Lediaev v Vallen [2008] EWHC 1271 (Ch)

Case No HC07C00717

[2008] EWHC 1271 (Ch)

IN THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

Venue Royal Courts of Justice

Date Thursday, 24 th April, 2008

Strand

London WC2A 2LL

Before

MR CHRISTOPHER NUGEE QC

(Sitting as a Deputy Judge of the High Court)

Between

VADIM LEDIAEVClaimant

-v-

Between

DIMITRY VALLENDefendant

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Mr Andrew Ayres (instructed by Barlow Lyde Gilbert) appeared for Claimant.

Mr Nigel Burroughs (instructed by CJ Jones) appeared for defendant.

J U D G M E N T

[1]MR CHRISTOPHER NUGEE QC: In this action the claimant, Mr Vadim Lediaev, claims sums of money from the defendant, Mr Dimitry Vallen, under two separate transactions. Mr Lediaev is a Russian who lives in Irkutsk, Siberia. Mr Vallen was born in Kiev but came to London in 1989 and became a British citizen in 2000 and is now resident here. One of the transactions concerns a series of written agreements between the parties in relation to some litigation (“the litigation agreement claim”). The other turns upon an unrelated transaction in which the parties embarked on a joint venture to acquire, renovate and then sell a property in London (“the property claim”). Pursuant to permission which I gave on the first day of the trial on Monday 21st April, Mr Vallen not only defends the claims but also counterclaims under the litigation agreement claim.

[2]I will deal first with the property claim as it gives rise to many fewer issues. The facts are almost, but not entirely, undisputed. On 22nd October 2002 Mr Lediaev and Mr Vallen signed a written agreement which was written in both Russian and English text. The English text called it a “Partnership Agreement”. As drafted, the agreement contemplated that there would be three parties, but in the event the third party, a company called Itera-Agro Ltd, never signed. It is not suggested that this affects the validity of the agreement between the two parties who did sign, Mr Lediaev and Mr Vallen.

[3]I will have to read some of the agreement. The subject of the agreement is described as being to invest in the property described in an annex. The parties agreed that Mr Vallen would represent the partnership in this investment and obtain the title in the property on behalf of the partnership. Clause 2:

“Participation of the partners. Partners invest the funds needed for the purchase and renovation of the property in the maximum amount of £603,000 in accordance with Annex N1. Mr Dimitry Vallen takes responsibilities for carying out all other work in connection with the purchase, renovation and sale of the property 3. Ownership Each of the partners owns the share of the property proportionally to the invested funds. The share of the property will be confirmed by the share certificate to be issued within three working days after the investment. Each of the partners shares the profit proportionally to their share. 4. Sale of the property. Upon the completion of renovation the Partners agree to sell the property at the highest possible price. In case the offered sale price is below £750,000 the consent of all Partners is required. In case the price is over £750,000 and neither of the Partners does not have the better offer, the sale of the property does not require the consent of the Partners. After the sale the received funds are divided proportionally to the share of each of the parties and are to be transferred within 3 working days from the date of receipt of the funds by the Partnership to the respected account of the Partners in accordance with their written instructions.”

[4]There is also a provision dealing with guarantees, which I need not read. There is a separate document headed “Personal Guarantees”, which I also need not read. There is an annex describing the property as “a flat” at 46 Alderney Street, London SW1 with a description of it as occupying the first, second and third floor of a four-storey building, and it describes the flat as not having been refurbished since 1969. There is a statement of current value at £485,000. There is a statement of the expected value after renovation of between £750,000 and £800,000 with a rent of between £3,000 and £3,200 per month.

[5]Further on there is a statement of finance required:

“The following finance is required: By 15th November 2002 £515,175 for the purchase of the flat. By 15th November 2002 commitment to fund the renovation costs up to £88,000.”

[6]There is then a description when the money is to be drawn on. There is then a provision headed “Return on investment”:

“The return on investment will be provided upon the sale of the flat. The expected time for the sale is by the end of June 2003. Investment: £603,000 Sale: £750,000 Expected profit: £147,000 Terms of investment: 7 months.”

Sale: £750,000 Expected profit: £147,000 Terms of investment: 7 months.”

Expected profit: £147,000

[7]Mr Lediaev contributed £100,000 to the venture, and that had been done by 31st October 2002, as is demonstrated by a certificate headed “Number 2”, which confirms that the sum of £100,000 has been paid and received on 31st October 2002, signed by Mr Vallen. The certificate is headed “Partnership Agreement M1/1”, dated 22nd October 2002, capital £603,000 divided into 603 shares, and it certifies that Mr Lediaev is the owner/proprietor of 100 shares at £1,000 each in accordance with the partnership agreement.

[8]The property was duly purchased in 2002 but was not in the event sold until some three years later, in November 2005. On 29th November 2005 Mr Vallen, who was responsible for the renovation and sale of the property, sent to Mr Lediaev the breakdown of the expenses on the project. This would appear to suggest that the purchase was completed on 15th November 2002 at a price of £487,000, and it shows the property as having been sold for £775,000. The date of sale is not given by this document; but from a document that was produced in the course of the trial, it is possible to identify that the sale had taken place by 14th November 2005 when a credit amount of £153,000-odd was credited to an account at Barclays Bank in Moorgate in the name of Belco Trading Limited, a company controlled by Mr Vallen.

[9]Mr Vallen’s letter of 29th November 2005 details a large number of other expenses of the project. The only one which is in dispute and on which I have to rule is one described as “interest on loan” in the sum of £72,610.62. This is interest on a loan taken out by Mr Vallen in his own name from the Bank of Scotland on a mortgage of the property. The figures which he gives in his witness statement are £412,250 initially and an additional £64,842 during the project.

[10]The first issue I have to resolve is whether the interest is properly chargeable to the partnership. I use the term “partnership” without pausing to determine whether it is technically a partnership within the meaning of the Partnership Act 1890. Neither party invited me to determine that question and neither party has suggested that it makes any difference to this or any other issue.

[11]The defendant’s case, in effect, treats the loan as taken out by him on behalf of the partnership. It means, as is recognised by a series of calculations which have been most helpfully agreed between the parties, that the partners’ contributions to the partnership on this basis are the amounts contributed by them over and above the loan, i.e. a sum of £100,000 in the case of Mr Lediaev and about £216,000 by Mr Vallen, which would lead to the shares being split in the proportion 31.5% and 68.5% respectively.

[12]The claimant’s case, by contrast, is that the loan was in effect taken out by Mr Vallen personally in order to fund his capital contribution to the partnership. On this basis Mr Vallen’s contribution to the project is much larger. Indeed, it amounts to £621,000-odd, but he cannot charge the interest to the project because it is his personal responsibility as between him and Mr Lediaev.

[13]I have no hesitation in preferring the claimant’s case on this issue. I do so for the following reasons.

[14]Firstly, the original agreement does not contemplate a loan. It contains no reference to any loan or mortgage. On the contrary, it identifies the amount of money that needs to be contributed by the partners to the project at the then sum of £603,000. That, when one looks at the details of what is required, which I have read, is intended to cover both the purchase price and the renovation costs. In other words, the contract by itself contemplates that the partners to the project will contribute all the sums needed to fund the project and does not contemplate any loan being taken out. Consistently with that, the certificate which I have referred to, as I have described, divided the capital of £603,000 into 603 shares. It is not suggested by either party that the proportion shown in the share certificate is the actual proportion, but it does, to my mind, indicate that it was intended that the whole cost of the project was to be contributed by way of capital injected by the partners rather than partly by loan and partly by capital. Indeed Mr Vallen’s own letter of 29th November 2005, which I have referred to, did not at that stage indicate that he was treating the loan amount as contributed by both partners. The calculations that he produced at the end of that letter indicated that he was claiming credit for the entirety of the cost of the project other than £100,000, and therefore claiming credit for the loan amount himself. As I say, that is no longer persisted in, but it shows, I think, an indication by him at the time that he did not appreciate that the loan was something separate from his contribution to the partnership.

[15]Finally, when one looks at the evidence, the evidence on this seems to me to support the conclusion. Mr Lediaev said in his witness statement that he was not aware that any loan would be required in order to fund the investment and assumed Mr Vallen had taken out a loan to fund his share of the investment, which was not what had been agreed. It was wholly unacceptable that he should charge the interest to the partnership. Mr Vallen said in his witness statement:

“I informed Mr Lediaev that a mortgage would be necessary to fund or part fund the purchase, for which I would be responsible.”

