“Q. So, Mr Savelyev, do I understand correctly that the purpose of that company is simply as a vehicle for distributing shareholding between managers of the Bank and your daughter? A. I would like to say before the court, because of course my daughter holds an option from the three holders of the shares, and in the event of non-performance of certain covenants, the daughter is entitled to buy the shares from these three holders of the shares. Q. What covenants? A. I do not recall all the covenants now, but for the most part, it's to do with the Bank's capital, following the Bank's strategy, and there have been many provisions that the Bank managers need to comply with. Q. So in a way, Verniye Druzya is your tool for control of the Bank, isn't it? A. I never denied that I control the Bank, however, I would like to say that everything here is correct and the Bank's managers, as of today, own the shareholding and have an option with my daughter, between them and my daughter. Q. Yes, thank you. Then just back to my question, so really, that is the purpose of Verniye Druzya LLC, really to exercise that control and to exercise that arrangement between you and the other top managers; is that the purpose of Verniye Druzya or is it doing anything else? A. That is the global purpose of the company. The thing is that I am not a young man and I would like to see in time that Verniye Druzya company and my daughter would exercise control of the Bank in the future period.”
“While being a student of the second and while being a student of the second and third year at University of St Petersburg, I've already been given a guest professor lectureship in City University of London, in University of Munster, in Insurance Academy of Oslo, Stockholm, Copenhagen, Finland and so on. So I have been well regarded that time, when I was only 20.”
“At some stage I understood that I was too young and too smart to be employed, and I thought that, having all this background, why not go back to St Petersburg and to start my own business. Considering that most of people working in Moscow were above 50 or 60, not speaking any language, still trying to live in the Soviet conditions and didn't want to implement anything modern and European, which was quite strange for me while I spent about 10 or 15 years abroad, so I decided why not come back to St Petersburg and establish a company called, at that time, Scan Marine Consulting. I think it was a really successful venture, so in a short while I managed to obtain the most important, most famous Russian international clients, like all the major oil and gas companies, for whom I've been doing reinsurance generally in markets in London, in Norway, in other Scandinavian countries and in Bermuda. So, as I have written in the witness statement, it has been really one of the first Russian insurance, reinsurance broking companies. And then I decided, why not to go forward, while at that time it was a time of restructuring of the international insurance markets of 9/11 and so on. So I've been rather deep in that subject and I decided, why not to build up something special, local. And later on, when the market would be a better market, not depressed after 9/11, then I would be able to sell this to international players, to international insurance companies with whom I've been working and whom I've been knowing personally. So I've been knowing personally directors of major energy syndicates at Lloyd's and so on, so we've been well regarded, so we've been knowing each other quite well and I believe that in case they wanted to touch Russian market, my business would be the best business for them to buy, or, if not whole, at least a share. Then at some stage, we understood that -- I employed quite a number of good, young people, so most of the people in my office have been between 20 and 35, all of them speaking languages, having experience international experience, got some, at least, partial international education, and I thought that I built up quite a good and modern team and we could easily expand, and definitely one of the areas of expansion was that time I thought the assets of the ex-Baltic Shipping Company. You know, in St Petersburg, in the Soviet Union, one of the major shipping companies was the Baltic Shipping Company, trading worldwide and so on, and as long as my mother has been, let's say, one of the top executives of that community, and she's been known by everybody, so all the exdirectors and captains and so on, they've been personal friends with our family and so on, so I decided -- and this company had been bankrupted, so it has been a number of big scandals and beginning of the 1990s, so it has been divided to many, many different parts and pieces, and so they called it -- some of them, they called it privatisation; some of them called it bankruptcy, but it was a big collapse of criminal things all around there. So I found out that -- then I was the age of less than 30, and I had a good family reputation and I found out that the ex-assets of Baltic Shipping Company had been distributed and divided among hundreds of people who had been considering each other as enemies, so one had been owning a piece of land, another had been owning water at this piece of land, a third one was owning electricity at this piece of land, and they were considering that each of them were stealing assets from each of them. So it has been quite a complicated story. I found myself that I am able to come in discussions, negotiations with these people, and even considering that they are enemies between each other, I consider that I can come and make an agreement with them because they were not considering me as the criminals, as they were considering each other as criminals, so they could have a confidence, especially because of the family connections and my mother's great reputation there. I went around the market while knowing all these people from my childhood, and made a preliminary agreement that I buy each and every piece. So initially it was an Onega Terminal, then it came to Western and Vyborg Port and so on. And so then I've been doing a lot of interviews to Russian media at that time, and they said: what is the secret of your success story? And I said -- I was telling at that time that if you watched a movie, Pretty Woman, so it's absolutely the same what I have done. So I was just collecting assets which were considered not to be interested, each and every, and then by different M&A transactions, I was changing their status, changing documents, changing the purpose of use, obtaining clients and so on.”
“my husband does everything for us, on our behalf. I do have to take part in this, even though I do not like taking part in this, but because we are the defendants here, I have to take part in this.”
“9 principal operating companies which owned a variety of real estate at port sites in St Petersburg and other locations in the St Petersburg region. At the same time it was also developing its insurance, reinsurance and broking businesses as well as offering medical insurance, pension and tourism services…By the end of 2008, the group employed a total of around 620 people across its various companies.”
“At one of these meetings [Dr Arkhangelsky] explained that he planned to create a large group of companies centred around Vyborg Port, which he intended to acquire. Part of OMG would own a shipping business, another part of OMG would own a port, and another a maritime insurance company. In addition, Mr Arkhangelsky intended to develop or purchase (as part of OMG) 122. a timber company. This created an almost closed circle of business opportunities, by which I mean he would have a group of companies that would encompass the entire downstream process. It seemed to me to be very ambitious, but from letters he provided to the Bank…he appeared to have government support, which is important for infrastructure projects.”
“Mr Arkhangelsky seemed to me to be full of ideas, and was interested in new projects.”
“At some point in 2007, I recall learning (I cannot now recall exactly from whom) that OMG had acquired the Vyborg Port with a loan that had been granted to it by Vozrozhdenie Bank [V-Bank]. It looked from the outside that OMG was receiving large amounts of money from a reputable bank and that Mr Arkhangelsky's business venture was supported by the government. His acquisition of Vyborg Port and the government support for the redevelopment projects he was seeking to undertake gave him credibility so far as I was concerned and suggested that maybe his business plan might after all be feasible. I can recall further meetings with Mr Arkhangelsky in which he reassured me that on top of everything, the federal and regional governments were supporting his plans. He mentioned certain names of federal and regional government officials who were supporting his business plans, but I cannot now recall them. This was relevant because any large infrastructure project requires federal and regional government support to be feasible. In the light of these matters, when Mr Arkhangelsky subsequently requested larger loans for OMG, the Bank was prepared to consider and grant those requests.”
“All of the port and real estate assets described above were acquired with the specific intention of developing them in order to realise their full commercial potential. My medium to long term objective for the Group was that it would become a vertically integrated shipping and stevedoring business, concentrating on servicing transhipment traffic in the Baltic. There was an increasing demand for cargo and container transhipment services in Russia, particularly in the St Petersburg ports which were suffering from congestion. I thought that if the Group could capture that demand and satisfy it through its three ports at Vyborg, Onega and Western Terminal it could outperform its competitors and potentially make a great deal of money. … Clearly, these plans were extensive [and] could not be achieved overnight. They were going to require substantial investment and would be rolled out in phases over the course of several years…”
“Strategic goal [being] to create a vertically integrated holding in the field of sea cargo shipping – from order placement to cargo delivery, where all the links of the chain are the companies of the Oslo Marine Group.”
“The first stage would involve building an open storage area at berth 15, reconstructing a railway track to connect the port to the main railway system, dredging the channel in front of the terminal, and finishing the construction of berth 15. The second stage would include the reconstruction of berth 16, the building of open storage for containers, the construction of a railway link to berth 16, purchasing port handling equipment and installing a container crane. Finally, at the third stage, we planned to reclaim the bay northwest of berth 16, construct a pile-supported berth, build further storage space, install a second container crane and extend the railway track along the pier.”
“The development plans entailed the removal of a man-made island near the entrance to the port. From a practical perspective, I understood this to be relatively straightforward. Once this had been done and the bay north of berth 16 dredged, access to Western Terminal by sea from the Gulf of Finland would have been easier than to competing terminals. The island would need to be removed by the state authorities because the land and water were the property of the state. No investments or payments were needed from Western Terminal itself. All I needed to do was try to speed up the process as much as possible. I was seeking to do that by lobbying my contacts and colleagues in the Ministry of Transport and local government.”
“With a view to assisting it to obtain financing and political support for its ongoing development projects. Alexander Shokhin, the president of the Russian Union of Industrialists and Entrepreneurs and former deputy prime minister of Russia, agreed to be its chairman. The other members included Vyacheslav Ruksha, a former deputy transport minister, Vadim Lopatnikov, the chairman of the St Petersburg Audit Chamber, Vitaly Klimov, a member and former chairman of the Leningrad Regional Assembly, Lars Kolte, the Chairman of the Council of Europe Development Bank, and Oleg Preksin, the vicepresident [sic] of the Russian Banking Association. All these individuals had excellent financial and political connections and were well placed to assist the Group in achieving its funding objectives.”
“Western was only acquired in 2007, and therefore there is little reliable financial information available prior to the date of acquisition. The Western Terminal was acquired for US$220 million , which was funded by OMG's internal resources ($140 million ) and short term debt ($80 million ).” (2) Under the heading “Capital structure and potential site value”, the final draft IM stated: “OMG acquired Western in 2007 for the sum of US$220 million , which was paid for with cash by OMG. Western has no external debt at present, but loans totalling US$90 million taken out by OMG relate entirely to the acquisition of the terminal. The site has been valued both for acquisition purposes and now for the fundraising. Last year it was valued at US$166 million , and in June 2008, it was valued at US$188 million , in its present state.”
“…in May 2007, OMGP purchased the shares in Western Terminal, which owned a 8.1 hectare site at the port of St Petersburg (also known as Western Terminal). Western Terminal was also acquired partly with the aid of loans from Vozrozhdenie Bank [V-Bank] that were secured on Vyborg Port. The purchase price for Western Terminal was just over RUB 1 billion, which I considered to be very low considering its location and commercial potential.” 177. According to Dr Arkhangelsky, he borrowed the entire US$ 40 million from VBank. (3). That accords with Mr Bromley-Martin’s evidence that the Western Terminal site cost “relatively little”. (4). The figure of RUB 1.069 billion, likely to have been taken from the May 2007 share purchase agreement, appears in OMG’s audited accounts as the acquisition cost for Western Terminal. (5). In various Russian proceedings later, which OMG commenced in 2009 in order to unwind the transfer of shares in Western Terminal it had been required to transfer under repo arrangements later described, OMG relied on the figure of RUB 1.069 billion as the purchase price for Western Terminal. (6). Dr Arkhangelsky himself emphasised the low price in his evidence. He suggested that he had paid a low price because Western Terminal had been owned by a “criminal group” and no other businessman was prepared to deal with them. According to Dr Arkhangelsky, the port assets had had a “very difficult previous history”
“A. We paid$40 million for acquiring pieces of land and assets of the Western Terminal which had the property rights, but we also acquired investment project for these 4 hectares of land, and it had other additional value, and so I assume that here we are speaking about these both projects. Q. And are you saying that you actually paid, you actually paid extra money for these other rights? A. Of course, as I said to you before, yes. Q. And how much did they come to? A. I think the figures are correct, and as I said -- Q. Sorry,$180 million ; is that right? Makes up the shortfall, does it? A. No, because initially we paid 40, then we paid 20 more. Q. So$160 million , is that right? A. Yes, and -- Q. Sorry,$160 million represents the extra payment, does it, for these extra rights? A. I think so. I don't have all these figures and the currencies right now but, as I said, we have paid quite substantial amounts, even personally, to officials. Q. Up to US$160 million ? A. Quite big amounts, yes. It has been done in stages because the project was ongoing, and as I mentioned in the open court, I paid personally to Mr Dmitrienko, who at that time was head of the federal agency. Q. How much did you pay him? A. It has been quite a number of instalments been transferred to different accounts, and been connected to different stages. I don't remember all the figures now. Q. And why were those payments made? Why were those payments made? A. Why? Because he was a Russian bureaucrat who was responsible for development in this territory, and unless he would not agree and unless he would not support this project, that project would not be realised.”
“A. …Your Lordship, it is quite important to note that we are not able -- we were not able to do – in the aquatoria of the port of St Petersburg, we are not able to do ourselves anything because it's the federal things and it is only federal government who can do this. And that was normal that we were paying to officials to include these substantial amounts in the federal budget. Q. Was it a bribe, Dr Arkhangelsky, in effect? It was, wasn't it? A. Yes, it is. It is. Q. So you had to bribe a federal official in order to be able to get your Western Terminal acquired? A. No. We acquired the Western Terminal -- Q. Mm hmm. A. -- but for the future development of that, as long as the project had been quite big and important, we had to bribe, yes. Q. And without paying the bribe, you wouldn't have been able to develop Western Terminal at all, would you? A. No. We are speaking about -- it's very well described in the investment memorandum that even the territory and the state at which it was, in 2007 or 2008, would be possible to handle 500,000 containers. What we are speaking about, we are speaking about much greater development, because, as your Lordship probably could notice, that the draught at the berth at Western Terminal is 4.5 metres. So, by dredging by the federal authorities, we could bring it to 14 metres, which is the maximum draught of the channel of St Petersburg, and that could enormously increase the capacity and the profitability of the project.”
“A… to be absolutely correct, the same person is responsible for all the ports and shipping, and having relations on Western Terminal would mean his general support to other projects also. Q. So by making these payments, you were securing the support of officials to all three of your port businesses? A. Absolutely.”
“Struck me as being rather a lot, I must admit, but that was the information we received from our clients.”
“…It should be noted that Western are only projecting a capacity of 7,000 TEUs per annum upon completion of their development of the facility, representing of 0.1 per cent of the St Petersburg market.”
“It should be noted that Western are only projecting a capacity of 35,000 TEUs per annum upon completion of their 199. development of the facility, representing of [sic] 0.5 per cent of the St Petersburg market.”
“A. I see no relevance to the fact that I changed a draft in an internal document to the fundamental point, and that is that 8 hectares is capable of handling at least 500,000 TEU per year. Q. If we go back, please, to to the original draft [IM]…you can see that you included some statistics…”
“Other statistics. 30,000 TEUs per hectare and 1 metre of quay equals 1,000 TEUs.”
“Upon completion of development Terminal One (St.Petersburg) will be capable of handling up to 150,000 Ro-Ro units and 100,000 TEU per annum Upon completion of development Terminal Two (St.Petersburg) will be capable of handling 1 MTPY of general cargo and up to 100,000 TEU per annum.”
“As an overview, OMG would be delighted if you were to take the lead in a syndication of the debt, subject to the normal due diligence and contract…”
“…although we are confident that the Project will be able to raise limited recourse debt, we believe that given the local environment and the limited precedent in infrastructure project financing in Russia, a number of structuring issues will need to be carefully reviewed and addressed before providing a comprehensive arranging offer. We believe also that commercial bank’s debt market cannot be the only financing route and other financing sources (Multilateral Institutions and/or ECAs) will need to be implemented in order to reach a successful financing. We believe therefore that significant preliminary works need to be carried out at this stage in order to elaborate the most appropriate financing structure for the Project…”
“When appointed, we will start reviewing the financial model prepared by Oxus and providing comments to ensure that it answers lenders usual requirements. On the basis of our preliminary review, the model may need to be substantially amended and we would like to discuss the most efficient process to do so with you.”
“We also suggest that the due diligence related to the market be undertaken as a matter of priority. We would therefore need to be advised by an independent technical consultant, which will in term also opine of the technical aspects of the Project… The above activities will culminate in the fatal flaw analysis and a detailed risk analysis of the Project and related mitigation strategy as may be deemed necessary in the context of raising a long term project financing.”
“In October 2008 Oxus and BNP continued to negotiate the detailed terms of the mandate letter. The terms were essentially agreed, but BNP required the Group to pay a monthly retainer fee of€25,000 for their services in addition to all the other fees and expenses related to other professional advisers and consultants. October 2008 was a time of enormous uncertainty in the markets and I did not think that the Group could commit to this expenditure at that time. I expected that the cash flow position would improve over the coming months and intended to take the project forward as soon as we were able to do so.”
“…We had 50 companies, quite a number of companies been in a difficult situation due to the most difficult timing of the world financial crisis. So my target was really the target of a crisis manager, just to understand the priorities and -- you know, each rouble, or each dollar, whatever you want, we've been considering very seriously. So that was really a very difficult time.”
“to be very careful in any suggestion done by Mr Lord in respect to IFRS accounts considering the fact that he’s absolutely not a specialist in this area…”
“I am very much concerned on all the discussions we had here in respect to IFRS accounts. So it’s really a very complex matter and you cannot judge it, you know, from the point of view of standard logic.”
“…the majority of the Group's debts at that time were owed to the Bank and Vozrozhdenie Bank [V-Bank]. The Group's debt to the Bank stood at approximately RUB 3.7 billion, while around RUB 2 billion was owed to Vozrozhdenie.”
“Up until autumn 2008…the OMG companies appeared to be good borrowers and made their repayments on time. However, I remember that OMG began to have financial difficulties during the second half of 2008, and started to default on its lending obligations. In early October 2008, I emailed Ms Krygina in relation to the failure by Vyborg Shipping to maintain the minimum turnover in accounts with the Bank as set out in the Vyborg loan agreements. Another OMG company, PetroLes, had similar difficulties. On27 October 2008 , I emailed Mr Berezin and Ms Kirikova [at OMG, see below] noting that the turnover of LPK Scandinavia…was RUB 73.4 million where it should have been RUB 362.5 million. Because of the failure to maintain the requisite turnover levels, the Bank increased the interest rates on the loans. By the end of October [2008], I recall that the OMG companies were continually failing to comply with their obligations under the loan agreements…I therefore prepared draft notices of demand to Mr Arkhangelsky in respect of his guarantee obligations in relation to each of the loans… It also started to become difficult to get information from the OMG companies…”
“…the global financial crisis which followed the collapse of Lehman Brothers on15 September 2008 had an immediate impact on many businesses worldwide, including those in the shipping and ports sectors. I had many contacts in the port business all over Russia through the Russian Ports Association, and I was aware that the problems the Group was facing were by no means unique.”
“…the Group’s cash flow in the winter months was invariably weaker than during the rest of the year because of the extreme weather conditions which limit access to the port of St Petersburg.”
“to prevent the Bank from having [to make] a significant amount of provisions, and [was] used not to cover the needs of companies but oriented towards Bank’s revenue. Initially, the loan was obtained for 7 days since V.D. Arkhangelsky expected inflow from sales of a plot of land in the amount of RUB 1 billion, as well as a loan from Petrokommerts Bank in the amount of RUB 2 billion. Due to a delay in the said financing, the term of the loan was extended for 21 days. During this time, the client [Dr Arkhangelsky] paid a portion of the loan in the amount of RUB 18 million independently; final deadline for repaying the loan also was on28 November 2008 .”
“Mr Arkhangelsky was very quick to remind the Investrbank's employees of his apparently impeccable repayment history and just as quick to reassure everybody that this was a short term cash-flow problem and that the monies would soon be flowing in the large amounts as they had been before.”
“Once I began to examine the OMG loans and review OMG’s financial information in around mid-November 2008 I identified that OMG appeared to be in financial difficulty. I could see from the group’s cash flows into their accounts held at the Bank (from monitoring those accounts), that during the autumn there was a material decrease in the monies being received into the accounts of OMG companies. I knew that OMG, on its face, was a diversified group, with timber, shipping, leasing, insurance and port services businesses and it seemed to me very odd that payments into all OMG’s accounts that I had seen statements for had decreased. One company of OMG could suffer some cash flow difficulty, but for this to happen…across the group and at the same time was worrying.”
“The Borrower invokes the permission granted by the CAB [to] receive financing to an amount covering all their problems and declares the necessity of such refinancing.”
“I did not have direct knowledge of any such permission, and I do not now recall the reason for including this statement in that email but suspect that it reflects something that Mr Arkhangelsky had said to one of my subordinates.”
“The Bank was prepared to grant Mr Arkhangelsky an additional loan to cover OMG payments due at the end of November, and to do so by way of a personal loan. I do not remember who had initiated the idea of a personal loan, I only recall that at the end of November 2008 it was the loan structure which was being put in place to assist the OMG companies in avoiding default on their facilities. A personal loan would be much quicker and more straightforward for the Bank to process and approve than a corporate loan. If a loan had been made to an OMG entity for the purpose of enabling another OMG company to pay interest to the Bank, then the Bank would have had to create a considerable percentage of reserves in its accounts for this loan, as the Bank would be lending money to a member of the borrower group to enable a company in the group to meet its interest payments.”
