things the flow of finance and raw materials to, and aluminium from, Tadaz would go via Ansol.

[95]Between 1996 and 1998 Mr Nazarov had been in a joint venture with a Mr Vardinoyannis. Through a joint venture vehicle they had supplied Tadaz with raw materials but the venture was dissolved in 1998. Mr Vardinoyannis subsequently brought proceedings against Ansol and Mr Nazarov in Guernsey. One of the complaints made was that Ansol had made private arrangements with Mr Bulygin and Mr Deripaska (of Rusal) designed to exclude Mr Vardinoyannis in breach of his joint venture with Mr Nazarov. Worldwide freezing orders were granted on Mr Vardinoyannis’ application. Tadaz was joined to the action. In March 2003 the proceedings were settled for $15 million. The settlement dealt with all of the outstanding matters arising from the winding up of the joint venture. Ansol thereby acquired the joint venture company which in turn had a substantial claim against Tadaz far exceeding the $15 million.

[96]The effect of the freezing orders was, among other things, to cause Ansol by 2003 to be in need of finance for its own account. Accordingly, Mr Nazarov was persuaded to enter into a joint venture agreement with Rusal (acting via an affiliate) in relation to the business previously carried out with Tadaz by Ansol alone. The affiliate Rusal used was Elleray. In effect the business was to be shared 50:50 between the two co-venturers. That was in early 2003.

[97]They used Hamer, an existing company supplied by Rusal, as the joint venture vehicle. Its shares became owned half by Ansol and half by Elleray. A “framework” agreement dated 29 April 2003 was signed by Ansol and Elleray. That agreement envisaged that the use of Hamer would be temporary until the formation of a more permanent joint company. One of the objects of the joint venture was the modernisation of Tadaz’s plant to increase its production capacity. It also recorded that if the Government of Tajikistan privatised Tadaz it was the intention of the joint venture to take part in such privatization with a view to acquiring shares. In fact Hamer remained the joint venture vehicle. Until late January 2005 Hamer was run by a Rusal nominee, a Mr Petukhov. Indeed he was Hamer’s sole executive officer.

[98]Originally, it was hoped simply to insert Hamer into the existing structure in place of Ansol but this proved impracticable. This was in part because some of Ansol’s long established sources of raw materials and final buyers of the finished aluminium were reluctant to switch contracts from Ansol to Hamer. Instead, Hamer was inserted into the structure between Ansol and Tadaz. It was agreed that Ansol and Rusal would supply alumina to Hamer who would then supply it to Tadaz. To this end Hamer entered into a barter agreement with Tadaz on 25 April 2003. The parties were originally to supply alumina to Hamer at cost but subsequently agreed that the sale of the alumina from Ansol to Hamer would be at $1 per metric tonne more than the price at which Ansol had purchased it. Under the terms of the joint venture a company called Al Service was set up in Moscow to provide administrative support to Hamer. This company was staffed in part by Ansol personnel and in part by Rusal personnel.

[99]Rusal was keen to enter into new arrangements with Hydro whereby Hydro would off-take the aluminium produced by Tadaz and would make a substantial pre-payment. Negotiations between Rusal, Hydro and Ansol ultimately led to the 2003 Barter Agreement and associated contracts. Rusal was intimately involved in the production of the new agreements, including negotiation by its lawyers. Mr Bulygin attended the signing ceremony in Moscow at which representatives of Hydro were also present.

[100]The 2003 Barter Agreement replaced the 2000 Barter Agreement and operated in a similar way. It too was therefore a financing agreement in that, although it provided that the parties would deliver and take delivery of raw materials and an equivalent value of aluminium, it was understood by all concerned that no actual deliveries would be made under it unless Hamer and/or Ansol failed to perform its obligation to supply Hydro with the aluminium produced and delivered by Tadaz and intended to be supplied to Hydro.

[101]As with the 2000 Barter Agreement, there were also other contracts, namely:(1) an “aluminium agreement” between Hydro and Ansol dated 25 September 2003 by which Ansol agreed to sell aluminium to Hydro in exchange for Hydro providing financing facilities to Ansol to enable it to finance the supply of raw materials and services to Tadaz,

(2) an agreement between Tadaz and Hamer dated 25 April 2003 by which Hamer agreed to supply raw materials to Tadaz and make payments on Tadaz’s behalf in exchange for aluminium (and which on 12 November 2003 was replaced by an agreement entered into on similar terms and covering aluminium supplies for the year 2004), and

(3) a further contract between Ansol and Hamer by which Hamer undertook to supply to Ansol all of the aluminium delivered by Tadaz to Hamer.

[102]The 2003 Barter Agreement was a genuine agreement. It was never secret or concealed or unknown to Tadaz. It was expressly referred to in Tadaz’s audited accounts for 2002 issued on 25 May 2004 and produced by PwC for submission to the World Bank that month. Hydro’s financing had been raised by a World Bank representative in a letter dated 11 May 2004 to a senior representative of the Government of Tajikistan. Russian translations of the agreement were produced and available. Hydro’s lawyer specifically discussed the legality of the agreement with Tadaz’s lawyers.

[103]Both the 2000 and the 2003 Barter Agreements provided that Tadaz would provide monthly receipts in a set form. These delivery reports were regularly produced by Tadaz. Their production involved staff in Tadaz, including Mr Azimov. The agreement was not officially registered because it was a finance agreement and as such, unlike contracts for physical deliveries, did not need to be registered.

[104]The contractual arrangements were performed without problems until December 2004. On 2 December 2004 an extension to the contract between Tadaz and Hamer was agreed and signed for the year 2005.

[105]There was no “double counting” on the part of Ansol or anyone else. All parties to the arrangements were aware that, although the process involved several sets of contracts, there was only one delivery of raw materials to Tadaz and one delivery of finished aluminium. The credit period under the arrangements was for the benefit of Tadaz. There was no question of Ansol having supplied alumina to Tadaz at double the market price as PwC believes. Ansol’s margins on alumina are a matter of record and can be determined from objective documents. They could have been determined if Tadaz had taken up Ansol’s offer of an audit made to Tadaz in January 2005 and repeated the following month. In any event, Ansol’s margin on alumina was not the only element of its profits or losses. It provided other raw materials and services and has costs. In particular, it was responsible for the cost of transporting the alumina to Tadaz. The “market price” of alumina postulated by PwC in its initial report was not in any sense a valid comparator.

[106]In the second half of 2004, Rusal began to conspire with President Rakhmonov and other members of the Tajikistan Government to take over dealing with Tadaz for itself in breach of its joint venture obligation with Ansol. Thus, from mid-November 2004 onwards, representatives of Rusal (in particular, Mr Bulygin) began suggesting to Mr Nazarov that he and Ansol should exit from the joint venture with Rusal operated through Hamer. As a result of a meeting in Moscow between Mr Bulygin and Mr Nazarov on 22 November 2004, Mr Nazarov became concerned about his own safety and was unwilling to return to Tajikistan. By 24 December 2004 he had become concerned for his personal safety in Moscow as well. This was as a result of what he understood, as he was on his way to a meeting with Mr Deripaska of Rusal, was a plan to kidnap him and spirit him back to Tajikistan. He therefore left Russia. He has since remained away from those two countries. On 6 December 2004 Mr Ermatov was removed as director of Tadaz and made a Deputy Minister. On 10 and 13 December, Tadaz wrote letters to Hamer making unfounded complaints of non payment, alleging that the extension of the agreement between itself and Hamer for 2005 was invalid and was annulled and threatening to stop deliveries of aluminium. It made no mention of any “criminal charges” or customs stoppages.

[107]On 16 December 2004, Tadaz entered into the tolling agreement with CDH. This provided CDH with the exclusive right to all aluminium produced by Tadaz. According to its terms, the duration of the agreement is unlimited in time.

[108]Tadaz’s accounts show that as of 31 December 2004, CDH owed Tadaz approximately $23.3 million. This was because CDH had taken aluminium to this value from Tadaz. This was aluminium which had been financed by Hydro under the previous arrangements. Furthermore, by mid-January, it appeared that CDH had taken $50 million worth of aluminium and that Tadaz’s loan to it stood at around $22.3 million. The supply of aluminium without pre-payment was illegal before the law was changed by Presidential decree in late December 2004.

[109]When allegations began to be made against it by Tadaz/Rusal, Ansol more than once offered a full independent internal audit of its books and records to have all transactions independently analysed and scrutinised. Tadaz never took up the offer.

[110]Between December 2004 and the end of February 2005 correspondence passed and meetings took place between Tadaz, Hamer, Ansol, Rusal and Hydro in which various explanations were put forward and accusations made by Rusal and Tadaz to explain the cessation of aluminium deliveries to Hydro and the diversion of the aluminium to CDH. In addition, Rusal falsely claimed that it was unaware of the 2003 aluminium agreement between Ansol and Hydro even though it had participated in it. It also used its 50% share in Hamer to prevent Hamer (acting at the invitation of Ansol’s representative at a meeting on 21 January 2005 in Moscow) from protesting Tadaz's repudiation of its agreements with Hamer.

[111]In summary, so far from these defendants not having defrauded Tadaz, they have themselves been the victim of a fraud perpetrated by Rusal, Tadaz and others. The nature and full particulars of basis for that claim are set out in the Particulars of Part 20 Claim now brought by Ansol against Tadaz, Mr Deripaska, Rusal, Rusal Management, Mr Bulygin, Mr Saduloev and others served in July 2005.

[112]Again, I have done no more than summarise some of the more important aspects of the evidence of these defendants.

Tadaz’s reply evidence

[113]The main points to emerge from Tadaz’s reply evidence were as follows.

[114]Doubts concerning Tadaz’s dealings with Ansol went back to at least June 2004 when a government enquiry was instigated by the Tajikistan Committee for State Financial Control which resulted in a report indicating that Tadaz had consistently paid excessive prices for its alumina supplies by Ansol/Hamer. The report in question, a so-called Act of Revision, covered the period 1 June 2002 to 1 June 2004 and was begun on 7 June 2004. It was finalised on 29 October 2004. From that point on, Mr Ermatov and Mr Nazarov were, it is thought, aware that their fraudulent scheme was about to be unravelled. The report made a number of important findings which, unknown to those advising Tadaz at the time that the without notice application to Etherton J was made, fully supports the basis upon which Tadaz puts its case in fraud. Among its findings were that alumina prices increased from $296 per mt in 2002 to $347 per mt in 2003, and to $540 per mt in the first half of 2004. Other findings justify the conclusion that alumina prices amounted to approximately 33.3% of the LME aluminium price and that by buying though Ansol and Hamer, Tadaz paid double the price it could have paid if it had sourced the alumina direct.