[16]In cross-examination he was asked about that. When asked, “Are you accepting that you agreed to pay finance costs as between you and Mr Lediaev and that it is an accurate reflection that you would discharge the expenses and no one else?” his answer was, “I cannot disagree. We didn’t go into detail. All I said was that Mr Stadnik was ready and Mr Lediaev could come in. I didn’t specify who would be responsible for the mortgage charges, but it was me.” “You heard Mr Lediaev’s cross-examination. He says you did not mention finance, why is that?” “He might have forgotten about finance. The conversation was not specific. It concerned the question of finance. I said there was an opportunity to buy the property. I said I had agreed the bank finance and if you want to you can join the partnership.” “Do you accept that the cost of interest was for you and not Mr Lediaev?” “Yes, I accept that I was responsible for interest charges.” “You sought additional borrowing of £64,000-odd. Do you accept the same principle applies to this?” “The same principle applies to the borrowing.” The tenor of that, although it was touched on in re-examination, was not, in my judgment, materially changed.

[17]In my judgment, this paints a consistent picture that the loan was not a loan taken out on behalf of the partnership to acquire the property, but a loan taken out by Mr Vallen personally to fund his contribution to the partnership. As such he cannot charge interest to the partnership.

[18]As I have indicated, the figures have very helpfully been agreed between counsel and the agreed consequence of my decision on that issue is that Mr Lediaev’s share is 13.87% and the amount due from Mr Vallen to Mr Lediaev under this agreement is £107,741.94. Subject to a possible defence of set off, I will give judgment for that sum.

[19]I am asked to award interest on that. I agree that, in principle, interest should be awarded under Section 35A of the Supreme Court Act 1981. It should run from the date when the sum was due. It was due three working days after the sale. The sale I will take as being on 14th November 2005. I will leave it to the parties to identify which is the date three working days after 14th November 2005.

[20]So far as the rate is concerned, I propose to award one percent over base rate on the basis as set out in the note in the Supreme Court Practice at 7.0.17 that the commercial rate is commonly used in commercial cases. Generally the Commercial Court will award interest at base rate plus one percent. I see no reason, although we are not sitting in the Commercial Court, to depart from that. This was a commercial venture between the parties. Mr Ayres, who appeared for Mr Lediaev, asked for 8%, which is currently the Judgment Act rate, but, as set out in that note, Jacob LJ in a case called Reed Executive plc v Reed Business Information Ltd said:

“The judgment rate is purely artificial. I can see no reason for an artificial rate being imposed by the court save in those cases where it must, ie where there has been a judgment for a sum.”

I see no reason here to substitute that rate for the Commercial Court rate of one percent over base.

[21]The second and only other issue relating to the property agreement I have to decide is whether Mr Vallen should account for an occupation rent in relation to the property. The facts are that Mr Vallen and his wife were living in the property when it was bought and had been since sometime in 2000. He continued to do so until the improvement work was commenced, which he puts at 10th July 2004. Mr Vallen accepted in cross-examination that he derived a benefit from living there. He had previously been paying a rent of £1,350 per month for the property and after the purchase occupied it rent free. It is not in dispute that the property, as contemplated by the agreement, was acquired in Mr Vallen’s sole name, and that he was a trustee of the property for the joint venture, namely himself and Mr Lediaev; and it therefore follows that Mr Vallen is in the position of a trustee and co-owner who has derived a personal benefit from the occupation of property in which someone else, in this case Mr Lediaev, is interested. Indeed, if the project is viewed as a partnership, he is a partner occupying a partnership asset for his personal benefit. In these circumstances Mr Ayres claims that Mr Vallen should account for an occupation rent on the principle that he is occupying property which partly belongs to Mr Lediaev. It is perhaps not very easy to see this claim clearly articulated in the Particulars of Claim, but I have heard evidence and argument and it is not suggested that I should not decide it.

[22]I have no real doubt that it is prima facie just for a person in Mr Vallen’s position to account for the benefit thus derived, unless the circumstances are such that the parties had in effect proceeded on the basis that he could do this without having to account. When I put this to Mr Burroughs he did not demur. As explained by Lightman J giving judgment of the Court of Appeal in Murphy v Gooch

[2007] EWCA Civ 603

at paragraph 10:

“…Equity developed the doctrine of ‘equitable accounting’ to facilitate the striking of the balance between the co-owners… The thrust of these guidelines was that, where it is just to do so… a co-owner in sole occupation of property may be charged with or required to give credit to his co-owner for an occupation rent…”

[23]Similar principles apply as between partners or participants in a joint venture which falls short of a technical partnership. It does not seem to me to matter precisely how the relationship is characterised for these purposes, because the result, in my judgment, is the same. The only difference is that it appears from Murphy v Gooch that in a case between co-owners the jurisdiction to order an occupation rent may now derive from the statutory provisions found in the Trusts of Land and Appointment of Trustees Act 1996 rather than from the equitable jurisdiction. This means that in particular cases the court may technically be exercising a statutory discretion rather than an equitable one, and where the discretion that is exercised is statutory section 15 of that Act requires the court to have regard to various specific matters. But on the facts of this case I do not think it makes any difference which jurisdiction is exercised. Under section 15 the matters to which the court must have regard in making its order include:

“(a) the intentions of the person or persons who created the trust, (b) the purposes for which the property subject to the trust is held.”

Those two subparagraphs, to my mind, reflect pretty accurately the existing equitable principles. “(c) the welfare of any minor who occupies or might reasonably be expected to occupy the property as his home, and (d) the interests of any secured creditor of any beneficiary.” Those two subparagraphs have no application to the facts of this case.

[24]It is not suggested by Mr Burroughs, who appeared on behalf of Mr Vallen, that Mr Lediaev ever expressly agreed that Mr Vallen could occupy it rent free. There is no reference to it or hint of it in the written agreement, and Mr Vallen accepted in cross-examination that no oral agreement to that effect was made. It was, he said, never discussed between them. The highest that Mr Burroughs put his case was that Mr Lediaev knew that Mr Vallen was living there and by not objecting to it should be regarded as having acquiesced to it. In my judgment this is not made out. There is in fact a dispute between the parties whether Mr Lediaev knew that Mr Vallen was living there at all, but I find it unnecessary to resolve this because even if Mr Lediaev did know that Mr Vallen had been living there, there is no evidence before me that Mr Lediaev was content to permit him to continue to do so rent free, and I decline to hold that Mr Lediaev was thereby consenting to or acquiescing in him enjoying a benefit at the expense of the partnership.

[25]I will therefore declare that Mr Vallen should account to Mr Lediaev for an occupation rent in respect of Mr Lediaev’s share of the property. I am not asked to assess the quantum and it therefore has to go, if not agreed, to a Master, but I have already held Mr Lediaev’s ultimate share of the property to be 13.87%, and although this to some extent takes into account expenditure incurred subsequently to the purchase, Mr Ayres does not claim any different percentage in relation to the occupation rent, which seems to me an entirely sensible and proportionate approach. I will therefore order an enquiry as to what is a fair occupation rent for the property for the relevant period and give a direction that Mr Vallen pay Mr Lediaev 13.87% of the amount so found. I should add that one of the points taken by Mr Vallen is that to some extent the partnership benefited from him and his wife living in the flat because it contributed to the security of the property. This may or may not be so, but I do not think it makes any difference. In principle, occupation rent is based on the principle that requires a person who has derived a personal benefit from his enjoyment of joint property to account for the benefit he has received, and I do not think this is affected by the fact that the occupation may also be of incidental benefit to the partnership or joint venture.

[26]The amount, as I have said, will have to be assessed by a Master if not agreed, but it may be helpful to the parties, if I say that at first blush the rent actually being paid by Mr Vallen before the purchase of £1,350 per month would seem a sensible starting point. As to the relevant period, it seems to me that it should run from completion of the purchase to the date on which Mr Vallen vacated. I have already said that the evidence before me gives 10th July 2004 for the latter date. Mr Ayres put the start date at 26th October 2002. This is, I think, a few days too early. Mr Lediaev had not contributed the £100,000 until 31st October 2002 and completion, as I have already said, appears to have been on 15th November 2002. I will not actually declare the relevant period, but I will direct that the rent should run from completion of the acquisition to 10th July 2004. If the date of completion is not agreed, it will be open to either party to seek to establish some date other than 15th November 2002. In view of the relatively small amounts likely to be involved, I would hope that that would be unnecessary.

[27]There are no other issues that arise on the property agreement. Mr Burroughs did not pursue a case that had been pleaded on behalf of Mr Vallen for just allowances.

[28]I should add that I have not said anything about interest in relation to the occupation rent, but interest will run at the same rate as I have already identified, and if the parties cannot agree the date from which interest should run I will hear submissions on that.

[29]I turn to the litigation agreements. I will state the background to these agreements as briefly as I can, as in large part they are not contentious.