“…as long as we were really pressed in time, as I've said, that was the last working day in terms of documentation for both sides, for Mr Arkhangelsky and for the Bank, it was easier to arrange as a personal loan. An application for a personal loan takes several pages, but not too many, two, three, four, depending on the borrower, while an application for a corporation demands an updated financial analysis to be included into that, and it was much easier, as long as we were pressed, just to find finalise that in this way. And also, as long as for Mr Arkhangelsky that was practically the same, which type of risk to accept, we would definitely request his personal guarantee anyway. So for him to have a personal guarantee on whatever cooperation he could provide to us, or to have a personal loan himself, was absolutely the same. So we just tried to save time and to resolve the problem of outstanding interest as soon as possible.”
“for your endorsement of the refinancing of Oslo Marine Group companies’ debt to the Bank…in full, including 1. Payment of monthly interest on loans of the Oslo Marine Group companies (LPK Scandinavia, LLC, Onega, LLC, Vyborg Shipping Company, LLC and Scandinavia Leasing Company, LLC). A 1 year concessionary period for interest payment (grace period); 2. Closure of the overdraft in the sum of 145 million roubles (LPK Scandinavia, LLC); 3. Closure of the promissory note program in the sum of 120 million roubles (SO Scandinavia, LLC) 4. Extending the existing loans of the Oslo Marine Group companies [as above] for a 3 year term. The collateral for the proposed measures will be subsequent pledge of the land parcel owned by Western Terminal, LLC located at 25 Doroga na Turukhtannye Ostrova Road. The market value of this asset is 4,402,280,000 roubles (Collateral value is 201,140,000 roubles). In addition, I offer as collateral 75% of the shares of Vyborg Shipping Company, LLC.”
“… if you look on the calendar, 28 November was the last day of the month, and the Bank needs to close its account of the month and, therefore, it was really necessary to do something on 28 November so that November reporting would be clear for the Bank and for the Central Bank, and that was the reason of the temporary solution which was supposed to be done. Because that was Friday, and because that explained certain things, that was necessary to go ahead really fast…”
“I have no knowledge of any such loan and certainly did not sign any loan agreement or receive any draw down of this amount or any other sum.”
“…different question whether, in fact, it was arranged with his knowledge, and one can easily see this being done between the Bank and Mr Berezin, who would be an obvious contact point who would be handling the question of outstanding interest payments at the end of each month… … …at the time Mr Arkhangelsky was approaching the Bank not with a request for a personal loan, as it was initially suggested on the Bank’s side, but asking for a much more long term and comprehensive restructuring of the entire loan portfolio. It is not credible that in response to a letter where Mr Arkhangelsky asked Mr Savelyev for a one-year moratorium on all payments and a three-year extension on capital payments, that what he got in response was a loan of, I think, 130 million for one month… … So what we would invite your Lordship to find is that Mr Arkhangelsky was dealing with restructuring and was trying to negotiate a restructuring with the Bank, whereas these monthly payments were dealing with underlings, most likely by Mr Berezin, and in this way the personal loan was something that was arranged and, well, frankly, fabricated without Mr Arkhangelsky’s knowledge in this way…”
“Provisioning and Loss Allowances The CBR put in place certain rules concerning creation of provisions for loan losses in respect of loans extended by banks. The CBR’s Regulation No. 254-P dated26 March 2004 as amended (“Regulation No. 254-P”) requires the banks to adopt procedures for calculation and posting of provisions for loan losses and continuously monitor the financial position of the banks’ borrowers. Regulation No. 254-P is applied subject to the order of the CBR No. 2459-U “On Peculiarities of the Credit Risk Assessment in relation to Single Loans, Loan and Similar Indebtedness” dated3 June 2010 . Regulation No. 254-P requires credit organisations to rank their loans into five categories instead of four, as prescribed by the earlier regulation and the range of loans that must be provided for has been extended to include rights assigned under contracts, mortgages acquired in the secondary markets, claims relating to the purchase of financial assets with deferred payment, rights under repo contracts and some other operations. The five categories of loans are as follows: quality I category (standard loans) – no credit risk; quality II category (nonstandard loans) – moderate credit risk; quality III category (doubtful loans) – considerable credit risk; quality IV category (problem loans) – high credit risk; quality V category (bad loans) – no probability that the loan will be repaid. The allocation of the loan into a particular category is based on the “professional judgement”, which is a special procedure set out in Regulation No. 254-P. Regulation No. 254-P established that credit organisations do not need to make provisions for category I loans (standard loans). Category II through V loans entail the following provisions, respectively: (i) 1 to 20 per cent.; (ii) 21 to 50 per cent.; (iii) 51 to 100 per cent.; and (iv) 100 per cent. Additionally, credit organisations will be required to classify their loan security into two groups on the basis of its quality. Finally, Regulation No. 254-P provides for a simplified procedure in respect of writing off bad debts, especially minor debts, as compared to former procedures. Provisions for loan losses are calculated at the end of each calendar month in roubles, and then adjusted each month. Such provisions are only used to cover losses relating to the principal amount of the loans and exclude interest and any discount. The CBR and its regional units have the right to audit the banks’ compliance with the requirements relating to provisions for loan losses and check the correct calculation of such provisions in order to balance the need to create provisions on the one hand and ensure the correct preparation of the banks’ financial statements for tax purposes on the other. Russian banks are required to make provisions for loans of the same kind granted to individuals depending on whether the loans are secured and in respect of the period of time the loans are in arrears. Banks are equally required to make provisioning for loans to individuals which are not overdue. These include 0.5 per cent. for portfolios of loans secured by mortgage and auto loans, 1 per cent. for portfolios of other loans to those individuals who maintain bank accounts with lending bank and 2 per cent. for portfolios of all other loans. Regulation No. 254-P also sets a maximum level for provisioning of loans granted to individuals which are overdue for more than 180 days but less than 360 days at a rate of 75 per cent and at a rate of 100 per cent. for loans granted to individuals which are overdue for more than 360 days. …”
“However, the Bank was not prepared in general to extend the time for capital repayments on loans beyond the maturity dates. As at December 2008, it would have been possible for the Bank to extend the existing maturity dates, but I was very much against this. This was not a prudent or sensible course for the Bank to take. Insofar as any loan maturity dates had not been reached, it was not necessary in late December to extend those capital repayment dates because there was no risk of imminent default. More particularly, my view was that the Bank needed to make sure that OMG still had milestones in place over the coming months. This was because I wanted to keep some earlier obligations to act as indicators to signal whether OMG’s financial position was improving. If OMG’s finances started to improve, and the companies started to perform any of their obligations then the position could be reconsidered in early 2009. If the causes of OMG’s financial difficulties had been the short term cash flows which Mr Arkhangelsky represented to us, then OMG would have been expected to have been able to discharge those obligations by March 2009. However, my view in December 2008 was that we had already afforded Mr Arkhangelsky and OMG various allowances in the hope that time would allow the group to recover its financial state, and I did not trust by that time that Mr Arkhangelsky would be able to improve OMG’s condition. I therefore considered that any extension of the loans beyond their existing maturity dates was not sensible from the Bank’s perspective. I should add in this context that the Bank typically prefers to give loans of one year terms, and then at maturity to consider whether to agree an extension for another year (rather than granting loans for longer terms). The Bank prefers the “staging” of loans (where they are advanced for one year plus one year terms) for two main reasons. The applicable banking regulations provide that the Bank is not required to create reserves for loans of less than one year. It also allows the Bank to monitor on a shorter time frame the borrower’s financial performance and ability to discharge their indebtedness.”
“if the loans were in default, the Bank would have to transfer a sum equivalent to the outstanding indebtedness to the Central Bank which would result in a reduction of its capital base and worsen its own financial position.”
“So it was actually a two-sides problem. So for me, you know, non-payment of interest, yes, it might cause, later on, in three, four, five, six months, any court investigations and so -- court discussions, so that they could claim that I have to pay and repay, pay and repay loans and so on. But for them, it was immediate trouble with the Central Bank and their accountancy. So for them, it was much more stronger problem than with me. And the most important, that by that time the Bank of St Petersburg faced that bank had problems with all the clients, and my share in their portfolio was about 4 per cent of their whole loan portfolio. So for them, default on 4 per cent of their loans was nearly -- they could lose their licence, so they can cease their operations. So for me it was just technical non-payment, and its arbitration and so on. But for them it could cause immediate cease of the operation for them as a bank. So for them it was immediate trouble.”
“At this meeting, I informed Mr Savelyev that the Group needed to restructure its loans because it would struggle to make the interest payments for the month ended31 December 2008 and through the winter months. I explained that the Group was having severe cash flow issues because the clients of the group had stopped making payments, then the freight market had totally crashed and that port dues were not being paid. I also explained that, anticipating the annual extreme weather conditions, I did not envisage the Group’s situation improving until, at the earliest, spring 2009. It was for this reason that I explained that the Group needed to restructure its loans and have a moratorium on further monthly interest payments for a period of at least six months. A number of the outstanding loans fell due for repayment during the first six months of 2009. As the borrower companies were unable even to make periodic interest payments at that time, they obviously had little prospect of repaying these loans on their due dates. It was therefore necessary to extend the repayment dates. I did not expect this to be a problem, because it was very common in Russia for banks to grant short-term loans even when the purpose of the loans was clearly a long-term one. The banks would then repeatedly extend the loans as necessary, typically for six months at a time. This is what happened with Vozrozhdenie Bank [V-Bank]… I made it clear to Mr Savelyev that both elements of the proposed moratorium – a suspension of interest payments until the end of June 2009 and a restructuring of all debts which matured before that date – were equally important for the Group; and that I did not expect sufficient improvements of the Group’s position much sooner than in six months. On the other hand, I felt that a suspension of payments for six months would enable the businesses either to recover sufficiently to resume paying interest to the Bank or, if that did not prove possible, to explore what refinancing options were available with other financial institutions. I remember at the time of the liquidity crisis President Putin had made a statement that the Russian Central Bank had to support strategic industries, so I was confident, given the strategic importance of the Group, that a refinancing package would be achieved either with the Bank or elsewhere. … At the meeting, it appeared to me that Mr Savelyev understood the position that the Group was facing as a result of the global liquidity crisis and was generally sympathetic to our position. His primary concern was to avoid the Bank encountering difficulties with the regulator, the Central Bank of Russia. He explained that if the loans were in default, the Bank would have to transfer a sum equivalent to the outstanding indebtedness to the Central Bank which would result in a reduction of the Bank’s capital base and worsen its own financial position. It was therefore in the Bank’s interest, as well as the Group’s, for the loans not to go into default. Accordingly, Mr Savelyev indicated that he was in principle prepared to agree to a moratorium for six months to allow the Group companies’ cash flow to improve to the point at which they could resume making interest payments. At the end of the meeting he indicated that he would discuss the matter internally within the Bank and come back to me.”
“identified two companies which were potentially suitable for a repo arrangement: Western Terminal and Scandinavia Insurance. This is because these two companies had no loans from any other banks and nearly all their assets had already been pledged to the Bank.”
“Not really. Not really. I don’t think so… Maybe [Ms Mironova] discussed it with Berezin, but no any conference calls for sure, because in Russia at that time we haven’t had such a technology…So I don’t remember that I have ever been discussing it with her… And it would be really strange for me to discuss anything with her by telephone, because at least twice a day I’ve been passing her office and…if I want to speak to the Bank, or, especially, you know, quite an important issue for me, I would stop in on the way and meet her and discuss that because, you know, it’s – any repo, whatever, transactions, consider that you have to make a picture as to whom and what and so on, so I don’t think that’s true.”
“I specifically recall that Mr Arkhangelsky asked about the risks that the OMG companies or he would face with such repo transactions. I replied that I was an economist and not a lawyer and he should ask his own lawyer this. I do not recall any other specific details about the discussions concerning the proposed repo. I certainly do not recall the conversations being difficult or Mr Arkhangelsky raising objections to the proposal. Mr Arkhangelsky also asked whether the repo would be enough to secure the restructuring of OMG’s loans. I replied that this would be a matter for Mr Savelyev and the other members of the Management Board. I had no authority to agree anything on behalf of the Bank.”
“there was a request from Oslo Marine Group to avoid default, and we kindly accommodated him.”
“He asked whether we can help him to avoid the default. We said: can you offer some additional security? Yes, and in that additional security Mr Arkhangelsky said: look, I do not have any other kinds of security to offer, all I can do is organise a repo transaction.”
“As to the discussions at the meeting regarding the repo, Mr Savelyev did not himself propose the repo arrangement. He asked Mr Arkhangelsky what he proposed in return for the restructuring. I believe that Mr Arkhangelsky was not expecting such a turn of events, he mumbled something like “Kristina [Mironova] and I agreed on two companies” and asked Mr Berezin to name the deal, as if he forgot their names. He told Mr Savelyev that the proposed transfer of shares in Western Terminal and Scandinavia Insurance showed how serious he was about ensuring the debt to the Bank was repaid, and I recall that he referred to the fact that he had already pledged his assets and had granted personal guarantees. I understand that Mr Savelyev said that he thought that the Bank would, in principle, consider restructuring of OMG’s loans, in return for a repo arrangement as additional collateral. Mr Savelyev then asked me to take Mr Arkhangelsky to Mrs Irina Malysheva in order to prepare the relevant documents for the transfer of shares, after which Mr Arkhangelsky’s request would be out to the Management Board for consideration. Mrs Malysheva was a member of the Management Board and was responsible for corporate finance. In her role she was an expert in corporate restructuring deal with clients.”
“I understand that Mr Arkhangelsky has made a number of allegations about the meeting. I am told that he has accused the Bank and Mr Savelyev of threatening him at the meeting and forcing him to agree the repo arrangement. This is nonsense. Neither Mr Savelyev, nor anyone else, made any threats against Mr Arkhangelsky or his family at that meeting. The meeting took place in a friendly atmosphere, in keeping with the approaching New Year holiday period. I witnessed Mr Arkhangelsky voluntarily agreeing to the repo arrangement which he had indicated to me in advance of the meeting that he was prepared to do; in my view he did so because he realised that it was the only way to have the restructuring of OMG’s loans and avoid an immediate default by OMG. I understand Mr Arkhangelsky has alleged that the Bank agreed at the meeting to give the OMG companies a six month moratorium on all payments that were due to the Bank. This is also wrong. There was no such discussion at the meeting. I recall that the precise details of the restructuring were not discussed at the meeting. This is customary of meetings with Mr Savelyev where agreements in principle are reached but he leaves his deputies to deal with the detail. The detail of the restructuring was worked out and agreed after the meeting and submitted to the Bank’s Management Board for discussion and approval.”
“only allow the Group a moratorium on its payments if the shares in Western Terminal and Scan were transferred to the Bank. He made clear that this was non-negotiable.”
“The demand for the transfer of the shares (and it was clearly a demand, not a request or proposal) came as a shock. It was a vastly different proposition to what had been discussed at our first meeting. It was in my view disproportionate and unacceptable and I explained this to Mr Savelyev. I emphasised that the Group’s underlying assets covered the Bank’s outstanding loans very comfortably and that there was no need for the Bank to take such an extreme position. Mr Savelyev quickly made it plain that this was not a commercial discussion. He began to make personal threats against me and my family. In particular he told me “you won’t get out of here until you agree to sign the contracts”, “think of your children’s future” and “you want to celebrate New Year, don’t you?”
“…in Russia…you cannot do any enforcement. So the first step for the Bank would be to go to the arbitration court. Normally, before you start this, I mean before the first court sitting, it would take minimum three months, minimum three months for the first sitting, and then the proceedings before any enforcement, I think would have taken between 6 and 12 months minimum. So theoretically speaking, for me it was much more interesting that I don't pay these loans at the end of the year, they go to the court, start the proceedings, and then I have one and a half years for the first stage of the court, and then I have a Court of Appeal, which is one more year. So theoretically for them, absolutely minimum is two years to get the court decision which would allow them for enforcement proceedings, and that would really help me, and I could get refinancing by that time, or find any other player. But I, instead of going in any litigations, I agreed that I open all my business, give them all my business, just to save their licence and save the Bank. Actually what I should say, that I saved the Bank of St Petersburg from ceasing their operation, because they have not had the resources to pay for their reserving. So that's what I am telling. So I've been open to the Bank not to create problems for them because the Bank was rather weak compared to -- whole portfolio was defaulting, and I thought that this, my behaviour, would only help to improve relations. And absolutely the same was the case with V-Bank, because everybody understood that it's -- the default at that time, it's not a problem for the client. It's major the problem for the Bank, because Russian banks are weak banks and they were not able to -- in case most of the loans are defaulting, they were not able to have all these reserves in place by the end of the year.”
“was also effectively representing the purchaser companies, which seemed logical, because no distinction was drawn between the bank and the companies for these purposes. For the security to be effective the Bank would obviously need to control the companies and this is what I assumed the position to be. Mr Savelyev certainly never suggested that the companies would be owned by independent third parties…”
“It would have made no sense for me to have entered into the December 2008 arrangements with the Bank if there had been no agreement for the moratorium. The Group would then have derived no benefit from the arrangements whatsoever: in effect, it would simply be handing over Western Terminal and Scan for the Bank’s benefit without getting anything in return. Even faced with Mr Savelyev’s threats, I do not think I would have agreed to a completely one-sided agreement of that kind. The whole point of the agreement from my perspective was to obtain a deferral of payments under the loans. Although the terms offered by Mr Savelyev were unattractive, in the difficult circumstances in which the Group found itself at that time they were clearly preferable to the alternative of default.”
“The Bank also put forward individual addenda to be signed in relation to each of the loans to implement the agreed moratorium. These were sent to the relevant Group companies and were signed by them without my involvement.”
“I should say that Mr Vasiliev and Ms Vasilenko did not make any complaint about the arrangements and they were not hostile at any stage. At least from their conduct, I had no reason to believe that Mr Arkhangelsky was unhappy with the arrangement.”
“The Bank holds no direct or indirect ownership interest in the Original Purchasers.”
“… if you are looking at the very start of this arrangement, Renord was a guarantor for the Bank, as it were, it was holding those shares, and it was a sort of security to make sure that the assets owned by those companies will not be lost, nothing will happen to the assets. On the other hand you can also say that they were holding those shares also on behalf or in the interests of Oslo Marine Ports until such time as the Morskoy Bank story began. After it began, what happened was that Mr Arkhangelsky was in breach of the terms and conditions of the memorandum. Had that not happened, had all the liabilities been extinguished, the shares would have been transferred to Mr Arkhangelsky.”
“The effect of the transaction, as I understood it, was that the Bank would receive temporary ownership of the companies, but I and my directors would retain control of the companies in the interim and with ownership being returned either once the security had been enforced. (I am aware that the Memorandum refers to repayment of the loans being the trigger for the return of the shares, but I would not have regarded that as materially different, as there was no reason to believe that the security would not be sufficient to redeem the loans.) The purpose of the transfer of ownership, as Mr Savelyev represented it to me, was therefore simply in order to give the Bank temporary control over the companies and comfort that it would be able to enforce its existing security. I did not intend or understand that the Bank or anyone else would acquire full ownership of the companies if there was a default, although I understood clearly that by relinquishing the ownership of the shares I was exposing myself to the risk of a raid. That was precisely why I was so aggrieved at Mr Savelyev's demand for the shares to be transferred.”
“pursuant to different loan agreements, depending on their initial terms, different deferrals were agreed, both on interest and principal repayment.”
“Had it not been for the Bank’s actions…a mandate would have been signed shortly afterwards to enable BNP to start moving towards financial completion in or around the third quarter of 2009.”
“If it had been necessary to borrow the money to pay BNP’s retainer and other fees then this is what I would have done… … …I have no doubt that I would have been able to raise short-term financing from one or more of these banks to enable us to engage BNP to get the financing of Western Terminal across the line.”
“I believe it is therefore virtually certain that Vozrozhdenie [VBank] would have provided funds to pay off the Bank's loans in mid-2009 pending the completion of the refinancing.”
“… we have quite big limits with them already, and there were not a question at that time of substitution of Bank of St Petersburg loans by the loans from V-Bank. So we were speaking about comparatively big amounts, and in the situation of crisis, as I already just a few minutes ago told you, that none of the privately owned banks in the middle of the crisis didn't want to increase their exposure and the new loans -- new, big loans.”
“be escalated to, and considered by, the Management Board as the most senior body within the Bank, as the appropriate body for a decision of this magnitude.”