[115]The production of the Act of Revision appears to have prompted a number of reactions, namely, the resignation of Mr Kucharov (Tadaz’s chief accountant), his replacement asking to see and later receiving a copy of the 2003 Barter Agreement, the start of an investigation by the General Prosecutor’s Office in early December 2004, Mr Nazarov expressing to Mr Bulygin his wish to leave the joint venture and Mr Ermatov stating his wish to leave Tadaz, his removal as director of Tadaz and his later departure from Tajikistan. It also prompted the issue by the Tajik customs authority of a prohibition on the export of aluminium by Tadaz.

[116]The existence of the 2003 Barter Agreement (and its intended mode of operation) were secret within Tadaz at least until May 2004 and even beyond that. It was Mr Kucharov’s successor (as Tadaz’s chief accountant), appointed in November 2004, who began to ask questions concerning the whereabouts of the 2003 Barter Agreement. Even then Mr Ermatov had to ask Ansol for a copy.

[117]The defendants’ attempted rebuttal of the suggestion that the prices at which alumina was supplied to Tadaz were excessive is largely founded on assertions that their dealings with Tadaz were “commercially” acceptable and on the claim that in their reports PwC made erroneous assumptions about the prices at which Ansol/Hamer obtained alumina for sale on to Tadaz, namely that they were largely “spot” prices and therefore higher than would be the case for term supply contracts. It appears, however, that Ansol had a number of term contracts with suppliers to it of alumina which Ansol appears not to have mentioned to its experts, Robson Rhodes, who in turn appear not to have addressed why Ansol would acquire alumina at spot prices notwithstanding its long term contract with Tadaz. Applying a so-called “fair market model”, described in the report of Mr King, PwC calculate that the excess margin on alumina supplies earned by Ansol between 1 January 1999 and 30 April 2003 amounts to between $134 million and $183 million and for the period between 1 April 2003 and 31 December 2004 to $84 million (of which Ansol’s half share is $42 million). From this it would appear that over the whole period Ansol made profits of between $126 million and $177 million.

[118]Mr Ermatov’s reports to President Rakhmonov and others were very limited in the information that they provided. Beyond giving an overall figure for the amount spent on alumina over the particular period covered, the quarterly and annual reports which Tadaz produced gave no detail as to the pricing of such alumina or as to the terms of the contracts pursuant to which the alumina was obtained. Hydro is not even included in the list of export partners in the 2004 annual report.

[119]The omission of the 2002 audited accounts from the evidence in support of the without notice application was an oversight on the part of Mr Bushell. Its only significance is its reference to the 2003 Barter Agreement. It is to be noted, however, that the original version of the 2003 accounts produced in November 2003 contained no reference to the 2003 Barter Agreement, the restated version of those accounts, containing the reference to the 2003 Barter Agreement, only appeared in late May 2004 and the inclusion of that reference arose as a result of questions of Mr Ermatov by PwC following comments made by the World Bank earlier that month. The restated accounts make no attempt to explain the relationship between the Barter Agreements and the agreements involving Hamer. Moreover, they had a very restricted circulation. For example, no copies were sent to Mr Sharipov even though at the time he was Tadaz’s deputy director.

[120]The claim by the defendants that they are victims of persecution by the Tajik authorities is unfounded as is the notion that Rusal is the driving force behind these proceedings and controls Tadaz. If Rusal is implicated in the fraud, this is a matter which will be separately dealt with.

Mr Doctor’s submissions

[121]Mr Doctor submitted that the Etherton Order should be set aside because(1) in making the without notice application Tadaz had been guilty of very extensive and material non-disclosure and misrepresentation,

(2) there was no arguable case against the Defendants, and

(3) there was and remains no risk of dissipation of assets by the Defendants. He drew my attention, by reference to authorities which are well known and which I do not need to set out, to the duty of full and frank disclosure when a without notice application is made to the court, the effect of non disclosure on a subsequent application to discharge, the threshold for the grant of freezing order relief including the need to demonstrate a real risk of dissipation if the order is not granted and the necessity, where allegations of dishonesty are made, to plead the matter with proper particularity so that the other side can understand the case he is required to meet.

[122]He pointed out that at the time of the without notice application, although it had been preparing its case for at least four months, Tadaz had no particulars of claim and that the particulars of claim which were originally due on 1 June 2005 were only produced on 23 June 2005 following three requests or applications for extension of time. He pointed out that the case as advanced before Etherton J had now substantially changed and that large parts of the case as put to the court when the Etherton Order was made had been abandoned. He submitted that the defendants had placed before the court a substantial body of evidence the effect of which is that the claims against them are entirely false and that they had been the victims of a conspiracy, a matter which had now been fully pleaded in the Part 20 claim which Ansol itself had since issued against Tadaz, Rusal and others. He submitted that there was and remains no risk of dissipation of assets by any of the defendants.

[123]Mr Doctor pointed out that in the case as presented to Etherton J on 12/13 May, it was being alleged(1) that Mr Ermatov and Mr Nazarov had procured the 2003 Barter Agreement without anyone from Tadaz (apart from Mr Ermatov) knowing of it,

(2) that no-one at Tadaz (excepting Mr Ermatov) discovered it until late November 2004,

(3) that there was no copy or translation of it in Tadaz’s records, that it was fictitious (and the subject of criminal proceedings against Mr Ermatov launched on 8 December 2004),

(4) that it had been fabricated in connection with the fraud between the two of them,

(5) that it (and the earlier 2000 Barter Agreement which was not specifically alleged to be unknown to Tadaz) had been “subordinated” to the “parallel” contracts between Tadaz and Ansol (in 2000) and Hamer (in 2003) and

(6) that as a result of the “subordination” Ansol and Hamer had been able to make very substantial profits from controlling the supply of alumina to Tadaz which they had done by charging double the alumina market price leading over the five years to December 2004 to Tadaz suffering $223 million in losses. He referred to allegations by Tadaz (1) that raw material receipts issued to Tadaz pursuant to the 2003 Barter Agreement confirming receipt of alumina from Hydro were fabricated and were part of or proof of the fraud, (2) that Tadaz had been fraudulently forced to take a credit period of 180 days when its business only required 30 days, (3) that Ansol had exploited this to its advantage by trading with the aluminium on its own account over the credit period, (4) that Tadaz had been consistently unprofitable under Mr Ermatov’s management and (5) that, following discovery of the fraud in late November/early December 2004, an investigation had started, Mr Ermatov had been dismissed as director of Tadaz on 6 December, was now facing criminal allegations in Tajikistan instituted on 8 December in connection with the fabrication of the 2003 Barter Agreement - with further supplies of aluminium to Hydro being suspended on the same day - and had fled Tajikistan rather than answer enquiries from the police there. He referred also to Tadaz’s allegation that the tolling agreement between itself and CDH had been entered into on 16 December without any formal tender process because there was no time for such a process and because CDH and its financial backers had been able to respond quickly. The implication of these matters, according to Tadaz’s evidence, was that the tolling agreement had been concluded urgently because of the cessation of further aluminium deliveries to Hydro following discovery of the 2003 Barter Agreement and the start of investigations into the matter. As regards CDH, the evidence filed on behalf of Tadaz clearly implied that that company was unconnected with Tadaz and that the tolling agreement was an arms’ length commercial deal.

[124]He pointed out that following service of the defendants’ evidence, Tadaz’s claim as now set out in its particulars of claim abandoned any reliance on alleging(1) that the 2003 Barter Agreement was a fabrication and was unknown to or hidden from Tadaz,

(2) that the two Barter Agreements were “subordinated”,

(3) that there was an apparent contradiction arising out of the existence of “parallel contracts”,

(4) that delivery receipts for raw materials had been fabricated,

(5) that Tadaz had been fraudulently forced to take a credit period of 180 days when its business required only 30 days,

(6) that Ansol had supplied alumina to Tadaz at double the market price, and

(7) that after Hamer came on to the scene (in May 2003) the fraud was effected by Ansol selling alumina to Hamer at prices so excessive that it amounted to a fraud on Tadaz.

[125]He said that Tadaz’s case as now advanced in the particulars of claim is(1) that Mr Ermatov, Mr Nazarov and various companies owned and controlled or associated with Mr Nazarov all owed fiduciary duties to Tadaz,

(2) that there was a “generally corrupt relationship” between Mr Nazarov and Mr Ermatov of which the gift of the London flat formed a part but with the only other particulars relied upon being the fact that Mr Nazarov paid the university fees and living expenses of Mr Ermatov’s son,

(3) that Mr Nazarov and his companies, in concert with Mr Ermatov, took control of Tadaz and manipulated the contractual arrangements,

(4) that the purpose and effect of the Barter Agreements in conjunction with the other contractual arrangements was to deprive Tadaz of all or substantially all of the profits from the operation of the Barter Agreements alone and to transfer those profits to Mr Nazarov’s companies,

(5) that, in reliance on a fresh report by PwC (not the one which was before Etherton J on 12/13 May), this transfer of profit was achieved by forcing Tadaz to buy alumina at “excessive prices” (although no longer double the market price),

(6) that Mr Nazarov and Ansol had refused to give Tadaz access to any of the relevant financial records, and

(7) that, so far from describing it as a fabrication and an instrument of fraud, the 2003 Barter Agreement was relied on as showing that Mr Nazarov’s companies had earned all or substantially all of the profit which should have been earned by Tadaz under those agreements.

[126]He submitted that the change of case was significant in that:(1) it provided strong support for the defendants’ case on non-disclosure since many of the matters in respect of which non-disclosures or misrepresentations were made were no longer relied upon in the particulars of claim,

(2) the extent of the change impacted upon whether there ever was an arguable case against the defendants, and

(3) the new case had abandoned all the items of secrecy and suspicion which were intended to insinuate that there was a risk of dissipation by the Defendants.