[30]Mr Lediaev had an interest in an Irish company called Landor European Services Limited. I will not at this stage go into the precise nature of that interest in any detail. This company, which I will call Landor EU to distinguish it from Landor UK, an English company which was later incorporated, invested in 1995 a substantial sum of money, some £315,000 I believe, in two related companies which can compendiously be called Mill. They were in fact named Mill Group UK Property Growth Fund Limited and Mill Group UK Property Distribution Fund Limited. When the Mill shares were realised in 1999 the proceeds of sale, however, amounting to over £187,000, were diverted to an account ostensibly in the name of Landor EU but in fact belonging to a company incorporated in another jurisdiction with a bank account in Singapore. This had all apparently taken place as a result of a fraud by a Mr Tchernov. Mr Lediaev wished to recover his money and attention turned to a company called Saffery Champness Management International Limited (“Saffery”), who had been responsible for managing the Mill investment. It is not necessary for me to detail the precise nature of the complaints against Saffery. It is sufficient to say that, in essence, it was thought that there might be a claim against Saffery for paying Landor EU’s money away on the basis of a forged power of attorney produced by Mr Tchernov.

[31]Mr Lediaev was put in touch with Mr Vallen, who was then working for a company called DELM Capital Partners Limited (“DELM”). That led to the first of a series of written agreements (“the 2001 litigation agreement”) expressed to be made on 19th February 2001 but in fact signed on 27th February, made between Mr Lediaev and DELM. It recited that:

“The Client [Mr Lediaev] seeks advice and implementation of practical solutions to recover the funds which were invested into the Mill Group UK Property Fund and are now due. 2. The Client hereby appoints the Advisor [DELM] to be their advisor in connection with funds recovery, and 3. The Client wishes to retain the services of the Advisor as described herein.”

[32]I will not read the entirety of the agreement but pick out one or two clauses which were relied on. Under clause 1.1 headed “Obligations of the Advisor” it reads:

“During the continuance of this Agreement the Advisor shall 1. Perform their obligations under this Agreement with all due diligence, skill and care, and in accordance with the highest professional standards and shall use their reasonable endeavours to promote the interest of the Client.”

Under clause 2:

“The Advisor shall, on the best effort basis: 1 Advise the Client of any agreement to be concluded with regards to the funds recovery. 2. Support and assist with leading the negotiations between the Client and any other party concerned with the funds recovery, including Saffery Champness Management International Limited, ABN AMRO Bank [which is the bank in Singapore where the money had gone] and other legally authorised persons.”

Under clause 3 “Expenses and remuneration” it provided that:

“The Client shall pay the advisors as follows. Retainer fee, none. Success fee, 20% of the aggregate funds amount recovered plus 30% of any positive amount by which the aggregate funds exceeds US$300,000. Out of pocket expenses: the client will reimburse the Advisor for all its reasonable out of pocket expenses including, but not limited to, legal expenses, hotel, business-class travel, etc in connection with the provision of services vested on or assigned to the Advisor by the Client subject to the provision of receipt evidencing such expenditures.”

It was drafted by Mr Vallen and signed by Mr Vallen on behalf of DELM and by Mr Lediaev.

[33]Mr Vallen later discovered that Landor EU had in fact been struck off in Ireland, no doubt for failing to file accounts or the like, and dissolved, and so he took steps to have it restored to the register, which was done on 27th August 2001. Upon its restoration he became a director of Landor EU.

[34]In about late 2001 Mr Vallen ceased to be employed by DELM. He carried on working on the Landor matter. There is an issue as to whether Mr Lediaev knew that Mr Vallen no longer worked for DELM, which I will have to come back to later.

[35]In due course the 2001 agreement was replaced by an agreement made on 22nd April 2004. Unlike the 2001 agreement, which was made in English, the 2004 agreement was made in Russian. I heard some evidence about the circumstances in which it came to be drafted as it was, the substance of which was that it was prepared under the direction of Mr Vallen, and many of the clauses which bear a close resemblance to the clauses in the 2001 agreement, if not actually a translation of the 2001 agreement, were taken from templates which were Russian translations of English templates which underlay the 2001 agreement.

[36]This, unlike the 2001 agreement, was made between Mr Lediaev and Mr Vallen personally. The main change from the 2001 agreement was an increase in the success fee, the amount being increased to 35% of the recovered funds plus 40% of the amount by which the aggregate amount of recovered funds exceeds £300,000. There are also rather more extensive provisions in the agreement which I will come back to in due course, but one which I will draw attention to at the moment is clause 1.4 that:

“In the event that negotiations are unsuccessful, Executor [that being a reference to Mr Vallen] shall commence legal proceedings on behalf of Landor European Services Limited.”

[37]There was also a change to the termination provisions. Under “Cancellation of the agreement” in clause 8 it provided:

“This Agreement may be cancelled by a written notice sent by Client or Executor. If the Agreement is cancelled by Executor, the date of the written notice of cancellation shall constitute the “Actual Cancellation Date”

. If the Agreement is cancelled by Client, the Actual Cancellation Date shall fall 90 days from the time of receipt of the written cancellation notice by Executor. Either party shall be exempted from any obligations hereunder, with the exception of this Clause and Clause VII (Confidentiality) from the Actual Cancellation Date, however without prejudice to any rights or obligations which may also extend to the Actual Cancellation Date. In the event that judicial proceedings commence Client, shall have the right to cancel this Agreement on condition that Executor is compensated for the time spent at a rate of £150 an hour, however the total time spent may not exceed 45 working days.” The third part of that clause did not have a predecessor in the 2001 agreement.

[38]Subsequent to the 2004 agreement Mr Vallen decided that it would be preferable to bring a claim in the name of an English company rather than the Irish company. He therefore caused Landor Services UK Limited (“Landor UK”) to be incorporated in England on 6th October 2004. He became director. One share was issued in favour of Landor EU, and on 1st March 2005 he was instrumental in procuring an assignment from Landor EU to Landor UK of the cause of action. Neither party before me challenges the validity of that assignment. Landor EU in fact was struck off again on 3rd April 2005 and dissolved on 8th April 2005.

[39]In due course proceedings were issued in the Queen’s Bench Division of the High Court on 28th June 2005 in the name of Landor UK against Saffery. No solicitors were used to bring those proceedings. Mr Vallen handled the bringing of the claim himself in his capacity as a director of Landor UK. On 17th February 2006 Saffery made an offer to settle the proceedings for £56,345.63.

[40]Shortly after that the parties entered into a third agreement (“the 2006 agreement”) which although it is dated 12th January 2006 was only signed on 23rd February 2006. It is a short agreement. I will have to read most of it. It recites that:

“Whereas Dimitry Vallen and Vadim Lediaev entered into the Agreement dated 22 April 2004 concerning the recovery of assets invested by Landor EU into Mill Group Fund as well as loss and damages and which requires Vadim Lediaev to provide funding specified by this Agreement. Whereas Vadim Lediaev is not in a position to provide the required funding and wishes now to repudiate the Agreement of 22 April 2004; and Whereas, Vadim Lediaev wishes Dimitry Vallen to provide further funding described above on the basis that such further expenses will be reimbursed from the proceeds of the recovery subject to conditions described below. NOW, THEREFORE, Dimitry Vallen and Vadim Lediaev agree that: 1. Further process of recovery of assets, losses, and damages described above will be fully financed by Dimitry Vallen until the outcome of the recovery process is achieved. 3. Any further expenses in relation to the recovery process will be recovered only from the proceeds of the recovered amount up to the maximum £20,000 and the funding will be provided by Dimitry Vallen at his own expense and risk, even if the required funding exceeds the sum of £20,000. 4. With respect to the success fee due to Dimitry Vallen upon recovery is achieved it remains at the previously agreed level, i.e. 35% of the aggregate amount of the recovered funds, losses and damages and 40% of the aggregate amount of the recovered funds, losses and damages if it exceeds $300,000. 6. This agreement supersedes all previous agreements between the parties.”

NOW, THEREFORE, Dimitry Vallen and Vadim Lediaev agree that:

[41]Almost immediately after that Saffery sent an offer (it is dated 23rd February and was received on 24th February), increasing their offer to £90,000. In due course, on 5th April 2006 they increased it again to £138,000. Mr Vallen recommended to Mr Lediaev that this be accepted and on 18th April 2006 Mr Lediaev agreed that it should be accepted. A settlement agreement was entered into between Landor UK and Saffery on 24th April 2006, which provides that £138,000 should be paid to an account in a bank in Switzerland in the name of Belco Trading Limited. Belco Trading is a company that was and still is under Mr Vallen’s control. I was shown bank statements which indicate that money was paid to that account on 12th May 2006 in the sum of £138,000, and that sum, together with an unexplained £0.96, remains in that account. It was accepted in submissions before me by Mr Burroughs on behalf of Mr Vallen that that money is held on trust for Landor UK by the company which was Belco Trading Limited, which now has the name of Westwing Resources Limited but it is the same company.