“On 5 March, the PetroLes loan matured, therefore the client came to the branch and asked whether that loan could be further extended for a further period of time. Now, we looked into this and, based on the solvency position of the client and whether or not he was able to perform his obligations, unfortunately he was a male fide borrower, not only with respect to the Bank, but also with respect to his -- the crew, his seafarers on the vessel that had been pledged. Therefore I told the members of the board that I do not believe that we can extend this loan. We had tried to accommodate the client on a number of occasions, yet he had not fulfilled his obligations, not a single time. We worked with other clients, we restructured many, many of the loans for other clients. We restructured the interests. Many times we moved to accommodate our clients. He had given many promises with respect to the cash flows, to the proceeds, they were not realistic with respect to refinancing via other banks, and also by that point in time it became clear that he had problems with other lenders as well and, therefore, in terms of extensions of any loans, this was simply not viable. This was not something that could be done.”
“Mr Savelyev and Mrs Malysheva intended to appropriate OMG assets which had been transferred under the repo deal.”
“I don’t have information in this matter, and it’s unlikely that Mr Savelyev could have made such a decision, as far as I know my boss.”
“No, this is not true. The Bank was never interested in toxic assets, and in various pledges, because I personally, and the Bank’s management, always focused on the Bank itself. That is the main asset that we control all together, that we look after all together, that is the priority project and I have always criticised shareholders that work at the Bank and are involved in some construction projects or some side line businesses not related to the Bank….I never wanted to blur the focus. I never wanted to own the assets that Mr Stroilov had in mind. It’s not interesting for me from the start. I confirm again before the court that we are only interested in one thing: to maximise the return of our funds from the sale of the pledged property. That is always legal when the Bank is selling its pledges and wants to get the maximum amount from their sale. This is exactly the only thing I meant.”
“I remember that the land in question was not at all what we had imagined based on the valuation reports. For example, there was a project for the development of a railway at the port and it had been described to us as if it was almost ready for use. What we saw on the actual land was an approximately several metre long railway that went from one small hut to nowhere.”
“I called Mr Arkhangelsky on the same day at around 6pm or 7pm, during my drive home. I remember the conversation because it was quite emotional, with accusations and insults from him; I pulled over and stopped my car, and recall that it was a difficult discussion. He did not make personal accusations, but he was quite unhappy with the decision. In response, I asked him about the arrest of one of Vyborg Shipping's vessels and the failure to pay turnover into OMG's accounts with the Bank. He refused to discuss this.”
“Q. Now, Ms Mironova is right, isn't she, in that paragraph, when she describes what -- A. No, it's completely not true. I think the dates -- I think I was in Switzerland participating in the conference and I don't think that I would be even able to reply -- even if anybody called me, I would not be able to reply to that. Q. So is it your evidence that you did not speak to Ms Mironova on the telephone on or around4 March 2009 ? A. Yes, absolutely. Q. Did she call you at any other time around that date to tell you the decision of the management board -- A. No. Q. -- on 4 March – A. No. No. We hadn't had any personal contacts, good personal contact here, so when you see her you would understand that she is rather strange and ambitious person, young and ambitious person. So, you know, she's not my style of people I want to speak to, and not sympathetic to that type of people. And for me, her, she was a rather low level of people, so -- I mean in the Bank, so she was not even a head of the Investrbank department, but she was under that. So I assume that it had to be in case such a phone call could be -- it should be at least Mr Belykh who was participating in all this management board, or Mr Platonov, who was the head of Investrbank by that time. So I had a rather good relationship with Mr Platonov, I had been knowing him from different banks, we had a beer together from time to time. So I think in case such a big trouble occurred, he would be definitely telling me or Mr Belykh. So I don't think that Ms Mironova is really telling the truth, considering how active she was participating in BVI and these proceedings. I think she's really following her personal interests in this.”
“Greetings Vladislav Stanislavovich, Analysis of Oslo Marine Group loan agreements evidences the following: As of now: - we can declare default under the second loan for Petroles Ltd. for the amount of RUR 80 million (the maturity date is 26.03.09) - also due to non-registration of the mortgage agreement for one of LC Scandinavia credits for the amount of RUR 145 million (the BKK decision to extend the mortgage agreement registration period should be cancelled) we can demand early repayment, and then on the next day declare default on one more of their loans for the amount of RUR 450 million - Furthermore, V.D. Arkhangelsky is the surety for all LC Scandinavia Ltd. loans, so we can put the claims forward to him as the surety, and if he fails to comply within 5 days we can declare default on his personal loan of RUR 130 million. - also there is a surety from SO Scandinavia for LC Scandinavia Ltd. loans, which we can also address the LC Scandinavia Ltd. loan repayment claims to. However SO Scandinavia do not have their own loans (except for the discounted bill for RUR 65 million, but we cannot call it for early repayment as it is subject to the law on bills of exchange instruments and it can only be paid on maturity date – January 2010). However we can still initiate legal collection from SO Scandinavia as they are a surety. - at the same time we can declare default on Onega Ltd. loans for amount of RUR 431.8 million (as the financial position of their sureties – SO Scandinavia and Arkhangelsky – have become worse)26 March 2009 : - The Vyborg Shipping Company Ltd. loan in the amount of RUR 310 million is approaching maturity. There is an option to extend it for 2 years. If we decline extension, then we will declare default on all VSC Ltd. loans for the total amount of RUR 2.1 billion. Thus we can put forward the claims for all Oslo Marine Group loans by the end of March. Please confirm the suggested model. Sincerely yours, Kristina Borisovna Mironova”
“I agree. Please affirm this with the legal and credit directorates.”
“…at the latest I would have heard about this issue when Ms Mironova forwarded an email to me from Bergen Bunkers relating to the arrest of Kolpino on30 March 2009 .”
“Taking into account the situation that has unfolded, the Company is taking all necessary measures of a financial and legal nature to overcome the difficulties that have arisen. Implementation of these measures will allow it to normalise the operation of its vessels by the end of June 2009, in particular, the satisfaction of accounts payable and collection on accounts receivable within the shortest period of time, as well as working with its customer base while taking into account the current economic environment on the sea shipping market (search for new customers, improvement of conditions stipulated by existing contracts, and costs optimisation).”
“On4 April 2009 Mr Arkhangelsky sent me and Ms Borisova an email that attached a letter to Mr Savelyev dated3 April 2009 . He informed Mr Savelyev of the arrests of the three vessels and stated that everything would be resolved by June 2009. By this point I no longer had any trust in Mr Arkhangelsky, and I did not believe his statements about the prospects of OMG's financial recovery. He now admitted that Tosno had been arrested on11 December 2008 , which he should have notified to the Bank at the time. He also admitted that Gatchina and Kolpino had since been arrested. By this time I believed that there was no prospect of Mr Arkhangelsky or OMG repaying their debts.”
“…what I suggest is that if you have a remarkable number of businessmen claiming to be independent from each other, all involved in this case…and there is a remarkable proportion of AVK veterans among them, then if I can show that they have got a common record of involvement in corruption, that increases the inherent probability of their involvement in a conspiracy of this kind now…”
“If there was a “repo” arrangement and a temporary transfer of ownership, then this prevented a borrower from transferring the ownership of their assets or otherwise obstructing a lender, until the borrower’s obligations were fulfilled. A “repo” prevented hostile shareholders from blocking the realisation of security in the event of default, which is quite easy to do in Russia. I also understood why the Bank used third parties to hold the shares on its behalf in the “repo” arrangements. Due to Russian banking controls that were in place at the time, if the Bank had purchased the shares in the relevant OMG companies and put them on its own books, then their value would have been deducted from the Bank’s overall capital.”
“some form of an additional insurance mechanism in case we were to lose in court…”
“Problematic debt is very conflict-ridden, and it is very difficult to talk to one party only. It will lead to further conflict. My concern was that Mr Arkhangelsky was not engaging in such negotiations…”
“I believed that the parties should meet and keep on performing their obligations or reach another agreement. I would have initially focused on the options available, including who might be interested in purchasing OMG’s assets or what investment could be made to increase their value; I wanted to meet with Mr Arkhangelsky to get his input. Despite numerous attempts I never managed to meet with Mr Arkhangelsky which in all my experience of working with banks in relation to distressed banks [sic] was unique.”
“I do not recall any attempts by Mr Sklyarevsky to contact me. If there were such attempts which I subsequently forgot about, in any event I had no means of knowing that he sought to contact me on behalf of the Bank. As is usual for a business in trouble, OMG at that time was constantly contacted by all sorts of dubious characters offering to solve all our problems (including, but not limited to, police persecution and the Bank's hostile actions) for a very modest fee. Naturally, I would pay no attention to such offers.”
“…the logic underlying what the Bank was doing was quite simple. The banks never chase up borrowers who are in a position of default. It's always a defaulting borrower who comes to the Bank and proposes solutions to the problem. It was not a problem that was created by the Bank, it was a problem that the borrower created for the Bank, therefore, I fully understood Malysheva's position. She said that: it's not me who owes money to Arkhangelsky, Arkhangelsky owes money to the Bank, so she expected him to take certain steps to settle the problem. Now, whom he met and whom he visited and how many times, I simply do not know, I am afraid. All I know is that the decision maker with the Bank on this particular matter was Mrs Malysheva, she was in contact with Mr Arkhangelsky, and there was a breakdown in communication for whatever reason. Moreover, what Mr Arkhangelsky has been doing is quite different from what other defaulting borrowers have been doing, because those people spend hours, they spend nights in the Bank, knocking on the Bank's door, trying to meet people, trying to find a solution to their issues. So, to be honest, the way Mr Arkhangelsky behaved was completely illogical.”
“the party who evades contact with the other is very likely to be the guilty party”
“On27 March 2009 , taking into account the data on the business status of LLC "Western Terminal" provided bу Berezin А. О. and intention to create the рrореr security of the obligations performance, including personal guarantee of Arkhangelsky V. D. it was resolved to grant to LLC "Western Terminal" а loan of RUR 56 500 000 for 12 months at the credit committee meeting of the Applicant. On30 March 2009 а loan agreement No. 03-СП/09-КЮ was signed (the "Loan Agreement") between the Applicant as а Lender and LLC "Western Terminal" as а Borrower for the working capital financing, including conducting current production activity and berth repair works. … According to the Loan Agreement, the Lender provided to the Borrower а loan in the amount of RUR 56 500 000 (fifty six million and five hundred thousand) for the working capital financing. The Borrower obliged to герау the loan amount until29 March 2010 and рау the interest thereon.”
“…In view of OMG’s financial difficulties, I was able to negotiate a restructuring of that indebtedness, which would be replaced by one regular loan given to Western Terminal for a longer term. To do so was, amongst other things, OMG’s obligation under its Memorandum with the Bank, where we undertook not to stop the commercial activities of Western Terminal and not to worsen its commercial position. A default on OMG’s obligations to Morskoy Bank would obviously be a breach of that. It was, of course, also a term of the Memorandum that the Original Purchasers would not interfere in the day-to-day commercial activities of Western Terminal. They were not real shareholders but merely held the shares on trust, under the ‘repo’ arrangements as a form of additional security. Therefore, the agreement of Sevzapalians was not necessary for the loan agreement between Western Terminal and Morskoy Bank.”
“Starting in March 2009, the Bank suddenly began to pursue an extremely aggressive and intensive campaign against the Group, involving demands for payment, court proceedings, the seizure of Western Terminal and Scan, police raids, and the disposal of the Group's assets.”
“She was in charge of this borrower; she had oversight of that borrower, and she was dealing with this on her own.”
“I prepared all the notices of demand on the basis of information in the Bank's records, including information recording Mr Arkhangelsky's address, understand that Mr Arkhangelsky has alleged that the notices of demand were not sent, or were sent to the incorrect address. This is not right. The address for Mr Arkhangelsky that I typed on the demands under the Vyborg Loans corresponded to the address that appeared in the guarantee agreements. I remember that some of the demand letters in respect of the Vyborg Loans were returned to the Bank. When this happened, I checked the position and realised that there had been a typographical mistake in Mr Arkhangelsky's address, I checked the Bank's records, corrected the mistake, and resent the relevant notices. I clearly recall that all the notices of demand were sent by registered mail. I am sure of this. One of my functions was to deal with problem debts and so I tracked the relevant postal notices confirming that the letters had been delivered and I put them on the credit file. I made every effort to make sure Mr Arkhangelsky was aware of the demand notices, and sent them by email and fax, as well as by post.”
“…I was sending these letters, and subsequently I would either receive a notification that the letter was delivered safely, or the actual letter would come back if it didn't work out to deliver the letter, then I would send the letter again. So using all available methods, we endeavoured to notify a client, and all these matters, it's something I remember very well, because within the Russian proceedings the Bank's lawyers always asked me to provide a confirmation that I did my utmost to notify the client, and also we had to attach the postal slips.” 548A. The Defendants and OMGP deny that the Bank made any repayment demands and say that it “dishonestly fabricated letters demanding repayment in order to create spurious grounds for a claim under the fabricated “personal guarantees”.”
“The Bank did not make any proper attempt to bring the claims on the guarantees to my notice either before or after it started proceedings in Russia in reliance on the guarantees. I never received any notices of demand under the guarantees. The notices of demand which the Bank claims to have sent went (if they were sent at all) to an address in Ulitsa Dobrolyubova (Dobrolyubov Street), as opposed to my actual address which was on Prospekt Dobrolyubova (Dobrolyubova Avenue). Ulitsa Dobrolyubova is a real street and it is therefore unlikely that I would have received anything sent to that address. Moreover, at the time when it commenced proceedings the Bank was aware that I had left Russia, and it knew my address and contact details, but it did not make any use of them and merely served the documents at my former Russian address instead. To my mind, this suggests a lack of good faith and possibly an awareness on the part of the Bank that its claims on the guarantees were not justified.” 548C. I do not accept Dr Arkhangelsky’s evidence in that regard. I accept Ms Blinova’s ultimately unchallenged evidence that she prepared the relevant notices of demand; caused them to be sent by registered mail; and re-sent any such notices which were returned to the Bank because of a typographical error in the address stated in its records. I think it more probable than not, and find, that Dr Arkhangelsky did receive all these notices, though he may not have focused on them. 548D. In any event, I accept the Claimants’ contention that even if, for whatever reason, notice of demands were not served, or were not correctly served, on Dr Arkhangelsky, that would not absolve him, under the applicable Russian law, of liability under the Personal Guarantees and Personal Loan. I have considered carefully Dr Gladyshev’s opinion as recorded in the Joint Memorandum of Experts on Russian Law that the Bank “was under an obligation to send a proper notice” and that failure to serve a notice of demand in accordance with “established practices…can be considered an abuse of right.”
“34. On8 April 2009 I, as shareholder of OMG Ports LLC, the Third Part 20 Claimant, filed a complaint with the Commercial Court of Saint Petersburg for the transfer of the shares of Western Terminal LLC to Sevzapalians LLC to be set aside (Claim No A56-18840/2009). I also filed a number of claims as shareholder of Group Oslo Marine LLC against the new shareholders of Scandinavia Insurance LLC at about the same time. 35. At that time I did not closely follow the details of the claims, since I was being advised by various lawyers (some of whom were also acting for my husband and/or his companies) principally Yaroslav Vasiliev, Nikolay Erokhin and Yuriy Filippov. I understood that the basis on which the transfer was disputed was that the price paid for the shares by Sevzapalians LLC and the new shareholders of Scandinavia Insurance LLC was nominal.”
“The goal was to obtain writs of execution for each of the loans.”
“Mrs Malysheva was quite upset and frustrated; that we had lost in those two instances.”
“Confronted with this information and the growing appreciation that if I remained in Russia I would probably be imprisoned, I decided that I had to leave Russia. I therefore travelled to Bulgaria via Vienna the next day. Julia was in France at the time and flew briefly back to St Petersburg before joining me in Bulgaria. Needless to say, leaving Russia only compounded the difficulty of pursuing legal proceedings there and protecting the remaining Group assets, but by this point my priority was my and my family’s safety. We remained in Bulgaria until September 2009 when we moved to Nice. We chose Nice because we already owned an apartment there, which we had bought in June 2008. Apart from a one-day trip to Moscow which I made on20 July 2009 , to meet with the chairman of Sberbank, German Gref, to discuss re-financing the Group, I have not returned to Russia. I have no doubt that if I were to travel there now I would be immediately imprisoned, or possibly even killed. Indeed, I was told by Mr Mikhail Nazarov, one of the lawyers representing me in Russia, that he met regularly with Lt Col Levitskaya who had advised him that if I dropped my complaints against the Bank and returned to Russia I would only serve a limited prison sentence of three to six months. However, if I did not return to Russia the Bank would arrange for me to be killed in France.”
“Nearly all the documents, computers and servers were removed. The offices of the Group’s lawyer, Mr Vasiliev, were also raided.”
“these decisions were ignored by the authorities and the majority of the documents, servers, computers and hard drives that were seized were never returned.”
“Although the nature of the claim being made by the Russian authorities is far from clear, in essence the complaint relates to a loan which Western Terminal took out in March 2009 from the Morskoi Bank. The Russian authorities claim that I lied to Morskoi Bank in order to obtain the loan and that the money was then misappropriated, since it was paid to another company in the Group. To obtain the loan, Western Terminal had to show that it had shareholder approval. I signed this document giving this approval when I was not the sole or the majority shareholder at that time. I deny that I did anything wrong in relation to this loan transaction. The case against me is based on the contention, supported by evidence from the Bank, that the Group sold Western Terminal and my actions were then an attempt to take money from this business. However, as explained above, this is simply not true. We had not sold Western Terminal but entered into what we had been promised was a temporary security arrangement. Therefore, my understanding was that we were entitled to continue trading in the ordinary course of business. There was, therefore, nothing wrong or suspicious in the Group company obtaining a loan and then using those funds for an inter-group loan. I, therefore, consider this to be a charge trumped up by the Bank to put further pressure upon me and distract my attention from seeking to challenge the fraud.”
“agrees with the following changes in the Principal Obligation secured by this guarantee: (a) Changes of the interest rate and interest payment period (increase or decrease; (b) Changes in penalty amounts for late discharge of the Debtor’s loan repayment and interest payment obligations (increase or decrease); (c) Changes of the loan maturity period; (d) Changes of the Lender under the Principal Obligation.”
“More recently, however, my attention has been drawn to a number of disclosed documents which refer to my having given or agreed to give guarantees to the Bank. I have no recollection of signing any of these documents either, but realistically, I recognise that the Bank is unlikely to have forged such a large number of documents merely in order to contextualise the original forged guarantees, and that it is possible that I did in fact sign the documents (albeit not at the signing ceremonies). Most of them belong to an extremely busy, difficult and stressful period of my life, when I would typically sign a large pile of documents every day that was simply given to me by a secretary. I was generally so busy that I would sign whatever documents my employees asked me to sign without reading them properly or even at all, on the assumption that documents would not have been prepared without my instructions or agreement. That being the case, I have reconsidered whether I might also have signed the guarantees and the personal loan agreement. While I still have great doubts on the matter I have to accept that it is possible that I may have done.”
“still convinced that the signatures on the addenda to the personal guarantees are not mine, and that neither is the signature on the instruction dated28 November 2008 to transfer RUB 130 million to the account of Regata LLC at Energomashbank.”
“Mr Arkhangelsky says in paragraph 234(2) of his statement that at one of my ‘early meetings’ with him, I ‘specifically told [him] that the Bank would not insist on [him] personally guaranteeing the Group’s liabilities’. This is completely untrue. Not only were there no such meetings, but I never discussed with Mr Arkhangelsky the question whether he would have to give a personal guarantee. Mr Arkhangelsky’s allegation otherwise is a total fabrication.”
“…although I cannot now recall Mr Arkhangelsky signing particular guarantees in my presence, since he did sign in my presence standard documents that were needed for loans, I am sure that that must have happened. I do recall him signing at least one personal guarantee and one guarantee from Scandinavia Insurance in my presence, although I could not now (given the passage of time) identify the particular document - at the time, I was far more focused on the details of the mortgages or pledges that were offered. This is because the mortgages and pledges required coordination between the Bank and OMG. By contrast, I do not recall any issues being raised by OMG in relation to the guarantee.”
“…from my meetings (referred to above) and conversations with Mr Arkhangelsky where we discussed OMG's business plans and financing needs, it is clear to me that Mr Arkhangelsky was not only familiar with OMG's borrowings with the Bank but was ultimately responsible for any decision by OMG to obtain a loan from the Bank. It would be inconceivable in my view that any OMG company would enter into a loan without Mr Arkhangelsky's express approval of its terms, including the security to be provided. At no point in my discussions with him, or otherwise (as far as I know) when the OMG loans were agreed, advanced or renewed did Mr Arkhangelsky suggest that he had not provided the personal guarantees required under those loans that required them, in circumstances where he was aware of the terms of the loans. As such, the Bank had no doubt that Mr Arkhangelsky had provided the personal guarantees required.”