[127]The precise course of events in December 2004 and January 2005 on which Tadaz relies as justifying Mr Ermatov’s removal, the initiation of criminal proceedings against him, the cessation of further aluminium deliveries to Hydro and the supposedly urgent need, as a result, to enter into the tolling agreement with CDH was not at all as Tadaz’s evidence suggested but was, in various critical respects, devised subsequently to justify, through the mechanics of the tolling agreement, the seizure of control by Rusal and/or members of the Tajik ruling clan of Tadaz and running it in their own interests.

[128]Since Tadaz’s case on “fraud” was no longer based on the 2003 Barter Agreement, Tadaz had been forced to adduce new evidence to explain the emergence of the fraud alleged. According to its reply evidence it relied on what it says was the start on 7 June 2004 of a review, known as the “Act of Revision”, which was completed on 29 October 2004 and which made important findings about the price Tadaz was paying for alumina and other “inconsistencies”. In his second witness statement, Mr Bushell stated that the production of the Act of Revision at the end of October made Mr Ermatov aware that “his fraudulent scheme was about to be unravelled” and that the Act of Revision “appears to have prompted a number of reactions”, among which was that “the General Prosecutor’s Office began an investigation in early December” and that “Mr Ermatov was removed from his post at Tadaz …”

[129]However, the evidence made clear that a report of that kind has been produced in Tadaz every two years for the past ten years. Contrary to what Mr Bushell had implied in his second witness statement, there was nothing to suggest that it was triggered by any suspicion of fraud in this case. Moreover, the evidence indicated that the report was not finalised on 29 October 2004 (as the report states) or 1 November 2004 (the date that it bears) or even at any point before Mr Ermatov left Tadaz. Not the least of the reasons for this is that it refers to Mr Sharipov as director of Tadaz from 7 December and refers to Mr Jabirov having replaced Mr Kucharov as head accountant on 16 November. In any event, if the report has the significance which Tadaz now appears to attach to it it is surprising that no reference was made to it in the evidence placed before Etherton J. It is noteworthy also that the 2003 Barter Agreement, which forms the basis of the criminal charges against Mr Ermatov and was, evidently, so central to his removal, is not even mentioned in the Act of Revision.

[130]There was extensive and material non-disclosure and misrepresentation by Tadaz in its application to Etherton J. Mr Doctor referred me to a detailed schedule setting out no less than 85 matters said to amount either to misrepresentation or to non disclosure. The most significant of them, he said, were(1) the failure to mention the 2002 PwC audit report which expressly referred to the 2003 Barter Agreement, found no irregularities or fraud and concluded that Tadaz had made a significant profit in 2002 and a lower loss in 2001,

(2) the failure to mention that PwC were the auditors of Tadaz and also of Rusal,

(3) the failure to explain the true role of Rusal in the structure of the agreements under which Tadaz was operating, and the significance of its participation in the agreements which were said to be fraudulent, in particular, the failure to mention the role played by Rusal in the negotiations for the 2003 Barter and other agreements,

(4) the allegation that the 2003 Barter Agreement was kept secret from Tadaz (excepting Mr Ermatov) and was only discovered by Tadaz in November 2004 when in truth its existence was known much earlier,

(5) the failure to draw proper attention to the audit offer by Ansol, and

(6) the true facts about the ownership of CDH and its links with Rusal.

[131]There was no good arguable case against the defendants. The case as advanced before Etherton J was not arguable. Large parts of it have since been abandoned. The wholesale revision of Tadaz’s case since the hearing before Etherton J not only destroys the original case but undermines the plausibility of the new case since advanced. The case since advanced, as set out in the particulars of claims is, so far as relevant(1) that Mr Nazarov and his companies gained control of Tadaz “whether through his corrupt relationship with Mr Ermatov or otherwise”,

(2) that in their conduct, Mr Ermatov and Mr Nazarov acted dishonestly, alternatively their conduct constituted “equitable fraud, alternatively non-fraudulent breaches of their respective duties to Tadaz”, and

(3) that Mr Nazarov’s duties arose from the fact that he gained or exercised control over the trading activities of Tadaz and “assumed a position of trust” with the co-operation of Mr Ermatov.

[132]However, the particulars supplied all relate to the contracts under which Tadaz and Ansol operated. It appears to be claimed that because Ansol supplied all or substantially all of Tadaz’s alumina and bought all or substantially all of its aluminium, this subjected Ansol to a fiduciary duty to Tadaz whereby it was bound to put Tadaz’s interests first and not allow conflicts to arise. This is a somewhat unusual conclusion to draw from a supply and purchase contract even if it was exclusive. There is, moreover, circularity in reliance on the entering into of contracts which allowed Ansol to make allegedly excessive profits as being the source of the breaches of the alleged duties.

[133]The losses of Tadaz and the “gross profits” of Ansol which are relied on are no longer based on the initial PwC report. The original allegation that Tadaz had been forced to buy alumina at “double” the “model market price” has been abandoned and the case is now based on figures in a further PwC report and the report of Mr King. The allegation that Tadaz is compelled to rely on these reports in the face of Ansol’s and Mr Nazarov’s “refusal to give Tadaz access to the relevant records”, a matter which is repeated five times, is untrue. An independent audit, which Ansol offered, would have been pre-eminently suited to determine the issue of alleged excessive pricing. The offer was never taken up by Tadaz. It is also alleged by Tadaz that there was no need for it to trade via Ansol or any middleman at all and that under the contractual arrangements of which complaint is made Tadaz was charged more than it would have been at “market prices” or under “arms’ length” commercial contracts. Yet this flies in the face of all of the evidence as to Tadaz’s lack of capital and the Tajikistan background. Furthermore, the allegation is contradicted by the fact that following Hamer’s removal as “middleman”, Tadaz promptly entered into a contract, the tolling agreement, with another middleman, CDH, rather than go directly into the market to deal with alumina suppliers. The allegations concerning the urgency with which the tolling agreement was entered into (after the chain of events impliedly said to have been triggered by the discovery of the 2003 Barter Agreement in November 2004) were designed to explain this discrepancy but are not sustainable given that the 2003 Barter Agreement was known about possibly as early as May 2004.

[134]The new PwC report, using a different basis to establish the loss that Tadaz claims to have suffered, has resulted in a downward revision in the alleged losses of up to $100 million from the $223 million before Etherton J. It is not denied by the defendants that Ansol made a profit in its dealings with Tadaz but the new PwC report continues to overstate the amount of that profit. In any event, Tadaz’s experts make no allowance at all for Ansol’s costs of funding, other expenses and profit margin. They appear to assume that Ansol should have taken the substantial risk in providing funding and services to Tadaz for no return. They take no account of Ansol’s margin on other raw materials, the cost to it of payments made to third parties for Tadaz’s benefit and margins on aluminium.

[135]Moreover, all alumina supplied to Tadaz from May 2003 onwards was supplied by Hamer, to whose records Rusal had full access. Rusal took part in the arrangements from May 2003 onwards. Rusal itself supplied at least 30% of the alumina. At no stage did it allege that the price of alumina supplied to Tadaz was fraudulent, excessive, suspicious, higher than it ought to be or anything similar. Despite giving “day to day” instructions to Herbert Smith acting for Tadaz in these proceedings, Rusal has not alleged that there was anything fraudulent, excessive, suspicious, etc, in the prices charged. In such circumstances, it is difficult to see how they could have given instructions to Herbert Smith to allege fraud.

[136]There is no evidence of any risk that any of the defendants might dissipate or hide their assets or, for that matter, might destroy any evidence. Already in January 2005 Tadaz and Rusal were making allegations against the defendants in correspondence. Arbitration proceedings by Elleray against Ansol were commenced on 11 February 2005. If the defendants had any intention of hiding or dissipating their assets or of destroying evidence (which they do not) they would have done so long before commencement of these proceedings on 12 May.

[137]The case before Etherton J involved allegations of a secret agreement, fabricated documents and fraudulent double counting, all of which have since been withdrawn. The case since advanced is that, through his control of Tadaz, Mr Nazarov and his companies made excessive profits. Such a case involves allegations of a completely different flavour such that it cannot realistically be said that the case now made against the defendants, even if found to be a good arguable case, justifies concluding that there is a real risk of them hiding or disposing of their assets. There is no similarity between an allegation of wrongful “control” and setting excessive prices on the one hand and a readiness to dissipate assets on the other. The fact that, in the Guernsey proceedings, freezing orders were granted is of no relevance, not least since the circumstances in those proceedings were very different from those in the current proceedings.

Mr Stanley’s submissions

[138]Mr Stanley submitted that, in numerous respects, Tadaz’s without notice application and the evidence in support gave a misleading impression of the strength of its claims, a fact which was all the more surprising given the four months between the time that Herbert Smith were first instructed and the making of the application. It failed adequately to identify the strength of the case for saying that the claim was motivated by collateral considerations rather than Tadaz’s own interests. Viewed as a whole, the evidence did not and does not justify the grant of freezing relief, much less a search order.

[139]He submitted that the evidence failed properly to set or examine the context in which Tadaz operated and its difficult past (as set out in detail in Mr Ermatov’s evidence), including its remote location, lack of capital and the problems it faced as a result of Tajikistan’s recent civil war and its current political situation (an autocratic regime under which the rule of law is scarcely observed). The way the case was presented to Etherton J failed to draw attention to these difficulties and why therefore Tadaz had to pay more for its supplies than would a plant operating in a stable political environment which was able to pay for those supplies in hard currency. All of this was relevant to the extent to which it was right to infer the improper diversion of profits from Tadaz to Ansol and others with Mr Ermatov’s knowing assistance. Properly understood, the conditions in which Tadaz operated - and continues to operate - do not justify any inference of dishonesty on Mr Ermatov’s part since, realistically, Tadaz had no opportunity to make greater profits than those which it actually made. Over and above those matters, the evidence gave an inaccurate account of the circumstances in which Mr Ermatov was removed from the directorship of Tadaz and the events that followed.