[42]At this point it is convenient to mention a little more about the ownership of Landor EU and Landor UK, but in the end neither party submitted that it made any difference. I will start with Landor EU.

[43]So far as the legal shareholding is concerned, two subscriber shares were issued in the name of Cedargrove and Rivercroft, two Isle of Man companies. That was replaced by two share certificates for 500 shares each issued to those two companies, but on 11th April 1994 those were replaced by the reissue of 100 shares in the name of Cedargrove and 300 shares in three separate share certificates in the name of Rivercroft. Much later, in 2001, a meeting of directors resolved and approved a transfer of all those shares, 900 from Rivercroft and 100 from Cedargrove, into Mr Lediaev’s name, and approved the cancellation of share certificates numbered 3, 4, 5 and 6, and the issue of a new certificate number 7 for 1,000 shares to Mr Lediaev. There is no evidence before me that those resolutions have in fact been acted on or that any such share certificate has been issued. Therefore, so far as the evidence before me is concerned the shareholders remain Cedargrove and Rivercroft.

[44]So far as the beneficial ownership is concerned, at one stage it looked as if I might have to resolve some quite contentious issues, but before me Mr Burroughs accepted that, as a result of the board resolutions I have just referred to, from at least that date Mr Lediaev is to be regarded as the sole beneficial owner of the shareholding in Landor EU. Mr Lediaev certainly held himself out as the beneficial owner to Mr Vallen. Whether he really was all along I do not have to decide. There was some evidence suggesting that some other individuals, namely Mrs Kharlamova, Mr Tchernov and Mr Zyrianov, might also have been interested in the company at one stage and there is a particularly noticeable correlation between the division of shares into 100 and three parcels of 300 with a proposed division of interest in the company apparently put forward by Mr Tchernov showing 10% for Mrs Kharlamova and 30% for himself, Mr Lediaev and Mr Zyrianov. But, as I say, I do not have to get into this and do not propose to do so in the light of Mr Burroughs’ acceptance as to the effect of the board resolutions of 21st August 2001.

[45]I have already indicated that Landor EU has in fact been struck off and dissolved.

[46]As for Landor UK, the initial shareholder, as I have said, was Landor EU. Mr Vallen’s evidence, which I see no reason not to accept, is that that share was transferred to a company called Trudson Services Limited, which is under his control. That was done when Landor EU was about to be struck off. He also said that Trudson holds that share as nominee for Landor EU. Again I see no reason not to accept that evidence. Landor UK has itself now been struck off and dissolved on 17th October 2006. The current position therefore appears to be, so far as the evidence before me is concerned, as follows. £138,000 is sitting in an account in the name of Westwing Resources Limited. It is accepted by Mr Vallen to be held on trust for Landor UK. Landor UK is currently dissolved. Therefore, the beneficial interest has at the moment passed to the Crown as bona vacantia. If Landor UK were restored to the Register it could no doubt seek to recover the money. The shareholder in Landor UK is Trudson. Trudson holds its share as nominee for Landor EU. Landor EU is struck off in Ireland. I have not been given any information as to what Irish company law provides, but I assume that it is roughly equivalent at any rate to UK law and provides for the possibility of restoration to the Register. The shareholders of Landor EU, so far as I have seen, are still Cedargrove and Rivercroft, but they hold their shares for the benefit of Mr Lediaev personally.

[47]With that slight digression I can revert to the claims. In this action Mr Lediaev claims the monies recovered less the success fee. I should point out before looking at these claims that I am only concerned with the rights of the two individuals before me, Mr Vallen and Mr Lediaev, they being the only parties to this litigation. Secondly, the only claims that I am concerned with are claims under the litigation agreements. I am not concerned with any other claims of any sort. Thirdly, the only claims I am concerned with are for sums claimed as debts due under the written agreements. There is before me no claim for damages for breach of those agreements on either side.

[48]The first and most significant issue raised by Mr Vallen in answer to the claim is whether he personally agreed under the litigation agreements to pay the recovered monies to Mr Lediaev personally. If any such obligation is to be found, it must be found in the 2006 agreement, that being the agreement which governed the position when the monies were recovered. But it is convenient to look at the earlier agreements as it is not suggested that the 2006 agreement changed the position in that respect.

[49]The first and most obvious point that is taken is that there is no express obligation in any of the agreements on Mr Vallen to account for or pay the recovered monies to Mr Lediaev personally or indeed to anybody else. Mr Ayres relies on some provisions in the agreements. In relation to the 2001 agreement he relies on the obligation which I referred to on DELM to use their reasonable endeavours to promote the interests of the Client, the Client being Mr Lediaev. In the 2004 agreement he relies on a similar obligation, which in the English translation is to make reasonable efforts to safeguard the interests of the Client, and on a further obligation to provide the Client with services with respect to concluding any agreement which may become necessary in connection with the payment of the funds. In my judgment, these do not, by themselves, oblige Mr Vallen to make any payment to Mr Lediaev personally. So far as the first one is concerned, it was in the interests of the Client that the funds should be recovered for the benefit of Landor EU. Whether, as Mr Lediaev apparently told Mr Vallen, he was the 100% owner or only a part beneficial owner, it was in his interests that that should be done. To my mind the obligation to safeguard the interests of the Client and the second obligation relied on in the 2004 agreement referring to repayment of funds must be read with the recital, which referred to the recovery of funds invested in Mill Group UK Property Fund. Those were funds which had been invested by Landor EU.

[50]In the 2004 agreement there were also several references making it clear that any claim that was to be brought was a claim on behalf of Landor EU. I have already referred to the provision that the Executor should commence legal proceedings on behalf of Landor EU if the negotiations were unsuccessful. That is followed by other provisions providing that, “Throughout the period of validity of this Agreement, Executor shall have the right to represent Landor EU in all negotiations, institute and conduct relevant legal proceedings in any jurisdiction at his discretion to recover funds, and at his discretion give consent on behalf of Landor EU to the conclusion of a contract in respect of judicial or extra-judicial settlement of a dispute relating to recovery of the funds.” In my judgment, it is entirely clear as a matter of construction that the reference to “safeguarding the interests of the Client” cannot in this context be construed as imposing on Mr Vallen an obligation to see that monies were paid direct to Mr Lediaev, as the whole tenor of the contract is to recover the funds either by negotiation or, if necessary, by action in the name of Landor EU. The 2006 agreement in this respect is even less promising as it does not contain any provision which could be relied on.

[51]Mr Ayres’ main point is one of implication. He makes three points in support of this submission. Firstly, the agreement was made only with Mr Lediaev; it was not made with the company. This is true in all three agreements. Secondly, the mismatch, as he described it, between the liability of Mr Lediaev to pay the amounts due under clause 2 of the agreements to Mr Vallen with the funds being recovered if the funds were not to be paid to him the other way. Thirdly, the uncommercial result that it would lead to. I remind myself that the tests of implication are well known and strict, namely that it must be necessary to imply such a term and it must be either needed to make the contract work or to be so obvious that it goes without saying. In my judgment, the suggested implication does not meet this test.

[52]As to the points relied on by Mr Ayres, first of all I accept that this is an agreement between Mr Vallen and Mr Lediaev alone by the time it gets to the 2004 and 2006 agreements. There is no agreement with Landor EU or subsequently Landor UK. But Mr Lediaev had a real interest in recovering the money into Landor EU, so there is nothing impossible about an agreement that Mr Vallen would assist Mr Lediaev by recovering the money for the benefit of Landor EU.

[53]Secondly, so far as the mismatch is concerned, I again accept there is a mismatch. It is particularly striking in relation to the success fee if (which is a matter I have to resolve later) the obligation to pay the success fee is an obligation imposed on Mr Lediaev personally, but the funds are not to be paid to him. But it follows from the fact that Mr Vallen wanted his expenses paid and that only Mr Lediaev was a party to the contract and not Landor. No doubt Mr Lediaev could have made a different agreement and one which, from his point of view, might have been more satisfactory if the agreement had involved the companies as well. As it is, the agreement was only made between the two individuals. It necessarily follows that any obligation could only be imposed on Mr Lediaev. I do not regard the agreement that was entered into as requiring anything to be implied into it to make it work. The way it works is that if the money is recovered for the benefit of Mr Lediaev’s company, Mr Lediaev will pay the amounts due under it in circumstances in which Mr Lediaev claims to be the sole beneficial owner of Landor EU. It seems to me to work in an easily understandable way. The fact that, as I have explained, in practice it may now be very much more difficult to actually recover the money because of the circumstances in which the various companies have become struck off, cannot, I think, justify the implication, which is something which has to be looked at at the time the agreements are entered into.