“I distinctly remember that in return for the loans OMG was seeking in 2007 and 2008, companies in the group were able to provide security and Mr Arkhangelsky was willing to provide personal guarantees. I cannot remember for sure whether this was discussed in any of my meetings with him, although I suspect it was probably mentioned in at least one of them, but the provision of such personal guarantees was entirely usual and I would certainly have been told (and would expect to have remembered) if there had been any problem with the provision of a personal guarantee by Mr Arkhangelsky.”
“Q. So it suggests, doesn't it, from this schedule, that you have given a personal guarantee for that loan? A. No. Q. Why do you say that? A. Because as far as I understood, this table was done by employees, not by their own record, because we haven't had any such record, but from the information the banks produced. So nobody [had] really been taking care and checking documents.”
“Q. You are not suggesting, are you, that Bank of St Petersburg has somehow forged the seal of the [V-] Bank, are you? A. I don't know. I cannot reply on that. Q. It's not very likely, is it? A. I don't know.”
“Q. You are not suggesting, are you that Bank of St Petersburg forged or fabricated that seal on this document? A. I don't know.” (3) There was a direct debit agreement between Scan, the Bank, and City Invest Bank. The agreement contains City Invest Bank’s seal: “Q. The same point, the corporate seal of City Invest Bank seems to have been attached to this document, doesn't it? A. Yes. Q. And you appear to have signed this document, don't you? A. Maybe. Q. So you accept that that may be your signature? A. It might be, yes, I don't know.”
“A. I never signed guarantee documents. You are probably referring to these three-party agreements, or – these three-party agreements I could sign, yes, because I couldn't see any difficulties. Q. Even though they referred to a Scan guarantee? A. Yes, if they are referring to the documents which is not existing, what is the problem of signing that, if the Bank asks me to do so and if the Bank tells me that my loan would be cheaper for me?”
“Q. But your evidence is that it wouldn't really matter, because you hadn't signed the guarantee agreement; is that right? A. Absolutely. Q. So you could deny subsequently that you had entered into the guarantee, although you had signed and sealed a direct debit agreement in relation -- A. Absolutely. Absolutely. As I explained you before, I've been quite flexible to an enquiry of the Bank, and they were explaining me that it would be more comfortable and more easy for them to handle my file, I could sign the documents which I was not considered to be an important documents. Like, for example, this three-party agreement.”
“Q. I think you said you had discussions with Mr Savelyev and Mr Guz -- A. Yes. Q. -- to do with reserves? A. Yes. Q. And they told you what: just sign them and we will never see [sue] you on them; or -- A. No, no, no. What they'd been telling me, that there are standard sets of documents in the Bank, like the agreement you shown us today. That these documents, they done once by the Bank, by the legal department of the Bank, and all these contracts, loan agreements and so on, they should not be changed. So they do it on an automatic level, and then I don't need to sign guarantees as long as I am a big client, first of all; secondly, that most of the assets which belongs to me anyhow, or most of the assets are already mortgaged to the Bank, so everybody understood the lack of necessity. So what is the value to give a personal guarantee for billions if I don't have any assets -- personal assets, let's put it this way. So they said, okay, that I need to sign some strange documents like three-party agreements with the other banks, but as long as it's not having any consequences, any -- as long as it doesn't result in anything, so then it couldn't create a problem for anybody. Q. So Mr Savelyev and Mr Guz -- A. Yes. Q. -- told you that you could just sign direct debit agreements? A. Yes. Q. And, what, that you didn't need to sign any of the guarantee agreements? A. Yes, absolutely, that was the agreement from the very beginning, from my first two meetings with Guz and Savelyev, that I would get loans without any personal or corporate guarantees.”
“I am absolutely sure, and actually the Bank was quite clear on that, I mean that time, that we have our own files, our -- I mean OMG group had our own loan files and the Bank, they were manipulating the reserves in the Central Bank, and the Bank was producing their own in-house documents, and I've been told many times by Mrs Volodina, Savelyev, Guz, Belykh, Shabalina, and afterwards, Mironova, that I should not intervene in their in-house work because they were telling me many times that they are manipulating the reserves and the Central Bank supervision and Central Bank regulation, and if they do their inhouse files the way they think it should be, then it would be less reserves, and loans to OMG group would be cheaper. So I've been quite reluctant to that, so I thought that they are big boys and they know if it's a bribe or if it's a corruption with Central Bank by the Bank of St Petersburg, or it's any other crime against shareholders, but it was not my case. My case was to develop my group of the companies and get loans at a comparatively cheap price. So that's why I was aware that they are fabricating documents for their own purposes. But as long as I was not a subject to -- and I was not involved any how in this, so I kept my eyes closed.”
“A. I don't remember this particular document, but it might be the case that among thousands of documents which I signed for the Bank of St Petersburg, considering the necessity to have documents for the Central Bank regulation and the reserves, I could have signed that, considering the fact that it doesn't have any real obligations on me; it doesn't imply any obligations on myself or my companies. Q. But it does, doesn't it? You are signing on behalf of Scan Insurance. You are signing a right for various deductions to be made from a Scan Insurance bank account, aren't you? A. Yes, but I can't see any problems, because all these bank accounts, they've never been in operation, so it was empty accounts and I couldn't see any problems or difficulties. And I was absolutely aware that, even if I signed such document, it would not have been really working. Q. Each of these three documents refers to the Scan guarantee, doesn't it? A. Maybe, yes. Q. But when you signed these documents, were you not concerned that you appeared to be signing a document referring to a guarantee that, on your case, had never been entered into? A. No. Q. You were not concerned? A. No, because I've been asked by the Bank that they need such documents and they need such things to be formally done, even if the guarantee is not existing. Q. Why would the Bank need a direct debit agreement executed if, in fact, they were never going to -- A. Because it's the easiest point to check for the Central Bank. Q. Is your evidence that you weren't concerned about signing these direct debit agreements? A. Direct debit agreements, no, because I was absolutely aware that it doesn't have any influences or any consequences afterwards. Especially on accounts which have never been in operation. Q. So you were comforted by the fact that there would never be any money in these accounts which could then be debited? A. No, theoretically they could be, but, you know, the rule, if they needed such agreements, formally it had to be done on all accounts the company has. So I couldn't see any difficulty to sign that, and that could be easily traced by the Central Bank, even if they can bribe -- if the Bank of St Petersburg can bribe Central Bank, but having any enquiries to these banks would create trouble for them. So I couldn't see any difficulties for myself to signing that, if the Bank of St Petersburg was asking me to do so.”
“I recall that, in the context of the restructuring, the Bank required personal guarantees from Mr Arkhangelsky to be in place. I believe that this was considered to be necessary to show that Mr Arkhangelsky was acting in good faith and would stand behind the obligations of his companies.”
“Q. I’m not suggesting it is, but what Ms Volodina’s evidence suggests to me is that as of December 2008, some or all of the personal guarantees were missing, and then the Bank required for them to be put in place: isn’t that a fair reading of that evidence? A. My Lord, I cannot tell how to interpret this evidence. Mrs Volodina should be addressed about this. But as of December 2008, all the loans with respect to which we had sureties [sic] from Mr Arkhangelsky, they were issued as at the time when the loans were extended, but certainly not in December 2008… Q. Ms Mironova, isn’t the truth that it was only at that point that you were told by your superiors that personal guarantees must be in place, and then you have arranged for them to be put in place and backdated, like a lot of other documents? A. This is absolutely out of line with what happened…and this is confirmed by the fact that every loan agreement dating back to 2007 and 2008 at the very beginning, personal guarantees by Mr Arkhangelsky were clearly stated. Q. And isn’t it the case that in that period, as part of putting all the documents in place, you caused Mr Arkhangelsky’s signatures on the alleged personal guarantees to be forged? A. My Lord, the Bank never engaged in any forgery of any signature of Mr Arkhangelsky or any other gentleman.”
“The additional guarantees did not offer sufficient coverage in any case. The bank requested a personal guarantee from Mr Arkhangelsky and it obtained it. It is not normal practice but at that time, yes. We agreed not to use it as we were certain that he would do everything to achieve it.”
“I note that the Memorandum refers to a personal loan having been made to me on or about28 November 2008 in an amount of RUB 130 million, apparently expiring on31 December 2008 but extendable for one year. I did not notice the reference to a personal loan at the time of signing the Memorandum and I have no knowledge of any such loan agreement, although as I explain below I accept now, in the light of all the disclosure that has recently come to light, that it is possible that I did sign such a document.”
“Dr Giles understands that Mr Radley has been instructed by Messrs Withers to disregard the eight comparator documents [B1]-[B8] in his examinations as these are not accepted by his clients as genuine. The signatures on documents [B1]-[B6] are the only long form Arkhangelsky signatures which have been included as comparators. The removal of these particular signatures [B1-B6] means that there will be no signatures of this type available for comparison. The additional documents now produced in File F contain examples of the short form of signatures used by Mr Arkhangelsky (previously identified as not genuine by Mr Brown) and recent signatures. If the comparators are restricted to signatures [B9]-[B16] and [B21] along with File F documents this will mean that the only signatures available for comparison are either in the short form, in the Identity Card type form or recent signatures. The recent signatures of Mr Arkhangelsky do appear to be different from those from the relevant period in 2008 and 2009 and are, therefore, of no assistance to us. Dr Giles is not convinced that this restricted group of comparators [B9-B16, B21 and File F represents the true range of variation to be found in Mr Arkhangelsky’s signature at the relevant time. We are both aware, having had forty years of experience in the forensic examination of signatures, that it is not uncommon for comparators to be manipulated in an attempt to mislead the expert either into reaching an incorrect conclusion or from being able to reach any conclusion at all. We emphasise that it is essential to this examination that a complete range of undisputed signatures of Mr Arkhangelsky covering all the forms of his signature from the relevant period should be available to both of us for comparison and these documents would have to be acceptable to both parties. In the absence of such an agreed set of undisputed comparators it will be impossible for us to try to reach any sensible conclusion regarding the questioned documents. Even with further known writings, a meaningful opinion on this type of very basic signature (which must be regarded as susceptible to simulation) cannot be guaranteed. The quality and quantity of appropriate comparison material will be of significance in this regard.”
“…take a form consistent with these being attempts by Vitaly Arkhangelsky to produce a simulation of the signature of Julia Arkhangelskaya.”
“The range of signatures now comprising the “agreed comparators” is more restricted than used in my previous examinations. The previous “agreed comparators” [B1] – [B6] are similar to the signatures on the questioned Suretyship Agreements dated17th April 2008 [A36] and28th March 2008 [A39] and on the Contracts of Guarantee [A32, A33 and A35]. I found strong positive evidence to support the view that these signatures [B1 – B6, A36, A39, A32, A33 and A35] were all written by a single individual. This group of signatures [B1 – B6, A36, A39, A32, A33 and A35] are similar to signatures on a number of other documents which I have examined in this matter, including a Loan Agreement dated28th November 2008 [A21] which also bears signatures in a style similar to that of a number of the “agreed comparators” now provided.”
“…the signatures on the Loan Agreement dated28th November 2008 [A21] are of two types: signatures on the first page and on the signature page of this document [A21] are of the more complex form seen on the other documents listed above, but the remaining signatures are of the simple form seen on the File F documents. If all of the signatures on the Loan Agreement [A21] are simulations then the person producing the simulations has done so in two different forms on the same document. Further, the more complex of these forms is a form of signature which apparently is never used by Mr Arkhangelsky. The simple forms of signature on the Loan Agreement [A21] are consistent with being a genuine signature of Mr Arkhangelsky, albeit the possibility that these are simulations cannot be excluded. However, if these simple signatures [A21] are indeed simulations they would be derived from the simple style of Mr Arkhangelsky’s signature as seen on the documents in File F. This begs the question as to how the more sophisticated signatures on the first page and the signature page of this document have come into being since it is difficult to explain these signatures by means of simulation and there is, based on the “agreed comparators”, no feasible model for this signature. I have remarked in my report dated 10th February 201[4] that a more credible explanation of the form of signatures on this Loan Agreement [A21] is that the simple signatures are a form of initialling as compared to the more complex signatures applied to the first page and as the main signature on the signature page. This situation would be more likely to occur in a genuine document than in one which bore simulated signatures. If this explanation were to be accepted then it would follow that the “agreed comparators” now provided do not demonstrate the full range of variation in Mr Arkhangelsky’s genuine signatures.”
“are in a very similar style to that used by Vitaly and not Julia Arkhangelsky. I cannot exclude the possibility that Mr Arkhangelsky was the writer of these signatures on behalf of his wife.”
“…it's quite normal that every month several different employees of the Bank were sending different letters to directors of each and every company, as well as to financial department, with their calculations of exact volume of interest and so on. So it was a kind of such type of e-mails we were receiving for each and every company and it was kind of standard spam sending by the Bank, and I think it's a more technical way, and I have never been inside these e-mails. Q. So you think that this e-mail probably went into your spam box, do you? A. No, no, I don't say this. I considered that I – there were some subjects which I definitely had to read, but not all of them, so I technically couldn't read hundreds of e-mails every day. Q. This e-mail purports to set out repayments due at the end of December 2008 by OMG, doesn't it? A. Yes, most probably. Q. And can you see the first of the entries under the heading, "Repayments"? A. Yes. Q. "The loan to Arkhangelsky VD --" A. Yes. Q. "-- 130 million roubles." A. Yes. Q. That would be the personal loan, wouldn't it? A. I think so, yes. Q. Did you, or anybody on your behalf, send back an e-mail challenging that and saying: what's that entry all about? A. I don't know, just see the disclosure.”
“… I also inform you that the registration of the mortgage for the real estate of [Western Тerminal] was а condition for the prolongation of your personal credit in the amount of 130 million roubles [and] information was received today that the General Director of [Western Terminal], D.V. Vinarsky refuses to sign the mortgage agreement.”
“…there was abundant practice during the financial crisis amongst security providers to challenge the provision of security, especially if such security was provided by entities other than the borrowers themselves. Grounds for challenging security included absence of corporate approvals, forgery, absence of corporate benefit, missing co-signatures from the chief accountant, third party rights to the property, absence of legal title to the property, and so on.”
“I remember Mrs Arkhangelskaya coming to the Bank to sign documents but since she was the wife of one of Investrbank's most important customers and because we trusted Mr Arkhangelsky, Investrbank was sometimes willing to receive documents that were sent by her or on her behalf which contained her consent (so as to be helpful and for the Arkhangelskys' convenience). For the consents that I countersigned saying that the declaration was made in my presence, I cannot now be sure that Mrs Arkhangelskaya did sign each of the individual spousal consents in front of me. I am sure, however, that in respect of any personal guarantee, spousal consents were sent to Mr Arkhangelsky's office at OMG and even if Mrs Arkhangelskaya did not sign them personally at the Bank then the documents certainly came back signed in the name of Mrs Arkhangelskaya.”
“For 310 million? You must be kidding, sir. That is a guarantee using my money. I did not have such funds at that point in time. How could you guarantee something with the funds you haven't got?”
“Well, because this involves a large amount of money and it is generated by BSP and it is my personal guarantee, I think, so I do not know whether I signed this or not. I must have seen this some time in the past, but I do not recall signing this.”
“Sometimes I simply have to trust him.”
“The signatures on A7 to A10, A28 and A29 bear certain writing characteristics which are in a very similar style to that used by Vitaly and not Julia Arkhangelsky. I cannot exclude the possibility that Mr Arkhangelsky was the writer of these signatures on behalf of his wife.” (2) Dr Giles’ view was: “Mr Radley and I have both noted that the signatures in the name Julia Arkhangelskaya on the Consents to Contract [A7] — [A10], [A28] and [A29] bear certain writing characteristics which are very similar in style to signatures of Vitaly Arkhangelsky. Mr Radley states that he cannot exclude the possibility that Mr Arkhangelsky was the writer of these signatures on behalf of his wife. I have noted that the form of these signatures [A7 — A10, A28 and A29] is consistent with these being attempts by Vitaly Arkhangelsky to produce a simulation of the signature of Julia Arkhangelskaya.”
“Article 1064. General Bases of Liability for the Causing of Harm 1. Harm caused to the person or property of a citizen and also harm caused to the property of a legal person shall be subject of compensation in full by the person who has caused the harm. A statute may place a duty for compensation for harm on a person who is not the person that caused the harm. A statute or contract may establish a duty for the person who has caused the harm to pay the victim compensation in addition to compensation for the harm. 2. The person who has caused the harm is freed from compensation for the harm if he proves that the harm was caused not by his fault. A statute may provide for compensation for the harm even in the absence of fault of the person who caused the harm. 3. Harm caused by lawful actions shall be subject to compensation in the cases provided by statute.” compensation in the cases provided by statute.”
“[L]iability under article 1064 requires (i) harm, (ii) causation, (iii) fault and (iv) unlawfulness... There is no significant issue about what constitutes fault or unlawfulness for the purposes of article 1064. The defendants pointed out, and I accept, that, while intentional actions that cause harm are unlawful (unless permitted by a legal provision), payments made in legitimate business transactions are not unlawful, and a person cannot be said to be at fault on that account. However, it is not disputed that the requirements of fault and unlawfulness would be satisfied if the claimants succeeded in establishing dishonesty, the sole basis upon which they pursue the claims. The significant issues about article 1064, if Russian law applies, concern the requirements of harm and causation.”
“Article 1102. The Duty to Return Unjust Enrichment 1. A person who, without bases established by a statute, other legal acts, or a transaction, has acquired or economized property (the recipient) at the expense of another person (the victim) shall have the duty to return to the latter the unjustly acquired or economized property (unjust enrichment), with the exception of the cases, provided by Article 1109 of the present Code. 2. The rules provided by the present Chapter shall be applied regardless of whether the unjust enrichment was the result of the conduct of the acquirer of the property, the victim himself, third persons, or occurred against their will.”
“I do not deny, my Lordship, that Mr Arkhangelsky did request prolongation of all agreements for six months, but the Bank did not agree to do it for each loan and did not defer the payments for six months for all items. In particular…I’m not sure whether I stated all the agreements in the memorandum, but for example, the personal loan agreements, the PetroLes agreements, are different. The dates there are different. One could understand that, one could see that, that the PetroLes loan only was for March. Therefore, overall, there were no such understandings reached, but there was such a request on the part of Mr Arkhangelsky, and we did extend part of the loans for six months.”
“MR JUSTICE HILDYARD: Who was to determine which of the loans were and which were not to be extended to the end of June? You explained that there was a request from Mr Arkhangelsky; who was to determine, if it wasn’t agreed by you on 25 December, which ones were and which ones were not to be extended? A. My Lord, there should be a board decision, the board of the Bank. The collective intelligence should be at work here, and the board made a decision with regard to the maturity dates for these loan agreements with regard to time periods.”
“Restructuring was with regard to each credit agreement separately. The Bank could not take all the credit agreements with different maturities, different amounts, and roll them all up into one moratorium of six months long. I also wanted to mention, with some specific loans we did not agree at all that we would provide any moratorium, for example, with regard to PetroLes.”
“…in this particular case, the major point was that the client wanted restructuring of his loans, but he didn't have any additional pledge of collateral, and what was being discussed whether the Bank would agree at all to make any restructuring, any prolongation, any rolling up and so on, or there was another opportunity to call a default right at the end of December. That was the major point. Q. So the broad terms of the deal, as far as you are concerned was: no default in the end of December, you transfer the shares and then we will see, is that -- A. No, no, no. No default at the end of December, transfer of the shares in exchange of the restructuring agreed with the borrower. So this was the major point discussed as far as I can understand at the meeting. MR JUSTICE HILDYARD: Restructuring for all the loans? A. No. Some of the loans, because some of the loans were not mature at that date. So some of the loans were supposed to be restructured. Some of the interest payments were supposed to be rolled up, until the end of the maturity date, or some of them until the other date, and the other loans were not restructured, I mean, the repayment of the principal. So there were no specific details. The details were supposed to be agreed with the borrower after the meeting.”
“… I've been under so huge pressure, so I haven't had any chance to go through the documents. So I [have not] had any chance under the personal threat by Mr Savelyev to argue about anything. So I was really afraid and I've been under huge personal pressure and family pressure, so I had to sign whatever I got.” [My interpolation] He continued: “I've been under so huge pressure and I've been under the threat, and the conditions were extraordinary, and I signed this document in the office of Mrs Malysheva, so I've been really afraid of me and myself and I haven't had any chance to get any advice from even in-house lawyers. So I had -- either I had to sign that or I would not survive during the Christmas holidays.”