[140]Mr Stanley accepted that, assuming for the sake of argument that Tajik law is no different in this regard from English law, Tadaz establishes a good arguable case over the allegation that the gift of the flat at Charter Court can be viewed as some kind of bribe from Mr Nazarov to Mr Ermatov although he strongly contended that it was not and that it was given (and indeed given to the seventh defendant) for the reasons stated by Mr Ermatov in his evidence. He accepted that there is an issue over whether, as Mr Ermatov contended but President Rakhmonov disputes, he informed the President of the gift or whether, as Tadaz claims, he only revealed its existence in the course of an interrogation in March 2005. He submitted that Tadaz can scarcely complain about Mr Nazarov’s gift to Mr Ermatov of the cost of his son’s education and other expenses in London given that Mr Nazarov’s practice of paying for their studies abroad of many children of Tadaz’s staff was widespread, well known and included Mr Sharipov’s own daughter, as Mr Sharipov has himself admitted. But beyond that, he submitted, there is no good arguable case that the commercial arrangements between Tadaz, Ansol and Hydro were “demonstrably not in the best interests of Tadaz” as claimed or that, in particular, the price of alumina was fixed at high levels, beyond what Tadaz could reasonably have expected to pay, so as to give rise to an inference of fraud on the part of Mr Ermatov and others as is claimed. At most, he said, the acceptance of a bribe would ground a claim for its return. Of itself, a gift which was made almost six years earlier, the existence of which, according to Tadaz’s evidence, Mr Ermatov himself revealed, could not remotely justify the grant of a freezing order and search and seize relief of the kind granted. Nor did it, of itself, prove that the arrangements between Ansol and Tadaz were not in Tadaz’s bona fide interests. At the most, it might support such an inference properly drawn on other grounds. But there were no other grounds for doing so.

[141]So far from Tadaz having paid twice (or even more) than the going market rate for alumina supplies (as suggested in PwC’s initial report) with this excess being, in itself, evidence of a massive and cynical fraud (PwC in their report having concluded that this difference was evidence that prices had been “artificially increased”), in fact the comparison made to reach this conclusion was flawed. There is no single alumina price: it was common ground that there is a range of alumina prices. This would now appear to be accepted in the report of Mr King, setting out Tadaz’s current case, where an attempt has been made to allow for items such as transport costs in reaching an appropriate figure for the cost of alumina. Comparing spot market prices for alumina and other alumina pricing mechanisms with Mr King’s calculation of the prices paid by Tadaz and after making allowance for Ansol’s costs (management services, financing costs and the cost of running an aluminium sourcing business), it was far from obvious that the prices paid by Tadaz were in any way excessive. On the contrary, it was clear that they were not. (The results of the comparison were set out on a graph produced by Mr Stanley.)

[142]The reason for the fact that, as is accepted, Tadaz paid higher prices for alumina than say long term contract prices was, as Mr Ermatov pointed out, because(1) Ansol and later Hamer acted as middlemen – the use of which, as Mr King accepts, is not unusual – sourcing and negotiating the alumina purchases, and arranging for their transport,

(2) Ansol and later Hamer were providing Tadaz with financing,

(3) Ansol and later Hamer took the risk of dealing with a client - and in large amounts – which according to its accounts was barely a going concern and which operated in very difficult political circumstances, and

(4) Ansol and later Hamer had themselves to source the alumina so as to maintain continuity of supply to Tadaz over a prolonged period. All of this, self evidently, carried a cost.

[143]Beyond those contra-indications of anything fraudulent in the pricing of alumina is the fact that Rusal (through Elleray) was a 50% participant in Hamer. Rusal, of all people, was expert in this field but did not infer that there was anything fraudulent in the pricing of alumina. It was the evidence of Mr Bulygin given on Tadaz’s behalf that “no-one at Rusal appreciated or had any reason to suspect that a fraud was being perpetrated on Tadaz”. It is inconceivable that Rusal’s representatives in Hamer would not have known of the prices which Hamer was charging Tadaz for alumina supplies. Why should the court infer something fraudulent in the pricing when no-one at Rusal had reason to do so? Moreover, no-one at Tadaz who knew what was being paid for the alumina ever suggested that there was something dishonest afoot. The evidence clearly shows that Mr Sharipov was aware of the market prices for alumina.

[144]Other matters relied upon to indicate that there was something fraudulent about the alumina supply arrangements (such as the absence of any tender process, Tadaz’s willingness to deal with Ansol rather than on the open market, and the absence of any negotiations on price with Ansol or Hamer or of any attempt to find alternative sources of supply) are all entirely explicable. Even on Tadaz’s own evidence (Mr King’s first report) the absence of a tender process is not unusual. Tendering was not in any event a Tajik Government requirement. There was no tendering when the tolling agreement between Tadaz and CDH was entered into. It is also relevant to bear in mind the origins and growth of Mr Nazarov’s relationship with Tadaz going back to the difficult period of the civil war. The use of a middleman such as Ansol or Hamer, rather than dealing on the open market, is quite usual, as Mr King accepted. In any event, given its financial position (not least the absence of any foreign currency reserves and lack of credit) it was hardly realistic for Tadaz to deal on the open market. No-one ever suggested that that was how Tadaz should operate. Even now, following Mr Ermatov’s removal and the repudiation of the contractual arrangements with Hamer and Hydro, Tadaz is dealing through a middleman, namely CDH, and not on the open market. Nor was it true that there was no attempt by Tadaz to negotiate terms with Ansol or Hamer. Mr Ermatov refers to doing so in paragraph 72 of his main witness statement. Others in Tadaz participated in such negotiations (Mr Asimov, a witness for Tadaz, refers to having done so in paragraphs 5 and 6 of his witness statement) and Mr Ermatov refers to attempts by President Rakhmonov, which have not been denied, to find alternative alumina supplies in the course of communications with the Presidents of Kazakhstan and Iran.

[145]Relevant also to the existence and strength of any claim by Tadaz and also to the fairness of the way in which the without notice application was presented and, not least, to whether there is any risk of dissipation is the fact, now to some extent accepted, that so far from concealing the 2003 Barter Agreement (upon the sudden and late discovery of which the case as presented to Etherton J laid much emphasis), that agreement was referred to in Tadaz’s audited accounts for 2002 and discussed at a video conference attended by representatives of the Tajik Government and the World Bank. Moreover, Hydro made visits to Tajikistan and to the plant. Delivery receipts in respect of alumina, given in accordance with the terms of the Barter Agreements, were signed by, among others, Mr Sharipov.

[146]Over and above those matters, Mr Ermatov explained at length the extent to which he reported to Government officials, including the President, on Tadaz’s activities and provided information in reports and accounts concerned with alumina prices. Little or none of this was disputed. Indeed, one of the points made by Tadaz was that the contemporaneous documents indicating the high price and poor availability of alumina was a “constant theme” of Mr Ermatov’s regular reports. Given that openness, it is scarcely probable that, if he were the fraudster that Tadaz now alleges, Mr Ermatov would have been constantly complaining of the high prices especially as others in Tadaz and in the Tajik Government had access to information about alumina pricing.

[147]Nor do the circumstances in which the original investigation into his activities took place and in which the agreement between Tadaz and CDH was entered into lend support to any wrongdoing on Mr Ermatov’s part. Rather, they and the involvement of Rusal provide a wholly different explanation of events, namely that Mr Ermatov’s removal and the subsequent investigation into his activities were motivated by a desire to clear the way for the tolling agreement with CDH to be entered into and to provide a cover to enable the President and his close associates, in combination with Rusal, to take for themselves, as they have done, the benefit of Tadaz’s trading.

Mr Rosen’s submissions

[148]Mr Rosen submitted that at the core of Tadaz’s claims in the proceedings is the corrupt relationship between Mr Nazarov and Mr Ermatov which resulted in Mr Nazarov’s companies acquiring the exclusive right, subject to certain qualifications, to supply raw materials to Tadaz and to receive, in return, finished aluminium. Although those companies were Ansol, at least from 2000 to April 2003, and Hamer from May 2003 to December 2004, it is to be inferred, he said, that Mr Nazarov and his companies had traded with Tadaz up to the end of 1999 in much the same way as they did thereafter.

[149]That Mr Nazarov corrupted Mr Ermatov is evident, he submitted, from the fact, admitted (according to Tadaz’s evidence) by Mr Ermatov when questioned by personnel from the Tajik Prosecutor’s Office in March 2005, that the London flat at Charter Court, acquired in May 1999 at a cost of £300,000 and held in the seventh defendant’s name, was paid for by Mr Nazarov and also from the fact that from 1996 or thereabouts until at least the end of 2004 Mr Nazarov has paid for the seventh defendant’s education and living costs in London. Relative to Mr Ermatov’s annual salary as a director of Tadaz (around the equivalent of $9,000 per annum by 2002) this was generosity on a huge scale. It is to be inferred that Mr Ermatov, who fled Tajikistan in late March 2005 and is now living in London, continues to receive assistance from Mr Nazarov. It is also to be inferred that during his time as director of Tadaz Mr Ermatov received other benefits. The precise circumstances in which these gifts were made and why and whether there may have been others remains wholly unclear. Mr Ermatov and, in particular, Mr Nazarov have not been at all forthcoming about these matters.

[150]The question which inevitably arises is what did Mr Nazarov get in return? The answer, he submitted, is the benefit of acting (through his various companies, latterly Ansol and from May 2003 Hamer) as exclusive supplier to Tadaz of its alumina and other raw materials and recipient in return of Tadaz’s finished aluminium. This enabled Mr Nazarov, by means of the excessive prices paid by Tadaz for the alumina supplied to it, to earn huge profits for Ansol. In this connection, it is significant that(1) there never was any formal or even informal tender process by which Mr Ermatov sought competitive bids for the right to supply raw materials to Tadaz or to purchase finished aluminium from it,

(2) there is no evidence of any arms’ length (or any) negotiations between Mr Ermatov and Mr Nazarov relating to the price of alumina supplies by Mr Nazarov’s companies to Tadaz,

(3) there is no rationale (and no rationale has been offered) for the prices at which Mr Nazarov’s companies supplied alumina to Tadaz,

(4) no justification has been offered for the excessive profits earned by those companies, and

(5) there is no evidence that Mr Ermatov ever so much as considered approaching third parties to enquire as to alternative, cheaper, supplies of alumina.