[54]Thirdly, it is said that it makes no commercial sense. For the reasons I have already given, it does, to my mind, make commercial sense. No doubt the parties envisaged and indeed in the 2004 agreement in what was described as paragraph 5 provided that monies that were recovered would go into Landor EU’s bank account and that Mr Lediaev would then be able to and would give directions to ensure that payment was made out of that account. No doubt the parties did not envisage the practical difficulties that they are now finding. If they had, they might no doubt have made a different agreement. There is no reason to distort what has been agreed. So I am very far from persuaded that this suggested term meets the strict test of necessity. And, in my judgment, it goes further than that. It seems to me that it would be unreasonable to imply any such term. If one looks at the 2004 agreement, the cause of action was vested in Landor EU, as it had been in 2001. In 2001 the agreement suggested that DELM would provide assistance, which is most naturally interpreted as assisting Landor EU to recover its money. The same is true in 2004, with the addition of an express contemplation that proceedings might be necessary to recover the money. As I have already referred to, those proceedings would be issued in the name of Landor EU. If those proceedings were successful after trial and judgment, judgment would be in favour of Landor EU and any recovery on the judgment would be by Landor EU. If they were compromised they would most naturally take the form of a payment to Landor EU. There is no reason ostensibly why any monies should go either to Mr Vallen or to Mr Lediaev. The implication therefore that Mr Vallen should pay the monies recovered to Mr Lediaev would involve implying an obligation on Mr Vallen personally to pay monies which he had no right to deal with (except to hold for Landor EU) and to pay them to Mr Lediaev, who had no right to them. If Mr Vallen did receive the monies, it is very difficult to see how he could properly deal with them except by accounting to the entity on whose behalf he had brought proceedings, especially as by this stage he was a director of Landor EU. Far from it being necessary to imply the suggested term into the 2004 agreement, it seems to me that it would be unreasonable to do so.

[55]In my judgment, as I have said, the position was this. Mr Lediaev wanted assistance with recovery of the funds by Landor EU. Mr Lediaev’s position has been and remains (and he told Mr Vallen at the time) that he was the sole beneficial owner of Landor EU. Mr Vallen agreed to help him, but the help he provided was by negotiating or litigating Landor EU’s claim to fruition (subsequently Landor UK’s claim). In circumstances where Mr Lediaev represented to Mr Vallen that he was the ultimate beneficial owner of Landor EU there was nothing odd at all about an agreement between Mr Vallen and Mr Lediaev under which Mr Vallen agreed to help Mr Lediaev by recovering Landor EU’s money for Landor EU, and Mr Lediaev agreed to pay Mr Vallen a success fee should he succeed in doing so.

[56]Mr Ayres also suggested somewhat tentatively in reliance on a written advice from Mr Ben Hubble of counsel that it was possible that the underlying investment in Mill might belong beneficially to Mr Lediaev. Personally I do not regard that as established on such evidence as I have. The reference in Mr Hubble’s advice is a reference in passing. I have not seen the underlying documents and, as Mr Burroughs pointed out, there also appears to be an indication in the accounts of Landor EU that the then directors thought that the Mill investment was an asset of the company. In any event, the 2004 agreement, as I have indicated, was clearly drafted on the basis that the claim belonged to, and would be enforced by, and for the benefit of, Landor EU.

[57]That, in my judgment, is enough to dispose of the claim. It makes it strictly unnecessary to deal with the Defences to the claim as such, but the main issues have to be resolved in the counterclaim, to which I now turn.

[58]The counterclaim is made up of a large number of disparate elements. The first is the success fee of 35% of the amount recovered, i.e. 35% of £138,000, the figure for which is not disputed, it being £48,300. It is also not disputed that under the terms of the 2006 agreement that sum is due. The only question is whether it is recoverable from Mr Lediaev personally or only from the recovered funds. The 2006 agreement, which, as I have said, is the operative agreement, does not say. All that it provides is that the position in relation to the success fee remains as it was before. This in my judgment is the effect of paragraph 4 of the 2006 agreement which provides that “With respect to the success fee due to Dimitry Vallen upon recovery is achieved it remains at the previously agreed level”: this means that, in the absence of any other provision in the 2006 agreement (and there is none), one goes back to the 2004 agreement to see how the success fee was previously dealt with.

[59]Under the 2004 agreement, clause 2, as I have indicated, provides that the “Client shall be obliged to pay to the Executor sums” and then sets out, among other matters, the fee in the event of positive resolution of the case. There is no doubt that, on its face, that provides that the Client, i.e. Mr Lediaev, was to pay the success fee to Mr Vallen. It does not say that Mr Lediaev is to cause Landor EU to pay it or to pay it out of the recovered funds. It is true that paragraph 5 that I referred to earlier reads as follows:

“If the recovered funds are received in whole or in part, provide payer of the recovered funds and/or the bank providing services to Landor European Services Ltd with instructions regarding transfer of the recovered funds which are due to Executor to the account indicated by Executor.”

I entirely accept that it was envisaged that the obligation to pay the success fee to Mr Vallen might well be discharged in that way, but that has not in fact happened because the monies have not reached a bank account in the name of Landor EU, and I accept the submission made by Mr Burroughs that paragraph 5 does not wipe out the obligation in clause 2 of the 2004 agreement, which is an obligation which rests with Mr Lediaev personally.

[60]So subject to the points I will mention later, Mr Lediaev is liable to pay Mr Vallen the sum of £48,300 and that sum will carry interest at the same rate as I previously indicated, and will run, subject to any submissions anybody wishes to make to me, from the date on which the funds were recovered, which is a date I identified earlier, i.e. 17th May 2006.

[61]I should add that Mr Ayres took the point that it is in the nature of a success fee that is calculated by reference to recovered funds that it is to be paid out of the recovered funds. In my judgment however that cannot override the clear wording of clause 2 of the 2004 agreement which obliges Mr Lediaev to pay the sums to the Executor, the fee in the event of a positive resolution of the case describing the amount to be paid but not limiting his liability to pay out of those particular funds.

[62]The second element in the counterclaim is a claim for compensation under the third part of clause 8 of the 2004 agreement. The first question is whether clause 6 of the 2006 agreement has the effect of discharging any obligation to pay compensation under the 2004 agreement. The case put forward by Mr Vallen is that the 2006 agreement, by referring in the second recital to Mr Lediaev not being in a position to provide the required funding and wishing to repudiate the agreement of 22nd April 2004, and then by clause 6 providing that the 2006 agreement supersedes all previous agreements, has the effect of cancelling the 2004 agreement and thereby triggering the obligation to pay compensation, but clause 6 of the 2006 agreement does not discharge or wipe out that obligation.

[63]As I have said, the first question on this is whether clause 6 discharges the 2004 agreement in its entirety including any sums that had become due under it, in other words whether the 2004 agreement is treated as no longer being available to be sued on at all, or whether the effect of clause 6, which provides “This agreement supersedes the previous agreements”, is not to discharge the 2004 agreement entirely but to replace the 2004 agreement going forward, leaving untouched any liabilities already accrued under the 2004 agreement. Both sides to some extent relied on the reference in clause 3 of the 2006 agreement to “any further expenses”, but in my judgment that does not help. It could mean any further expenses in the sense of any future expenses going forward, which would support Mr Vallen’s case that the 2006 agreement is dealing solely with the future position from 23rd February 2006, leaving untouched the past position. It could mean any further expenses over and above those which have already been paid, in which case it could be said to support Mr Lediaev’s position that the 2006 agreement was intended to displace the previous agreements in their entirety so that they could no longer be sued on even in respect of accrued liabilities. This is a short point of construction and like many short points of construction is not capable of much elaboration. In my judgment, “supersede” in clause 6 means replace in the sense of discharging the parties from any further performance in the future, but it does not mean that accrued liabilities which have already been incurred are thereby discharged. That would, in my judgment, require language rather stronger than the word “supersede”, language making it clear that existing liabilities were discharged, and the mere word “supersede” by itself cannot, in my judgment, bear this weight.

[64]The second point taken in answer to the claim for compensation is that, even if, as I have decided, clause 6 leaves untouched any liabilities that had already accrued, no right to compensation had already accrued. The argument is that the 2004 agreement had not been terminated before the 2006 agreement, but the effect of entering into the 2006 agreement, even though it did bring the 2004 agreement to an end, was not a cancellation by the client within the meaning of clause 8 but was a mutual agreement to terminate, and in any event that no right to compensation had been triggered before the 2006 agreement came in.