“… It says memorandum, but it doesn't specify which particular memorandum and which particular text, and as far as I understood, no attachments, and as Mrs Stalevskaya said to you under cross-examination, there were different versions of possible memorandum. Q. Yes, but the only document that was being considered at that time by the parties concerned, called "memorandum", was the 30 December memorandum, wasn't it? A. Yes. Yes. Q. And it looks, doesn't it, from this e-mail, as if there was some exchange between the Bank and your lawyers concerning the memorandum? A. I assume so, but we have not discussed the final version, because a final version of the memorandum I signed in the office of Malysheva, 30 December, and I signed the document she given to me. So not any looked on by the lawyers or anybody else, we haven't had a chance to do that, because I either had to sign or I had to create a problem to myself. Q. Dr Arkhangelsky, do you want to revise your evidence as to - - A. No, I don't want.”
“It’s not possible…It’s not possible this. It’s not possible this.”
“Definitely, agreement with the Bank was that all the loans are prolonged, so it would be completely stupid of me to make an agreement or memorandum unless I know that all the problems are solved, otherwise I cannot see any reasons for giving all my businesses to the Bank.”
“My understanding, and strong belief, that the agreement was that all -- you know, it's the standard personal logic. If I given all my assets to the Bank in exchange to the prolongation of the loan, so each and every loan should be prolonged by the date agreed, and this manipulation and insinuation that if, whatever, from 25 loans, three were not prolonged, or two were not prolonged, where is the logic? I cannot understand that. So I may assume that some of my employees were not good enough, so maybe they were misled…at that time, or they were simply stupid. But I absolutely believe that the moratorium been existing, otherwise I would not sign -- I would not sell to the Bank my companies for zero value.”
“… it was intended that the restructuring would take place in two stages: one by way of various additional agreements dated December 2008, and then in January or February or March, there would be further additional agreements to various loan agreements, which would avoid the need to form results and to reflect them in 2008 reporting to the Central Bank.”
“Whether a certain matter requires to be proved by writing or not, whether certain evidence proves a certain fact or not, that is to be determined by the law of the country where the question arises.”
“If the transfer is fictitious and exists only on paper and not in reality, such as a “sale” to evade creditors in which the owner never gave up possession of the property and never collected the price, the transfer arrangements can be undone on the basis of Paragraph 1 of Article 170 of the Civil Code. It provided: 1. A mock transaction, i.e. a transaction made only for appearances without an intent to create the legal consequences corresponding to it, is void.”
“…the seizure of ownership and control of Western Terminal and Scandinavia Insurance took place pursuant to an agreement or combination between the parties involved to seize those businesses by unlawful acts and/or means (the “conspiracy”).”
“The defendant’s action must be a direct or immediate cause of the harm.”
“Q. And you give some examples in your consolidated report of lawful justifications for harm. At paragraph 147 you say that a lawful justification might be self-defence, fair competition or the good faith enforcement of property rights. […] [W]here you refer to the good faith enforcement of rights, you would agree that it is not open to a defendant to plead a lack of fault if he has enforced his rights in bad faith? A. It is unlawful under Article 10 of the Code to enforce your rights in bad faith. Q. So if you enforce rights but in bad faith or dishonestly, that wouldn't amount to lawful causing of harm for these purposes; is that right? A. That's correct.”
“On whichever version of the ‘conspiracy’ case they pursue, to succeed the Defendants and OMGP must show the agreement and involvement of a very large number of people, not only a large number of employees in the Bank, but also employees of Renord-Invest and of SKIF, St Petersburg law enforcement officers, Mrs Matvienko, Mr Piotrovsky, Russian judges, court bailiffs, employees of the Russian Auction House and other auctioneers. The list is implausibly long.”
“…This was not a plan; in other words, there was no original plan of conducting affairs or working with OMG group. SKIF, the Bank, or Renord did not have a plan. All decisions were made based on the information that was -- and, as and when it was becoming available. Had there been a plan and a distribution of roles, everything would have happened differently. All those things, Berezin, criminal cases, obtaining control over the companies, bankrupting Scandinavia, this is a chain of events that could not have been planned one step ahead: this was something that was happening opportunistically, as it were. As information became available, it was being analysed and decisions were made. Now, what you are trying to say now, you are trying to present this as a plan, but if you look at this from the point of view of the theory of probability, this is not something that could have been planned in January 2009 or in March 2009, because the theory of probability works against you, sir. I'm sorry about it, this is not something that can be prognosticated. This cannot be forecast. One could not forecast that he would get a loan from Morskoy Bank and would not let BSP know. Not only did he raise a debt from Morskoy, he siphoned the money off out of the company in an unknown direction. No one could have forecast that, or one day Mr Arkhangelsky was going to have a criminal case opened. No one could have prognosticated that the insurance company would stop performing its obligations in January 2009. Now, if you are looking at this from the point of view of a preexisting plan, this means, this presupposes that we had known that this was going to happen, but we're not gods; we could not in any way forecast this. Everything happened opportunistically if and when the information became available, while Mr Arkhangelsky is trying to portray this in a way that this was a pre-existing plan. How on earth can I remote-control Mr Arkhangelsky?”
“…none of the assets was sold fraudulently at a gross undervalue. In any event, the reasoning is circular: the Defendants and OMGP allege the assets were sold at a gross undervalue; that ‘fact’ is alleged to ground the inference for the ‘conspiracy’; the conspiracy is alleged to be the sale of the assets at gross undervalue. Such a case is hopeless. Unless the Defendants and OMGP can (separately, without reliance on the inference from alleged ‘undervalue’) prove the ‘conspiracy’, there is no reason to doubt that the sale of the assets at auction achieved market value at that point in time for those assets. There is no basis for the Court to draw any ‘inference’ against the Claimants, let alone any inference to support the fraudulent ‘conspiracy’ as alleged.”
“in reverse chronological order, to look at the end result, and then the final stages of it, and then to go backwards to see whether it’s still consistent with innocence, and then go backwards in time to try and understand when it may have gone wrong, at what stage it went wrong, or whether it was all wrong from the beginning. So I would suggest starting from the so-called public auctions, then looking into the wider context of various transfers between Renord companies which led to those public auctions and into the transfers of both shares and assets, as they are all interrelated. And then we effectively arrive to the repo arrangement, and I will submit that the trial has shown that the agreement was intended by the Bank to be the means of appropriating OMG assets from the start.”
“It will be appreciated immediately that since, for the reasons given above, the forgery allegations are false, the ‘conspiracy’ loses one of its key components. Just as Mr Arkhangelsky has dishonestly alleged forgery, so he dishonestly alleges a ‘conspiracy’ against him.”
“Upon transfer to the Buyer of the title to the Share, the Buyer shall acquire and incur all rights and obligations associated with the aforesaid Share as contemplated by the Company’s Articles of Association and the current laws of the Russian Federation.”
“conventional arrangement of a similar kind, e.g. a ‘repo’ sale to a ‘bad bank’, would normally be recorded in a formal, carefully drafted contract, clearly setting out the material terms. In particular: (1) If the borrower transferred the assets in exchange for a restructuring of its debt, that would normally be clearly recorded in the contract. Moreover, the exact terms of that restructuring would also be recorded in the contract… (2) I would expect the contract to specify who was entitled to any income generated by Western Terminal and Scan during the period while the two companies remained under the control of the Bank (or third parties nominated by the Bank). If the Bank (or nominated third party) was entitled to derive that income, the contract would also specify whether it should be applied to reduce the debt. (3) I would expect the contract to address the possibility of the collateral being sold off at public auction, and whether the surplus value recovered at such auction should be returned to the OMG.”
“…the Bank wanted to avoid having to face an unscrupulous borrower and minimise problems of enforcement in the event that became necessary because the ability of the borrower to engage in spoiling tactics would have been curtailed. In any enforcement process, it wanted to face a friendly counterparty rather than a borrower who had declared war on the bank.”
“…if there is a mortgage registered, then the borrower would not be able to sell it without the Bank’s consent. So it is a very good negative protection. However, with respect to positive protection, ability for the Bank to take over that asset, my conclusion and that of my colleagues was not as robust, because in the end the Bank would probably be able to enforce, to foreclose, but there would be so many hurdles along the way, and the legislation, which dates back to the early 1990s and is somewhat inconsistent, is such that you really rely in many instances on cooperation from the borrower, so that the law says that in certain instances the borrower has to agree valuation, the borrower has to agree certain types of enforcement, and if you are in court then the borrower may raise all sorts of objections in court some of them may even be frivolous and they could still defer the time when enforcement comes. So it wouldn’t be an unrealistic estimate that the Bank may spend two or three years trying to enforce. Probably they would enforce at the end, but they would lose so much time, and value may have been reduced over time, and certainly they need money now as opposed to money in three years…” (2) There was nothing covert or improper about the Western Terminal and Scan shares being acquired by the Original Purchasers rather than the Bank. As noted previously, OMG was well aware of the identities of the Original Purchasers. They were custodians not thieves. The Original Purchasers agreed not to interfere with the business or assets of the underlying companies unless and until default and entered into written agreements obliging them to return the shares upon repayment of the loans, and assumed an express obligation towards OMGP and GOM to act in good faith in and about the holding of the shares. The Bank enrolled the Original Purchasers for legitimate and not nefarious reasons: whereas much larger banks, such as Sberbank or VTB, had their own investment houses, such as Sberbank Capital or VTB Capital, that was not the case for the Bank, which did not have the capital resources to establish subsidiaries to acquire toxic assets onto its balance sheet but could not in regulatory capital terms take them onto its own books. Mr Turetsky did not consider the arrangements to be particularly unusual, and to be a practical necessity in the context of the shares not being listed securities. As to the latter, he explained that under Russian Central Bank rules, the bank could not take unlisted shares onto its books as being held under a repo, since there was no market for them and no ability to ‘mark to market’. The Bank would have had to take in the shares as its own absolute property: but would have then to make provision accordingly. Mr Turetsky explained that this was common-place and unobjectionable: “…assuming that the OMG companies (of which Scandinavia Insurance and Western Terminal were a part) [were] in a dire financial position, like many companies in Russia during the global financial crisis, then I am not surprised that the Bank structured the repo transaction with the assistance of third parties. I am familiar with the practice of Russian banks of not consolidating any distressed companies acquired in enforcement scenarios due to negative consequences for the bank’s financial results and pressure on regulatory capital requirements.” (3) As to the lack of any written record or definition of the Bank’s relationship with the Original Purchasers, the Claimants maintained simply that they trusted the Original Purchasers in respect of the repo transaction. According to the Claimants, the Bank (and more particularly Mrs Malysheva) asked for a favour from long-standing clients; Mrs Malysheva knew and trusted Mr Smirnov, Mr Zelyenov, and (later) Mr Sklyarevsky; because of such trust and confidence, a written record was not a priority. While it might have been sensible to have recorded the arrangement between the Original Purchasers and the Bank, the fact that it was not is if anything inconsistent with any pre-arranged plan to deprive OMG of its Scan and Western Terminal assets. (4) It is not unusual, nor should it be thought suspicious or troubling, that the transfers were at nominal value. Dr Arkhangelsky accepts that his companies entered into the sale and repurchase agreements, and that “it was the plan that we get it back”
“We draw in the companies that we understand and trust, and trust them to work with the Bank, and we ask them to operate together on commercial terms with regard to toxic or problem assets.”
“So in 2008, when the repo deal was being set up, the only purpose of that was to have an opportunity to realise, to get the asset in its entirety, which is obviously going to get the highest price when sold to any final buyer…”
“you merely need to get a court declaration saying that the agreement you promised to make should be considered made”. (2) Clause 5.3 of the Provisional Share Purchase Agreement provided further that: “should any party evade conclusion of the Master Agreement, the other party shall have the right to file a lawsuit to the Arbitration Court of St Petersburg and Leningrad Region seeking the enforcement of the Agreement conclusion.” (3) Clause 6.1 of the provisional share purchase agreements, provided: “The Parties undertake to act reasonably and in good faith during performance of obligations under this Agreement.”
“So I think what they were trying to do was they were trying to come up with a bespoke document which would achieve the same objective, and I reviewed this repurchase agreement and it seemed to me that someone has put some thought into it, because the way they have done it is if they just wanted -- for the sake of argument if they just wanted to get the shares and dispense with Dr Arkhangelsky, they would just have an agreement and some vague obligation to sell it back. What they have in reality come up with is an elaborate document which contains three parts, which is the original sale agreement, then the preliminary agreement to agree on a reverse sale, and then they attach to it the actual instrument of transfer for the eventual sale back. So I wouldn't say that this is a perfect structure, and I agree that I haven't seen it done this way precisely, but it kind of suggests to me that they have put some thought into how they would enable Mr Arkhangelsky to buy the shares back at the time.”
“MR JUSTICE HILDYARD…on the Bank’s case, pursuant to these [interesting] but undocumented arrangements, the excess in value of the pledged assets over the loan inured not to the Bank but to the Subsequent Purchasers, is that right?”
“My point is when one looks at the terms of the repo arrangements, that’s not a term of it…And the position we are positing which is that Western Terminal has in fact ended up with a surplus amount, there’s no reason to think that it wouldn’t be reasonable and in good faith for Dr Arkhangelsky to ask for the shares back. Or indeed, it may be unreasonable for the original purchaser in that circumstance not to allow them to be retransferred back. So that would be, we say, on analysis, possibly a machinery by which that would be solved.” (4) Mr Birt then added: “Of course, as we say, in the reality, nobody, when they were entering into these arrangements, envisaged that there would be such a surplus. That’s why I say nobody thought about it…”
“Q Now, Ms Volodina, I put it to you that…it was intended that the restructuring would take place in two stages: one by way of various additional agreements dated December 2008, and then in January or February or March, there would be further additional agreements to various loan agreements, which would avoid the need to form results [sic] and to reflect them in 2008 reporting to the Central bank. I hope it is not too complex a question. A. No, no, no, this is not too complex. No, this is not what was intended. No additional restructuring was intended. In January and February the Bank hoped to receive a financial recovery plan from the client until the PetroLes maturity on 5 March, a decision was expected to be made as to what we do going forward. But the client did not provide that plan, nor did we receive any proceeds with respect to the timber shipment…in other words, the client did not perform under any of the obligations that he had assumed.”
“assumed that people in the Bank been well informed, considering that we were normally fulfilling all the obligations, and especially Mrs Krygina, who was directly communicating with the Bank and knowing quite a lot of the people there.”
“Q. What about Mr Arkhangelsky’s refinancing negotiations? A. I don’t remember anything about refinancing. I was not discussing this with Mr Arkhangelsky, and I was not reported [to] about that. And even if I would, I wouldn’t believe that, because of their situation. I wouldn’t believe that Mr Arkhangelsky could get any refinancing from anywhere at that particular stage and at that particular situation.”
“As far as my voting is concerned, and the voting of the rest of the members of the minor credit committee [MKK], to prolong or extend the credit committee I explained to you twice…We were not ready at the level of the branch to assume this huge responsibility for the actions of the Bank. Yes, we shifted it on the back of the top managers, of the management of the Bank. Maybe it was very small-minded of us, but that is true.”
“..the big credit committee [BKK] understood that this particular question would be transferred to the decision of the management board. This was the first reason. The other reason was that the big credit committee agreed for a short prolongation only for less than a month. So in this case anyway, the decision was to be made by the board, and the big credit committee just didn’t want to make this decision, let’s say…”
“Q. Isn’t the real explanation, Ms Mironova, that your plan, which you were asked to put together, the plan for cross-default was treated as quite secret at that stage. So you wouldn’t want other members of the small credit committee [MKK] to know about it, and that’s why you voted unanimously to extend the loan, whereas you knew that the decision was not to extend it? A. Mr Stroilov, my letter, dated 11 March, as we can see from the chronology of the events, I was copying even to the regular employees Ms Yashkina, Ms Blinova. What secrecy, what conspiracy are you talking about in relation to the members of the minor credit committee if I copied the ordinary members of staff with it?”
“never wanted to own the assets that Mr Stroilov has in mind. It’s just not interesting to me from the start. I confirm again before this court that we are only interested in one thing: to maximise the return of our funds from the sale of the pledged property…”
“the transfer of the shares to the Subsequent Purchasers was an attempt to make it more difficult for Mr Arkhangelsky to unwind the transfers.”
“Q. Isn’t the reason why Mr Zelyenov withdrew from the arrangement, isn’t the reason that he was afraid of getting involved in a fraud? A. No. Of course not. Mr Zelyenov, as far as I recall, the conversation with Mr Zelyenov at that point in time, it was based around the fact that I think his asset management company had some project. Now, I don’t recall at all what the project was about, but basically he didn’t want the project very much, and he either wanted to sell the company or to raise some finance against it. It probably would be best to ask Mr Zelyenov about that, and he was not interested in some additional court proceedings. So he took the position that he needed to free the company of risks.”
“Q.…the decision to replace the management in the two companies [Western Terminal and Scan] and the decision to transfer the shares of Scan from the original purchasers to subsequent purchasers, including SKIF, these two decisions and these two steps are part of the same plan, isn’t that a fair inference? A. Possibly so. That was a decision to protect the repo. Q. Quite. So really, the main purpose of both these steps…well, it’s a series of steps, but both these sequences, was to protect the assets of both companies from a potential lawsuit from Oslo Marine Group’s side; is that your understanding? A. There were two main messages and two main things that Mrs Malysheva mentioned. The first one was to gain control for the directors so that Mr Arkhangelsky would not take out loans in other banks and not burden the collaterals under other loans, and, secondly, indeed we expected that Mr Arkhangelsky will dispute the transactions under the repo transaction, and the Renord part and the side of the Bank were getting ready for the claims and getting ready for lengthy court proceedings, and part of the companies that were the original purchasers didn't feel comfortable to be part of that. So SKIF came in, and in that project started – SKIF started playing some role in the project and we bought 18 per cent of Scan. But at that point in time, as far as I understand from Mrs Malysheva, the main objective was to protect the Bank's interests and to stay in the repo transaction, and she thought that Mr Arkhangelsky would try to exit the repo transaction, plus, encumbering the Western Terminal assets and the Scan assets with other loans, and that's what happened with Morskoy Bank. That was the main logic behind it. We never had an issue about how we're going to manage Western Terminal or how we're going to manage an insurance company. We didn't even discuss that. There was an issue of controlling the signature. And if you mean this as part of a plan, then this is what I'm trying to elucidate here.”
“Following the meeting with Morskoy Bank, I had an urgent meeting with Mrs Malysheva and Mr Smirnov to brief them on the situation. I recall that Mrs Malysheva was very angry to learn of the situation. She informed me that OMG was continuing to fail to perform its obligations to the Bank, Mr Arkhangelsky could no longer be trusted, and the assets of Scandinavia Insurance and Western Terminal which formed the Bank's security, needed to be protected. As a first step Mrs Malysheva instructed us to change the management of Scandinavia Insurance and Western Terminal. In her opinion, this would protect the Bank's security and would force Mr Arkhangelsky to the negotiating table.”
“Q. So, Mr Savelyev, you knew that you were in the process of committing a fraud against him, did you not? A. No, this is not true. My Lord, since when disposition of collateral in order to maximise recovery for the Bank, since when does this qualify as fraud? We were lawfully using our rights…”
“…with regard to Mrs Arkhangelskaya’s claim, the transactions could have been declared null and void, therefore the consequences of the transactions, there would have been none. In the case of us losing the claims, the criminal proceedings [brought at the instance of Dr Arkhangelsky and Mr Vinarsky] would have been initiated lawfully, and I personally would have suffered, and Mr Smirnov would have suffered. So that was an issue of my personal safety, my personal reputation…”
“I did not discuss this with her because she was responsible for the strategy of working with the company, and since I headed the BKK, and in order to include this into the agenda she called me and explained that this operation is done to protect the assets.”
“One of the options being considered in 2009 by the Bank and Renord-lnvest was to let the Western Terminal premises in the short-term whilst a purchaser was sought. This would have provided Renord-lnvest with an income stream to cover the expenses of maintaining Western Terminal, such as utilities, salaries and other sundry items. Renord-lnvest was otherwise covering these expenses from its own account and making a loss. The Bank's approval would have been required for any lease that Western Terminal gave of the pledged property, which was anticipated might be a lengthy process. As a result, in order to put Western Terminal in a position where it could enter into such a short-term lease at short notice, it put in place a mechanism effectively to get a general approval from the Bank in advance - that mechanism was the granting of a long-term head-lease by Western Terminal to Gunard (to which the Bank would give its approval), with the intention being that Gunard could then sublet on short notice and for short periods if any sub-lessee could be found (without having to go back to the bank for further approvals). If any purchaser was found for the assets, the Gunard lease would have been immediately terminated by consent (as Renord-lnvest was effectively the party on both sides of the lease) and under Russian law this would also have automatically led to the termination of the sub-lease, so the term of the lease was not important.”