[151]There may be difficulty, he said, in calculating just what profit Ansol made but this is because Ansol (and the other defendants) are denying Tadaz access to Ansol’s records from which the level of profit made from its dealings with Tadaz can be assessed. It is not accepted that Tadaz wrongfully failed to take up the offer of an “audit” of these transactions, made to it in late January and repeated in February of this year, much less that the circumstances of those offers were misrepresented to the court when the Etherton Order was made. The offer of the audit was drawn to the attention of Etherton J and was mentioned in the skeleton argument before him. The offer was made in the context of negotiations involving all four parties (Tadaz, Hydro, Ansol and Rusal/Elleray) to settle their differences. Once Hydro pressed on with its arbitration claim against Tadaz, it was no longer appropriate to pursue the audit. Moreover, Tadaz did not trust Ansol to disclose key documents and information and Tadaz’s own investigations had moved on. In any event, the fact is that, since these proceedings have started, Tadaz has not been allowed to see for itself the relevant documentation. Through PwC and with the assistance of Mr King, Tadaz has attempted to calculate what those profits have been. The current estimate is at least $83 million and possibly as much as $133 million for the period 1 January 1999 to 30 April 2003 and at least $42 million (or $84 million if one takes the profit earned by Hamer rather than Ansol’s half share) for the period 1 May 2003 to 31 December 2004 and possibly very considerably more. The latter figure ignores any mark-up on profits charged for alumina by Ansol to Hamer. It is not accepted that the mark-up was only $1 per metric tonne. On any view, profits made were very considerable since Ansol (through Robson Rhodes) contends that its profits in the period to April 2003 were $72 million; its Part 20 claim indicates that Hamer’s profits from its dealings with Tadaz were $122 million. Over the same period, Tadaz’s profits, even when restated in its audited accounts prepared in accordance with international standards, were far below those earned by Ansol.

[152]Tadaz’s case is that there was no commercial need for it to trade with Ansol or Hamer; it could have purchased its alumina and other raw materials at market prices without involving Mr Nazarov or his companies. The evidence as to why it dealt through Ansol (and later Hamer) is confusing and contradictory. It is unclear why, even if it was necessary to have in place a structure in which financiers and others could have confidence, this was achieved by inserting Ansol (a Guernsey company in origin) and later Hamer (a BVI company), neither of which had a trading record. But even if Ansol or Hamer did have a proper role to play in the supply chain, their profits were excessive compared to the profits which they might have earned on the basis of an arms’ length relationship with Tadaz. Relevant to this is that Ansol (and Hamer) effectively traded with Tadaz on a back to back basis. They were not operating speculatively. Their only risk was that Tadaz might default, not that it would not take the alumina supplied.

[153]The means by which Mr Nazarov was able, through Ansol and later Hamer, to deal with Tadaz as if Tadaz were Ansol’s in-house smelter was (at any rate from mid 2000) by operating through a complex and opaque set of contractual arrangements. Those arrangements contain no provision for any money payments to Tadaz for the aluminium provided. They are all barter in nature. They resulted in Ansol receiving, directly or indirectly, the vast bulk of the aluminium produced by Tadaz. As against Tadaz it received the aluminium on its own behalf. It was free to deal with it during the period in which under the Barter Agreements it was to deliver it (at one stage 120 days, subsequently 180 days). Rather than regulate the dealing as between Tadaz, Ansol/Hamer and Hydro by a single tripartite document there were separate contractual arrangements. The existence of these separate arrangements obscured what each party was paying and, more particularly, what Ansol was receiving. But the ultimate effect was that Ansol received all or substantially all of the aluminium for onward supply at a profit to Hydro, and Mr Nazarov effectively controlled all of Tadaz’s supplies and prices.

[154]The material available from the Guernsey proceedings brought by Mr Vardinoyannis suggested that Mr Nazarov was exercising a similar control over Tadaz’s affairs in the period up to the end of 1999.

[155]Taken as a whole, the evidence gave rise at the very least to a good arguable case against the defendants. The nature of the fraud alleged is pre-eminently the sort of dishonesty which carries with it a real risk of dissipation if a freezing order is not made and, if a search order is not been made, the risk of documents being suppressed which evidence among other things the extent of the corrupt payments made to Mr Ermatov and his family and, more generally, their true relationship. See Thane Investments Ltd v Tomlinson

[2003] EWCA 1272

and Jarvis Field Press Ltd v Chelton & Ors

[2003] EWHC 2674 (Ch)

[156]The existence of a real risk of dissipation and of the suppression of documents if the Etherton Order had not been made is reinforced by(1) the evasiveness of Mr Ermatov and, in particular, Mr Nazarov over just what benefits Mr Nazarov conferred on Mr Ermatov and the circumstances in which they came to be made,

(2) the defendants’ reluctance, once proceedings were started, to allow any access to their documents to show just what profits have been made, and

(3) the deliberately misleading instructions given by the defendants to Robson Rhodes about the basis upon which, for the purpose of computing Ansol’s profits, Ansol sourced its alumina supplies to Tadaz. This was done with a view to suggesting a lesser level of profit than was the case (Robson Rhodes having been given wrongly to understand, by reference to what were described as sample invoices, that alumina had been mostly acquired on the spot market whereas, in truth, it had been mostly acquired under one year term contracts). Moreover there was no, or no real, evidence to suggest that the existence of the freezing orders was causing the defendants to suffer any hardship.

Conclusion

[157]Mr Doctor submitted that, at the inter partes stage, the court is concerned to determine not merely whether the applicant for freezing order relief has a good arguable case but which side has the better argument on the material available. I do not think that this is correct, at any rate if by that is meant demonstrating that the claimant has a better than 50:50 chance of success. The case to which Mr Doctor referred me, Canada Trust v Stolzenberg (No.2)

[1998] 1 WLR 547

, was concerned with whether the court should exercise jurisdiction over defendants not domiciled in this country where, in my view, different considerations apply. It is of course right, as Mr Rosen accepted, that in deciding at the inter partes stage whether the claimant for relief has a good arguable case and, even if he has, whether as a matter of discretion the relief should be granted, the court will of course have regard to the defendant’s evidence. Even if the claimant establishes the threshold requirements the court has a discretion whether in all the circumstances it is appropriate to grant (or continue) the relief claimed. (1). Tadaz’s claims

[158]The first issue I have to consider is whether Tadaz demonstrates a good arguable case against the defendants, primarily the first to third defendants.

[159]Tadaz claims there was a corrupt relationship between Mr Ermatov and Mr Nazarov which resulted in Ansol (and after April 2003 Hamer) becoming Tadaz’s all but exclusive supplier of alumina and recipient of finished aluminium. It claims that this occurred on terms which, as pleaded in the particulars of claim, were “manifestly disadvantageous” to Tadaz and “manifestly … advantageous … to Mr Nazarov’s companies” in that trading between them “was not conducted at arms’ length and/or was not conducted upon the terms that commercial parties at arms’ length would have traded with each other”. It claims that Mr Ermatov permitted Mr Nazarov “to take control of Tadaz and/or its trading operations and/or to manipulate Tadaz and its contractual arrangements for the benefit of Mr Nazarov and Nazarov companies’ own benefit …”. It claims that in so doing Mr Nazarov and Mr Ermatov acted dishonestly in that, among other matters, their relationship was tainted by the making of corrupt payments (including the payment of £300,000 for the London flat).

[160]If these matters can be established it has not been seriously argued before me (no doubt this will be explored in much greater depth at the trial) that, whether as a matter of Tajik law or of whatever other system of law governs their dealings, Tadaz does not have claims against those persons for relief of various kinds, even though the precise characterisation of the causes of action and the precise relief to which they give rise may be a matter of argument. The question at this stage is whether on the evidence Tadaz establishes a sufficiently arguable case.

[161]It will be obvious from my lengthy recital (itself no more than a very bare summary) of the complex web of allegation and counter allegation and of counsels’ detailed submissions that there are a great many factual and legal issues which will have to be resolved at trial and on which at this stage it is impossible and inappropriate for me to reach any conclusions. Certain observations are, nevertheless, justified. I begin with the barter and other agreements to which, variously, Tadaz, Ansol, Hydro and, later, Hamer were parties, entered into on and after 30 December 1999 culminating in the 2003 Barter Agreement. They have been much relied upon by Tadaz.

[162]Their overall effect - it is not necessary to examine them in any detail at this stage - was to establish a structure for supplying Tadaz with the necessary raw materials (mainly alumina but also other materials) together with certain operating costs in exchange for finished aluminium. Although the documentation is complex and difficult to follow, I have seen nothing in it to suggest that Hydro’s involvement or the arrangements to which Hydro and the others were parties, involved some kind of sleight of hand designed to mask the delivery to Hydro of supplies of aluminium or were calculated to create liabilities in Tadaz which, in truth, did not exist. The essential question, to my mind, is whether Tadaz was being supplied with alumina and other materials at excessively high prices, ie at prices which in all the circumstances were markedly in excess of what it could reasonably have expected to pay for them and, if they were, whether this was the result of some corrupt arrangement between Mr Ermatov and Mr Nazarov. I am not inclined to think on what I have seen in the evidence that the Barter Agreements with Hydro are other than marginally relevant to this question.

[163]Although I see the force of much of what has been urged on the defendants’ behalf about the extent to which the cost to Ansol of sourcing Tadaz’s alumina requirements enters into the computation, in particular the need to finance Tadaz’s activities as well as to supply on a continuous basis its raw material requirements, the need to do so by recourse to barter arrangements, the logistical difficulties presented by the plant’s remote location and the political context (a newly independent country emerging from a prolonged civil war, an authoritarian system of government and so forth), the fact is that for many years Ansol has been for all practical purposes Tadaz’s exclusive alumina supplier and recipient of the finished aluminium. It is equally the fact that Ansol, whose business appears to have been very largely devoted to its relationship with Tadaz, has over the years made very considerable profits from its dealings with Tadaz. It also seems likely, although to what extent is very much in dispute, that the prices charged to Tadaz by Ansol (and later Hamer) for the alumina supplies, even when allowance is made for transportation costs and the like, exceeded what Tadaz could arguably have been expected to pay if it had been able to source its requirements on the open market. I accept, of course, that whether Tadaz was so able is very much a matter of dispute. It is also the fact that Mr Nazarov, in circumstances which he has not explained, was exceedingly generous in 1999 when making a gift to Mr Ermatov or to his son (it does not to my mind matter at this stage which it was) of a £300,000 flat in London and that he has provided generously for Cherzod Ermatov’s education and other living expenses while in London. As Mr Rosen observed, these matters call for an explanation.

[164]It is no answer to my mind to point out that Mr Sharipov’s daughter (as Mr Sharipov has admitted) has had her studies in Moscow paid for by Mr Nazarov and that the children of other Tadaz staff and of other persons in the region have been similarly favoured. Nor to my mind is it a sufficient answer for Mr Ermatov to say that what Tadaz paid for its alumina was not a secret but was set out in its yearly and quarterly accounts and that Tadaz’s activities were frequently discussed by him with Tajik Government officials and others (including, if it be the case, the President) and that Ansol’s role as supplier was well known.