[65]In my judgment, these objections are well founded. The structure of clause 8 of the 2004 agreement to my mind makes it clear that the right to compensation arises only if the client cancels the agreement. That is a unilateral right given to the client to cancel the agreement. What happened in 2006 was not a unilateral cancellation by Mr Lediaev but was a mutual agreement to replace the 2004 agreement with the 2006 agreement going forward.

[66]In any event, there was, in my judgment, no accrued right to compensation under the 2004 agreement at the time that it was replaced by the 2006 agreement. One of the points taken is that clause 8 provides for a 90-day grace period in the event of cancellation by the client. So far as that point is concerned, I consider that the 90-day grace period could be waived by Mr Vallen, and that could be done impliedly if not expressly. But even allowing for waiver of the 90-day period, there was no accrued right before the 2006 agreement was entered into. I do not see how the entry into the 2006 agreement could give rise to a right under the 2004 agreement when, by its own terms, the 2004 agreement was thereby being superseded. In truth, the 2006 agreement cannot be used at one and the same time to preserve a liability under the 2004 agreement, when that liability had not arisen previously, and at the same time create that liability for the first time.

[67]So in my judgment the claim for compensation fails. I add three footnote points to this. Firstly, as Mr Burroughs accepted, the 2006 agreement was drafted by Mr Vallen and, if it is ambiguous, it can be construed contra proferentem. If it had been intended that the entry into the 2006 agreement would trigger and preserve a right to compensation under clause 8 of the 2004 agreement, it would, as Mr Vallen himself accepted in evidence, have been very much better if it said so expressly instead of leaving it to be spelt out from really rather unsatisfactory wording.

[68]Secondly, there is great force in the point taken by Mr Ayres that for Mr Vallen to recover both the success fee and the compensation runs counter to what one would expect was the purpose of the compensation provision in the 2004 agreement. That was to preserve Mr Vallen’s position in case the client, Mr Lediaev, terminated the 2004 agreement before he could recover his success fee; but the 2006 agreement made it no longer possible for Mr Lediaev unilaterally to terminate the services and in fact left it in the hands of Mr Vallen to proceed with the litigation and recover the success fee if he could. As I say, there is a great deal of force in that.

[69]Thirdly, I heard some evidence and submissions as to what Mr Vallen wanted to achieve and why he might have entered into it. Ultimately, in my judgment, this was unhelpful. This is a question of construction of a written agreement and on well-known principles evidence of the parties’ subjective thinking and evidence and submissions as to what a party might or might not have thought they might get out of an agreement does not help in a case like this, in my judgment, to enable the court to construe the agreement.

[70]As I said, therefore the claim for compensation fails. That makes it unnecessary to deal with any question of the quantum of compensation. I should just record that there was no evidence before me of which days or how many days Mr Vallen spent on the matter, or how many hours he spent each day, and if this claim had otherwise been a good claim I would have found it very difficult to say that any particular time had been established. There was no doubt evidence that Mr Vallen spent a great deal of time on this matter, as indeed is self-evident, but I could not find how many days he had spent or how many hours on any day. Had it been a live issue I would not have been able to assess what was due. I think I might have been tempted in those circumstances to refer that to the Master as well, but there would have been some difficulty in doing so when neither party asked me to do so. As it is, it does not arise and I say no more about it.

[71]That leaves a series of questions in relation to Mr Vallen’s claims for expenses. I persuaded Mr Ayres very helpfully to formulate, and Mr Burroughs to agree, a list of the issues which need to be resolved in relation to the expenses.

[72]The first one is whether Mr Lediaev is personally liable for the expenses under the 2006 agreement. In my judgment the answer is “No”. Paragraph 3 of the 2006 agreement makes it clear that any further expenses will be recovered only from the proceeds of the recovered amount. Despite Mr Burroughs’ best endeavours I see no reason not to give that its plain meaning, which means that Mr Vallen has no claim under the 2006 agreement against Mr Lediaev personally for any of the expenses. However, under the 2004 and 2001 agreements the answer is “Yes”. As I have indicated in relation to the success fee, clause 2 of each agreement imposes an obligation on the Client to pay the sums there set out. That includes the expenses, and I see no reason to give that any other effect than its plain meaning. And I reject the submission made by Mr Ayres that somehow once the sums had been recovered the obligation could be transmuted (as he put it) or migrate to the recovered funds. The plain wording of the 2001 and 2004 agreements is that it is the Client who is obliged to pay the expenses.

[73]The second question is whether unpaid but due expenses under the 2004 or 2001 agreements survive clause 6 of the 2006 agreement. For the reasons I have already given, the answer to that, in my judgment, is “Yes”. The 2006 agreement discharged the parties from any future performance under the 2004 agreement by replacing it, but it did not amount to an accord and satisfaction or a mutual discharge of any unpaid liabilities that had already accrued under the earlier agreements.

[74]The third question I was asked was to confirm whether the only sum due under the 2006 agreement was the sum of £763.45. The answer to that is “Yes”. It appeared in the end not to be disputed. The pleaded case is that £2,663.33 was due under the 2006 agreement, but the invoices which have been identified show that that sum is made up of a sum of £763.75 and a sum of £1,899.58, both of those being fee notes of counsel, Mr Charles Douthwaite, and it is apparent from the fee notes that only the £763.75 was incurred after the date of the 2006 agreement. But, as I have already said, that sum of £763.75 is not personally recoverable from Mr Lediaev. As between Mr Vallen and Mr Lediaev, it means that Mr Lediaev cannot complain if Mr Vallen takes it out of the proceeds, but of course the 2006 agreement, as all parties accept, does not bind Landor EU or Landor UK, so I can say nothing about whether the 2006 agreement gives Mr Vallen a right to do so as against Landor UK. All I can and do decide is that Mr Lediaev is not liable for it.

[75]The next issue I was asked to decide was to confirm that no claim can be brought in relation to the 2001 agreement on the basis that that agreement was made not with Mr Vallen personally but with DELM, a corporate body which is not a party to these proceedings, and that there had been no novation or assignment of that claim. I confirm that any such suggestion (of novation or assignment) was abandoned during the course of submissions, quite properly, by Mr Burroughs, and any such claim so far as the evidence before me is concerned remains with DELM.

[76]The next question I was asked was in relation to whether there was an oral agreement made between these parties in 2001 substituting in effect Mr Vallen personally for DELM so that Mr Vallen personally can claim expenses incurred from some unspecified date in late 2001 up until the 2004 agreement was entered into. This is the only significant factual dispute between the parties in relation to this issue. Mr Lediaev in his witness statement said in relation to this:

“I do not recall Mr Vallen telling me he was no longer involved with DELM.”

Mr Vallen in his witness statement said that he ceased to be employed by DELM in about late 2001. He agreed with Mr Yelmanov (the other individual involved in DELM) that:

“I would continue working on the Landor EU claim. Mr Lediaev was told about the situation and requested that I continue to attempt to recover the funds on the same terms as he had agreed with DELM. I orally agreed to do this.”

But in cross-examination when asked, “It is possible that you did not inform him about it?” he said “I think I informed him. It’s possible I didn’t, but I think I informed him. It’s a long time ago, I can’t remember.”

[77]The onus is on Mr Vallen squarely to establish the existence of a fresh contract made with him personally. On this evidence I do not find such a contract proved. Therefore, no claim is established before me for expenses until the entry into the 2004 agreement. Again I say nothing about whether any other party could have any other claims outside this litigation.

[78]The next question I was asked to decide is with regard to the provision in the 2004 agreement under “Overheads of any kind” which reads: The obligation to pay expenses is an obligation on the Client “to reimburse Executor for any reasonable overheads not limited to legal fees, hotel, business trip expenses, etc., incurred in connection with the duties imposed upon Executor, on condition that documents confirming such expenses are provided.” Given the evidence I heard as to how the Russian text of the agreement (what I have just read being the English translation, not part of the contract as signed at the time but an English translation of the Russian text of the 2004 agreement) came to be drafted as it did, in my judgment I can, in construing it, have regard to the equivalent provision in the 2001 agreement – Mr Burroughs did not dissent from that proposition – where the equivalent provision under the heading “Out-of-Pocket Expenses” is:

“The Client will reimburse the Advisor for all its reasonable out of pocket expenses including but not limited to legal expenses, hotel, business-class travel, etc. in connection with the provision of services vested on or assigned to the Advisor by the Client subject to the provision of receipts evidencing such expenditures.”

In my judgment, the plain meaning of both those provisions is that that is a condition precedent to the liability to reimburse, and unless and until receipts evidencing the expenditures have been provided to Mr Lediaev he is not liable to pay. I do not find that there has been any waiver or estoppel in relation to that, save in cases where Mr Lediaev has paid without challenge. In circumstances where he has not paid he is, in my judgment, still entitled to take the point.