“…we were looking for any sub tenants. One of the conditions was that a sub tenant would be forced to terminate the agreement the moment Gunard would tell them that. That was one of the terms of the lease. We could only look for sub lessees on these conditions because this lease agreement was a forced measure. We needed to earn [enough] of [sic] cash to cover the expenses of the Western Terminal. This was not a commercial purpose for us to earn money using Western Terminal.”
“Q. Well, but wouldn't you be concerned that the value of the pledge encumbered by such an agreement would be reduced dramatically? A. It depends upon what it was done for. There could be two reasons: one of them, if Gunard, for example, was a potential buyer, this lease agreement could be the part of the deal, but if you say that the Gunard company was the company of the Renord group, and in this case I think it could be done only in order to protect the asset, that's what exactly the repo transaction was done for: to protect the asset. Q. So that was for the further protection of the pledge -- A. Yes. Q. -- from any possible action taken by OMG or Mr Arkhangelsky in Russian courts; is that what you are saying? A. By them or by other creditors, because Bank of St Petersburg was not the only one creditor of Mr Arkhangelsky.”
“Q. Now, Mrs Volodina, weren’t you concerned at the time that the terms were uncommercial? A. Yes, the terms were uncommercial. I was concerned about that prior to the BKK meeting. I called Mrs Malysheva and discussed with her this very matter, and she explained to me that this transaction is carried out in order to protect the asset, and she also said that this agreement, due to the fact that Gunard is an entity which is part of the Renord Group, this lease agreement can be terminated at any time and, moreover, the encumbrance is deemed legal only when the lease agreement is registered…and this lease agreement was not registered, and accordingly it did not come into force, i.e. there was no encumbrance. Q. Now, but obviously the plan was to create an encumbrance, wasn’t it? A. As Mrs Malysheva explained to me, yes. Q. And wouldn’t you agree that this encumbrance would dramatically reduce the market value of the pledge? A. I agree with you. Considering if the object is sold, if the object were to be sold, it would reduce its market value, in the event if the lease were to be registered.”
“It was enough for me that Mrs Malysheva told me. I trusted her. I cannot not trust her.”
“Malysheva's task was to freeze, to fix, with the pledges of the Bank and the possibility of sale, because Arkhangelsky was on the attack, not the Bank, not the SKIF, not Renord. So I suppose that she, inside the Bank, was working on various scenarios of how the events will unravel, because if she were confident that the cases in court will be won, then we were not.”
“Q. Will you agree that the terms of that contract are uncommercial? A. More so, more likely, but I wanted to stress that the logic of Malysheva and the Bank presupposed no conditions at all. For her, the conditions for the lease were not important in the contract. The main task of Malysheva, as I said before, was the control. To her, it was important to control this plot of land, and at the start of June, we lost the first instance to Mr Arkhangelsky in the courts in relation to the Julia Arkhangelskaya claim, and the Bank was very sceptical about our chances of winning, you see. At the same time, the main problem which existed was that the Western Terminal was not the direct borrower of the Bank; it was the pledger only, and the position of Mrs Malysheva was that since the courts would be lost and then Arkhangelsky will change the directors, then the Bank must have additional instrument or leverage in the form of the control over the land of the Western Terminal, because the Western Terminal was not the borrower, and the bankruptcy of the shipping company in which pledged the landlord was only started in this bankruptcy, and there was going to elapse a lot time between the bankruptcy of the company before claims to the Western Terminal. Therefore, the lease agreement was discussed as an additional -- some form of an additional insurance mechanism in case we were to lose in courts in interest. Q. Thank you. And I understand that the rationale behind the proposal to possibly transfer the assets to SKIF was the same, wasn't it? A. Well, again, I didn't discuss the terms. Malysheva asked me whether I would mind if such a similar agreement would be made to SKIF, and at the time I wasn't against it because I was absorbed in these court proceedings and I thought that I was doing a very bad job, because we were losing.”
“The question of а discussion with state bodies was posed (bу Litvina and I) about the possibility of working up OMG projects with possible compensatory percentage stakes on credit (for the infrastructure of the project).” 1089. As to the meeting with Mr Gref: “In the course of the meeting discussion of continuing financing by Sberbank of the development and financing of the OMG Group port project took place. Sberbank’s participation in the financing of OMG was also discussed, as part of а program of state support, depending on а discussion with the President - Gref promised to air this question with him personally. It is important the tomorrow morning (Wednesday) Putin will be at Sberbank. In this connection [it is notable] that Gref had all of his other meetings cancelled, but met with me. Very upset was the Governor of the Krasnoyarsk Territory, Tkachev - he was forced to wait wait while Gref negotiated with me! Our project will be discussed with Putin- as а large-scale infrastructural regional project.”
“Q. It looks, doesn't it, as if your business projects were going to be discussed with the President of Russia? A. That's what I've been told by Mr Gref. Q. And -- A. I think that Mr Gref is very much dependent from Ilya Traber, and for Gref enquiry to meet me and try to solve the question was quite important. So that's why he promised maybe too much, which was not realistic, I think. Q. And there was a discussion with state bodies? A. Yes, we sent a lot of letters to different -- all the possible different state organisations to support the project -- my projects. Q. So do you agree that your claim that you were the victim of Russian State persecution sits uneasily with the contents of this e-mail, which suggest that your affairs were going to be positively discussed by the President of the Russian Federation? A. No, I don't think it's ever been discussed, so it's probably my naive dreams by that time. Q. So you don't believe that Mr Gref, who was head of Sberbank, you don't believe he was genuine when he said he would raise your -- A. Yes, absolutely. He had -- Q. Sorry, what's "absolutely"? Do you agree? Are you doubting what Mr Gref had led you to believe he would raise with the President? A. Yes. I think so, yes. Q. You doubt Mr -- A. Yes. Q. So you think he was misleading you, do you? A. Absolutely, yes, because I think he also was unfair of Mr Traber, a well known criminal, so I think he had to meet me just to make a favour for Mr Traber, but he was not planning to do anything for me. Q. So you don't see anything -- you don't see anything inconsistent between -- A. No. Q. -- the contents of this e-mail and the reference to state bodies and the President of the Soviet Union -- sorry, the President of Russia -- A. No. Q. -- looking into your affairs -- A. No. Q. -- and possibly helping you on the one hand -- A. No, no, no. Q. -- and your allegation that you are a victim -- A. Yes, I'm a victim, yes. Q. -- of Russian State -- A. Absolutely, yes.”
“I'd been told by Mr Traber that it's a real opportunity; I have been prepared to risk my life; I have not been properly warned that I should not do this…”
“…it was a Russian National Exhibition in Chicago, and I came there and it was a kind of Russian national presentation. It was a minister of industries of the Russian Federation, and it was a big presentation of Russian businesses, yes.” (2) The exhibition was organised by the Ministry of Industry and Trade of the Russian Federation. Dr Arkhangelsky spoke on a panel which included a representative from the Russian government. Dr Arkhangelsky said: “I've been sitting next to [the panel moderator], I had a coffee with him and even a glass of champagne, and discussed what’s happened to me. And I’ve also been speaking to the first person, Ivan Materov, I changed -- I missed the name, the deputy minister of industry, and I even exchanged letters with them. My idea was to meet some, let's say, decision-makers, and tell my story that these feudal people in St Petersburg just taking over very good and successful businesses. So my idea was I was stupidly naive just to tell them that it was a mistake and I have to -- they have to rethink about that, so I done that. And, as I said, I went to Singapore in April …”
“And I also made a similar presentation in Singapore on the visit of Russian delegation in September, and I think in October I went to Beijing while it was a Putin visit there and I wanted also to make a presentation. So I made a presentation there also, yes. So it was at least three big major international Russian events in Chicago, Beijing and Singapore, where I came from Nice that time.”
“… I was, you know, I was 34 years old, so I was stupid and young and naive, and I had a strong belief that there are good people in the Federal Government and just gangsters on the level of St Petersburg, corrupted gangsters on the level of St Petersburg. But now, what I see now and all the developments during all these years, I see that I was absolutely naive. Absolutely naive.” (2) Whereas he perceived that the Bank and what he called “the St Petersburg mafia” were after him from June 2009, he continued to think that “there were good people in the Russian government who can help me…” and in his perception the “full State machine” was not really engaged until later, at the end of 2009, when Lt. Col. Levitskaya put him on “the federal search database” and thereafter he became “completely under the full operation of the State machine.” (3) As to his attendance in Chicago and other international Russian events, he dismissed any suggestion that it was odd that he should be given a platform by his persecutors on the same basis of the distinction he perceived at the time between the St Petersburg ‘mafia’ and the Russian state, maintaining that although he now accepts it was “stupidly naïve”, at the time his idea was: “to meet some, let’s say, decision-makers, and tell my story that these feudal people in St Petersburg just taking over very good and successful business… … [and to meet] Russian decision-makers from the top of the government to tell that it was an enormous raiders attack and local mafia in St Petersburg who was violating national rules and national legislation”. (4) In that context, he hoped that court successes would give credence to his story: “So I had a belief that there is a rule of law in Russia and so – and if you remember, by that time I was winning in the courts, before Matvienko made intervention in the third level of the court…I thought that if I win the courts and prove to the government representatives that it was a mafia attack, a raid, then it can change the situation.”
“You know, whole summer, we were staying in Bulgaria and not understanding what is going on, and we were thinking that, okay, initially we thought ten days and then maybe one month, then two months, three months, then we understood that kids should go to the school, life is going on, and we have to make some more important strategic decisions.”
“I was not involved in the sale…I would like to confirm…that simply that was criminal case to do with different legal entities that were not related to the Bank, and I was asked to give evidence, actually, they were of no interest to me, so I didn’t focus on the evidence, I didn’t focus on the conversation with the investigator, because it had nothing to do with the Bank of St Petersburg or me personally…As you know, I did proffer my apologies to the court for the confusion…” (2) Ms Stalevskaya likewise said in her witness statement that she did “not know now why I made reference in this interview to selling shares since this did not reflect the complete nature of the transaction…” but surmised (like Mr Savelyev) that she had not been “properly paying attention at the time and wanted to get through the interview quickly…”
“No, because I have given the evidence and I tried to forget about giving it because, for me, it wasn’t important.”
“Q. But did you explain that this was a repo deal? A. So far as I can recall, I did. I did explain to Col Levitskaya that there was a repurchase transaction, a mirror transaction, for the assets to go back. Q. So is it your evidence that you made it clear that the purpose of the deal was not to sell the company, but to provide the Bank with additional security? A. So far as I can recall, yes, that was the explanation that I gave her.”
“Now, of course, I would not be able to name them. It’s rather my evidence would be general. That was the general emotional background around the situation. I mean, the impression from my communication with these people, for example, with Ms Saltykova.”
“the criminal case on fraud could only proceed so long as there was evidential basis for an allegation of dishonesty; i.e. that he knew Sevzapalians was a genuine shareholder but misrepresented the position to Morskoy Bank. There is no such basis save for the false evidence of the six witnesses.”
“165 The takeover of the Companies was accompanied by a campaign of unlawful persecution of the Defendants by Russian authorities. It is averred that the persecution was co-ordinated between the Claimants and corrupt Russian officials, known and unknown, who thus were a party to the conspiracy. 166. Since early 2009, the Defendants were subjected to systematic harassment by the police and Interior Ministry officials. 167. The harassment became particularly intense since June 2009 when the First Defendant publicly appealed to then President of Russia, Dmitry Medvedev, about the unlawful takeover of his businesses… … 173. This campaign of persecution was organised as part of the conspiracy.”
“Members of Mrs Matviyenko’s family are or were major shareholders of the Bank. Her role was to use her influence to facilitate unlawful assistance of corrupt law enforcement officers, authorities, and courts, in furthering the conspiracy. Her participation is to be inferred from (i) her close association with the Bank and Mr Savelyev; (ii) the concerted unlawful actions of the said authorities and courts, which could only be directed by a single will and mind, high-positioned in the hierarchy of the Russian regime; (iii) her propensity to, and past record of, participating in unlawful ‘raiding operations’ of similar nature.” (3) The ‘conspiracy’ case contends that Mrs Matvienko, Gen. Piotrovsky, and other “corrupt officials” joined the conspiracy before June 2009 and/or before October 2009 “by agreeing with Mr Savelyev and/or the Bank acting by Mr Savelyev” to carry out such roles as to “further the Scheme”. (4) The Counterclaimants allege also that one of the objects of what they depict as a state-assisted campaign of harassment and the bringing of (allegedly) false criminal charges was to force the Arkhangelskys to flee Russia, which they allege is “a wellknown procedural tactic to secure the raided property.”
“Far from being a series of sporadic reactions to the alleged revelations about Mr. Arkhangelsky’s dishonesty and/or his hostile actions, all the Bank’s actions fit precisely into one of the classic schemes of raiding described by the researchers of that phenomenon.”
“I was exposing myself to the risk of a raid. That was precisely why I was so aggrieved at Mr Savelyev's demand for the shares to be transferred.”
“… everything changed forever at the end of 2008, when the Claimants, together with other connected parties, effectively stole many of the Group’s most valuable assets. The Group and its businesses were destroyed in the process. The theft of the assets and the destruction of the Group have been accompanied by an aggressive campaign of harassment and persecution against me, no doubt in order to ensure that the assets can never be recovered. The situation ultimately became so serious that I was eventually forced to leave Russia for the sake of my and my family’s safety. While such conduct on the part of a bank may seem extreme, it bears emphasising that, unfortunately, the actions of the Claimants and their co-conspirators are not unusual in a Russian context. Indeed, this kind of conduct has become so common that the Russian language now has a specific term for it, namely “reiderstvo” or “raiding”
“Scheme 4 (Manufacturing of rights under a REPO contract) 1. A large loan is given to a representative of a successfully operating big or medium-size business 2. Securities are formalized: - pledges of assets which constitute the business; - personal guarantees of the business proprietors; - guarantees of companies involved in the business and having significant assets or trading turnover. 3. REPO contracts are made for the shares (at least the controlling shareholding) of the companies controlling the business, on the following terms: - usually, at a nominal price; - repurchase is subject to the condition of repayment of the entire loan; - always with a counterpart who is not formally affiliated with the bank; 4. The lender bank declares that the debt is overdue. Like in Scheme 2, the lender bank may deliberately create the conditions for an overdue indebtedness to emerge. 5. A demand to repay the debt at a short notice in connection with a breach of the contract; 6. The Bank declares there have been a breach of the loan agreement (the clause on early repayment of the loan) and a breach of REPO contract. 7. Since a company controlled by lender bank is the controlling shareholder of the companies which control the borrower’s business, that company is entitled to initiate a shareholders’ conference to replace the company’s director-general and to approve any transactions with the company’s assets. 8. A replacement of director-general, seizure of management in the borrower’s company, failure to service the loan, dissipation of assets. 9. An assignment of the principal loan obligation to a third company, along with all the securities for the loan agreement except REPO. 10. Recovery of the debt from the debtor and guarantors/pledgers without giving credit for the assets removed from the borrowers’ control using the REPO contracts.”
“I also understand from the Defendants' Re-amended Defence and Counterclaim (in particular from paragraph 100 onwards) that, broadly speaking, Mr Arkhangelsky alleges that the Bank achieved its ends through arranging for the assets of OMG to be purchased by entities owned or controlled by the Renord Group (the Renord Group) of companies, and he appears to allege (though the allegation is not entirely clear) that the Renord Group is ultimately owned or controlled by the Bank. This is not true. The Renord Group is a client of the Bank and it is and always has been independent of the Bank and not owned or controlled by it and, as I have already stated above, there was no such conspiracy. I also understand that the Defendants allege that the companies defined in the Re-amended Defence and Counterclaim (at paragraph 122) as the "Original Purchasers" and also those defined (at paragraph 129) as the "Subsequent Purchasers" were directed and controlled by the Bank and/or me personally and that the directing mind and will of these companies was the Bank and/or me personally. That is also not true. I did not direct or control these companies and nor did the Bank.”
“Q. Do you accept that SKIF's business is entirely dependent on Bank of St Petersburg? A. This is absolutely something I don't accept. Q. And do you accept that SKIF and Renord are the same business? A. No, I do not accept that. Q. And that is the same business as Bank of St Petersburg. A. No, that is something I do not accept at all.”
“played a role of…a collection agent based on a contract with the Bank, it purchased distressed assets and it worked for money…it got a fee…It purchased bad debts and sold them on…”
“idea of developing businesses around the banking business, a managing company, a leasing company and insurance company and so on and so forth…”
“…SKIF was looking for projects in the market, trying to raise finance. I think the idea with respect to that leisure centre or the spa did not enjoy much support, we did not find any funding, and I think we transferred it to Renord after it [Renord] had been incorporated. Then in 2008, after it had been incorporated, Renord needed companies, it needed to have some assets available to them, which we sold or transferred to them if we no longer had any use for those assets…”
“Q. Now, you also indicated…that it was not unusual, as between you and Mr Smirnov, to use each other’s companies for projects, to lend a company to one another, is that so? A. The companies for projects, yes. We sometimes would lend each other companies for projects, at least for 2007 to 2010, for that time period.”
“Q. Now, isn’t it the case that for a number of years, until I think 2011…Mr Kalinin, Renord’s financial director, was 50% shareholder of SKIF? A. Yes, for a certain time Mr Kalinin did own a 50% stake in the SKIF company. That was in connection with one project, Nevskaya 58. Q. Now, it wasn’t in connection with one project. If you own 50% in a company, you own 50% in all its projects; isn’t that right? A. No, this is not correct. In that case Mr Kalinin owned a 50% stake only in connection with this project, Nevskaya 58. Q. And so for purposes of other projects, what happened? Did he hold his 50% as a nominee for someone else or what? A. Yes, as a nominal shareholder. As a kind of an oversight body. At that time Renord was only interested in that project, Nevskaya 58. And it is quite possible that between Mr Smirnov and Mr Sklyarevsky there were some agreements regarding that the oversight will be ensured only with respect to this project. The other projects, if there other projects under SKIF, Mr Sklyarevsky managed himself. Q. And Mr Kalinin held this 50% shareholding in SKIF on behalf of Renord, didn’t he? A. Yes on behalf of Renord.”
“Q. And Renord is part of your business, is it not? A. No, not at all, my Lord. That is a separate standalone entity that has no relation to the Bank. It operates independently in the market. It receives loans from the Bank in the same way that a common borrower would be. Mrs Malysheva and Mr Smirnov have a good, friendly relationship going back to their work together at AVK, as far as I recall, but that does not mean that the Bank owns Renord.”
“I understand that the Defendants have alleged that the RenordInvest companies which were used in the repo transaction … were somehow owned or controlled by the Claimants. This is untrue. The Renord-Invest group has never been owned or controlled by the Bank. It is an independent successful business in its own rights, with its own governance and controls. RenordInvest makes its own investment decisions, uninfluenced by the Bank.”
“It is a list of corporates, of companies that received loans in order to be able to conduct investment projects, and they were monitored by the client monitoring directorate, therefore we compiled a list of borrowers and all the individuals and corporate affiliated with them, or associated with them.”
“This table was compiled with a view to monitoring the links that might exist between corporates, the companies, and I did this at the request of my boss and I then handed it up to the credit risk department. So at some point in time, speaking from memory I think it was at the end of 2010, the credit risk department took over all the work with respect to all the borrowers, and then started compiling spreadsheets of all the individuals, all the corporates, all the persons that are associated with each other and so on and so forth; ie the information that the Central Bank would require to be provided.”
“The likeliest explanation is that Mr. Ved, Mr. Kalinin and Mr. Sklyarevsky owned the company as nominees for the same beneficiary. It may be that SKIF has a degree of autonomy within the system of the Bank’s affiliated businesses, but its description as an independent business does not hold water.”
“Q. And when you say “the Bank”, do you mean – well do you mean the managers of the Bank, or do you mean the Bank as a corporation? A. I mean the Bank’s managers.”
“As at the date of this Prospectus, members of BSPB’s management hold 49.60 per cent. of BSPB’s ordinary shares. There is no formal shareholders’ agreement between or among any of the principal shareholders of BSPB, but the shareholders who are the members of senior management of BSPB and other major shareholders work closely together in pursuing BSPB business objectives.”