[165]Reviewing the evidence as a whole together with counsel’s detailed submissions, I have come to the conclusion that on matters as they presently stand Tadaz does demonstrate a good arguable case at any rate as against Mr Ermatov, Ansol and Mr Nazarov.

[166]The case against Ashton and Mr Shushko is weaker but not fatally so. They have scarcely featured in the evidence to which my attention has been drawn. Essentially, they are sued as persons who on Ansol’s and Mr Nazarov’s behalf have had the day to day responsibility for managing Ansol’s trading relationship with Tadaz. It is not suggested that they were the recipients of any improper payments.

[167]Ms Osadchaya stands in a different position from the first to fifth defendants in that I am not even satisfied that a good arguable case against her is established for any of the relief claimed. It is said that she knew what was going on as between Ansol and Tadaz because she signed various documents concerned with their dealings. On the other hand, it is accepted that it cannot be shown merely because she signed certain documents that she was intimately knowledgeable of all aspects of those dealings. The fact that Ms Osadchaya was aware, if she was, of a dishonest course of conduct between Mr Ermatov and Mr Nazarov leading to Ansol charging excessive prices for alumina supplied to Tadaz and thereby taking for itself profits which ought rightly have gone to Tadaz and that she executed on behalf of Ansol the agreement dated 30 April 2003 between Hamer and Ansol and signed letters by Ansol to Tadaz and Rusal in early January 2005 - the only specific matters alleged against her in the particulars of claim - form a very slender basis upon which to hang causes of action against her for knowing participation, conspiracy and unlawful interference in Tadaz’s business (the causes of action alleged). The evidence of Mr Bushell is scarcely more explicit about her role and responsibilities. Nor is it suggested that she was the recipient of any improper payments. The impression that I have is that Ms Osadchaya is very much on the periphery of this dispute.

[168]Nor can I see a sufficient basis in the evidence to justify the continuation of any injunctive relief against the eighth and ninth defendants. I have summarised earlier in this judgment what is said about their involvement. The case against them, even assuming the existence of the corrupt dealings between Mr Ermatov and Mr Nazarov that Tadaz alleges, is wholly speculative. The particulars of claim which have now been served do not add anything. In my judgment, the evidence falls short of what is necessary to justify their continued subjection to any interim proprietary injunctive relief.

[169]As regards risk of dissipation of assets and suppression of documents, I have come to the conclusion that, given the nature of the allegations and the international flavour of Ansol’s activities (a Guernsey company operating to some extent from this country, through Ashton, and to some extent out of Moscow) with so little known about Mr Nazarov who has chosen, as is his right, to provide only the very briefest of statements which does little more than confirm the contents of Mr Tricks’ second and third statements “insofar as they relate to matters within my own knowledge”, it is on balance reasonable to infer a risk of asset dissipation and document suppression in the case of Ansol and Mr Nazarov.

[170]What of Mr Ermatov? Little is known about his circumstances. It is not wholly clear where he is now based. I understand that he is currently in London, although he continues in his evidence to give an address in Tajikistan from which since March of this year he has been a fugitive. After some hesitation I am persuaded that there is just sufficient to suggest that, unless restrained, he too would take steps to dissipate his assets (such as they may be) or suppress (or otherwise conceal) material documents.

[171]There is very little if any evidence to suggest that there is any real risk of asset dissipation or document suppression if orders are not made against Ashton and Mr Shushko. The most that can be said is that, on the face of it, Ashton appears to act on Mr Nazarov’s instructions and for his and his companies’ benefit.

[172]I have seen nothing to suggest that there is any such risk in the case of Ms Osadchaya. The fact that she is resident in Russia is not a sufficient reason in my judgment for concluding that there is, even if (contrary to my earlier view) there were a good arguable case against her.

[173]If therefore there were no more to be considered than Tadaz’s claim, I would be willing to continue the freezing order and other relief against Mr Ermatov, Ansol and Mr Nazarov, would be hesitant about doing so against Ashton and Mr Shushko and would have discharged without further ado the relief granted against Ms Osadchaya and the eight and ninth defendants. But before coming to a conclusion as to whether in all the circumstances I should continue or discharge the Etherton Order as against the first to fifth defendants, it is appropriate to consider the counter attack that they, principally Mr Ermatov, Ansol and Mr Nazarov, make against Rusal, CDH, Tadaz (under its present control) and others and, so far as it is necessary to do so, the complaints of material misrepresentation and non-disclosure in the making of the without notice application. (2). Ansol’s Part 20 claim

[174]Ansol claims that it is the victim of a conspiracy involving Rusal, CDH and Tadaz (and including Messrs Deripaska, Bulygin and Saduloev). The gist of the claim is to assert a concerted series of actions, orchestrated by Rusal (acting by Mr Deripaska and Mr Bulygin) and those who now control Tadaz, which have resulted in Mr Ermatov’s sudden removal on 6 December 2004 as Tadaz’s director, the repudiation of the supply arrangements between Tadaz and Hamer (which had been renewed for another year as recently as 2 December 2004), the suspension of further aluminium deliveries to Hydro, and the making on 16 December 2004 of the tolling agreement between Tadaz and CDH.

[175]Central to the claim is the contention that the decision, allegedly taken on 8 December 2004, to institute criminal proceedings against the “functionaries” of Tadaz and Ansol based upon the “fictitious” 2003 Barter Agreement (see the letter dated 8 December 2004 from the General Prosecutor’s Office to Mr Sharipov) was designed to provide a pretext for repudiating the existing supply arrangements, suspending further aluminium deliveries and hurriedly entering into the tolling agreement. It is claimed by Ansol (and by Mr Ermatov) that the institution of those proceedings was trumped up in that, as Tadaz now appears to accept, there was nothing fictitious about the 2003 Barter Agreement and, in any event, the decision to bring them was not taken on 8 December (as the documents produced by Tadaz in evidence suggest) but rather later (some time in January 2005). Ansol claims that, so far from the tolling agreement having hurriedly to be entered into on 16 December to replace the previous arrangements with Hamer in order to ensure continuity of supply to Tadaz, the new arrangement was designed to enable the benefit of Tadaz’s smelting activities to pass to those who own or control CDH, namely Rusal and/or close associates and relatives of President Rakhmonov led by Mr Saduloev. Ansol claims damages and an account of profits.

[176]In particular, Ansol alleges that Rusal has breached the joint venture agreement. One of its terms, set out in the framework agreement regulating its operation, was that neither party, whether acting directly or indirectly including through any affiliated entity, should realise without the other’s involvement any projects and/or financial/economic activities in the sphere of aluminium, alumina or energy business in Tajikistan. The framework agreement also provided that, among the joint venture’s purposes, was the pursuit of projects aimed at ensuring Tadaz’s production activity and increasing its profitability and, should the Tajikistan Government privatise Tadaz, acquiring shares in Tadaz.

[177]I am persuaded on the evidence that I have seen that Ansol establishes a seriously arguable case for the relief which it claims based on the allegations it makes. I do not propose to review in any detail the many matters which are pleaded by Ansol in support of its claim. It is sufficient to draw attention to certain features of the evidence.

[178]The first is that the reasons which Tadaz has since adduced for abrogating its arrangements with Hamer and entering into the tolling agreement are difficult, and in some cases impossible, to reconcile with some at least of the documents produced by Tadaz and referred to in its evidence. To take one example, as late as 13 December 2004, Tadaz, by then under the directorship of Mr Sharipov, was writing to Hamer complaining that Hamer was in default of its obligation to make various payments on Tadaz’s behalf. The letter stated that Tadaz reserved the right to stop further disposals of aluminium. Surprisingly, in view of what is now said by Tadaz, the letter makes no reference to any fictitious 2003 Barter Agreement, or to any criminal investigation, much less to Hamer charging excessive amounts for alumina supplies or to the fact that, already on 8 December, a decision had been taken (if it had) to suspend further deliveries of aluminium. Indeed the evidence suggests that Tadaz was not notified of the suspension of aluminium deliveries prior to 16 December 2004 although, according to another document on which Tadaz relies, the decision to suspend deliveries had already been made, like the decision to bring criminal proceedings arising out of the 2003 Barter Agreement, on 8 December. For its part, Hydro claims that it was not aware of any suspension until towards the end of December 2004.

[179]To take another example, the commencement of the criminal investigation into the 2003 Barter Agreement, said to have been launched on 8 December 2004, followed, it is said, the sending by Mr Sharipov of a letter dated 7 December (ie the previous day) to a Mr Bobokhonov at the office of the Tajikistan Attorney-General. Mr Sharipov had only been appointed director of Tadaz the previous day. The letter which, curiously, is handwritten did no more than state that the 2003 Barter Agreement “was not recorded at the plant or in any documents”. It asked for an investigation into the agreement “so that henceforth such irregular situations will not occur at the plant”. There was no complaint in the letter that the Barter Agreement was fictitious much less that it disclosed or was an indication of fraudulent dealings. Nevertheless the very next day the Prosecutor General of Tajikistan purportedly issued a decree reciting that it had been “established” that Mr Ermatov had conspired with Mr Nazarov and other persons “to appropriate aluminium by way of a knowingly false supply of non-commodity alumina and to conclude transactions the purpose of which was to circumvent the requirements of legislation of the Republic of Tajikistan”. It referred to the 2003 Barter Agreement as a “fictitious contract”. Not the least of the curiosities of this episode is that Mr Sharipov's handwritten letter only emerged in the course of Tadaz’s reply evidence notwithstanding that four months of investigation (including an interview with Mr Sharipov in the course of April 2005) had preceded the launching of these proceedings during which it might have been thought that a letter of such significance would have surfaced so as to appear in the very voluminous evidence that was before the court on 12/13 May. On any view, Mr Sharipov’s appointment on 6 December, his handwritten letter the following day and the decision to prosecute (based on having “established” a conspiracy) taken on the day after that, display remarkable speed on the part of Mr Sharipov and the Prosecutor General. The defendants take an altogether more cynical view of events: they say that they have been concocted (in the case of Mr Sharipov’s letter much after the supposed event) as part of the conspiracy to discredit them and are inherently implausible.