[79]I have not, I think, been provided by those acting on behalf of Mr Vallen with any clear statement of which particular invoices they say have or have not been paid, so I think I will not do any more than just decide as a matter of principle that Mr Lediaev is not liable to pay any outstanding invoices unless and until the receipts evidencing the expenditures have been produced.

[80]It occurred to me when I was looking through the papers that there are one or two documents in the bundle that might be said to contain receipts, for example one at page 311 which is an invoice from Abdul International across which is written the words “Received with thanks”, and another of Mr Douthwaite’s fee notes, this time at page 297 of the bundle, which contains a signature under the words “Cheque for £881.25 received with thanks”, but I have not been addressed on this and no attempt has been made before me to identify what might or might not qualify as satisfying this condition precedent. I will hear counsel as to what I should do in relation to this point in those circumstances.

[81]Mr Burroughs also relied on two other clauses as entitling Mr Vallen to payment without satisfying that condition precedent. One of them is a clause headed in the 2001 agreement “Indemnification” under which the Client agreed to indemnify the Advisor. In the 2004 agreement the equivalent provision was headed “Compensation” and reads (in translation):

“Client agrees to pay at his own expense compensation without any claims to Executor, together with directors, officials, employees or agents to the extent such physical or legal entities were directly involved in the provision of Services hereunder, and for any losses, claims, costs or obligations that may follow from any acts or claims by third parties who may suffer in connection with this and in accordance with Executor’s obligations to such parties for the Services they provided under this Agreement.”

Again, for the reasons I gave earlier, I think I can construe that taking into account the equivalent provision in the 2001 agreement, which was headed “Indemnification”:

“The Client agrees to indemnify and hold harmless the Advisor for their own account together with any of their directors, officers, employees or agents and to the extent such persons or entities are or have been directly involved in the Services pursuant to this Agreement.”

As the text of the 2001 agreement shows, this is an indemnity provision and it seems to me to be obliging Mr Lediaev to indemnify, in that case DELM, and under the 2004 agreement Mr Vallen, in the event that anybody makes a claim against him. It is not at all clear to me that anybody has made any claims against him personally and I do not think that I can decide that any of the invoices that are relied on by Mr Vallen in these proceedings fall within that clause as matters have been identified before me. Certainly many of the invoices I have seen are not addressed to Mr Vallen but to one or other of the Landor companies.

[82]The other clause that Mr Burroughs relies on is a clause which appears only in the 2004 agreement but not the 2001 agreement, which obliges the Client, Mr Lediaev, to:

“Throughout the period of validity of the present Agreement … provide financial means required to keep Landor European Services in the Register of Companies including, but not limited to payment to accountants, annual tax levies, the register of companies, nominal directors and secretaries.”

Strictly speaking, I accept that this is a separate obligation from the obligation in clause 2 to reimburse the Executor for what is there described as “overheads” and in the 2001 agreement as “out of pocket expenses”. The provision to provide financial means required to keep Landor EU in the Register of Companies does, in my view, oblige Mr Lediaev either to pay what is necessary for that purpose directly to those required or to provide money to Mr Vallen to do so, and where Mr Vallen has discharged monies for those purposes, in my judgment, Mr Lediaev is liable to now provide the financial means required - in other words, to reimburse Mr Vallen for that expenditure.

[83]Again no attempt was made before me to identify particular sums which fall within that clause. Some of the Belco invoices, for example that at page 330, do appear to be connected with this subject matter. That one says: “Providing a registered office in the jurisdiction of incorporation, attending to compliance matters in accordance with the Companies Act and providing a correspondence address” (though I should point out that that one is in fact dated 2002 and so would not come under the 2004 agreement), but, as Mr Ayres pointed out, it is in a round sum of £1,900, said to be “To our services for the period”, and I find it completely impossible to tell on the evidence before me whether the £1,900 is money actually paid out by Mr Vallen to third parties or whether it is a global charge at which he assesses the value of the services which he has provided. It is only the former, I think, that could be recovered under the terms of the 2004 agreement.

[84]The final issue that I was asked to address in relation to expenses is whether the expenses would cover office expenses. The invoices from Belco contain a regular charge for what is described in the English text as “Office expenses, including telephone, letters and secretarial job” at £250 per month. Some of the later invoices are in Russian but it is possible to identify the same charge of £250 per month for office expenses. I agree that the obligation to reimburse the Executor for what are described in the 2001 agreement as “out of pocket” expenses is limited to a reimbursement to put into Mr Vallen’s pocket money which he had paid out to third parties as a result of acting in relation to the Saffery litigation and the negotiations leading up to it, and that it was not intended to cover his ordinary office overheads, except, if it be the case, if those expenses are directly referable to the carrying out of the services under the 2004 agreement. To take an example, a telephone call which he makes in relation to this agreement is one which he could claim under that provision, subject to providing a receipt confirming that it is a relevant expense. A share of the rental of his telephone line would not, in my view, come within the provision.

[85]That deals with all the issues I have been asked to decide subject to a question of champerty, which I must deal with briefly. I will summarise the decisions that I have made.

[86]Firstly, under the property agreement Mr Vallen is not entitled to charge the partnership with the mortgage loan interest. Mr Lediaev is entitled, therefore, to a 13.8% share in the partnership and is entitled to payment of the sum of £107,000-odd that I identified earlier, together with interest at base rate plus 1% from three working days after completion.

[87]Secondly, Mr Vallen is obliged to pay an occupation rent to Mr Lediaev calculated at that percentage, 13.8% of the fair occupation rent for the property for the period from completion of the acquisition to 10th July 2004 together with interest thereon at the same rate, that to be assessed by the Master if not agreed.

[88]Under the litigation agreements, firstly and most importantly Mr Lediaev’s claim to the payment of the recovered monies against Mr Vallen personally fails and the claim will be dismissed. Secondly, of the sums in the counterclaim Mr Lediaev is personally liable for the success fee. Mr Lediaev is not liable for the compensation claim. Mr Lediaev is not liable personally for any expenses under the 2006 agreement, that being limited to the £753 which was identified. He is not liable for expenses under the 2001 agreement in this action because any such claim rests with DELM and not with Mr Vallen personally. There was no oral agreement in 2001 and Mr Vallen therefore did not acquire a personal right in 2001. Mr Lediaev is liable in principle for expenses under the 2004 agreement but subject to compliance with the condition precedent requiring production of receipts. It does not include general office overheads, but it does include any monies actually paid out which are directly referable to the services that were provided.

[89]That, as I have indicated, leaves one remaining issue of substance which was very properly raised by Mr Ayres, which is the question of champerty and whether the litigation agreements are champertous. Neither party has pleaded or submitted that they are, but the issue was brought to my attention by Mr Ayres, who submitted nevertheless that they are not champertous, a submission which Mr Burroughs adopted. It raises two points for my consideration. Firstly, whether, if the parties do not take the point, the court ought to take the point, even though neither party asked me to, and, secondly, if so, whether the agreements are or might be champertous.

[90]As to the first, my own limited research tend to confirm my initial view which was, I think, shared by Mr Ayres, that, this being a head of public policy, the court should itself refuse to enforce a contract if satisfied that it is champertous, even if the parties do not ask it to. Champerty and maintenance were abolished as torts and crimes under the Criminal Law Act 1967, but section 14(2) of that Act provided that:

“The abolition of criminal and civil liability under the law of England and Wales for maintenance and champerty shall not affect any rule of that law as to the cases in which a contract is to be treated as contrary to public policy or otherwise illegal.”

[91]In Chitty 29th Ed at paragraph 16-199 the general position stated is as follows:

“Where a contract is ex facie illegal, the court will not enforce it, whether the illegality is pleaded or not; secondly, where the contract is not ex facie illegal, evidence of extraneous circumstances tending to show that it has an illegal object should not be admitted unless the circumstances relied on are pleaded; thirdly, where unpleaded facts, which, taken by themselves, show an illegal object, have been put in evidence (because, perhaps, no objection was raised or because they were adduced for some other purpose), the court should not act on them unless it is satisfied that the whole of the relevant circumstances are before it; but fourthly, where the court is satisfied that all the relevant facts are before it and it can clearly see from them that the contract had an illegal object, it may not enforce the contract, whether the facts were pleaded or not.”

That refers to illegality without reference to a distinction sometimes drawn between contracts that involve illegality and contracts otherwise unenforceable or void, but I will proceed at the moment on the assumption that that represents the position in relation to unenforceable or void contracts as well.