“63. Kontur is a company engaged in the supply and shipping of petroleum products and is part of BTK (or ‘Baltic Fuel’) Group which owns bunkering vessels. Baltic Fuel is a company incorporated in Russia, which was established in 2008. Before mid-2013, Renord-Invest held a 51% share in Baltic Fuel, both directly and indirectly. As of today [28 August 2015 being the date of the witness statement] Renord-Invest holds a 74.5% share in Baltic Fuel….It is a substantial operation; it employs over 800 people and generates in the region of EUR 130,000,000 per annum. 64. I recall that I mentioned to Mr Korneev at the time, that the Western Terminal Assets were to be sold at auction. He may have known about it anyway because the market for buying port assets in St Petersburg is relatively small. 65. I understand that the Defendants have alleged that Kontur is part of the Renord-Invest group and is a company owned and controlled by persons connected with the Claimants. They also allege that Baltic Fuel is ‘closely affiliated’ to the Bank. Baltic Fuel and Kontur are not owned or controlled by the Claimants. As I have explained, Baltic Fuel is a substantial independent company in its own right. It is correct that I own Baltic Fuel through its major shareholder, Renord-Invest and Renord-Invest has a good relationship with the Bank, but Baltic Fuel is not owned or controlled by the Claimants and is an independent business in its own right. 66. I understand that the Defendants have made various allegations about the shareholdings in Kontur. I recall that Mrs Malysheva’s son only held shares for a month in 2011; he was not otherwise involved in Baltic Fuel…”
“Q. do you agree that Kontur LLC is one of the Baltic Fuel Company entities, one of the entities in the Baltic Fuel Group? A. Kontur LLC is part of the BTC companies, yes. Q. And obviously that is controlled by Renord, isn’t it? A. No. Baltic Fuel Company is a personal private investment within Mr Smirnov’s personal investment portfolio. Q. So you are saying that it has nothing to do with Renord as such; it’s just another company of Mr Smirnov? A. Correct. Mr Smirnov owns a shareholding in the fuel company and the fuel company only reports to Mr Smirnov. Renord does not analyse this company, does not look at this company… Q. Right… A. …or this company’s business.”
“Save for the fact that Baltic Fuel Company is a customer of the Bank, I have no other links or interest in [it]”
“Q. …I just suggest to you, Dr Arkhangelsky, that you have no basis for saying that ROK Prichaly, a business associated with Sea Fishing Port [SFP], that that is in any way involved with any conspiracy here? A. It’s involved, and so far as I understood from crossexamination of Mrs Volodina she confirmed that to Mr Stroilov; that she knows very well the director and they have a long-lasting co-operation - or owner. Q. I will check, but I don’t think, Dr Arkhangelsky, it was put to the witness in those terms. A. Mr Stroilov was referring to Mr Soshnik, who is the owner and the shareholder and the director of all these companies discussed, and she confirmed that they are having long-lasting co-operation with him.”
“111.…it is not necessary to show that there is anything in the nature of an express agreement, whether formal or informal. It is sufficient if two or more persons combine with a common intention, or, in other words, that they do deliberately combine, albeit tacitly, to achieve a common end. Although civil and criminal conspiracies have important differences, we agree with the judge that the following passage from the judgment of the Court of Appeal Criminal Division delivered by O’Connor LJ in R v Siracusa(1990) 90 Cr. App. R. 340 at 349 is of assistance in this context: “Secondly, the origins of all conspiracies are concealed and it is usually quite impossible to establish when or where the initial agreement was made or when or where other conspirators were recruited. The very existence of the agreement can only be inferred from overt acts. Participation in a conspiracy is infinitely variable: it can be active or passive. If the majority shareholder and director of a company consents to the company being used for drug smuggling carried out in the company’s name by a fellow director and minority shareholder, he is guilty of conspiracy. Consent, that is agreement or adherence to the agreement, can be inferred if it is proved that he knew what was going on and the intention to participate in the furtherance of the criminal purpose is also established by his failure to stop the unlawful activity” … 112. In most cases it will be necessary to scrutinise the acts relied upon in order to see what inferences can be drawn as to the existence or otherwise of the alleged conspiracy or combination. It will be the rare case in which there will be evidence of the agreement itself…”
“Q. Dr Arkhangelsky, that timescale you are describing proceeds on the basis that the borrower is not consenting to the Bank's realisation of the security, isn't it? A. I don't know any borrower who would be consenting unless they have good reasons, consenting to the reservation of the assets. Q. Why not? A. Because. It's a standard market practice. At least in Russia. Q. Well, a standard market practice, what, when you haven't paid your debts, not to agree that the lender can enforce the security you have agreed to provide for the debt; is that your evidence? A. It's a question for the court to decide, and the court has a practice and the court has a formal procedure, and each procedure takes time. So any argumentation could only be settled in the court and agreed in the court…”
“The actual sale, certain entities are dealing with it, and the Bank has the proceedings with regard to enforcement of debt, and the court proceedings with regard to obtaining court judgment, then the Bank gets the enforcement letters and produces them to the court bailiff service, and the further actions and steps are carried out by the court bailiffs service, and neither myself nor my employees organised the auction and this sale.”
“…that control, the overseeing function, can be done by us in our capacity of lawyers based on the information we receive from the federal bailiffs service, and the Bank cannot impact the actions of the federal bailiffs in any way, but they act within the law in any way, and they act within the procedures that they have.”
“…that the property to be auctioned must be appraised as a basis for setting the starting price, with the appraisal by court order in the case of a judicial auction or by a licensed appraiser in case of non-judicial auction. This appraisal sets the starting prices for the auction. The rules provide that an auction will fail if there are not at least two registered bidders and not at least one bid at or above the starting price.”
“There has to be more than one genuine bidder at the auction. If there is only one bidder, the auction is considered as not having taken place – Article 447(5). If compliance with the rules is a mere pretence of form, and a competing bidder is a mere puppet, with no genuine interest of its own in bidding for the asset, it would be an abuse of right.”
“….do[es] not contain a prohibition upon participation in an open auction of affiliated persons, and that in and of itself, the participation in an open auction of such persons may not be considered an action of the organizers of the auction that leads or might lead to prevention, limitation, or elimination of competition.”
“The duty of organizers of an auction is to comply strictly with the requirements of all laws governing auctions. In the case of auction of security, these laws are designed to provide a balance between the interests of creditors in speedy liquidation of property for payment of debts and the interests of debtors in obtaining maximum prices. The auction organizations are not allowed to deviate from the rules to favor [sic] either creditors or debtors. Further, liability would be that not of the pledgee of the security, but of the auction organization.”
“…undervalue itself is not a factor. Undervalue in conjunction with intent to harm me and enrich you, this is the actionable offence.” (I assume by “harm me”
“…[Mr Smirnov] did a lot to try and find third party buyers and sell the stuff to them, and I understand that at the end of the day Mr Korneev and himself decided for themselves that they were going to become bidders because they were not able at the end of the day to identify any willing buyers. Q. Now, Ms Yatvetsky, there is absolutely no documentary evidence of these alleged efforts to find third party buyers, is there? A. On a number of occasions I drafted confidentiality agreements for Mr Smirnov because he was conducting some negotiations, and with respect to Western Terminal I know he was negotiating [with] Severnaya Verf Northern Shipyards, it’s a state owned company, and Western Terminal used to be located on their territory, and I think they were thinking about building a dry dock there, but at the end of the day they abandoned the idea. He was also negotiating with Modul LLC which owned some of the assets in the Port of St Petersburg. They carried on the business of container shipments and logistics, and I think they were also thinking about buying Western Terminal. I know that Mr Smirnov was also engaging other companies in his negotiating effort. Q. Now this is not mentioned in his witness statement, is it? A. Maybe he is simply not going into all these details. He did mention that he kept on trying, but at the end of the day the negotiations, or rather the confidentiality agreements, the NDAs that I had drafted for him, he never returned them to me, so I thought that the whole thing just stopped at the very initial stage, and the parties never went beyond the very initial stage and never moved on to actually execute any transactions. Q. And indeed there were no negotiations with third parties at all? That… A. This is not true. Negotiations did take place. Q. I put it to you that this is a lie which you guys have invented very recently in a desperate attempt to wriggle out of the evidence of your fraud? Q. Now this is not mentioned in his witness statement, is it? Q. And indeed there were no negotiations with third parties at all? That… A. I can only reiterate that negotiations were being conducted.”
“Q. So the real purpose of this agreement was simply to reduce the starting price at the auction, was it not? A. No, that is not correct. The true purpose was to judicially establish by the courts the market value of these assets. Q. So what you mean is that, rather than simply agreeing the terms, Renord and the Bank wanted the sale to take place at a public auction so that it would be more difficult to challenge it for any third party; is that a fair summary of what you meant to do? A. Well, public auction definitely eliminates all types of risk for the purchaser.”
“Q. …what I’m trying to understand is that by the time when…Renord decided to bid for those assets at a public auction, by that time at least, the position was that Renord-Invest was interested in the assets for its own purposes: would you agree with that? A. Well, we were always living in hope that a final buyer will actually participate in various auctions for these assets, but we undertook market analysis, we talked to potential purchasers, and we realised that most likely nobody would participate in these public auction and we had to use our companies and then we analysed whether we would be able to use those assets in our further business.” (2) Ms Mironova’s oral evidence in cross-examination with specific reference to the Western Terminal assets that: “the Bank took all possible steps and measures in order to advertise this facility as widely as possible on the media. If there was an opportunity to sell this facility at the price of RUB 2 billion, RUB 3 billion or RUB 4 billion to somebody else…it would have been in the direct interest of the Bank, because by doing so would have repaid the loans…That would have been wonderful. If only we had such a prospective buyer…” (3) Ms Mironova’s oral evidence in cross-examination with specific reference to the Scan Onega land auction, as follows: “Q. So at any point between the alleged default in March 2009 and the purported auction in October 2009, are you aware of any attempts by the Bank or Renord to sell these assets at the price which they had been pledged? Say, at a higher price? Any attempt to market them and obtain a higher value? A. My Lord. Obviously some steps were taken, including by the auctioneer, i.e. Russian Auction House. The announcement was published over 30 days prior to the auction. This is also part of the statute book. It is a legal requirement. The announcement was announced in various media outlets, promotional publications, in order to raise awareness of this sale…” publications, in order to raise awareness of this sale…”
“rather unlikely…because Renord had to offer at least two bidders for the auction to be ruled valid.”
“My Lord, theoretically Vektor-Invest could have found a buyer over that week and it could have paid the Bank 1.2 billion… could have obtained assets – unencumbered assets. Miracles do happen.” (2) This was fanciful, and, of course, no such miracle was either anticipated or eventuated. (3) Indeed, except for Ms Mironova’s fanciful attempt, the Claimants do not pretend otherwise than that the arrangements were intended to establish a reserve market value endorsed by the court. Although she firmly denied the suggestion put to her in cross-examination that the proceedings themselves were manufactured and bogus, Ms Mironova said: “The logic of the Bank, I’ve already explained that our main task was at the time to make the original realisation price of the immovable property set by the court bailiffs at the open auction to the market value of that particular subject, 1.2 billion did not correspond to the original, to the market value…The task, the reason behind this amicable agreement, settlement agreement, was set in paragraph 4 to set a new starting realisation sales price which would correspond more to the market value at the time, to which interested parties would respond to the open auction.” (4) Mrs Yatvetsky, likewise, was open about the purpose: “The purpose of this settlement was to establish the market value for the assets, which was indeed established by the court.”
“A. What I mean is to show the bid-rigging resulted in harm in the sense of a lower price. That the pledgee was engaged in somehow encouraging or organising bid-rigging and you need causation of harm that the bid-rigging resulted in the price being less than it would be received otherwise. Q. I understand. So would that require an investigation into what other bids might have been made, absent the bid-rigging? A. Yes, it would require an investigation if any other bids were made or might have been made, or if somehow prospective bidders were improperly excluded by some sort of physical exclusion or something. Q. So are you saying that it would or that it would not require working out what the auction would have fetched in other circumstances? A. In order to figure the damages, you would have to figure what would have been received had there been no bid-rigging. Q. If it were the case that without what you have described as bid-rigging there was only one participant in an auction, what would the consequence have been of that? A. The auction would have failed. Q. And then what would happen after that? A. There would be a re-auction at a reduced price in accordance with the laws governing a particular type of property being auctioned.”
“It was advanced by the Bank to the SKIF account under this loan agreement, then under whatever pretext, moved from SKIF account to Solo account? Then that sum was moved from Solo account to Russian Auction House account in Bank of St Petersburg, and then credited back to the Bank; does that make sense? Does that seem to be the way how it was done?”
“If this was a ‘conspiracy’ in which the money simply went round in a circle, then one can be sure that the assets would have been ‘purchased’ at much higher prices to avoid suspicion because it would be the Bank’s own money which was coming back to it in any event.”
“This spreadsheet refers at the top to the provision of a loan from the Bank to SKIF, which must be some sort of transposition error as the loan number and date do not relate at all to Solo's acquisition of the Onega assets. No loan was provided by the Bank to Solo (or to Renord-lnvest) for this acquisition of the Onega Terminal Asset, nor to the best of my knowledge was there any loan between SKIF and Renord-lnvest in relation to the acquisition of these assets. Apart from the heading, the spreadsheet concerns Renord-Invest's investment in the Onega Terminal Assets prior to their onward sale to ROK-Prichaly.”
“…27 million roubles was the value of the -- the cost of the transfer agreement was established on the basis of the market value for LPK Scandinavia property, the land plot, and if I remember a workshop building, and I think the price was totally market based, especially taking into account that literally two years prior to the auction Mr Arkhangelsky had acquired this building, this workshop building for 2 million roubles. The value also included leasing rights for the land plot. Over a year he privatised the land plot on which the workshop building was standing. Given the prices for privatisation at that point in time, I think his expenditure was no more than a million roubles. Therefore, the purchase price for Mr Arkhangelsky was 3 million roubles altogether. He acquired this for the books of his -- for the balance of his company called SKIF. Later when he privatised the land plot, he sold these very same assets to another one of his companies for 43 million roubles. At the same time there had been no capital investment according to the technical specifications for the building. It was built in 1977 and it remained a building built in 1977 with no investment, it was artificially increased costs, so the price realised finally was totally based on the market value of the asset. Q. Was that based on any valuation report, to your knowledge, this 28 million figure? A. Yes, yes, it was based on a valuation report prepared by a valuer.”
“…we don’t really know the full arrangements, why the Bank decided to let them have it. It may be for money, it may be because they are a connected party, and we may not necessarily know the full extent of that connection. Well, after all, Mrs Yatvetsky told you that the fishing port, which is the same as ROK Prichaly, belongs to a business partner of Mr Smirnov; and she told you that she assisted in assessing the risks of port business. But the full extent of that partnership and what that involves is something we don’t know. So it may be either or both these things. It may have been a sale at a higher price, or it may have been some concealed gift, or a good bargain given to a friend. Whatever it is, the aim clearly was for the asset to end up in the hands of ROK Prichaly, and there was quite a considerable effort obviously to keep that quiet…”
“Renord Invest could not sell the LPK land at Onega Terminal to ROK No 1 Prichaly while the land remained subject to the Bank’s pledges.”
“You see, the price here was composite: it was the price and the encumbrance. The fair value is compounded of two parts: the price and the encumbrance. So here it is RUB 99,000, plus 600 or 700 million, and that price would be likely to be fair.” (3) The Counterclaimants then assert that when later, on17 June 2011 , the Bank assigned to Mercury its rights relating to (i) the 2007 LPK Scandinavia Loan and (ii) the Second Onega Loan (including a transfer of rights relating to the associated security agreements), in respect of which the LPK Scan land at Onega Terminal Assets had been pledged, for the sum of RUB 27 million, that price was at a “97% discount”
“… after the conclusion of the two contracts that we've just looked at, the Bank forgave over RUB 850 million worth of loans under the two contracts with respect to Mr Arkhangelsky personally and with respect to OMG. This is more than adequate. In other words, they completely forgave all the outstanding loans under the two loan agreements.”
“…it’s not just a question of showing that that assets were sold a bit on the low side, or even that Ms Simonova’s approach should be preferred to that of Mr Millard. In order to infer fraud, what the defendants would have to show is that there is no explanation for the sale price other than the sale was a dishonest one. It is no good showing that there is a range of honest valuations but that Ms Simonova is obviously right and Mr Millard is obviously wrong. That’s not good enough for fraud.”
“The use of the DCF method in a market valuation makes use of available market evidence and should reflect the thought processes, expectations, and perceptions of investors and other market participants as best as they can be understood. As a technique, the DCF method should not be judged on the basis of whether or not the specific DCF expectation was ultimately realized but rather on the degree of market support for the DCF expectation at the time it was undertaken. When the purpose of the valuation requires market value it is therefore important that the inputs into the DCF model are based on market evidence or reflect common market sentiment. If criteria specified by a particular owner or prospective owner is to used it should be compared with market evidence and expectations. If it differs then it can only be used for giving an indication of investment value, not market value.”
“All valuation inputs and assumptions should have regard to the conceptual framework for market value in the International Valuation Standards. Sufficient research should be undertaken to ensure that cash flow projections or expectations and the assumptions that are the basis for the DCF method are appropriate, likely and reasonable for the subject market.”
“… a discounted cashflow is a technical exercise which can become divorced from market realities, because the model’s sensitivity to certain inputs can lead to a wide range of results ... Therefore, in any DCF exercise, reference should always be had to the market, where possible, as a sense check to ensure that the level of values being received from the analysis is justifiable and represents a realistically achievable sales price.” (2) The IVSC guidance emphasises that it is good practice to disclose the assumptions underlying any DCF model, and notes that the information normally provided will include a “sensitivity analysis on the impacts of key operating forecasted data and the critical financial assumptions (discount rate, perpetuity growth rate) on the valuation results.” (3) An ‘investment value’ derived from a DCF approach may be different from the market value because to estimate the investment value “the discount rate, discount period and cash flow assumptions may not be the same as those that would be used by a general market participant.”
“The investment value is the value for some investor who has some special features, and then the -- if appraisal doing that, he has to take into consideration that special features which could be referenced to the market participants.”
“any type of real property designed for a specific type of business where the property value reflects the trading potential for that business.”
“I pointed out in my supplementary, there are a number of difficulties and challenges with applying a discounted cash flow, which is why I chose not to apply it, but I do not have any issue with valuing it on that basis per se.”
“Q. Now, someone who wants to buy a port facility is unlikely to have an interest in buying assets that are not located next to the sea; would you agree with that? A. Yes, that’s correct. It’s a fairly limited marketplace, if you look at the big port of St Petersburg in particular, the number of landowners is fairly restricted, and therefore the number of potential buyers, I would suggest, is probably also quite limited. Q. So he wouldn’t ask himself, the buyer, what premium it was appropriate to pay for access to the sea, because land that didn’t have access to the sea would have no interest to him whatsoever? A. You are asking me to speculate on the specific requirements. I mean, if he wanted the land for direct access to the sea, then clearly that would not be the case, but it would be perfectly reasonable for someone who is operating a port facility to require storage five miles up the road. So, I mean, it would depend what his specific purpose would be. Q. But equally, someone who just wants to buy a warehouse, for example, is unlikely to pay a 100 per cent premium for a warehouse in the middle of a major port? A. Correct. Q. So they are, more or less, completely distinct markets, aren’t they, the market for general industrial land and the market for port facilities? A. They are, to a certain extent, a distinct set of buyers. It doesn’t mean that they are distinct markets, per se. Q. So to try to reach conclusions about the value of one based on the value of the other doesn’t make a lot of sense, does it, you are not comparing like with like? A. I hope that I explained that I believe it makes perfect sense. Q. With respect, Mr Millard, it doesn’t, does it, because they are not even apples and oranges. They are not even conceivably in the same market at all? A. Well, they are apples and apples, it is just one apple is next to the port and the [other] one is half a mile up the road. Q. They are not comparable in any true sense, are they, Mr Millard?”