[180]A further feature concerns the origins and ownership of CDH. It is a BVI company incorporated on 1 July 2003. Until at least 7 December 2004 it was an affiliate of Rusal in that, until that date, its shares were held by Elleray. Indeed, at one stage CDH was put forward by Rusal as one of the companies through which its joint venture with Ansol should be conducted. On 7 December 2004, the very day Mr Sharipov claims to have written to Mr Bobokhonov complaining that the 2003 Barter Agreement had not been registered, Elleray transferred its shares in CDH to a company called Chantell Developments Inc. Chantell is another BVI company. It has (or had) the same registered office as Elleray and was likely therefore to have been another Rusal affiliate. When CDH entered into the tolling agreement with Tadaz on 16 December 2004 its shares were still held by Chantell. At a subsequent date control of CDH passed to a company called Amatola SA (USA) Llc. Nothing is known about that company. Tadaz claims that CDH is ultimately owned by Orienbank. The evidence lends support to the view that Orienbank is controlled by close members and/or associates of President Rakhmonov’s family (Mr Saduloev, the President’s brother-in-law, is the bank’s chairman). Mr Kabirov, currently (according to Tadaz since early January 2005) deputy director of Tadaz, was formerly an executive of Orienbank but is now a member of its supervisory board. He is, on his own evidence, a de facto director of Tajservice which acts as CDH’s “service company”. Tajservice’s staff include former Rusal employees. Mr Kabirov signed the tolling agreement. He claims that he did so as deputy chairman of Orienbank. It is not obvious why Orienbank should have needed its deputy chairman to sign that agreement. The defendants say that Kabirov signed the agreement on behalf of CDH not least because his signature appears in the box in the agreement provided for CDH’s signature. A few days later, Mr Kabirov was appointed deputy director of Tadaz. These proceedings (as I have earlier mentioned) were instituted on Mr Kabirov’s authority rather than on the authority of Mr Sharipov who was apparently kept in deliberate ignorance of what was afoot even though it was his letter of 7 December that had purportedly initiated the whole course of events. It is common ground that there was no kind of tender process for the award of the contract. In these circumstances, it is difficult to view those who are said ultimately to control CDH as being independent of those who control Tadaz. On any view Rusal was closely involved in these events.

[181]Under the tolling agreement, Tadaz does not acquire title to the alumina which it receives for smelting, nor to the aluminium which results from the smelting process. Instead it is paid a processing fee. It is difficult to see why Tadaz should have wished to enter into an agreement of this kind with an off-shore shelf company, as CDH was, which had no track record in alumina, aluminium or any other kind of dealings. Indeed, some of the very objections which Tadaz has since raised against Mr Ermatov and Ansol (for example, why it was necessary for Tadaz to have a middleman at all rather than simply deal with alumina suppliers on the open market and the absence of any tender or other negotiations) can be as easily raised against this new arrangement.

[182]By the end of December 2004, it appears that CDH had taken delivery from Tadaz (without payment) of aluminium valued at $23 million. Prior to late December 2004 this would not have been permitted under Tajik law. That CDH was able to take delivery from Tadaz without payment of any aluminium at all was only made possible by the providential making of a Presidential decree on 23 December 2004 authorising such a course of conduct. When I asked Mr Rosen what the reason was for CDH having taken so large a quantity of aluminium without payment his answer was that it was to enable CDH to get started. Yet the very purpose of the tolling agreement was, so it is claimed by Tadaz, to ensure that Tadaz was able to continue to operate (and do so significantly more profitably than under the arrangements which it had hitherto had with Ansol/Hamer) following the sudden but necessary removal of Mr Ermatov and the repudiation of those earlier arrangements consequent upon the discovery of the 2003 Barter Agreement. I did not understand that Tadaz’s willingness to enter into the new arrangement and the speed with which this occurred were in any way connected with its wish to help CDH to get started.

[183]Another source of considerable puzzlement was a point forcefully made by Mr Stanley. This concerned the nature and terms of the tolling agreement. Under that agreement Tadaz is obliged to carry all of the costs of processing the alumina from the moment it is received at the railhead at Regar station to the moment the finished aluminium is delivered to that railhead. In return, the fee which it receives for each metric tonne of processed aluminium is no more than $310. Yet, according to the figures set out in the so-called Act of Revision (a document upon which, for other reasons, Tadaz relies), the cost per metric tonne to Tadaz in the first six months of 2004 of producing aluminium, that is to say those parts of the overall process which under the tolling agreement Tadaz has to carry out at its own expense, comes to $407.71. On those figures therefore - this was Mr Stanley’s point - it is impossible to see how Tadaz can be operating other than at a significant loss.

[184]It was suggested by Mr Rosen, but on the basis of instructions and without any supporting evidence, that by early 2005 Tadaz’s energy costs of producing aluminium were much lower than what they had been in first half of 2004 (to which the figures and the Act of Revision related) and that its business expenses were also much lower. It is not clear why this should be so and, in any event, is not a matter that can be resolved on this hearing. By contrast it is clear, at any rate according to the figures in the Act of Revision, that Tadaz was able to enjoy a profit of around $147 per metric tonne of aluminium produced under its earlier arrangements. To be better off under the tolling agreement than it was under the earlier arrangements Tadaz has therefore to limit its production costs to less than $163 per metric tonne. It is very far from clear that this is happening or, more relevantly, was expected to happen. (3). Rusal’s role

[185]A particular feature of the evidence which has surprised and concerned me is the role of Rusal, the Russia Aluminium company. Rusal, it is common ground, is a major world producer of aluminium. Indeed, it is described by Mr Bushell as the world’s third largest aluminium producing group. Quite how Rusal is structured is a matter of some doubt. It is, as its name implies, based in Russia and appears to be controlled by Mr Deripaska with Mr Bulygin serving as his deputy. It is common ground that Rusal has a number of affiliates, including Rusal Management and Elleray. Others are referred to in the evidence.

[186]Rusal, acting by Elleray, was a 50% participant in Hamer. It is noteworthy that, although through Hamer it must have been aware of what Tadaz was being charged for the alumina supplied to Tadaz from May 2003 and must have been aware of the mark-up (it was itself the supplier to Hamer of almost a third of the alumina supplied in turn by Hamer to Tadaz, apparently at prices in excess of the theoretical “market” price, and Rusal personnel were involved in Hamer’s operation), Rusal never once complained of the prices charged. Instead, it appears to have gone along with the dealings and, for all I know, benefited as a result. Indeed, one of the terms of the agreement on joint operations made between Ansol and Elleray in connection with the operation of the joint venture stipulated that Ansol should make every effort to ensure an increase in the price of raw materials supplied by Hamer to Tadaz.

[187]It is therefore odd, to say the least, that Rusal has thus far escaped any claim by Tadaz. Mr Bushell’s comment that at this stage “Tadaz is content to delay any decision” on whether to proceed against Rusal is, to my mind, unsatisfactory.

[188]But the matter goes further than that because, as Mr Bushell has stated, it is Rusal, through Rusal Management, that has been providing Herbert Smith with day to day instructions on behalf of Tadaz in connection with these proceedings and from whom, presumably, some at least of the impetus has come for the charge of fraud founded on the allegedly excessive prices charged to Tadaz for the alumina. Rusal’s assistance has extended beyond simply the giving of instructions. Tadaz now admits that its funding for this litigation (or some of it) is being provided by Rusal. When I asked Mr Rosen about this he said that Rusal considered it in its own interests to do so “because of its strategic objectives and its proposed alliance with the Government of Tajikistan to assist”. This is a reference to the fact, as Mr Ermatov pointed out at length in his evidence, that for some months going back at least to the summer of 2004 Rusal has been in negotiation with the Tajik government to provide assistance of one kind or another, in particular in connection with the running of Tadaz’s smelting plant. This, it appears, resulted in the signing of the agreement in October 2004 to which Mr Ermatov referred. There is a serious question whether in so doing Rusal was acting in conformity with the terms of its joint venture with Ansol. Ansol complains - this forms a part of its Part 20 claim - that it was not.

[189]It is therefore a matter of considerable concern that the search and seize provisions of the Etherton Order would have permitted the disclosure to Rusal Management of all of the documentation seized. Indeed, the clear intention was that the information disclosed by the documentation seized should be passed to that company as being the entity from which Mr Bushell was receiving his day to day instructions. This was a matter which gave rise to concern in Etherton J as well. It resulted in the giving of what I have earlier referred to as the Rusal undertaking. The purpose of that undertaking was to ensure that the information or documents so obtained would be used only for the purpose of these or related proceedings. It is an undertaking which, as I think is now accepted by Tadaz, it would have been wholly impossible to police since, so far as is known, Rusal Management has no presence within the jurisdiction. There would have been no means of preventing the disclosed documents finding their way to Rusal itself and no means even of knowing whether this had occurred. Given Rusal’s pervasive presence in the events which have culminated in the commencement and subsequent prosecution of these proceedings, disclosure to Rusal and use by it of the information for its own purposes would have been a very distinct possibility. This would plainly have been highly undesirable and exceedingly unfair to Ansol. The fact that Tadaz now accepts that no documents (or information contained in them) should be permitted to find their way to Rusal does not detract from the fact that it was precisely because of Rusal’s close involvement in these proceedings that the assumption was made that Rusal Management personnel should have access to whatever disclosures were made by the defendants or documents revealed by the making of the freezing and search and seize orders.

[190]A further matter which strikes me as odd and unsatisfactory is that, although Rusal is happy to assist Tadaz in the prosecution of Tadaz’s claims in this jurisdiction against Ansol and others, it has indicated, when confronted by Ansol's Part 20 claim, that it intends to contest the jurisdiction of this court to try that claim. That is not at all an attractive posture. It is true that it is not one for which Tadaz is responsible.

[191]Pulling these various strands together, the strong overall impression which I have gained is that, notwithstanding the joint venture, Rusal has decided to further its own interests through the exploitation of Tadaz’s aluminium production capacity, intends to do so shorn of any participation by Ansol through the joint venture, and, to that end and acting in conjunction with those who now control Tadaz, is backing these proceedings both by providing Herbert Smith with day to day instructions and by underwriting some or all of the cost to Tadaz of bringing them. In short, from once being Ansol's partner, through Hamer, in their joint dealings with Tadaz, Rusal has now become Ansol’s rival and, as part of the pursuit of its commercial interest, is promoting this litigation. It does so while denying this court's jurisdiction to try Ansol’s related cross-claims against it. This may turn out on closer examination at the trial to be a wrong conclusion but that is how it presently appears to me.