[92]Are the agreements champertous? Maintenance has been defined – I take this from Halsbury’s Laws of England 4th Ed Vol 9(1) paragraph 850:

“Maintenance may be defined as the giving of assistance or encouragement to one of the parties to litigation by a person who has neither an interest in the litigation nor any other motive recognised by the law as justifying his interference. Champerty is a particular kind of maintenance, namely maintenance of an action in consideration of a promise to give the maintainer a share in the proceeds or subject matter of the action”

In paragraph 852 Halsbury baldly states:

“An agreement to supply funds or legal assistance for litigation in return for a share in the proceeds is champertous.”

That cites a number of old cases.

[93]Mr Ayres submitted that there were two reasons why, nevertheless, the arrangement here is not champertous. The first was that the spoils were not being strictly divided. The payments were to be made between Mr Vallen and Mr Lediaev, neither of whom were entitled as such to the spoils.

[94]Before answering that I should refer to a case he referred me to which appears to be the current leading case in the Court of Appeal, Factortame Ltd & Others v The Secretary of State for the Environment, Transport and Regions No 2

[2002] EWCA Civ 932

, which summarises in the judgment of Lord Phillips MR the policy reasons behind champerty as they now stand:

“Where the law expressly restricts the circumstances in which agreements in support of litigation are lawful, this” (which is a reference to something Lord Denning had said). “provides a powerful indication of the limits of public policy in analogous situations. Where this is not the case, then we believe one must today look at the facts of the particular case and consider whether those facts suggest that the agreement in question might tempt the allegedly champertous maintainer for his personal gain, to inflame the damages, to suppress evidence, to suborn witnesses or otherwise to undermine the ends of justice.”

[95]If that is the public policy which underlies this rule, and it is regarded as contrary to public policy for a person who has no interest in the litigation to lend assistance in return for a share of the spoils because it might tempt him to behave in those ways, I do not think a sensible line can be drawn between the case where what he receives is directly a share of the spoils as such and a case such as the present where the reward for the person lending assistance in litigation comes not out of the proceeds of the litigation itself but from the third party. What is relevant is that the success fee is linked to the amount recovered. This, it is suggested, might tempt him to behave improperly in the assistance that he renders in relation to the claim. This must equally be the case whether such temptation arises directly or indirectly from a share of the proceeds, strictly so called, or an equivalent sum provided by somebody else.

[96]So I therefore reject Mr Ayres’ first submission.

[97]His second submission was that the modern cases illustrate that a much more relaxed attitude is taken than the rather bald statements in the older cases. In Factortame the Court of Appeal urged a close consideration of the particular facts in question. In paragraph 44, after having referred at some length to the decision of the House of Lords in Giles v Thompson, the Master of the Rolls went on:

“This decision abundantly supports the proposition that, in any individual case, it is necessary to look at the agreement under attack in order to see whether it tends to conflict with existing public policy that is directed to protecting the due administration of justice with particular regard to the interests of the defendant.” 98. The court then proceeded to have a quite close look at the facts of that particular case. In that case a well-known firm of accountants, Grant Thornton, had agreed to act for some very impecunious but deserving claimants on the basis that they be remunerated for the work they provided in assisting the claimants to establish their losses by receiving an 8% share of what was recovered. Some of the statements in that case are a long way removed from the present case. For example, the Master of the Rolls, giving the judgment of the Court of Appeal, said at paragraph 85: “The greater the share of the spoils that the provider of legal services will receive, the greater the temptation to stray from the path of rectitude. The 8% that was agreed between Grant Thornton and the Claimants was not extravagant.”

Paragraph 87:

“The prospect of receiving 8% of recoveries would have provided a motive for Grant Thornton to inflame the damages, though not to the extent that a larger proportion would have done. As to the likelihood of their yielding to this temptation, we consider that Mr Hancock was justified in emphasising the fact that Grant Thornton are reputable members of a respectable profession whose members are subject to regulation.”

Then at paragraph 89, having described the actual work that Grant Thornton carried out, they make the point that:

“The task of producing a suitable model [for calculating damages] was plainly being carried out as a joint operation involving both sides, and in a manner that was transparent. It does not seem to us that this was an area where any lack of objectivity on the part of Grant Thornton could be expected to impact on the assessment of damages.”

Then at paragraph 89, having described the actual work that Grant Thornton carried out, they make the point that:

[99]It is apparent that none of those particular factors are applicable to the present case. Mr Vallen’s interest is not a mere 8% but 35% or, in some circumstances, up to 40%, and as far as I know he is not a member of a regulated profession and there is no question in this case of joint preparation of a case.

[100]I was referred to two other cases, but I do not think they take the matter much further. One is the decision of Underhill J in Mansell v Robinson

[2007] EWHC 101 (QB)

, in which a journalist had agreed to act as an investigator in return for one percent of any claim. In that case the judge, having referred to authority establishing that the mere fact that litigation services were provided in return for a promise in a share of the proceeds is not by itself sufficient to justify that promise being held to be unenforceable, and to a number of other cases, reached the conclusion that there was nothing objectionable about the agreement in that case, making the point at paragraph 9 that there were at the time no proceedings on foot and no immediate prospects of any, but, if there were to be any proceedings, they were likely to be in the United States, that he was not – paragraph 10 – providing litigation services of a direct kind but providing information, and concluding – paragraph 11 – that “the relationship between the services which the claimant might provide under the agreements and any potential litigation were simply too indirect and contingent to engage the rule against champerty.”

[101]Again that is not applicable to the present case. The services that Mr Vallen provided were directly related to English litigation.

[102]The third case which I was referred to is a decision of the Privy Council on appeal from the Bahamas called Massai Aviation Services v The Attorney General, in which the opinion of the Board was delivered by Baroness Hale on 26th February 2007. That case was a case not in relation to whether an agreement to share in the proceeds of litigation was champertous, but concerning the closely related but separate principle that “the law will not recognise the assignment of a ‘bare right of action’ on the ground that such a transaction savours of maintenance or champerty”, and I do not regard it as of any direct help, although it does illustrate a trend towards greater flexibility in the modern cases.

[103]Returning then to the task which Factortame envisages of looking with close particularity at the circumstances of the individual case, the points that can be made in favour of upholding the agreement are that, in relation to the underlying litigation between Landor UK (as it became) and Saffery, there was no significant scope for inflaming damages, the main head of damages being the recovery of the £187,000 which had been paid away. And there does not, so far as appears to me from the pleadings that I have seen in that action, appear to have been much scope for inventing or suppressing evidence. Most of the facts were documented. The main issue of fact was whether the power of attorney on which Mr Tchernov relied to extract the money was a forgery or not, which was likely to be determined, I would have thought, by expert evidence rather than by any evidence that Mr Vallen could manufacture, if that is the temptation that might be suggested, and the consequential question of law as to whether in all the circumstances Saffery were negligent in discharging their duty.

[104]If I ask myself the question adapted from Factortame at paragraph 87, “Could a reasonable onlooker seriously have suspected that the fact that Mr Vallen was to receive 35% of the recoveries have tempted him to deviate from performing his duties in an honest manner, or whether the existence of that temptation was likely to prejudice Saffery as defendants in that litigation”, I am inclined to answer that question “No”.

[105]Since, as the extract I cited from Chitty appears to suggest, it seems to be the case that, where no claim has been pleaded and neither party invites the court to hold an agreement illegal, the court should not do so of its own motion unless it can clearly see that it has all the relevant facts before it, and from all those relevant facts that the contract is illegal, I believe I can properly decline to hold this agreement to be champertous in circumstances where it is a very fact-sensitive question under the principles of Factortame, and on such information as I have it appears to me, at the very least, to be highly doubtful whether it is champertous.

[106]In those circumstances it is not necessary for that point to be reserved as I indicated I would do if I had inclined to the other conclusion.

[107]There is one final point which is that of set off. I have found Mr Vallen liable to Mr Lediaev for the sum of £107,000-odd. I have found Mr Lediaev liable to Mr Vallen for the success fee of, I think, £48,300, which is also a liquidated sum. Subject to any further submissions that counsel wish to make to me, my understanding of the law is that, although there is no question here of equitable set off, these being sums due under entirely separate transactions, where there are liquidated sums due on both sides it is still possible to plead a legal set off which amounts to a defence.

[108]The result is that judgment is only entered for the net balance, but I will however hear counsel on whether that is a correct analysis of the law, and how, in those circumstances, it is most appropriate to provide for interest, and indeed any other matters arising out of my judgment.

[109]It only remains for me to thank both counsel very much for their assistance and their patience, and particularly this afternoon in waiting for what has been, I am afraid, a slightly longer judgment than I had hoped and which has certainly required them to stay longer than I personally would have wished.