“Q. Now, if the premium in Southampton is 100 per cent, and it might not be because none of the comparables is actually in Southampton, but let's leave that to one side. If the premium in Southampton is 100 per cent, it doesn't from that, does it, that the premium in Hamburg or Dubai or, indeed, St Petersburg, is also going to be 100 per cent? A. No. Q. And, in fact, the difference in value between a piece of land which has access to a berth and a piece of land in the same city which doesn't have access to a berth is not going to be a constant relationship around the world, is it? It's going to depend on the characteristics both of the berth and the port, and of the land that you are comparing it to; isn't that right? A. That's potentially true, yes. Q. So if we take the berth, for example, the potential premium that one might pay would depend on things like the size of the berth? A. Yes. Q. Is that right? The types of ships that it can accommodate. A. Yes. Q. The quality of the transport links at the port? A. Yes. Q. The size of the local market that the port serves, and the amount of competition from other nearby ports. A. Correct. Q. Those things could make a substantial difference to the value of a port terminal, couldn't they? A. Correct…”
“It is sufficient to look at the globe to see the scale of Mr. Millard’s error. Russia occupies 1/8th of the world’s land mass (although not 1/3rd, as Mr. Millard seems to think); but its Baltic shoreline is very short. The difference in supply is therefore enormous: Russian market of industrial land is more or less infinite, whereas the Big Port of St. Petersburg is a small dot on the map where mainland Russia touches the Baltic Sea. St. Petersburg itself was built amidst marshy wilderness as a new capital of Russia precisely because that short Baltic shoreline was treasured as Russia’s ‘window to Europe’.”
“Q. And can I suggest that, given the intervening financial crash, and the effect that had on property values, it is quite implausible that the Western Terminal land could have gone up in value in that way over that period? A. I didn't state that the land increased in value, and what I am stating: this is the value of the terminal”
“It's a fairly limited marketplace, if you look at the big port of St Petersburg in particular, the number of landowners is fairly restricted, and therefore the number of potential buyers, I would suggest, is probably also quite limited.” (3) Ms Simonova herself explained Western Terminal is situated in a “combined military zone” and therefore “you couldn’t put there anything because nobody could go there without any special permissions”
“MR JUSTICE HILDYARD: One rather thinks with comparables that there must, at least, be some similarity of likely demand underlying the market which you say is comparable… A. Yes, I think the point Mr Milner made was well made: that the people who are probably buying industrial land and the people who are buying ports are a different type of buyer, or a different set of buyers. The people who could possibly buy the port, particularly in the case of Onega where they are reliant on other people, is probably fairly limited… MR JUSTICE HILDYARD: But to put it rather inelegantly, and probably too vernacularly, if someone comes to you and said: I would like a warehouse, and you said to them: I've got just the thing for you, it's a port terminal, they would think you were off your head, wouldn't they? A. Yes, they would. They would rather have the warehouse -- depending on what they want -- MR JUSTICE HILDYARD: It depends on what they want, but they are very different things, aren't they? A. The comparables used are all in the Kirov District of St Petersburg, they are not very far from the port at all. If you want to have a warehouse in and around the port, you may say: I want to be 10 metres from the sea -- that's the case with Onega, probably, roughly -- or: I am happy to be 200 metres from the sea, is there a premium for the land that is closer to the sea? Yes there is. I've used a premium of 100 per cent. Is that right? It's not easy, it's not a science, and I can't say: yes, that's exactly the right number, but experience suggests that that's probably broadly right where you are using as a baseline something which is for the same use and very close by, albeit that it is 500 metres or 300 metres from the berth rather than 10 metres. Clearly it is better to be close, and hence the application of the uplift. But the people looking for warehouses in the Kirov District close to the port are probably a similar set of people, albeit some would want to be right on the port and some are happier to be a bit further away. MR JUSTICE HILDYARD: People very rarely pay for economic advantages they do not need, because they usually cost them. A. Correct, and if you want to have just a warehouse, there are any number outside St Petersburg. There's a ring road, it's called KAD, which basically means circular road, and there are any number just outside that on major highways, and you can go there and pay 50 per cent of what you would pay to have a warehouse in Kirov, which is close to the port, or if you want to be right on the port, you would probably pay more. But that's correct: if you don't have the requirement to be close to the port, you would just rent a warehouse outside the city, where you have access to the major infrastructure. MR JUSTICE HILDYARD: The comparability is quite tenuous, is it not? A. I'm not going to say it's perfect. It's far from straightforward, and I'm not going to say it was a straightforward process. We went through quite a lot of soul-searching in terms of what we thought was the right answer, because it is clearly not difficult -- it's clearly difficult, and, as I explained at the outset, actually there's very little assets trading at all in the market. So, you know, finding a buyer would be problematic full stop. As I say, we went through a lot of soul-searching and looked at different ways, and we felt, and I specifically felt, having looked at it with my colleagues, that this was the best way to get at the best answer. I'm not going to say it's perfect, but I do strongly believe, and it is my opinion, that it is very close to what the right answer should be.”
“It is important to note that in accordance with the land title plans provided and used by both experts the property does not have direct access to the wharf, and is therefore dependent on a third party owner for loading and unloading of cargo vessels.”
“…if you don't have access to the sea and you do not have an agreement for the actual unloading and loading of the cars with the person who has the access to the sea, you cannot operate it for that use.”
“…the sensitivity of this model is the standard sensitivity. This is – there is almost nothing to check, and we used very, very conservative numbers, and so basically in the low end of the market value. The market value always has a range, but we are always trying in these kinds of projects to use the bottom.”
“Mr Steadman's valuation of the Onega LLC business relies upon the very cash flows projected by Ms Simonova with respect to her [Onega Terminal] property valuation. In contrast to Ms Simonova who allocates the entire value of$202 million to the subject property, Mr Steadman splits the cash flows between business and physical assets in a proportion of 75/25 respectively… … Even without any cross-check of the final results, I can conclude that Mr Steadman’s implied property valuation of USD 64 mln results in only one-third of Ms Simonova’s estimate of USD 202 mln attributed to the very same assets thus questioning reliability of both valuations (1 - USD 64 mln/ USD 202 mln = 68%).”
“Q…If you are being properly objective, you can’t seriously place much weight on these as comparable, can you, because we don’t know any details about the land and also they are not particularly close to the land you are valuing? A. I think if we’re being properly objective, they are reasonable comparables. They do have a better permitting status than the land in question. I am not sure I take the implication that being on the waterfront is an advantage because of the difficulties of constructing in water protection zones in Russia…”
“…in 2012 I worked for a company called Senator. They have a branch called Senator Land which has land plots all over the St Petersburg Oblast, specifically held with permits for purchase and they are offered for sale all the time and between 2009 and today, they have sold exactly none of them because there are no purchasers in the market.”
“…I appreciate that I have the advantage of actually working in Russia and doing development there and advising developers, but I know from my experience that that is just not realistic.” realistic.”
“…it would be necessary, if possible, to change both the category of the land and the permitted use. This process, even if possible, is long, expensive and lacks transparency. The land does not adjoin, or indeed is close to, any existing residential developments so there is no compelling reason why a change of use should be desirable or possible. Once again there is an assumption that it would be possible, legally and financially to provide utilities to the site, but there are many practical difficulties with this. …It would certainly not be legally possible to start construction on the site on day one after any assumed purchase, which is the basis that has been adopted in Ms Simonova’s financial analysis. …the land plot is rather small, and the level of investment required to try and obtain permits and to supply the site with utilities would prima facie be far too high to make development a viable option.”
“a little like using apartment prices from Mayfair to infer property prices in Fulham as that is broadly how the areas in question compare.”
“It is submitted to be a fact capable of judicial notice that£19 for a jacuzzi is a rather good bargain, and that even the most extraordinary level of asceticism does not quite explain a sale of the entire contents of a multi-millionaire’s dwelling for less than£500 .”
“The chattels are gone, and at least the Defendants are not in a position to find out to whom they were ‘sold’. They cannot be traced and cannot be shown to a valuer. Nor have the Claimants adduced any evidence on this point to ‘dispel the smell’.”
“It is hardly surprising that second-hand personal property may fetch low prices. The initial sale values were set by the bailiff. Ms Kosova believed them to represent the market value. As she said, ‘I have no reasons not to trust the federal bailiffs service.’”
“No court will lend its aid to a man who founds his cause of action upon an immoral or an illegal act.”
“In seeking to recover such loss, Mr Arkhangelsky is seeking to profit from his own illegal conduct, and to do so on the most extreme and extravagant scale.”
“in the light of the gravity and scale of Mr Arkhangelsky’s illegality. The English Court can never have encountered so brazen a litigant who has come to the Court making a counterclaim in excess of US500 million in circumstances where his own evidence is that he has bribed officials in an admitted sum of US$160 million in relation to the very projects for which he claims damages.”
“Potentially relevant factors include the seriousness of the conduct, its centrality to the contract, whether it was intentional and whether there was marked disparity in the parties’ respective culpability.”
“If the application of the illegality principle is to depend on the court’s view of how illegal the illegality was or how much it matters, there would appear to be no principle whatever to guide the evaluation other than the judge’s gut instinct.”
“Q. Can I suggest, Mr Bromley-Martin, that the fact of these alleged payments, that that would have -- that any lender who discovered them would have been very concerned about any project in relation to which these payments had been made? A. Yes. Definitely, if the facts had come to light at the time, then there would have been a problem, yes. Q. And by that you mean the lender would, in all likelihood, not have gone ahead and lent, would it? A. Yes, I suppose, probably not.”
“MR JUSTICE HILDYARD: … Suppose the discrepancy between the purchase price and the total amount of 220 million had emerged at that time, and it had been queried, but you had been told upon enquiry that the discrepancy was explained by a mixture of consultancy agreements, other innominate costs associated with procuring the agreement of the relevant authorities and so on and so forth. Doing the best you can at that time, would that have lowered the red flag or maintained it? A. I think if it came out, I think Clyde and ourselves would have probably withdrawn.”
“MR JUSTICE HILDYARD: … The problem with it, is this right, is that although there are more adventurous lenders in the market and people who are prepared, as it were, to hold their nose, if I can put it that way, if confronted with a red flag which simply won't go away, even the adventurous will back off and the more reputable will long since have fled; isn't that right? A. I think your reading is absolutely right, sir, yes. Certainly, if that came clear, as I said yesterday, we would have had to have considered our position and I would clearly have consulted Clyde & Co and I think we would have both come to a similar decision.”
“…the Defendants and OMGP have suffered a loss and/or the Claimants have made a profit in an amount equal to the value which the shares in Western Terminal and Scan would have had as at the date of judgment herein plus the distributable income which the Defendants and OMGP would have received (or which the Claimants have or should have received) by virtue of their ownership or control of the shares between31 December 2008 and the date of judgment.”
“…additionally claim damages in an amount equivalent to the value of the shares in Onega at the date of judgment, plus the distributable income that Onega would have generated since 2009.”
‘My principle is in a tort suit where someone commits a tort against a company, an ordinary shareholder of a company has no cause of action. The company has a very valid cause of action, and if the company fails to assert its cause of action, the shareholder could bring a shareholder's derivative suit for the benefit of the company.’
“The proper remedy is a shareholders' derivative action to make the company whole which would be fairer to all the creditors and all the shareholders.”
“in respect of the loss of its shares in Western Terminal. This is because the loss of the shares represents a real, direct loss suffered by OMGP itself, and is not merely reflective of a wrong done to Western Terminal.”
“MR JUSTICE HILDYARD: But those matters may be surprising, but it also may said to be surprising that in this, your hobby company, the one you attach particular importance to, which had had in the previous year a balanced portfolio of receivables, which became a much less balanced portfolio of receivables, that you are not able to help me a little bit more as to what this company did and why you placed such trust in it. A. Yes. No, I cannot agree with this point. So, first of all, my hobby is underwriting in insurance, so not investments, for sure. MR JUSTICE HILDYARD: You will never meet catastrophes you may have to pay for unless you have the investment backing with which to meet the liability. A. Absolutely, absolutely. MR JUSTICE HILDYARD: So it is crucial for the business that you should have an available source of money. A. Absolutely. MR JUSTICE HILDYARD: And all I'm asking, really, is for your help as to what City Centre was in which you placed 50 per cent of your eggs -- A. Yes. MR JUSTICE HILDYARD: Do you see my slight surprise you cannot assist me at all on that? A. Yes, yes, I understand. I understand. Yes, I'm nearly sure -- I am, let's say, 100 per cent sure that this City Centre, it was one of the management companies of the assets, because based on the regulation, you cannot invest money into any securities unless you are considered to be a professional player. So I'm nearly sure and -- I should say I'm absolutely sure that the City Centre was a professional player on investment side, so either placement broker or management company, which been placing and buying all these securities. And if you look on the balance sheet where they are referring to the papers, which have been shown as -- let's say when -- I think it was at the end of the year, then many, many bank papers been brought. So it has always not been done on direct basis; it was done through the professional intermediary. So what I should say, and I'm absolutely sure, that the City Centre is a professional player in financial markets, and that point is strongly controlled by the Central Bank, or insurance provision authorities. So it could not be like this, that we just thrown away half of the assets and it's not controlled. So it's absolutely impossible. And I am really disappointed that, having full control of the company, I don't know by which reason they couldn't identify this company.”
“A large proportion of Scandinavia’s liquid assets had already been transferred, prior to the Valuation Date, to City Centre LLC, a company on which I was provided no information from disclosure, nor could I find any public information. This transfer of assets created a corresponding “Receivable Asset” (akin to a loan asset) on the balance sheet. Whilst I cannot confirm whether this company was related to OMG, in my experience such transfer of funds to unnamed special purpose vehicles was common practice in Russia at the time of the financial crisis. Receivables from City Centre LLC accounted for 50% of Scandinavia Insurance total assets as of end Q1-2009.” (2) Mr Steadman noted: “From the information available to me, I am not able to tell when the discount notes detailed on the 2007 balance sheet were sold or transferred or when the discount notes held by City Centre LLC were acquired – or indeed even the relationship between each. I have noted that Mr Arkhangelsky has no recollection of City Centre LLC or when any transfer took place. Accordingly I am not in a position to evaluate whether adjustments are required to my valuation to reflect the collectability or otherwise of the company’s financial assets.” (3) Mr Popov concluded: “I do not have information about operations of City-Centre, its role or even linkage to OMG either through disclosed documents or public information research. However, in my opinion given (a) business practices in Russia at that time; and (b) given the insolvency of OMG, the management of Scandinavia Insurance would not have provided a loan of that significance to a company outside [sic] broad OMG perimeter.”
“Q. Dr Arkhangelsky, you can give no explanation for why LPK Scan might be putting a quarter of its receivables with an entity called City Centre? A. I think so far the only explanation I have, it's you produced this artificial document just for the purposes of crossexamination. So that's the only explanation I have right now. Q. Thank you. Because your insurance explanation for Scan Insurance wouldn't apply to a timber company, would it? A. No, no, I said you that insurance company been investing through the professional player in the investment market.”
“A. No, absolutely not. Q. And how can you be so sure? A. Absolutely, because I haven't had this money and I have never, ever had any control of this money personally, and so that's why -- if it would go to me, I would probably would have this money, and would employ a huge team of advocates representing me in these proceedings. Q. I suggest, Dr Arkhangelsky, that it is likely that you have benefited from the City Centre entry. A. Absolutely not. Absolutely not.”
“going into allegations of contempt by the back door without observing all the safeguards there are for that process.”
“It would be a very odd corporate raid where the ‘raider’ leaves the ‘victim’ with the only assets of any value that he has.” (2) Especially since Dr Arkhangelsky has objected to any assessment now of the issue of the ownership of Vyborg Port and Akort, it is likewise wrong for me to entertain or give credence to the (in any event) unpleaded and unparticularised claim he made under cross-examination of a “raider attack” by the Bank on Vyborg Port. (3) It is not disputed that Dr and Mrs Arkhangelsky have been receiving payments from Vyborg Port and Port Equipment from 2012, which continue to the present day. On23 July 2015 , Withers said: “Mr and Mrs Arkhangelsky confirm that they have from time to time received funds from Vyborg Port LLC and/or Port Equipment LLC. In practice, however, since at least 2012 Мr and Mrs Arkhangelsky have not been actively involved in the running of the two companies, and the lead was taken instead bу the local management including Мг Vasiliev and Ms Lukina. Mr and Mrs Arkhangelsky саn only speculate as to why payments to them were still made after they lost control of the companies. In principle, there is nothing strange or suspicious in the fact that the companies continued to discharge its legal obligation to рау wages to their employees, notwithstanding the purported change of ownership or bankruptcy proceedings. It is also understandable that our clients were disinclined to question these payments in view of their extremely straitened, even desperate circumstances.” (4) Whoever may have authorised it, there is no dispute that the documents authorising or effecting the transfers of shares in Vyborg Shipping to Akort appear to be stamped with the OMGP seal. Dr Arkhangelsky denied that it was he who stamped the documents, and his case was that he had no access to the seal after he fled to France in June 2009. I have decided not to seek to resolve that issue; but the question arises as to how, if he had no access to the seal, he was able to provide to this Court, as evidence of OMGP’s authorisation of its participation in these proceedings, two letters apparently bearing OMGP seals – one dated12 September 2013 and the other dated31 December 2015 . (5) Dr Arkhangelsky’s explanation was that the “seal” on the first such letter was “scanned”, and that he had somehow “copied” the seal. As to the second letter, on which the seal was in colour, he suggested that he had to assume the seal was in the hands of Ms Lukina and Mr Vasiliev, who must have affixed it. On the basis of that evidence, the Claimants were in my view justified in contending that: “either Mr Arkhangelsky did retain the OMGP seal after he left Russia or he fabricated a copy of the OMGP seal for the purposes of these proceedings.”
“The so-called ‘mirror companies’ were established within Oslo Marine Group for a legitimate purpose, namely to preserve the rights to well-established trademarks attracting high goodwill.”
“the name of Oslo Marine Group and Oslo Marine Ports is well known internationally, in the media, on the web and so on, so I thought that at some stage maybe I would be able to come back and recover, and that's it.”
“Q. So have you set up some companies and transferred various rights into them? A. No. What do you mean, "rights"? Q. Well, I'm not sure what you are talking about. When you say "to preserve the rights", it's your affidavit: "... to preserve the rights to well established trademarks..." A. Yes, I just – Q. What are you talking about there? A. I just wanted to have -- speaking about Oslo Marine Group and Oslo Marine Group Ports, I just wanted to one day to come back and restart, maybe, business. That was my idea by that time. I think it was 2010 or 2011, something like that, and that was a part of kind of discussions, negotiations, with V-Bank, because V-Bank was supporting me, and there were a lot of different discussions and I was dreaming that maybe at some stage, these or BVI or Cyprus proceedings would bring me to some result. MR JUSTICE HILDYARD: Are they registered trademarks, or ... A. No. In Russia it's not that developed, I mean trademarking, or ... you can register any company with any name, just tax authorities would give you the unique registration number, let's say.”
“(a) The Claimants were not party to a conspiracy or scheme as alleged in the BVI Proceedings and/or in the Cypriot Proceedings and/or in the Counterclaim to these proceedings intended to seize ownership and control of two companies previously allegedly owned by the First Defendant, namely Zapadny Terminal LLC and Strakhovoye Obschestovo Skandinaviya LLC without paying full and proper consideration; (b) The Claimants have not committed the torts of deceit, intimidation and/or conspiracy to commit such torts as alleged in the BVI and/or Cypriot Proceedings and/or in the Counterclaim to these proceedings; (c) The Claimants have not committed the equivalent of the torts of deceit, intimidation and/or conspiracy to commit such torts under Russian law under Article 15 and 1064 of the Russian Civil Code as alleged in the BVI and/or Cypriot Proceedings and/or in the Counterclaim to these proceedings; (d) The Claimants have not acted in breach of Articles 349, 350.1, 350.6 of the Russian Civil Code as alleged in the BVI and/or Cypriot Proceedings and/or in the Counterclaim to these proceedings; and (e) Such allegations were made by the Defendants dishonestly, knowing the same to be false and/or recklessly, not caring whether the same were true or false.”
“…Accordingly, so far as the CPR are concerned, the power to make declarations appears to be unfettered. As between the parties in the section, it seems to me that the court can grant a declaration as to their rights, or as to the existence of facts, or as to a principle of law, where those rights, facts, or principles have been established to the court's satisfaction. The court should not, however, grant any declarations merely because the rights, facts or principles have been established and one party asks for a declaration. The court has to consider whether, in all the circumstances, it is appropriate to make such an order.”
“…when considering whether to grant a declaration or not, the court should take into account justice to the claimant, justice to the defendant, whether the declaration would serve a useful purpose and whether there are any other special reasons why or why not the court should grant the declaration.”
“… what I am saying, that, you know, I used to be liable for all my steps and all my behaviour…. I want to be liable for my behaviour and for the situation, that's for sure.”
“If a legal rule requires a fact to be proved (a “fact in issue”) a judge or jury must decide whether or not it happened. There is no room for a finding that it might have happened. The law operates a binary system in which the only values are 0 and 1. The fact either happened or it did not. If the tribunal is left in doubt, the doubt is resolved by a rule that one party carries the burden of proof. If the party who bears the burden of proof fails to discharge it, a value of 0 is returned and the fact is treated as not having happened. If he does discharge it, a value of 1 is returned and the fact is treated as having happened.”