Exercise of discretion

[192]The firm view that I reached by the end of the five day oral hearing - and it is a view confirmed by my rereading of all of the papers in the course of preparing this judgment - is that, having regard to the relative strengths of Tadaz’s claim and Ansol’s cross-claim, between which there is little to choose, and having regard in particular to the role of Rusal, not least as the source of the day to day instructions for the conduct of Tadaz’s claim and also as the entity meeting some or all of Tadaz’s legal costs (and likely therefore to have a significant influence on the course and direction of the claim and an interest in its outcome), it would be wrong for the first to fifth defendants to be subject to continuing freezing and search and seize order relief. It is to my mind very likely - if not inevitable - that documentation and information made available by Ansol and the other defendants in complying with the search and seize order and with the asset disclosure provisions of the freezing order would find their way to Rusal, whatever safeguards the court may seek to build into its order to prevent this from happening. I do not see how it is possible to avoid such an occurrence if, through Rusal Management, Rusal is the source of Herbert Smith’s day to day instructions on Tadaz’s behalf. Given the circumstances of this litigation, I consider that this is a result which the court should strive to avoid. This concern argues for the discharge not simply of the search and seize order but also of the freezing order which will be of little effect in the absence of the fullest disclosure of the assets held worldwide by the affected defendants. Over and above those considerations, I have a strong sense that this litigation is but part of a wider contest over the right to deal with Tadaz and thus to profit from its very considerable aluminium smelting capacity and that the obtaining by Tadaz of the freezing order and other relief is but a step in this contest. I do not consider that by granting this exceptional pre-trial relief, the court should appear to be lending its assistance to this wider contest.

[193]I propose therefore to discharge the freezing and search and seize order.

[194]That leaves two questions, first, whether I also discharge the proprietary injunction (that is the injunction freezing any assets derived from any secret profits, bribes, secret commission or other unlawful payments received by the defendants as a result of or in connection with any dealings with Tadaz) and, second, what should happen to the many files taken in execution of the search and seize order and currently held by DLA as supervising solicitors.

[195]I am inclined, although I will hear argument on this if necessary, to leave the proprietary injunction in place as against Mr Ermatov, Ansol and Mr Nazarov. It is difficult to see, on the evidence, what the basis can be for continuing that relief against Ashton and Mr Shushko. I have already concluded that there is no basis for the continuation of any relief against Ms Osadchaya and the eighth and ninth defendants. There is no application by the seventh defendant, Cherzod Ermatov, to discharge the proprietary injunction so far as it affects him.

[196]There remains what is to happen to the files taken in execution of the search and seize order and which are still held by DLA. The order that I am minded to make - I will likewise hear argument on it if necessary - is to direct that the files be passed to Clyde & Co as the solicitors acting for the defendants whose files they are. It will then be the responsibility of Clyde & Co, before releasing the files to their respective clients, to identify any that are properly to be disclosed in the due course of these proceedings (whether on Tadaz’s claim or on Ansol’s Part 20 claim) so as to minimise the risk of any of the documents, following their return, being overlooked or going astray when the time comes to provide disclosure. Having regard to the extent to which the issues in these competing claims have been ventilated in the evidence, I have no doubt that Mr Tricks and his team from Clyde & Co would be well able to identify which these documents are.

Material misrepresentation and non-disclosure

[197]In view of the above conclusion it is unnecessary to deal other than very briefly with the complaints by the defendants of material misrepresentation and non-disclosure in the making of the without notice application. As I have mentioned, Mr Doctor referred to no less than 85 instances.

[198]Quite a number of the complaints concern disputed issues of fact or raise matters where there is a difference of opinion between the parties (for example, whether as Ansol and Mr Nazarov aver but Tadaz disputes, CDH is controlled by Rusal) so that, without determining the underlying dispute of fact or resolving the difference of opinion - neither of which it is appropriate to do at this stage of the proceedings - it is impossible to determine if there has been a misrepresentation or non-disclosure and, if there has, how serious it is.

[199]I will confine my observations to the principal complaints as summarised at paragraph 130 above.

[200]It was said that Tadaz should have disclosed, but failed to do so, the 2002 audit report prepared by PwC expressly referring to the 2003 Barter Agreement. It is said that that report found no irregularities or fraud and concluded that Tadaz had made a significant profit in 2002. Those omissions, it was said, went to the circumstances in which those (other than Mr Ermatov) at a senior level in the management of Tadaz first discovered the 2003 Barter Agreement. The audited accounts would have made apparent that the existence of the 2003 Barter Agreement was not discovered in November 2004, as initially suggested by Tadaz’s evidence although, in its later evidence, it suggested that doubts were first cast on Tadaz’s dealings with Ansol/Hamer sometime in May/June 2004. All of this, it was said, went to the circumstances in which the dispute arose, the strength of Tadaz’s claim, and the justification for the action taken by Tadaz in December 2004 and immediately following.

[201]I consider that Ansol and Mr Nazarov seek to make too much of Tadaz’s admitted failure to refer to the 2002 accounts on the without notice application. Mr Bushell has apologised for the oversight. The fact that the restated accounts referred to the 2003 Barter Agreement, did not suggest that there were any fraudulent dealings or other irregularities in Tadaz’s trading activities for that year and indicated that Tadaz had been profitable is not, to my mind, of much significance. The reference to the 2003 Agreement in the accounts does very little to inform the reader of its role. For that and the other reasons set out in Tadaz’s reply evidence (and summarised at paragraph 119 above) I am very far from persuaded that this admitted omission by Tadaz should have resulted in the Etherton Order being set aside.

[202]It was said that Tadaz should have disclosed, but failed to do so, that PwC who had produced the reports on which it relied on the without notice application and which were impliedly represented as being independent forensic reports were (or had been) auditors of both Tadaz and Rusal and were therefore subject to an undisclosed conflict of interest. Mr Rosen’s riposte was that, if the matter had been disclosed, it would have been explained to the court that PwC’s forensic accounting team had had no contact with members of the audit team, would have no contact with them and that there were, in effect, Chinese walls to prevent this from happening.

[203]In my view, it would plainly have been better if these matters had been disclosed but, even if they had been, I cannot think that Etherton J would not have accepted the explanation. For my part, this non-disclosure would not have justified setting the Etherton Order aside.

[204]A great deal of time was taken up examining the circumstances in which, in January and again in February 2005, Ansol offered Tadaz an independent audit of its accounting records with a view to ascertaining whether, as was being alleged, it had overcharged for alumina supplies. Ansol claimed that no good reason had been put forward by Tadaz for failing to take up the offer and that if it had been taken up it would have shown that there was no excessive overcharging. It complained that the matter was insufficiently explained to Etherton J on the without notice application. It was pointed out that the audit offer related to the very matters of which Tadaz (and Rusal) complained in that the price at which Tadaz was buying alumina from Ansol/Hamer in comparison with the price at which Ansol was purchasing it was the most important element in Tadaz’s case on “fraud”. It was said that Tadaz downplayed the significance of Ansol’s offers, even to the point of suggesting that Ansol and the defendants were preventing Tadaz from seeing their records because they had something to hide. In truth, it was said, nothing had occurred to explain why the offer was not taken up. Moreover, proper disclosure of the offer and the circumstances in which it had been made would have detracted from the force of Tadaz’s allegations against Ansol, or at least would have had to be balanced against them, and would have detracted from the force of any allegation of risk of dissipation of assets in that a person willing to subject himself to an international independent audit is unlikely to be the sort of person who hides his assets (or suppresses documents).

[205]Although the correspondence, or at any rate parts of it, in which the audit offer was made was drawn to the attention of Etherton J on the without notice application, the impression that I have is that this matter was insufficiently explored in the evidence or dealt with in submissions to the judge on the application. Nor is it clear to me even now why, as appears to have occurred, Tadaz (or those advising it) did not pursue the offer. The reasons for not doing so urged by Mr Bushell in his second witness statement do not carry conviction. Even if Tadaz had thought that the offer, if accepted, would not have been honestly pursued by Ansol, it is difficult to see why the offer was simply ignored. Having said that, there is force in Tadaz’s response that, if the offer was genuine and an independent audit of Ansol’s documentation would have shown that there was no excessive charging for alumina, it is strange that, after proceedings had begun, Tadaz has not been allowed to see the relevant documentation and Ansol has not renewed the offer. In short, Ansol’s emphasis on the audit offer does not sit well with its unwillingness, once proceedings had begun, to repeat it. Taking this episode as a whole, I do not consider that it provides grounds for setting aside the Etherton Order.

[206]The other complaints relate to Tadaz’s failure to explain, either sufficiently or at all, Rusal’s true role in the structure of the agreements under which Tadaz was operating, the significance of its participation in the supply arrangements now said to be fraudulent, the true facts over CDH’s ownership and its links with Rusal, the inadequacies of the Rusal undertaking and Rusal’s role in the bringing of these proceedings.

[207]Even after stripping away those aspects of these complaints which are matters of factual dispute (for example, whether Rusal continued to control or remained otherwise connected with CDH following the making of the tolling agreement), I consider that there is considerable substance in this complaint. Tadaz’s evidence did not, in my view, sufficiently highlight the extent of Rusal’s involvement in Tadaz’s affairs, in particular that it was providing Tadaz with funding to enable these proceedings to be brought, and did not sufficiently highlight the extent to which the very complaints that Tadaz was making against Ansol could as easily be made against Rusal, yet was relying on Rusal to give day to day instructions to Herbert Smith in the bringing of these proceedings. The fact that Tadaz did refer to possible claims by it against Hamer (or Rusal) but that, as Mr Bushell put the matter, it was “content” to delay any decision on the matter “on the basis of the continued support and co-operation received from Rusal” was a matter which, as Mr Doctor submitted, could not be properly evaluated without knowing that Rusal was currently funding the litigation. He submitted, and I agree, that it is implausible that Rusal would finance an investigation into its own alleged fraud, and even more implausible that it would allow Tadaz to sue it using the information obtained in this way. None of this, in my view, was sufficiently explored on the without notice application.

[208]In view of my decision to discharge the freezing and search and seize order relief, I do not need to take up further space considering what order I might have made if, at the end of the day, the outcome of these applications had turned on the extent of Tadaz’s failure sufficiently to go into these matters before Etherton J.